United States v. National Bank of Commerce
472 U.S. 713 (1985)

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U.S. Supreme Court

United States v. National Bank of Commerce, 472 U.S. 713 (1985)

United States v. National Bank of Commerce

No. 84-498

Argued April 15, 1985

Decided June 26, 1985

472 U.S. 713

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT

Syllabus

Section 6331(a) of the Internal Revenue Code of 1954 provides that the Government may collect taxes of a delinquent taxpayer "by levy upon all property and rights to property . . . belonging to such person." Section 6332(a) then provides that

"any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary [of the Treasury or his delegate], surrender such property or rights . . . to the Secretary, except such part of the property or rights as is . . . subject to an attachment or execution."

The Internal Revenue Service (IRS) levied on two joint accounts in respondent bank in Arkansas for delinquent income taxes owed by only one of the persons in whose names the accounts stood. When respondent, contending that it did not know how much of the money on deposit belonged to the delinquent taxpayer as opposed to his codepositors, refused to comply with the levy, the United States brought an action in Federal District Court, seeking judgment against respondent for the amount of the delinquent taxes. The District Court granted respondent's motion to dismiss. The Court of Appeals affirmed, holding that, because under Arkansas garnishment law a creditor of a bank depositor is not subrogated to the depositor's power to withdraw the account, the IRS, too, could not stand in the depositor's shoes, and that the Government could not make use of the administrative procedure without negating or quantifying the claims that the delinquent taxpayer's codepositors might have to the funds in question. The court reasoned that the delinquent taxpayer did not possess a sufficient property interest in the funds to support the levy, that the codepositors might possess competing claims to the funds, and that an IRS levy is not normally intended for use against property in which third parties have an interest or which bears on its face the names of third parties.

Held: The IRS had a right to levy on the joint accounts in question. Pp. 472 U. S. 719-733.

(a) A bank served with an IRS notice of levy has only two defenses for failure to comply with the demand: that it is neither "in possession of " nor "obligated with respect to" property or rights to property belonging to the delinquent taxpayer, or that the taxpayer's property is "subject

Page 472 U. S. 714

to a prior judicial attachment or execution." Here, the latter defense was not available, and so respondent's only defense was that the joint accounts did not constitute "property or rights to property" of the delinquent taxpayer. Pp. 472 U. S. 721-722.

(b) In applying the Internal Revenue Code, state law controls in determining the nature of the legal interest which the taxpayer has in property. In this case, the delinquent taxpayer had an absolute right under state law to withdraw from the joint accounts, and such state law right constitutes "property [or] rights to property" belonging to him within the meaning of § 6331(a). Respondent, in its turn, was "obligated with respect to" the taxpayer's right to that property under § 6332(a), since state law required it to honor any withdrawal request he might make. Respondent thus had no basis for refusing to honor the levy. In a levy proceeding, the IRS acquires whatever right the taxpayer himself possesses. Pp. 472 U. S. 722-726.

(c) The question whether a state law right constitutes "property" or "right to property" for federal tax collection purposes is a matter of federal law. Thus, the facts that, under Arkansas law, the delinquent taxpayer's creditors could not exercise his right to withdrawal in their favor, and in a garnishment proceeding would have to join his codepositors, are irrelevant. That other parties may have competing claims to the account is not a legitimate statutory defense to the levy. A § 6331(a) administrative levy is only a provisional remedy, which does not determine the rights of third parties until after the levy is made, in postseizure administrative or judicial hearings. Pp. 472 U. S. 726-733.

726 F.2d 1292, reversed.

BLACKMUN, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, REHNQUIST, and O'CONNOR, JJ., joined. POWELL, J., filed a dissenting opinion, in which BRENNAN, MARSALL, and STEVENS, JJ., joined, post, p. 472 U. S. 733.

JUSTICE BLACKMUN delivered the opinion of the Court.

Section 6331(a) of the Internal Revenue Code of 1954, as amended, 26 U.S.C. § 6331(a), provides that the Government may collect taxes of a delinquent taxpayer "by levy

Page 472 U. S. 715

upon all property and rights to property . . . belonging to such person." [Footnote 1] Section 6332(a) of the Code, 26 U.S.C. § 6332(a), then provides that

"any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights . . . to the Secretary. [Footnote 2]"

The controversy in this case concerns two joint accounts in a bank in Arkansas. [Footnote 3] The issue is whether the Internal Revenue Service (IRS) has a right to levy on those accounts for delinquent federal income taxes owed by only one of the persons in whose names the joint accounts stand in order that the IRS may obtain provisional control over the amount in question.

I

A

The relevant facts are stipulated. On December 10, 1979, the IRS assessed against Roy J. Reeves federal income taxes, penalties, and interest for the taxable year 1977 in

Page 472 U. S. 716

the total amount of $3,607.45. As a result of payments and credits, the amount owing on the assessment was reduced to $856.61. App. 11.

On June 13, 1980, there were on deposit with respondent National Bank of Commerce, at Pine Bluff, Ark., the sum of $321.66 in a checking account and the sum of $1,241.60 in a savings account, each in the names of "Roy Reeves or Ruby Reeves or Neva R. Reeves." Id. at 11-12. [Footnote 4] Each of the persons named, Roy Reeves, Ruby Reeves, and Neva R. Reeves, was authorized by contract with the bank to make withdrawals from each of these joint accounts. Id. at 12.

On the same date, that is, on June 13, 1980, a notice of levy was served on the respondent bank pursuant to § 6331(d) of the Code, 26 U.S.C. § 6331(d), demanding that the bank pay over to the United States all sums the bank owed to Roy J. Reeves up to a total of $1,302.56. Subsequently, there was a Partial Release of Levy for the amount in excess of $856.61. On October 10, a final demand for payment was served on the bank.

The bank, contending that it did not know how much of the money on deposit belonged to Roy as opposed to Ruby and Neva, refused to comply with the levy. Ibid. The United States thereupon instituted this action in the United States District Court for the Eastern District of Arkansas, pursuant to § 6332(c)(1) of the Code, 26 U.S.C. § 6332(c)(1), seeking judgment against the bank in the amount of $856.61. [Footnote 5]

Page 472 U. S. 717

By way of a supplement to the stipulation of facts, it was agreed that "[n]o further evidence as to the ownership of the monies in the subject bank accounts will be submitted." Id. at 17. As a consequence, we do not know which of the three codepositors, as a matter of state law, owned the funds in the two accounts, or in what proportion. The facts thus come to us in very bare form. We are not confronted with any dispute as to who owns what share of the accounts. We deal simply with two joint accounts in the names of three persons, with each of the three entitled to draw out all the money in each of the accounts.

B

The case was submitted to the District Court on cross-motions for summary judgment and on the respondent bank's motion to dismiss the complaint. Id. at 18-24. The District Court granted the motion to dismiss, holding the case procedurally "premature." 554 F.Supp. 110, 117 (1982). The court concluded that due process mandates "something more than the post-seizure lawsuit allowed" by the Code's levy procedures. Id. at 114. In its view, "the minimum due process required in distraint actions against joint bank accounts," ibid., compelled the IRS to identify the codepositors of the delinquent taxpayer and to provide them with notice and an opportunity to be heard. Id. at 114-115. The court then outlined the procedures it believed the Constitution requires the IRS to follow when levying on a joint account. Specifically, it ruled that a bank, upon receiving a notice of levy, should freeze the assets in the account and provide the IRS with the names of the codepositors. Id. at 114. The IRS then should notify the codepositors and give them a reasonable time

"in which to respond both to the government and to the bank by affidavit or other appropriate means, specifically setting out any ownership interest in the joint account which they claim and the factual and legal basis for that claim."

Id. at 115. If the bank, on the basis of

Page 472 U. S. 718

such information, "believes that a genuine dispute exists as to the legality of any ownership claim made by" the codepositors, "it may refuse to surrender any portion of the funds so claimed." Id. at 116. At that point, "the government may bring suit to enforce the levy on the contested funds," ibid., but it must name the codepositors as defendants along with the bank.

The United States Court of Appeals for the Eighth Circuit affirmed. 726 F.2d 1292 (1984). It expressed no opinion on the District Court's constitutional analysis. Id. at 1293, 1300. It reached essentially the same result, however, as a matter of statutory construction. It ruled that the IRS, when levying on a joint bank account, has the burden of proving "the actual value of the delinquent taxpayer's interest in jointly owned property." Id. at 1293. It observed that here "the rights of the various parties," id. at 1300, had not been determined. Therefore, the Government had not shown the bank to be in possession of property or rights to property belonging to the delinquent taxpayer, Roy J. Reeves, as § 6331(a) required.

The Court of Appeals acknowledged that "Roy could have withdrawn any amount he wished from the account and used it to pay his debts, including federal income taxes. . . ." Id. at 1295. It rejected, however, the Government's contention that it stood "in Roy's shoes, and could do anything Roy could do, subject to whatever duties Roy owes to Ruby or Neva," id. at 1295-1296, for it observed that "at least as to ordinary creditors, [that] is not the law of Arkansas." Id. at 1296. Under state garnishment law, the court noted, a creditor of a codepositor is not "subrogated to that co-owner's power to withdraw the entire account." Instead, a creditor must join both co-owners as defendants and permit them to "show by parol or otherwise the extent of his or her interest in the account." Ibid.

The Court of Appeals then concluded that a similar precept should apply in administrative levy proceedings under the

Page 472 U. S. 719

Internal Revenue Code. It accordingly ruled that the Government could not prevail without negating or quantifying the claims that Ruby or Neva might have to the funds in question. It expressed the belief that an IRS administrative levy "is not normally intended for use as against property in which third parties have an interest" or as "against property bearing on its face the names of third parties." Id. at 1300. In such a situation, the Government was free to "brin[g] suit to foreclose its lien under Section 7403," joining the codepositors as defendants. Ibid.

Because the opinion of the Court of Appeals appeared to us to conflict, directly or in principle, with decisions of other Courts of Appeals, [Footnote 6] we granted certiorari. 469 U.S. 1105 (1985).

II

A

Section 6321 of the Code, 26 U.S.C. § 6321, provides:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

Under the succeeding § 6322, the lien generally arises when an assessment is made, and it continues until the taxpayer's liability "is satisfied or becomes unenforceable by reason of lapse of time."

The statutory language "all property and rights to property," appearing in § 6321 (and, as well, in §§ 6331(a) and, essentially, in 6332(a), see nn. 1 and | 1 and S. 713fn2|>2, supra), is broad

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