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Court Fines Law Firm Over Partner’s Tax Levy

Posted Oct 12, 2007 2:44 PM CDT
By Martha Neil

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When the IRS levied a New York personal injury firm to collect $1.2 million that partner A. Sheldon Edelman allegedly owed in unpaid taxes, Edelman—who was responsible for handling firm accounts—reportedly ignored the levies and continued paying himself and a junior partner their usual weekly draws.

Because a draw is a loan rather than income, it's not subject to IRS collection efforts, Edelman eventually argued in court. But a federal judge in Manhattan gave short shrift to that contention, ruling that a partner's draw isn't exempt from tax liens and imposing a 50 percent fine on Moskowitz, Passman & Edelman for not complying with the levies, reports New York Lawyer (reg. req.), in a reprint of a New York Law Journal article.

"Calling it a draw or advance instead of income or salary is insufficient to except it from the levies' ambit," writes U.S. District Judge Richard Owen in an opinion. The case is United States v. Moskowitz, Passman & Edelman, No. 00 Civ. 3832.

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