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My attorney has a tax lien by the IRS against him and it is preventing me from being paid my settlement.

Pasadena, CA |
Filed under: Tax law

I was at a signal stopped. Two vehicles got into an accident one hit me. I paid my medical expenses as they happend. I hired an attorney and settled. I signed settlement papers on December 30, 2011. I reached out to my attorney to see when I could expect payment and he sent me an e-mail that he just found out he has a tax lien against him and the insurance company will not release the check without the IRS named on the check. As I have no tax issues or liens against me can the insurance company release my portion of the settlement? and keep his 33% is this even legal? why am I being penalzied? Please avise any recourse I have or options. I appreciate your help and insight.

Attorney Answers 4

Posted

Part of these funds are obviously trust fund money that does not belong to your attorney and cannot be used to pay his debt with the IRS. Your attorney, or you may need to hire a tax attorney for this matter (at your attorneys expense), should call the IRS and explain the situation and ask for the portion of the funds that belong to the client (you) to be released from the lien. The IRS goes overboard to protect their position and has sent out a levy notice to the insurance company in case they every had funds due to the attorney, The insurance company is protecting their interests by following the order. Unfortunately, this leaves you holding the bag. At least for the time being. Communication with your attorney to get this matter resolved is key right now. You may also need to hire your own attorney if this does not get resolved quickly.

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.

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Posted

Insurance companies often seek any reason to delay payout. If this matter is because of a tax lien rather than a levy -the insurance company is just being difficult. Actually, the insurance company is not holding ANY of the attorney's money. That money belongs to the client (you). The client may owe the attorney a portion of that money - but that is between the attorney and client, not between the insurance company and the attorney.

I would take the position that the insurance company does not have the right to hold that money (absent a levy by the IRS).

I do agree with Attorney Lively. Your attorney absolutely needs an experienced tax professional to help resolve this matter.

I hope this helps.
Respectfully,
Steven A. Leahy
www.chicagotaxteam.com

Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

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Posted

The lien should not apply to the trust fund. What your attorney needs is a Tax Attorney. Like yesterday.

Christopher Larson
Insight Law
www.insightlawfirm.com

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1 comment

V. Iyer

V. Iyer

Posted

Let your attorney know that he needs to arrange to have your portion of the IRS lien released or you will take action against him. The Attorney should have established a Trust Fund Account and ask the insurance company to release your portion of the money to you through his Trust fund Account. Alternatively, your attorney and you can approach the IRS to have this sorted out. Your attorney needs an experienced Tax Attorney ASAP to help him to have this sorted out so you get your settlement

Posted

One question I have is who told you your attorney cannot pay you your money? If it is the attorney, that probably means that the insurance company sent him a check, but he did not deposit it into his Trust Account. Attorneys are generally required, at least in Ohio, to deposit any check received into his/her Trust Account that includes money, such as a client's, that does not belong to the attorney. That account should not have the Attorney's tax ID number. Therefore, your money can be paid to you out of that account without the lien or levy affecting it. If the attorney improperly deposited the money into his/her personal account, the proper step to take should be to contact your local or state bar association to file a complaint. I the attorney has never had a trust account but is required to have one, the Bar Association needs to know this. If the attorney just started bypassing his/her trust account, there may be more involved than just a professional complaint. Good luck.

Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship. Do NOT rely on anything I have written here -- You should contact a lawyer in your area immediately after reading my posting. The following disclosure is required pursuant to IRS Circular 230: unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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