In the NFL, a single procedural penalty can erase a game-winning touchdown. In the legal profession, back-office accounting errors and poor compliance decisions aren't minor infractions. They can get you ejected from the game, hit with seven-figure personal liability, or even lead to criminal prosecution.

If you think your firm's operating or trust accounts are shielded by a standard defensive line of attorney-client privilege, it's time to review the playbook.

Here's how to avoid the ultimate back-office fumbles, protect your firm, and keep the regulatory referees from throwing a flag on your practice.

1. The Federal Priority Statute: The Ultimate "Personal Foul"

Many managing partners assume that if their corporate client goes under, any unpaid tax liabilities are trapped behind the corporate shield. Enter the Federal Priority Statute (31 U.S.C. § 3713), the regulatory equivalent of an unblocked blindside sack.

Under this statute, if an entity is insolvent and indebted to the federal government, the claims of the United States must be paid first (31 U.S.C. § 3713(a)). If a corporate representative (including their lawyer) pays any other creditor before settling the IRS's bill, that representative becomes personally liable to the extent of those payments (31 U.S.C. § 3713(b)).

This is exactly what happened in Neuberger v. United States (2026 U.S. Dist. LEXIS 116116; EA-22-2129, USDC MD, May 26, 2026). Mr. Neuberger, acting as a corporate representative, helped engineer and oversee a highly complex repayment plan. It involved 10 rounds of transfers and 124 individual booking entries to repay loans the IRS had already determined were not bona fide, all while the corporation was insolvent.

The penalty: Despite arguing against the scope of the damages, the court held Mr. Neuberger personally liable for $1,880,987.96, the exact amount of the tax deficiency, interest, and penalties of which he had notice.

The collateral damage: The IRS didn't stop at a civil judgment. They served a notice of levy on his law firm's operating account, freezing $1,543,929.29 in firm funds and prompting a messy, ongoing wrongful levy lawsuit.

The playbook lesson: When the IRS issues a "30-day letter" or a "notice of deficiency," you have notice. If the entity is insolvent, trying to pay off other creditors before the IRS is an automatic personal foul that puts your own net worth, and your firm's cash flow, directly on the line.

2. Net Fee vs. Gross Fee: Don't Fumble Your Client Cost Deductions

If your personal injury firm operates on contingency fees, your client expense contracts are a primary target for the IRS.

Many firms run an offensive play where they pay third-party client costs upfront (court filings, expert witnesses, printing) and immediately deduct them as ordinary business expenses under IRC § 162(a). Depending on how your contracts are drafted, this can be a massive fumble.

The "net fee" fumble: Under a standard net fee contract, your firm pays client costs upfront with the explicit expectation of being repaid from the eventual recovery. The IRS (supported by Canelo v. Commissioner, 53 T.C. 217 (1969)) views these advances as loans to the client, not business expenses. They are completely nondeductible in the year paid.

The "gross fee" audible: In 1995, the Ninth Circuit in Boccardo v. Commissioner (56 F.3d 1016 (9th Cir. 1995)) threw a block for attorneys. It ruled that if a firm uses a gross fee contract, where the firm is obligated to pay all prep and trial costs and is simply entitled to a percentage of the gross recovery with no client obligation to repay if the case is lost, the expenses are fully deductible ordinary and necessary business expenses when paid.

The playbook lesson: If you're deducting client costs under a net fee structure, you're fumbling on your own goal line. Review your fee agreements with counsel to see if switching to a gross fee structure makes sense for your firm.

3. Fumbling the Privilege Shield: The Servin Lateral

Attorneys love to treat the attorney-client privilege as an all-powerful offensive line that blocks any incoming rush. But when the IRS issues an administrative summons, that line can collapse remarkably fast.

In United States v. Servin (721 Fed. Appx. 156 (3d Cir. 2018)), attorney Jeffrey Servin tried to block an IRS collections summons by claiming that disclosing his client list, client contact information, and settled case files would violate attorney-client privilege.

The referee's decision: The Third Circuit joined several other federal circuits in shutting down this defense. Under federal common law, the identity of your clients, their addresses, and their fee arrangements are almost never considered privileged.

The only exception: Unless disclosing a client's identity would automatically reveal the substance of a confidential communication (an extremely rare, high-threshold hurdle), you must hand over your roster.

The playbook lesson: Your IOLTA ledger and client list are not black boxes. The IRS has the authority to compel you to disclose exactly who paid you and how much, so keep your bookkeeping immaculate.

4. Personal Expenses in the Firm Account: Avoid an Ejection

The most common way small business owners and sole proprietors fumble is by treating their business accounts as a personal ATM. For attorneys, this is an express ticket to a permanent suspension.

Consider the cautionary tale of attorney John Threadgill (United States v. Threadgill, 572 Fed. Appx. 372 (6th Cir. 2014)). He ran a series of highly improper plays:

• Using his law firm bank and payroll accounts to pay direct personal expenditures.

• Creating nominee trusts to disguise assets and hide residential property ownership.

What started as a routine civil audit ended in a federal indictment for tax evasion.

The playbook lesson: Civil auditors who discover personal expenses masquerading as business deductions don't just assess interest and civil penalties. They quietly make a civil-to-criminal referral to the IRS's Criminal Investigation Division (CID). The IRS is not obligated to tell you this referral is happening. They will simply suspend your audit without explanation while the CID builds its case.

The Winning Game Plan

If you want to keep your practice in the end zone and out of federal court, your compliance playbook should include these four core plays:

• Draft fee agreements defensively. Align your client cost deductions with the gross fee principles of Boccardo.

• Respect the insolvency rules. If a client entity is insolvent, never prioritize other creditors over federal tax claims.

• Draw a hard line between business and personal. Your firm operating account is for firm operations, not personal expenditures.

• Expect no secrets in the ledger. Assume client rosters and fee structures are fully discoverable by the IRS.

Compliance isn't about avoiding a tackle. It's about running the play exactly as written in the rulebook. Stay disciplined, keep your books clean, and don't let a back-office fumble ruin your firm's season.