A federal judge has rejected a bid by Schwartz, Simon, Edelstein & Celso to stop the Internal Revenue Service from issuing levies to its clients while the firm fights a $600,000 obligation in U.S. Tax Court.
The IRS began sending the notices to the Whippany firm’s clients after it defaulted in 2015 on a plan requiring installments of $20,000 per month toward its outstanding taxes. But U.S. District Judge Stanley Chesler denied the firm’s request for a preliminary injunction against the levies of clients, finding it failed to show that it is likely to succeed on the merits.
Schwartz Simon’s motion for a preliminary injunction is subject to the Anti-Injunction Act, but it failed to establish that its claim falls within the narrow judicial exception to the act, Chesler said. The act bars suits filed with “the purpose of restraining the assessment of collection of any tax,” the judge said.
The firm doesn’t assert that it owes nothing, but merely contends that it owes less than the IRS claims, Chesler said. In addition, Schwartz Simon has not established an independent basis for equitable jurisdiction, as it has an adequate remedy at law, Chesler said. Specifically, the plaintiff can pay the unpaid taxes and penalties in full and file a claim for a refund, Chesler said.
The IRS says that in the event of a default on the installment plan the government may collect the amount owed by levy in the firm’s income, bank accounts or by seizing its property.
Schwartz Simon filed a petition in U.S. Tax Court in March to challenge the amount owed, and in June it filed suit in U.S. District Court seeking to enjoin the collection activities while the amount owed is in dispute. The suit names revenue officer Gina Ricigliano and the IRS as defendants. Schwartz Simon’s suit says Ricigliano’s collection activities are “rooted in her personal design to harm the firm and is part of an ongoing campaign against the firm by Ricigliano.”
The collection activity has caused the firm economic harm, and disrupted its business, harmed its relationship with clients and damaged its reputation, its suit claimed.
The defendants’ motion to dismiss the District Court case for lack of jurisdiction is still pending.
The IRS contends that, as of July, the firm’s outstanding liability for amounts covered by the installment agreement, including taxes, penalties and interest, exceeds $600,000.
When Ricigliano and the IRS began issuing levy notices to clients of the firm in 2015, the agency cited numbers as high as $840,498, Schwartz Simon firm claims. According to Schwartz Simon, it owed $493,891 to the IRS when the payment plan began, and it has repaid $295,597 of the amount owed, leaving $198,294. At least $160,000 has been collected from Schwartz Simon clients through the levies, the firm says. As a result of the funds collected through the levies, the firm claims it now owes $38,294.
Collection efforts are barred by IRS regulations in cases that are the subject of a petition in Tax Court, Schwartz Simon said in its suit.
In 2012, the firm’s managing partner, Lawrence Schwartz, was issued a reprimand after the firm’s business office staff were found to have failed to pay the IRS in excess of $1 million.
Schwartz Simon’s Stephen Edelstein, who represents the firm in the District Court and Tax Court cases, was not available for comment and a person answering the phone at his office said he had not seen the ruling. Deputy Attorneys General Ward Benson and Kavitha Bondada, who represent the IRS and Ricigliano, did not respond to requests for comment.