Partnerships: United States v. Moskowitz, Passman & Edelman

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U.S. Court of Appeals for the Second Circuit

Partnerships

Draws — Taxable Wages

United States v. Moskowitz, Passman & Edelman
08-3017-cv
Appealed from the Southern District of New York

Background: The district court found that the appellant law firm unlawfully failed to honor two tax levies served on it by the IRS relating to unpaid taxes owed by the firm’s managing partner.  In this appeal, the appellant law firm, Moskowitz, Passman & Edelman (MPE), argues that its managing partner’s “draws,” that is, advances on profit distributions to which he was entitled pursuant to the firm’s partnership agreement, were not “salary or wages” under §6331(e) of the Internal Revenue Code. MPE proffers this contention in defense of its failure to comply with two administrative levies served on it by the Internal Revenue Service, relating to the personal income tax liability of the firm’s managing partner.

Ruling: The court holds that the firm was obligated by the IRS’s continuing levy on the partner’s “salary,” 26 U.S.C. §6331(e), to surrender to the government the funds that it instead paid to the partner as “draws.” The court states that it is “unpersuaded by the firm’s bold attempt to evade the levies.” Therefore, it affirms and holds that the §631(e) levy was sufficient to reach the partner’s draws from MPE’s profits.

James J. Mahon, of Lally Mahon & Rooney, LLP, for appellant and Matthew L. Schwartz, Assistant U.S. Attorney, for the appellee