Wednesday, May 05, 2010

2nd Circuit Rejects Firm's 'Bold Attempt' to Contest IRS Levy

The 2nd U.S. Circuit Court of Appeals made a significant ruling last Thursday when they decided that a law firm partner’s advances on partnership profits are subject to administrative levies imposed by the Internal Revenue Service.

As Mark Hamblett explains in this article, the circuit found that the advances, or partner "draws," at personal injury firm Moskowitz, Passman & Edelman constituted "salary or wages" under §6331(e) of the Internal Revenue Code. The firm will now have to pay the government nearly $1.5 million.

The circuit said it was unpersuaded by Moskowitz Passman's "bold attempt to evade the levies" as it also upheld a statutory fine imposed in United States v. Moskowitz, Passman & Edelman, 08-3017-cv.

Judges Pierre N. Leval, Robert D. Sack and Richard C. Wesley decided the appeal. Wesley wrote the opinion.

According to the ruling, managing partner A. Sheldon Edelman had an oral partnership agreement with Jeffrey Motelson, under which Edelman received 60 percent of the profits and Motelson received 40 percent.

Edelman was responsible for handling the checkbook and he wrote checks to both himself and Motelson on close to a weekly basis.

The IRS sought in 1996 to collect Edelman's unpaid taxes from 1990 through 1994 using administrative levies.

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