Estate Planning Attorney Personally Liable for Client’s Unpaid Taxes? – Houston Tax Attorneys

Estate planning and business attorneys often serve dual roles for their clients. Beyond providing legal advice, they might accept positions as registered agent, corporate secretary, or director of a client’s holding company.

The arrangements can streamline matters and be a more efficient way to handle transactions. The attorney maintains control over corporate records, handles filings, and bills for the work. Everyone benefits from the streamlined structure.

But what happens when that client entity falls behind on taxes? Can the attorney face personal liability for debts owed by the client’s company? The United States v. Neuberger, Civil Action No. EA-22-2977 (D. Md. Jan. 23, 2026), case addresses this question. It involves back taxes owed by the IRS and an estate planning attorney that the government sued under the Federal Priorty Statute.

Facts & Procedural History

Neuberger is an estate planning and business law attorney at a Baltimore firm. He represents high-net-worth families.

One of his longtime clients, Konig, was the subject of this lawsuit. Neuberger formed a corporation for Konig that was to hold the Konig family’s investments. Neuberger served as its sole director, president, and treasurer. Under the bylaws, Neuberger had authority to sign contracts, borrow money, and manage the company’s property and business.

The corporation borrowed approximately $8.8 million from a British Virgin Islands company that lent money to Konig family entities. For tax years 2010 through 2020, Lehcim claimed substantial deductions for interest on these loans.

The IRS began auditing the corporation’s returns in 2014. The corporation was represented by outside tax counsel during the IRS audit, with Neuberger assisting. By 2018, the IRS concluded that the corporation’s interest deductions were improper because the loans were not bona fide debt but rather capital contributions.

In 2019, the IRS sent the corporation a 30-day letter proposing tax deficiencies, penalties, and interest totaling $1,880,987.96 for tax years 2010 through 2015. Neuberger personally received a copy. The corporation did not respond or appeal. On November 20, 2019, the IRS issued a statutory notice of deficiency. The corporation did not petition the U.S. Tax Court.

After receiving notice of the IRS’s proposed assessments, Neuberger worked with another firm attorney and an accountant to develop a “repayment plan.” In 2019 through early 2020, the corporation transferred $8,816,813 to the lending entity in seven wire transfers. The stated purpose was to repay the loans and demonstrate their legitimacy to the IRS.

Evidence at trial showed that Neuberger helped develop the plan conceptually, directed which entities to include, and monitored its progress. When outside counsel suggested putting the plan on hold, Neuberger overruled that decision. No one told the IRS about the repayment plan while it was being executed.

The United States sued Neuberger on November 16, 2022, under the Federal Priority Statute. After a bench trial in August 2025, the court found Neuberger personally liable. The January 2026 that is the subject of this article was a follow up hearing as to whether Neuberger was liable for damages.

The Federal Priority Statute

The Federal Priority Statute is not in the tax code. It is not limited to tax liablities. The statute is found in 31 U.S.C. § 3713.

The statute requires that claims owed to the United States be paid before other debts when certain conditions exist. The statute provides that “a claim of the United States Government shall be paid first when a person indebted to the Government is insolvent” and triggering events occur, such as when “the debtor without enough property to pay all debts makes a voluntary assignment of property” or “an act of bankruptcy is committed.”

The statute applies not only to debtors but extends liability to “representatives” through Section 3713(b). That provision states that a “representative paying any part of a debt of the person before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.”

Although this language appears to create strict liability, courts have developed a three-element test. The government must prove: (1) the representative transferred the debtor’s assets before paying the United States’ claim; (2) the debtor was insolvent; and (3) the representative had knowledge or notice of the government’s claim.

The statute does not define “representative,” but courts have interpreted it broadly to include executors, administrators, trustees, and corporate officers.

Is an Attorney a “Representative”?

Neuberger’s central defense in this case was that he should not be considered a representative because he did not exercise sufficient control over the corporation. He testified that while he took “full responsibility,” he was “not involved in the mechanics” of the corporation’s investments or transactions. He claimed he took all direction from his client, Konig.

The court did not agree. It noted that Neuberger was the corporation’s sole director, president, and treasurer. Under the bylaws, he had authority to act on behalf of the corporation, sign contracts, borrow money, and manage its property. These powers made him a representative regardless of his claims about deferring to Konig.

The court noted that it had previously ruled that the term ‘representative’ in Section 3173(b) includes corporate officers, among others. Neuberger failed to identify any authority supporting his position that a corporate officer might avoid liability due to insufficient control.

This creates particular risk for attorneys. Many estate planning and business attorneys serve as officers or directors for client holding companies, family investment entities, or closely held businesses. These roles often seem ministerial—signing documents, maintaining records, filing annual reports. But when tax liabilities arise and the entity is insolvent, can these roles trigger millions of dollars in personal exposure?

Does “Following Client Directions” Provide a Defense?

Throughout the case, Neuberger emphasized that he was following his client’s instructions. He testified that although he held the corporate positions, he took direction from Konig. The evidence showed that Konig was ultimately responsible for deciding to implement the repayment plan.

The court found this defense irrelevant. The evidence established that although Konig made the ultimate decision, Neuberger was integral to developing and executing the repayment plan. He helped develop the plan conceptually. He directed which entities to include or exclude. He monitored progress. When outside counsel recommended putting the plan on hold, Neuberger overruled that decision.

The court noted that the evidence in the case showed that Neuberger was sole director, president, and treasurer and managing the corporation’s affairs. The court held that this was the very purpose of the representative liability statute and the obligation to see to it that the government is paid.

What Constitutes “Knowledge” of the Claim?

The third element requires that the representative have “knowledge of the debt owed to the United States or notice of facts that would lead a reasonably prudent person to inquire as to the existence of the debt” before making the payments. According to the court opinion, this element was easily satisfied in this case.

The parties stipulated that by July 2018, Neuberger knew about the IRS’s preliminary conclusion that the corporation owed additional taxes. He received the March 2019 30-day letter identifying proposed deficiencies totaling $1,880,987.96. He received the November 2019 statutory notice of deficiency. All repayment plan transfers occurred after Neuberger had actual knowledge of the government’s claim.

The court noted that knowledge requirement does not demand that the representative know the exact amount down to the penny. It requires knowledge that a claim exists. Once you know the IRS has assessed or proposed assessments, that knowledge suffices.

For attorneys serving as corporate officers, this means that awareness of an uncontested IRS audit resulting in a balance and preliminary findings creates the requisite knowledge. One cannot avoid liability by claiming uncertainty about the final amount or by noting that the assessment might be challenged.

The Takeaway

This case shows that estate planning attorneys serving as corporate officers for client entities face substantial personal liability when the entity has unpaid tax debts. The Federal Priority Statute reaches representatives who pay other creditors before paying the government’s claim when the entity is insolvent. Holding a corporate office with financial authority can make the attorney a representative under the statute. Following client directions does not provide a defense. Knowledge of an IRS audit and proposed assessments may satisfy the knowledge requirement. In the end, those who control the debtor’s assets bear responsibility for ensuring that the government’s priority is respected.