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Case 1:18-cv-04061-ILG-PK Document 20 Filed 08/10/18 Page 1 of 4 PageID #: 650

U.S. Department of Justice

Tax Division
Trial Attorney: Stephanie Weiner Chernoff Please reply to: Civil Trial Section, Northern Region
Attorney’s Direct Line: 202-307-2251 P.O. Box 55
Fax No.: 202-514-5238 Washington, D.C. 20044
DJ 5-52-20275
CMN 2017102332
August 10, 2018


Hon. I. Leo Glasser

United States District Court
Eastern District of New York
225 Cadman Plaza, Room 921 South
Brooklyn, NY 11201

Re: United States v. Moshe Lax, et al.,


Dear Judge Glasser:

I represent the plaintiff United States of America in this action. I write to provide a status
report pursuant to the Court’s Order dated July 27, 2018. At the hearing conducted on July 27,
the Court directed the parties to attempt to reach an agreement as to an appropriate cap on living
expenses to be excluded from the asset freeze set in place by the Preliminary Injunction issued
on that date. See Doc. No. 15. At this time, despite diligent efforts as described below, the
United States has been unable to reach an agreement with any of the three defendants subject to
the asset freeze. Accordingly, the United States proposes living expense caps below for each
defendant, which we respectfully submit are reasonable based on the information available at this

Immediately following the July 27 hearing, the United States requested certain financial
information from Zlaty Schwartz, Moshe Lax, and Shaindy Lax, in order to work cooperatively
with them to reach an agreement as to ordinary and necessary living expenses. The United
States has not received any information from Moshe Lax or Shaindy Lax. Counsel for the
United States has been contacted by an attorney who has stated that he anticipates representing
Mr. Lax and would like additional time to provide financial information, but as of the time of
this report, that attorney has yet to enter an appearance or make such a request to the Court.

Record counsel for Mrs. Schwartz provided limited financial information to the United
States yesterday, August 9, 2018. That information demonstrated that on July 18, 2018, the day
after the Court entered a Temporary Restraining Order freezing all of Ms. Schwartz’s assets,
$300,000 was transferred out of the account she holds jointly with her husband, Yoel Schwartz,
Case 1:18-cv-04061-ILG-PK Document 20 Filed 08/10/18 Page 2 of 4 PageID #: 651


and into an account owned by Mr. Schwartz alone, leaving the joint account with a balance of
only $37.00. The joint account was then closed on July 30, 2018. While we cannot say
conclusively that the funds were transferred with notice of the TRO, the circumstances are
suspect, particularly given that Mrs. Schwartz’s brother, Moshe Lax, had been served with the
TRO the morning of the transfer. See Doc. No. 10. The United States demanded return of the
transferred funds to an account subject to the asset freeze.

Today, record counsel for Zlaty Schwartz informed counsel for the United States that
they will no longer be representing Mrs. Schwartz in this action. A new attorney has informed
the United States that he intends to take over representation of Mrs. Schwartz, and a colleague of
his entered an appearance shortly before filing of this report. The United States has reached an
agreement with this attorney that the $300,000 transferred out of Mr. and Mrs. Schwartz’s joint
account will be furnished to the attorney’s trust account to be held in escrow pending further
resolution of the ownership of the funds. However, that attorney was not prepared to discuss an
agreement as to living expenses, having just been engaged.

In light of the events described above, the United States has been unable to negotiate a
mutually agreeable cap on living expenses with the defendants. However, all available evidence
demonstrates that the existing cap of $15,000 per defendant per month is not reasonable and
should be reduced significantly at this time.

As to defendants Moshe Lax and Shaindy Lax, who are married, the existing cap allows
them to spend $30,000 per month jointly, or $360,000 per year. That is far in excess of the
amount necessary or ordinary for any couple, even one with four children (as Mr. Lax reported at
the hearing that they have). Moreover, while Mr. Lax indicated at the hearing that he is
responsible for college tuition expenses for two of his children, it is the government’s
understanding that, upon the death of Chaim Lax, those children may have received some part of
approximately $4.5 million in life insurance proceeds in trust. We respectfully submit that, even
if the Court ultimately determines that college tuition is a reasonable and ordinary living
expense, that expense should not be taken into account in the carve-out until the Laxes have
presented evidence of the amount of the tuition and the resources available to their children for
payment of tuition from their trusts or other sources.1 Accordingly, we propose a monthly cap of

The United States notes that courts have repeatedly found that college tuition for an adult child
is not a reasonable living expense, in both the tax collection and bankruptcy contexts. See
Thompson v. C.I.R., 140 T.C. 173, 190 (2013) (finding that college tuition was inappropriate
expense to consider in IRS’s collection analysis); Moriarty v. C.I.R., 114 T.C.M. (CCH) 441
(T.C. 2017) (finding that IRS officer did not abuse her discretion in “determin[ing] that the
college and private secondary school tuition expenses incurred for [the taxpayers’]’ children
were not allowable expenses in determining their entitlement to a collection alternative.”);
Wright v. IRS, 191 B.R. 291, 293 (S.D.N.Y. 1995) (“Wright spent thousands of dollars on tuition
payments for Ivy League educations for his children. Had Wright sent his children to state
universities or asked them to take out additional student loans, the Court surmised, he might have
been able to meet his obligations to the IRS.”); Lynch v. United States, 299 B.R. 62, 84 (Bankr.
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$8,000 for Moshe Lax and Shaindy Lax combined, at least until and unless they demonstrate that
that amount is insufficient to pay their reasonable living expenses.

As to defendant Zlaty Schwartz, the United States understands that she neither earns
income nor is responsible for any major household expenses; rather, her husband is the sole
breadwinner for her family and is capable of paying all family expenses out of his earnings. As
such, Mrs. Schwartz needs access to only a small amount of money in her name for day-to-day
expenses, as a convenience. To that end, the United States proposes a monthly cap of $1,600 for
Zlaty Schwartz.

If and when the defendants comply with their financial reporting obligations under the
Preliminary Injunction, and otherwise provide evidence of their assets and expenses, the parties
and the Court can revisit the living expenses carve-out. For the moment, however, the United
States respectfully submits that the amounts proposed above are reasonable and fair, and should
immediately replace the unreasonably high existing cap, which while proposed by the United
States, was only intended to be temporary.

Respectfully submitted,

/s/ Stephanie Weiner Chernoff

Trial Attorney
Civil Trial Section, Northern Region

S.D.N.Y. 2003) (tuition payments for taxpayer and her husband were “discretionary
expenditures, all in lieu of paying taxes”).
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Certificate of Service

I hereby certify that on August 10, 2018, I electronically filed the foregoing document
with the Clerk of Court using the CM/ECF system, which will send notification of such filing to
all registered CM/ECF participants for this case. I further certify that on August 10, 2018,
service of the foregoing was made upon the following by depositing a copy thereof in the United
States mail, postage prepaid, addressed to:

Moshe Lax
1653 58th Street
Brooklyn, NY 11204
Courtesy copy to

Shaindy Lax
1653 58th Street
Brooklyn, NY 11204

Respectfully Submitted,

_/s/ Stephanie Weiner Chernoff_______

Trial Attorney, Tax Division
U.S. Department of Justice
P.O. Box 55
Washington, D.C. 20044
202-307-2251 (v)
202-514-5238 (f)