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99-1 USTC ¶50,529] R. Devine, Plaintiff v. United States of America, acting by and through the Department of Treasury-Internal Revenue Service, Defendant
PATTERSON, District Judge: Defendant
With
respect to the first cause of action, the U.S. Tax Court
proceeding brought by plaintiff challenging the I.R.S. notice of
deficiency for the tax year ending Accordingly,
since the I.R.S. levy on plaintiff's account at the CoreStates
Bank in the amount of $2,776.37 was less than the amount for which
he was held liable by the Tax Court, $3,457.00, the I.R.S. levy
did not collect more than it was due under the subsequent
judgment. Thus, plaintiff has suffered no injury. To the extent
plaintiff's cause of action is based on a tort theory (Am. Compl.
¶14-17), the With respect to plaintiff's second cause of action, the Government has stated it is providing plaintiff with transcripts of his tax obligations and payments for 1990, 1991, 1993, 1995, and 1996. (Def. Mem. at 7 n.2.) Thus, any claim stated appears to be moot. Moreover, plaintiff's second cause of action, which is unrelated to his claim with respect to the I.R.S.'s actions pertaining to his liability for income taxes for 1992, does not set forth grounds for this Court's jurisdiction. Accordingly, it is dismissed. With
respect to plaintiff's third cause of action requesting an
injunction against the I.R.S. for the 31 percent backup
withholding of taxes on dividends payable to plaintiff by a
corporation, the Amended Complaint asserts that the I.R.S. has
notified him that it does not have any record of income tax
returns filed by him for the years 1990, 1991, 1993, 1995, and
1996. (Am. Compl. ¶11.) The Amended Complaint asserts that
plaintiff is seeking the I.R.S. records for these years to prepare
his returns for those years. ( IT IS SO ORDERED. CIVIL
JUDGMENT Defendant
having moved to dismiss the complaint pursuant to Fed.R.Civ.P.
12(b)91) and the matter having come before the Honorable Robert P.
Patterson, United States District Judge, and the Court, on ORDERED,
ADJUDGED OPINION
Plaintiff R. Devine has sued the Government seeking a refund in the amount of $4,488 based on overpayment of his 1993 income taxes. Now pending before the Court is the Government's motion to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. The motion is granted. Prior
to November 17, 1997, the I.R.S. notified the plaintiff that it
had not received the plaintiff's 1993 tax return. (Complaint ¶1.)
Plaintiff requested that the I.R.S. provide him with a record of
his account for that year in order to file a tax return. ( On August 12, 1998, plaintiff initiated this action to recover the sum of $4,488. The Government moves under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction, or in the alternative for summary judgement pursuant to rule 56. The Government argues that it properly denied plaintiff's claim for a refund because his request for a refund was not timely filed according to 26 U.S.C. §§6511(a) and 6511(b)(2)(A). Section 6511(a) provides that a claim for a refund must be filed within three years of the filing of the tax return or within two years from the time the tax was paid, whichever is later. Accepting the allegations of the complaint as true, plaintiff filed his claim within three years of filing his return, as he filed that return in January 1998, and claimed a refund in May 1998. Nevertheless, 26 U.S.C. §6511(b) provides limitations on the amount of refund allowed: If the claim was filed by the taxpayer during the 3-year period prescribed in subsection (a), the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return. 26
U.S.C. §6511(b)(2)(A). Consequently, the amount of his refund
being limited to the three years preceding the filing of the
refund claim (and Devine not having alleged that he obtained an
extension of time for filing the return), plaintiff is not
entitled to any refund since the taxes he wishes to have refunded
were paid more than three years before that claim was filed. 1
The Government's motion to dismiss the complaint is granted. IT IS SO ORDERED. 1 If plaintiff's first cause of action is deemed a claim for a refund, his filing a petition in Tax Court bars a refund suit in this Court by the doctrine of res judicata. "[F]ollowing the entry of a valid final judgment, 'the parties to the suit and their privies are thereafter bound not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered, for that purpose.' " Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 366 (2d Cir. 1995) (quoting Commissioner v. Sunnen [48-1 USTC ¶9230], 333 U.S. 591, 597 (1948)). In this case, the Tax Court entered a decision against the plaintiff as a result of plaintiff's refusal "to properly prosecute his case." (See Thomas Decl.; Ex. A (Tax Court Decision).) The Tax Court decision became final when plaintiff failed to appeal it within the statutory time requirement. 26 U.S.C. §7481(a)(1). A dismissal for failure to prosecute an action "operates as an adjudication upon the merits." Fed. R. Civ. Pro. 41(b); Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968). Consequently, since the plaintiff's claim for a refund for 1992 was dismissed on the merits, this Court is barred from hearing that claim by the doctrine of res judicata. 1 Any amounts withheld and tax payments made for the tax year 1993 are deemed paid on Apri [96-1 USTC ¶50,124] Ethel Fluellen, Plaintiff v. United States of America, Defendant U.S.
District Court, No. Dist. Ill., East. Div., 95 C 832, Mark H. Rudis, Eight W. Division St., Chicago, Ill. 60610, for plaintiff. Young B. Kim, 219 S. Dearborn St., Chicago, Ill. 60604, Barbara E. Seaman, Department of Justice, Washington, D.C. 20530, for defendant. MEMORANDUM
OPINION HOLDERMAN, District Judge: Plaintiff, Ethel Fluellen, brought this action against the United States pursuant to §7426(a)(1) of the Internal Revenue Code alleging that defendant wrongfully levied plaintiff's funds. The parties have filed cross motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the following reasons, plaintiff's motion for summary judgment is denied and defendants motion for summary judgment is granted. BACKGROUND The
Plaintiff
Ethel Fluellen claims that the Originally, in May 1994, Ethel Fluellen and Renoda Williams opened a joint interest-bearing money market account, No. 2160013101, to deposit the check from State Farm (hereinafter "Fluellen/Williams account"). In July, 1994, Ethel Fluellen and Renoda Williams closed the Fluellen/Williams account and transferred the money into a new account in the names of Renoda Williams and Adrianne Davis, referred to as the Williams/Davis account. Plaintiff claims and has submitted affidavits stating that it was a mistake that she was not named on the account and that she did not intend to transfer her right to such funds to any other person. Plaintiff brought that suit claiming that the money in the Williams/Davis account was wrongfully levied upon. ANALYSIS Under Rule 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. Pro. 56(c). In ruling on a motion for summary judgment, the evidence of the non-movant must be believed and all justifiable inferences must be drawn in the non-movant's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 2513 (1986). This court's function is not to weight the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. According
to the Internal Revenue Code, 26 U.S.C. §§6321
and 6332, the failure of a tax payer to pay assessed taxes
after demand gives rise to a tax lien in favor of the United
States that attaches to "all property and rights to property,
whether real or personal, belonging to such person." The tax
lien may be enforced through an administrative levy under §6331
of the Code. When a taxpayer's property is held by a third
party, the State law governs the nature of the legal interest a taxpayer has in the property at issue. National [85-2 USTC ¶9482 ], 472 U.S. at 721. Once the property interest has been established under state law, the subsequent tax consequences are determined by federal law. Id. at 722. Therefore, whether Renoda Williams had a property interest in the Williams/Davis bank account is determined under Illinois law. According to Illinois statutory law, 765 ILCS 1005/2(a): When a deposit in any Bank or trust company transacting business in this State has been made or shall hereafter be made in the name of 2 or more persons payable to them when the Account is opened or thereafter, the deposit or any part thereof or any interest or dividend thereon may be paid to anyone of those persons whether the other or others be living or not and when an agreement permitting such payment is signed by all those persons at the time the account is opened or thereafter the receipt or acquittance of the person so paid shall be valid and sufficient discharge from all parties to the bank for any payments so made. Thus,
Renoda Williams and Adrianne Davis, as joint signatories on the
Williams/Davis account were both entitled, as a matter of law, to
withdraw all of the funds of the account. Once Illinois law
establishes this property interest in Renoda Williams, the tax
consequences of that interest are governed by federal law. It has
been well established that a bank account is a type of property
that is subject to levy pursuant to §§6331
and 6332 of
the Internal Revenue Code. National [85-2
USTC ¶9482 ], 472 U.S. at 725. The
Plaintiff
Fluellen argues that she is the proper owner of the account and is
requesting the return of the money collected by the Based on the affidavits submitted by plaintiff the funds used to open the Williams/Davis account originated from plaintiff. The original deposit was a check from State Farm issued to plaintiff. The money, however, was placed in a checking account only accessible to Renoda Williams and Adrianne Davis. Regardless of whether the funds were to be used solely for the purposes of supporting Ethel Fluellen, it is undisputed that Ms. Fluellen was not named on the account and could not have withdrawn any funds from the Williams/Davis account. 1 Plaintiff
argues that it was a mistake and she did not intend to transfer
the funds into an account without her being named on it.
Plaintiff, however, has failed to provide any legal basis that
would give the plaintiff a property interest in the account as a
result of her intentions or possible mistakes involved in
transferring the money into the Williams/Davis account. Regardless
of the motivations, it is undisputed that the money was
transferred to an account of which the plaintiff was not named. By
not being named on the account, plaintiff would not be obligated
to pay taxes on any interest gained from the account nor would the
CONCLUSION For the reasons, plaintiff's motion for summary judgment is DENIED and defendant's motion for summary judgment is GRANTED. This case is DISMISSED IN ITS ENTIRETY. 1 See John Eric Heuser Dep., Gov. Ex. 12, p. 35. \ 92-1 USTC ¶50,199] Resolution Trust Corporation, as receiver of First Federal Savings and Loan Association of Pittsburgh v. Dante Gill, Lisa Caputo, and United States of America, Internal Revenue Service, Lisa Caputo, Appellant (CA-3),
U.S. Court of Appeals, 3rd Circuit, 91-3439, Frederick
J. Francis, Beth Ann Slagle, Meyer, Unkovic & Scott, 1300
Oliver Bldg., Pittsburgh, Pa. 15222, for Resolution Tr. Corp.
Thomas A. Crawford, Jr., 701 Smithfield St., Pittsburgh, Pa.
15222, for Lisa Caputo, Thomas W. Corbett, Jr., United States
Attorney, Pittsburgh, Pa. 15219, Shirley D. Peterson, Assistant
Attorney General, Joan I. Oppenheimer, Gary R. Allen, William S.
Estabrook Before: MANSMANN, HUTCHINSON, and ROSENN, Circuit Judges. OPINION
OF THE COURT ROSENN, Circuit Judge: This appeal presents a set of unique circumstances which call into question the timeliness of the Government notice of levy upon the funds and IRA accounts of a delinquent taxpayer, and the competing rights of an alleged holder in due course to payment of checks drawn by a bank in closing out the accounts. Taxpayer Dante Gill maintained several IRA bank accounts with First Federal Savings and Loan Association of Pittsburgh (First Federal or the Bank). 1 The Government served notice of levy on First Federal at around the same time Gill closed her accounts and received two bank checks in return. Gill subsequently endorsed the two checks over to Lisa Caputo. When First Federal stopped payment on the checks and informed Gill that it intended to comply with the levy, Caputo came forward claiming rights to the funds as a holder in due course of the bank checks. In response, First Federal brought the present interpleader action, naming Gill, Caputo, and the Government as defendants. The United States District Court for the Western District of Pennsylvania ruled that the Government was entitled to the interplead fund because the levy occurred prior to Caputo's receipt of the two checks. Caputo appeals, contending that there are genuine issues of material fact as to whether Gill closed her accounts after the Government served the levy notice and whether Caputo is a holder in due course. Because we agree with Caputo that these two genuine material issues of fact are unresolved, we vacate the order of the district court and remand for proceedings consistent with this opinion. I.
FACTS Between
the years 1977 and 1984, the Internal Revenue Service ( On
the same day, Subsequently,
Gill endorsed and delivered the two checks to Caputo. First
Federal acknowledged that the Pittsburgh National Bank presented
the checks to it for payment on behalf of Caputo and that it
dishonored them. The Bank wrote to Gill notifying her that it
intended to remit the funds in question to the Met with these competing claims, First Federal filed this action in interpleader against Gill, Caputo, and the Government. First Federal asserted that it had no interest in the monies in dispute, but was a mere stakeholder exposed to double liability and the expense of litigating conflicting claims in the dual forums. It sought an order: restraining each defendant from instituting any actions against First Federal for recovery of the amounts in controversy; requiring the defendants to interplead and settle among themselves their rights to the sums; discharging First Federal from all liability in the case; and granting First Federal its costs and attorney fees. 3 II.
PROCEDURAL HISTORY The Government filed a motion to dismiss First Federal's complaint for failure to state a cause of action. Prior to argument on the motion, First Federal obtained a default judgment against Gill for failure to plead or otherwise defend. At argument, the Government and First Federal reported that they expected to be able to resolve the motion amicably. Shortly thereafter, the district court granted First Federal's motion for a temporary order restraining Gill and Caputo from instituting or prosecuting any proceedings affecting the property or obligations involved in the interpleader action, specifically the claim Caputo had filed against First Federal in state court. Caputo filed an answer to the interpleader complaint and included a new matter and counterclaim against First Federal. The new matter asserted that Gill endorsed the two drafts over to Caputo in payment for horse training and caretaking wages. Caputo alleged that she deposited the checks into her bank account at the Pittsburgh National Bank and then invested the total proceeds in the purchase of securities with a brokerage firm. She further alleged that her bank notified her and the brokerage firm that First Federal had stopped payment on the checks at which time the brokerage firm reversed the security purchases, sold the securities, and charged Caputo's account with commissions and other expenses involved in the transactions. She demanded judgment against First Federal for the amount of the two checks and the losses incurred as a result of the stop payment orders. First Federal responded to Caputo's counterclaim and filed a petition requesting the court to permit it to deposit the stake into the court's registry and to discharge it from further liabilities or obligations. The Government filed a response stating that it did not oppose the discharge. It agreed to withdraw its motion to dismiss if First Federal deposited the funds in question into the court registry. Caputo filed an answer opposing the petition on the grounds that First Federal was liable to her not only for the amounts of the bank checks, but also for the investment losses claimed in the counterclaim. The
district court, on the magistrate's recommendation, ordered First
Federal to pay the funds in question into the court registry and
discharged the bank from any further obligations or liabilities
involving the designated accounts or any transaction involving
those accounts. The court stated, "There appears to be no
question that the bank had the funds in Gill's account when it was
served with the notice of levy." It reasoned that First
Federal should have complied with the levy and discharged the Bank
relying on 26 U.S.C. §6332(d)
of the Internal Revenue Code of 1989 which provides that any
person who surrenders rights to property to the The
district court stated that it was reserving judgment as to the
respective rights of the Government and Caputo to the funds until
First Federal deposited the funds into the court's registry. In
accordance with the ruling, First Federal deposited $120,350.15
into the court's registry, representing the disputed funds with
interest to the petition date. 4
The Government then filed a motion for summary judgment to which
Caputo did not respond. The district court, on the magistrate's
recommendation, relied on the affidavits of Our review of the district court's grant of summary judgment is plenary. American Lumber Corp. v. National R. Passenger Corp., 886 F.2d 50, 52 (3rd Cir. 1989). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Federal Rule of Civil Procedure 56(e) provides that where, as here, Caputo as an adverse party does not respond to a motion for summary judgment, the district court shall, if appropriate, enter summary judgment. However, where the movant bears the burden of proof at trial and the motion does not establish the absence of a genuine issue, the district court should deny summary judgment even if no opposing evidentiary matter is presented. Caputo first argues that the district court erred in granting the Government summary judgment because a genuine issue of material fact exists as to whether there was money in Gill's account when the Government served the notice of levy. Caputo contends that if the Government served the notice of levy after First Federal had closed Gill's accounts, the levy attached to "empty" accounts and the Government's levy was ineffectual in seeing the funds in dispute. Caputo also argues that she is a holder in due course of the bank checks, and as such, she has a superior claim to the Government's lien on Gill's property. A.
The timing of the levy. An
administrative levy pursuant to 28 U.S.C. §6331
is one of two statutory means by which the Government may
collect unpaid taxes. United States v. National Bank of
Commerce [85-2
USTC ¶9482 ], 472 U.S. 713, 720 (1985). Where the taxpayer's
property is held by another, the Government customarily serves a
notice of levy upon the custodian. The notice of levy gives the The administrative levy encompasses "all property and rights to property" belonging to a delinquent taxpayer or on which there exists a tax lien, 26 U.S.C. §6331(a) , but only to the "property possessed and obligations existing" at the time the Government serves the notice of levy. 26 U.S.C §6331(b) . The Supreme Court has stated that the language of section 6331(a) "is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." National Bank [85-2 USTC ¶9482 ], 472 U.S. at 719-20. In applying the revenue statute, we must determine the nature of the taxpayer's interest in the property pursuant to state law. Id. at 722. Here, because Gill maintained her bank accounts in Pennsylvania, it provides the pertinent state law. Under the Uniform Commercial Code (UCC), adopted in Pennsylvania, a bank account constitutes a contractual creditor-debtor relationship between the depositor and the bank. White & Summers §18-1, at 864. Gill had the contractual right to withdraw the full amount of her IRA accounts at First Federal. First Federal, on its part, was obligated to pay the full amount upon Gill's demand or order. Because
the Government maintains that it served the notice of levy prior
to the time that Gill closed her accounts with First Federal and
issued the bank checks, it asserts that it is entitled to the
funds deposited in the registry of the court. A bank account is a
species of property "subject to levy," within the
meaning of section
6331 . National Bank [85-2
USTC ¶9482 ], 472 U.S. at 721. In addition, a right to
withdraw qualifies as a right to property for purposes of section
6331 . Id. at 725. Assuming that the levy preceded the
issuance of the checks, the levy sewed the funds in Gill's IRA
accounts and transferred constructive possession of the funds to
the Darryl T. Davis, the Revenue Representative who served the notice of levy, averred in his affidavit that he arrived at the Bank's legal department at approximately 1:00 p.m. on the day of the levy. When he arrived he saw Gill standing in the reception area of the legal department. The receptionist directed Davis upstairs to Kim Himmelreich. Davis informed her that the taxpayer was downstairs and that the levy need[ed] to be acted upon quickly. He then left. About five minutes elapsed from the time he entered the legal department and his departure. Davis made no statement that he served the notice of levy prior to First Federal's issuance of the checks. Donald Nemchick, employed in the Bank's IRA department, stated in his affidavit that he was present when Gill arrived to withdraw the monies in her accounts and when Ms. Himmelreich telephoned to advise the IRA department of the levy. He stated that when the IRA department received the call, Gill was leaving or had left the department. We presume that when she left, she had possession of the checks. Nemchick too provided no information as to whether Gill's funds were still on deposit at the time of the levy. Thus,
whether Gill's funds were still on deposit at the time of the levy
is a material issue of fact. The magistrate resolved the matter by
noting that "Caputo has produced no evidence which can be
considered on a motion for summary judgment, that the levy was not
made before she received the two checks from Ms. Gill." The
Government, however, has the burden of proof to show that all of
the requirements of section
6331 of the In granting the Government's summary judgment motion, the district court made no finding of fact that the levy preceded the closing of the accounts or the issuance of the checks in payment of the funds on deposit, but only found that the levy occurred prior to Caputo's receipt of the bank checks. In addition, our plenary review of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits" does not reveal that there is no genuine issue of fact as to the timing of the levy and that the Government is entitled to a judgment as a matter of law. See Fed. R. Civ. P. 56(c). Although the district court correctly concluded that the Government served the notice of levy prior to Caputo's receipt of the checks, it reached its conclusion on the unwarranted inference in its earlier decision discharging First Federal that the levy preceded the issuance of the checks. Because a genuine issue of fact exists as to the timing of the levy, summary judgment on this basis was inappropriate. Because we must remand, we believe it appropriate to call to the attention of the district court another important question for its consideration to which the Government makes only marginal reference; it has neither been briefed by the parties nor ruled on by the district court. When First Federal issued the two bank checks in payment for the sums due on the accounts, its obligation to Gill to pay on the accounts became transformed into an obligation to pay on the checks. First Federal's signature appeared as the maker of the checks and it was contractually bound under the UCC to pay the holder of the check. See Milton R. Schroeder, Bank Officers Handbook of Commercial Banking Law, ¶20.05[3], at 20-19 (6th ed. 1989); White & Summers §18-5, at 907. At
all times in question, First Federal continued to owe an
obligation to Gill to pay a sum of money equal to the amount that
existed in the IRA accounts, whether the accounts were open or had
been closed in return for bank checks. Under the statute, the Thus, if the levy preceded the closing of the Gill accounts, the Government obtained constructive possession of the funds and the subsequent issuance of the two checks, although inadvertent, may have subjected the bank to a cause of action by a holder in due course. 6 Should the claimant succeed in the suit on the checks and obtain judgment, that judgment against the bank can then be enforced like any other judgment. However, the judgment does not ipso facto entitle the successful plaintiff to the interpleaded funds paid into the court registry. On the other hand, if the Government levied after the accounts were closed out, then Caputo, if she succeeds in the interpleader proceedings as a holder in due course, is not merely a judgment creditor against a bank now in receivership, but is entitled to the specific funds paid into the court registry. B.
Caputo as a holder in due course. Caputo also claims that she is a holder in due course with respect to the bank checks and that she therefore defeats the Government's lien against Gill's property. We would vacate the judgment of the district court on this basis only if Caputo could show that she is a holder in due course and then, only if a holder in due course defeats the Government's rights to the taxpayer's property. As to the first matter, it may be that Caputo is a holder in due course. Under the Pennsylvania Commercial Code, Caputo qualifies as a holder in due course if she took the checks: (1) for value, (2) in good faith, and (3) without notice that the checks were overdue or had been dishonored or of any defense against or claim to the checks on the part of any person. 13 Pa. C.S.A. §3302(a) . Caputo allegedly received the two checks from Gill in partial payment for services as a horse trainer and caretaker. If true, these services qualify as value given. See id. §3303(2) (payment of an antecedent claim constitutes value). In addition, Caputo alleges that she took the two checks in good faith and without notice of the Government's tax levy. 7 Id. §3302(a)(3) . These are all issues of fact the district court failed to address and we must remand for such consideration to determine whether Caputo defeats the Government's lien. In this connection, the district court may wish to consider that the levy had been made on the Bank's obligation to pay the checks and Gill had been informed by Nemchick before she left the Bank with the checks in hand that payment would be stopped on them. A properly executed levy does not automatically entitle the Government to taxpayer property. The administrative levy is a "provisional remedy;" it "does not determine whether the Government's rights to the seized property are superior to those of other claimants," [85-2 USTC ¶9482 ], 472 U.S. at 721, nor does the levy "determine the ownership rights to the property," id. at 731. See also 4 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶111.6.5, at 111-177 (2d ed. 1992) ("surrender of the property does not determine the priority of the liens, which can be settled in another forum"). The levy merely serves to protect the Government against the diversion or loss of such property until competing claims are resolved. [85-2 USTC ¶9482 ], 472 U.S. at 721. 8 As we observed above, if the levy succeeded the issuance of the bank checks and Caputo is a holder in due course, a competing claim exists to Gill's property. Once we ascertain the nature of the taxpayer's property rights under state law, we look to federal law to determine competing priorities to the property. Id. at 722. Under the express language of the tax lien statutes, a holder in due course has priority over a Government tax lien even though, as here, the Government filed notice of the tax lien prior to the negotiation of the checks. Section 6323 of the Internal Revenue Code, "validity and priority [of tax liens] against certain persons," provides in relevant part: (b) Protection for certain interests even though notice filed.--Even though notice of a lien imposed by section 6321 has been filed, such lien shall not be valid-- (1) Securities.--With respect to a security (as defined in subsection (h)(4)) . . . (A) as against a purchaser of such security who at the time of purchase did not have actual notice or knowledge of the existence of such lien. 26
U.S.C. §6323(b)(1)(A)
. Under subsection (h)(4), the term "security"
includes a "negotiable instrument." 26 U.S.C. §6323(h)(4)
. A "purchaser" is defined as "a person who,
for adequate and full consideration in money or money's worth,
acquires an interest (other than a lien or security interest) in
property which is valid under local law against subsequent
purchasers without actual notice." 26 U.S.C. §6323(h)(6)
. "Money or money's worth" includes services. 26
C.F.R. §301.6323(h)-1(a)(3)
. Congress enacted the Federal Tax Lien Act of 1966, in part amending section 6323 , in an effort to conform the lien provisions of the Internal Revenue Code to the concepts developed in the UCC. S. Rep. No. 1708, 89th Cong., 2d Sess. (1966), reprinted in, 1966 U.S.C.C.A.N. 3722. Under the UCC, a holder in due course takes a negotiable instrument "free from all claims to it on the part of any person." U.C.C. §3 -305(l). Such claims include liens. Id. Comment 2. Caputo claims that she accepted the negotiable instruments as payment for wages owed and without notice of the federal tax lien. She has the burden of proving, however, that she comes within the exemption provision of section 6323 . See Rice Invest. Co. v. United States [80-2 USTC ¶9654 ], 625 F.2d 565, 571 (5th Cir. 1980); Texas Oil & Gas Corp. v. United States [72-2 USTC ¶9653 ], 466 F.2d 1040, 1054 (5th Cir. 1972), cert. denied, 410 U.S. 929 (1973). She also has the burden of proof under section 3 -307 of the UCC. If she can prove her alleged facts, the "shelter provision" of section 6323 protects her as a holder in due course of the negotiable instruments. See United States v. Estate of Swan [71-1 USTC ¶9297 ], 441 F.2d 1082 (5th Cir. 1971); Coventry Care, Inc. v. United States [74-1 USTC ¶9163 ], 366 F.Supp. 497, 503 (W.D. Pa. 1973). IV.
CONCLUSION The district court held that the Government was entitled to Gill's funds because it made the levy prior to Caputo's receipt of the two checks. However, entitlement of the Government, if any, to the funds depends not on when Caputo received the checks but whether the Government served the notice of levy before the accounts were closed out. It is evident that several genuine material issues of fact critical to the resolution of this dispute exist. Initially, the district court must determine the timing of the Government's service of the notice of levy on First Federal with respect to the closing of the Gill accounts. Depending on the timing of the levy, the court may need to further determine whether Caputo is a holder in due course, with respect to which she will have the burden of proof. Accordingly, summary judgment entered by the district court will be vacated and the case remanded for further proceedings consistent with this opinion. 1
Effective 2 A bank check is a check on which the bank is the drawer and the drawee is a second bank. 1 James J. White & Robert S. Summers, Uniform Commercial Code §18-5, at 907 (3d ed. 1988) (hereinafter White & Summers). 3 Jurisdiction was based on 28 U.S.C. §1331, the action having arisen under laws pertaining to federal tax liens, and 28 U.S.C. §2410, conferring jurisdiction in interpleader actions involving personal property on which the United States claims a lien. 4 The parties agree that by discharging First Federal from all obligations and liabilities with regard to the disputed accounts or any transactions involving those accounts, the district court effectively disposed of Caputo's counterclaim and new matter against the Bank. Thus, the district court's subsequent order granting the Government's motion for summary judgment was a final order from which Caputo could properly take appeal to this court. 5 Caputo did not appeal the district court's May 25, 1990 order discharging First Federal from this case, and the sole issue raised on appeal is whether the district court's May 17, 1991 order granting the Government summary judgment was erroneous. Therefore, we have no occasion to address whether First Federal is liable to Caputo if it issued the bank checks subsequent to the Government's levy, or whether First Federal had the right to stop payment on its bank check. See generally Sheldon R. Shapiro, Annotation, Bank's Right to Stop Payment on Its Own Uncertified Check or Money Order, 97 A.L.R.3d 714 (1980). Neither do we decide whether the district court's discharge of First Federal was inappropriate, as Caputo now urges, because the bank might have faced potential double liability. 6 Because Caputo has not appealed the district court's dismissal of her counterclaim against First Federal, we need not decide the apparent conflict between 26 U.S.C. §6332(d) which appears to discharge First Federal "from any obligation or liability to the delinquent taxpayer and any other person with respect to such . . . rights to property" and U.C.C. §3 -305(2) which states that a holder in due course takes a negotiable instrument free from "all defenses of any party to the instrument with whom the holder has not dealt." 7 Thus, First Federal's stop payment order did not prevent Caputo from becoming a holder in due course unless she had notice of the dishonor. 13 Pa. C.S.A. §3302(a)(3) . 8
Although this court has previously stated that "[w]hen
validly invoked, [the administrative levy] effects a seizure of a
delinquent's property tantamount to a transferral of
ownership," United States v. Sullivan [64-1
USTC ¶9392 ], 333 F.2d 100, 116 (3rd Cir. 1964), such an
interpretation is clearly contrary to the Supreme Court's
statements in National Bank; therefore we cannot, as the
district court did, rely on it. See also Michael I. Saltzman, [92-1 USTC ¶50,065] United States of America, Plaintiff v. George L. Walker, Executor of The Estates of William T. Walker and Margaret Walker, Defendant U.S.
District Court, Western Dist. Ky., Louisville, Civ.
C-89-0695-L(A), 12/6/91 [Code
Secs. 6321 and
6331 ]
Timothy E. Feeley, Assistant United States Attorney, Louisville, Ky. 40202, Michael Martineau, Labor Dept., Stuart M. Fischbein, Department of Justice, Washington, D.C. 20530, for plaintiffs. I. Joel Frockt, Frockt & Klingman, 310 W. Liberty St., Louisville, Ky. 40202, for defendants. MEMORANDUM
ALLEN, District Judge: On
II.
FACTS. On
Margaret
Walker ("Margaret"), the Taxpayer and the defendant's
mother, died testate on William
died testate on The
defendant sold Margaret's residence and placed the following in
Margaret's estate account: (1) the proceeds from the sale, (2) the
$11,200.00 in the joint bank accounts, (3) the money received from
the sale of William's household furnishings and personal
belongings, and (4) $4,477.08 in insurance proceeds. On On
The
However,
the On
In Kentucky: Sums remaining on deposit at the death of a party to a joint account belong to the surviving party . . . as against the estate of the decedent unless there is clear and convincing evidence of a different intention at the time the account is created. KRS
391.315. Here, there is no evidence of a different intention.
Thus, upon William's death, the defendant became the sole owner of
the joint accounts. Therefore, neither the Taxpayer nor the If
William bequeathed his personal property to the six children born
of his marriage to Margaret, equally, then the B.
Margaret's Trust. Under Kentucky law: [a] devise . . . the validity of which is determined by [Kentucky] . . . law . . ., may be made by a will to the trustee . . . of a trust . . . if the trust is identified in the testator's will and its terms are set forth in a written instrument (other than a will) executed before or concurrently with the execution of the testator's will. . . . KRS
394.075. Since Margaret did not execute a separate, written trust
instrument, the testamentary trust purportedly created by her Will
is not a valid testamentary trust under Kentucky law. Accordingly,
the Court need not rule on the significance of the When
a taxpayer neglects or refuses to pay a tax, that amount,
including interest, costs and penalties, becomes a lien in favor
of the On
A federal tax lien attaches to a chose of action. In Re Walton's Estate, 247 N.Y.S.2d 21 (App. Div. 1964). A chose of action is property and includes the right to obtain personal property not in one's possession by an action. Button v. Drake, 195 S.W.2d 66, 69 (Ky. 1946). The defendant possessed the proceeds from the sale of Margaret's residence (the "Proceeds"). The Taxpayer's right to the Proceeds due to him, as Margaret's beneficiary and/or heir, is a chose of action. Therefore, the federal tax liens against the Taxpayer attached to the Taxpayer's chose of action. See Bank of Celina [¶83-2 USTC ¶9688], 721 F.2d at 166. The
defendant had constructive notice of the federal tax liens against
the Taxpayer on Where
a tax lien exists, the ORDER This matter having come before the Court on cross motions for summary judgment, and the Court having entered its memorandum opinion and being advised, IT IS ORDERED that plaintiff's motion for summary judgment is denied in part and granted in part. IT IS FURTHER ORDERED that defendant's motion for summary judgment is denied. IT IS FURTHER ORDERED that within fifteen days of the date of this order, the parties shall file status reports, including recommendations for further proceedings herein. [91-2 USTC ¶50,453] Boyd Richard Brewer, Sr., Plaintiff, v. the United States, the Internal Revenue Service, District Director, Mr. Alexander, and One or More John Does, Defendants U.S.
District Court, So. Dist. N.Y., 90 Civ. 3423 ( GOETTEL, District Judge: In
this quiet title action, pursuant to 28 U.S.C. §2410(a),
plaintiff is suing to regain possession of property which was
seized by the Internal Revenue Service (" Documents
provided to this court by the government indicate that the funds
conveyed by check from Mr. Brewer's employer, Craft Conveyor &
Millwrighting, Inc., were applied against Mr. Brewer's account of
tax arrears on The
Government contends, however, that title to intangible property
such as cash or cash equivalents passes when the notice of levy is
served. "Notice of levy and demand are equivalent to
seizure." Phelps v. United States [75-1
USTC ¶9467 ], 421 U.S. 330, 337 (1975). Under the
Government's scenario, because the levy was made on Mr. Brewer's
benefits held by the Union on Mr. Brewer argues that the "Notice of Levy" was deficient because he did not receive a copy of the levy as required by 26 U.S.C. §6331(d)(1) . This argument fails because Mr. Brewer, himself, submitted to this court a copy of "Final Notice (Notice of Intention to Levy)" (February 16, 1990) which satisfies the notice requirement. See Plaintiff's Response in Opposition to Defendant's Motion to Dismiss, Exhibit A. In conclusion, we find that at the time the complaint was filed, the government held a title interest in the property at the center of this dispute. Therefore, this court does not have jurisdiction of the case under 28 U.S.C. §2410(a) and this complaint is dismissed in its entirety. SO
ORDERED. [89-1 USTC ¶9131] Symington, Inc., Plaintiff v. United States of America, Defendant U.S.
District Court, East. Dist. Mich., So. Div., Civ. 88CV72047DT, DE MASCIO, District Judge: This matter is before the court on a motion for summary judgment filed by defendant, pursuant to Rule 56 Fed. R. Civ. P. In its complaint, plaintiff alleges that defendant wrongfully placed a levy upon its Comerica Bank account and requests that defendant be enjoined from levying the funds. The court is granted jurisdiction over this matter pursuant to 26 U.S.C. §7426(a) . In
1980, Symington Associates, Inc. (Associates) was incorporated in
Michigan and provided accounting services. Mr. James E. Symington
was the sole incorporator, sole shareholder, sole director,
president, secretary, and treasurer of plaintiff. In 1982,
Associates filed for Chapter 11 bankruptcy. At that time,
Associates owed defendant about $43,000 in payroll taxes and
unemployment taxes. Under the approved bankruptcy reorganization
plan, Associates was to pay the Internal Revenue Service ( On
On
April 19, 1988, the Defendant contends that plaintiff is the "alter ego" of Associates. Plaintiff argues that it is not liable for Associates' tax liability because it is a separate entity not organized to perpetrate a fraud. We conclude, however, that plaintiff is the alter ego of Associates. We conclude as well that there are no disputed issues of material fact and we grant defendant's motion for summary judgment. Celotex v. Catrett, 477 U.S. 317 (1986). Under the alter ego theory, the defendant may pierce the corporate veil of plaintiff in order to satisfy the tax liability of Associates. Wolfe v. U.S. [86-2 USTC ¶9655 ], 798 F.2d 1241, 1243 (9th Cir. 1986); and Terrapin Leasing, Ltd. v. U.S., 81-1 USTC ¶9372 at 87000 (10th Cir. 1981). Under Michigan law, a sham corporate entity may be ignored when the corporation is used to avoid legal obligations. Kline v. Kline, 104 Mich. App. 700, 702 (1981); and see Wells v. Firestone Tire & Rubber Co., 421 Mich. 641, 650-651 (1985). Moreover, when there is not a bona fide discontinuance of a true change of ownership in a corporation, and a new corporation is merely a disguised continuance of the older employer, the alter ego theory is applicable and the corporate shield may be ignored. Laborer's Pension Trust Fund-Detroit Vicinity v. Family Cement Co., 677 F.Supp. 896, 898 (E.D. Mi. 1987), citing NLRB v. Allcoast Transfer, Inc., 780 F.2d 576, 579 (6th Cir. 1986). In the present case, Symington was the sole incorporator; sole shareholder; sole director; president, secretary, and treasurer of both plaintiff and Associates. Both plaintiff and Associates provided the same accounting services through the same employees. Both corporations had identical telephone numbers and operated out of the same office building. Plantiff's claim that it maintained a separate business address may be technically correct but it is substantively misleading. Although plaintiff's office was at 2804 North Franklin in Flint and Associates' office was at 2802 North Franklin in Flint, Symington owned the building that housed both offices. Moreover, the building only contained two offices. Associates' business was merely moved to the other side of a dividing wall in the same building and continued doing the same business. Therefore, we conclude that plaintiff is merely a disguised continuance of Associates and as such is the alter ego of Associates. Plaintiff was organized merely to avoid the tax liability of Associates. Transactions motivated solely and entirely by tax considerations and devoid of substantial business justifications are shams. ECD Systems, Inc. v. U.S., 85-1 USTC ¶9223 (D.Colo. 1985). Mr. Symington merely transferred his accounting and marketing skills from Associates to plaintiff. Plaintiff's argument that Associates could no longer operate with the tax burden is not a substantial business justification for forming plaintiff. Significantly, plaintiff assumed Associates' debt to Mr. Risick but failed to assume the tax liability to Associates. Thus, the only evident reason for forming plaintiff was to avoid the tax liability of Associates. Plaintiff also argues that the government should be estopped from collecting Associates' tax liabilities from plaintiff because plaintiff was organized under the alleged advice of Mr. Greener. Plaintiff cannot establish the estoppel defense against the government in this matter. See Heckler v. Community Health Services, 467 U.S. 51 (1984). It is per se unreasonable for a private party to rely on the advice of a government agent who suggests that the party may avoid its legal obligations. Those who deal with the government are expected to know the law and may not rely on the conduct of government agents, which is contrary to the law. Id. at 63. Plaintiff suffered no detriment by relying on Greener's alleged advice because it is merely paying the tax liability of its alter ego, Associates. Plaintiff cannot justifiably expect to assume all of Associates' liabilities except the latter's tax liability. Even if he did rely on the agent's suggestion, Mr. Symington did not suffer any detriment. His personal liability was satisfied when he forwarded the $12,000 to the government. It any event, the Supreme Court in Heckler made it clear that estoppel cannot be premised upon oral representations. Thus, defendant is not estopped from levying upon plaintiff's assets even if Mr. Greener made the oral representations to Mr. Symington. Plaintiff is the identical business as Associates absent the latter's tax liability and, further, was organized with the intention of rendering Associates' tax liability uncollectible. In light of these facts, we conclude that plaintiff is the alter ego of Associates, and defendant may levy upon plaintiff's assets to satisfy the tax liability of Associates. Accordingly, defendant's motion for summary judgment will be granted and plaintiff's complaint will be dismissed with prejudice. Further, Comercia Bank must transfer the levied funds of plaintiff to the Internal Revenue Service. IT IS SO ORDERED. JUDGMENT This cause having come before the court on defendant's motion for summary judgment, and the court having filed its Memorandum and Order, that defendant's motion for summary judgment be and the same hereby is GRANTED and plaintiff's complaint is hereby DISMISSED WITH PREJUDICE; IT
IS FURTHER ORDERED that Comerica Bank TRANSFER the levied funds of plaintiff to the Internal Revenue Service. [86-1 USTC ¶9365] In Re: Roger D. Vocque, Debtor, Roger D. Vocque, Plaintiff v. Internal Revenue Service, Defendant U.S.
Bankruptcy Court, West. Dist. La., Alexandria Div., Irving Ward-Steinman, Alexandria, La., for plaintiff-debtor. Joseph S. Cage, Jr., Levin Harris, Paul E. Pelletier, Department of Justice, for defendant. FINDINGS
OF MALLENBERGER, Bankruptcy Judge: The plaintiff, debtor Roger D. Vocque, filed a Chapter 13 voluntary petition in bankruptcy on September 13, 1983. On September 15, 1983, this Court issued an order for an automatic stay pursuant to 11 U.S.C., Section 362(a) . On
August 24, 1984, the Internal Revenue Service ( On
October 2, 1984, the On
September 25, 1984, plaintiff filed a complaint in this action
seeking to recover the money seized by the After hearing on the defendant's motion and plaintiff's cross-motion, this Court issued a memorandum ruling on May 30, 1985, ordering that an evidentiary hearing be had in this matter to determine, inter alia, (1) the corporate statuses of Roger D. Vocque, DVM, a Professional Corporation, and Pineville Animal Hospital, Inc., and (2) the source of the seized funds. Subsequent to the issuance of this memorandum ruling, the United States served upon plaintiff various interrogatories and requests for admission. A hearing was held in this matter on June 27, 1985. At that June 27, 1985 hearing, defendant presented into evidence as defendant's Exhibit No. 1 the Articles of Incorporation of Roger Dale Vocque, DVM, a Professional Corporation. As defendant's Exhibit No. 2, the United States presented the 1982 corporation income tax return which was filed under the name of Pineville Animal Hospital, Inc., with the Employer Identification Number (EIN) 72-0896406. The record further indicates that three employer identification numbers were issued to the plaintiff: Roger Vocque, DVM, a Professional Corporation, Pineville Animal Hospital, Inc. and Roger Vocque, a sole proprietor. In our April 23, 1985 Memorandum Ruling this Court indicated that under section 1306 if the funds seized were earnings of the debtor, and in his constructive possession, then those funds would be property of the estate and therefore subject to the protection afforded by the automatic stay of section 362 . Upon an examination of the evidence, the Court concludes that the funds seized were not the earnings of the debtor, but the earnings of the corporation. Although the presentation of evidence in this case was somewhat convoluted, the following is apparent. First, the plaintiff intended to make entities distinct and separate from Roger Vocque the individual. The plaintiff opened up the separate bank accounts, requested separate tax entities and established a separate professional corporation. Second, by contract, the plaintiff was an employee of the corporation. Clearly, the plaintiff attempted to separate himself from the professional corporation and its potential liability. Lastly, the W-2 Wage and Tax Statements for 1982, 1983 and 1984 indicate that the plaintiff was an employee and was paid as an employee of the corporation. To allow the plaintiff to now argue that he did not treat the corporation and himself as separate entities would be absurd. The plaintiff can not pick and choose when the benefits of a separate incorporation will or will not apply. Next, the plaintiff has repeatedly argued that payments to the Chapter 13 Trustee have been made from the corporate account and hence indicate that the plaintiff has comingled corporation and individual obligations. The only evidence to this effect, however, is the plaintiff's statement, no "paper trail" was introduced and other evidence indicates that the plaintiff's wife paid the couple's bills from a separate account. In effect, the debtor has attempted to pierce the corporate veil on his own behalf. In applying the totality of the circumstances test under Louisiana Law, we can not conclude that the plaintiff acted in such a way to destroy the separateness of the corporate entity. Kingsman Enterprises, Inc. v. Bakerfield Electric Co., 339 So.2d 1280 (La App 1st Cir 1976). L.A.-R.S. 12:901 et seq. Accordingly,
the IT IS ORDERED that the Complaint for Turnover of Property filed by the plaintiff is dismissed. The plaintiff and the defendant are to bear their own costs of this proceeding. [85-2 USTC ¶9767]United States of America, Appellant v. National Bank of Commerce, Appellee (CA-8),
U. S. Court of Appeals, 8th Circuit, No. 83-1218, 775 F2d 1050, Before BRIGHT, ARNOLD, and FAGG, Circuit Judges. ARNOLD, Circuit Judge: The United States has suggested that this appeal is moot, and the appellee National Bank of Commerce has joined in this suggestion. The total amount claimed to be owed by the taxpayer has now been paid over by the bank, thus satisfying the liability which the government has been asserting under the tax-levy statute, 26 U. S. C. §6332(c)(1). Any
further action by this Court or by the District Court to explore
the constitutional question apparently left open by the Supreme
Court's opinion, United States v. National Bank of Commerce
[85-2 USTC ¶9482], 105 S. Ct. 2919, 2929 n. 12 (1985), would be
purely hypothetical and abstract. Whichever way the question were
decided, it would have no effect on the rights of the parties
before us. The full amount claimed by the government having been
paid, the bank has no further interest in resisting the
government's position that the statute is constitutional, nor does
the government have any further interest, for purposes of the
present case, in securing a holding that the statute is valid. The
controversy is no longer a live one, and our jurisdiction under
Article The government asks that the appeal be dismissed as moot, and its request will be granted. Our order will, however, contain one additional element. "The established practice of [appellate courts] in dealing with a civil case from a court in the federal system which has become moot [while appellate proceedings are pending] is to reverse or vacate the judgment below and remand with a direction to dismiss." United States v. Munsingwear, Inc., 340 U. S. 36, 39 (1950) (footnote omitted). Such action is `the duty of the appellate court.'" Id. at 39, quoting Duke Power Co. v. Greenwood County, 299 U. S. 259, 267 (1936). Such an order removes both the res judicata and the stare decisis effect of the vacated judgment, in this case the judgment of the District Court. The present case is somewhat unusual, of course, in that the suggestion of mootness comes not during the pendency of the initial appeal from the District Court, but rather on remand from a decision of the Supreme Court reversing our previous judgment affirming the District Court. What effect, if any, the mooting of this case may have, either for res judicata or stare decisis purposes, on the decision of the Supreme Court is not a question that needs to be addressed at this time. This case having become moot pending appeal, the judgment of the District Court is vacated, and this cause is remanded to that court with directions to dismiss the complaint as moot. It is so ordered. [85-2 USTC ¶9659]United States of America, Appellant v. National Bank of Commerce, Appellee (CA-8),
U. S. Court of Appeals, 8th Circuit, No. 83-1218, John A. Dudeck, Department of Justice, Washington, D. C. 20530, for appellant. Terry F. Wynne, Bridges, Young, Matthew, Holmes & Drake, 315 East Eighth Avenue, Pine Bluff, Ark. 71611, for appellee. Before BRIGHT, ARNOLD, and FAGG, Circuit Judges. ARNOLD, Circuit Judge: The
Supreme Court has reversed our judgment, 726 F. 2d 1292 (8th Cir.
1984), in this case. United States v. National Bank of Commerce
[85-2 USTC ¶9482], 53 U. S. L. Week 4856 (U. S. The mandate reads in pertinent part as follows: . . . It is ordered and adjudged . . . that the judgment . . . in this cause is reversed, and that this cause is remanded to the United States Court of Appeals for the Eighth Circuit for further proceedings in conformity with the opinion of this Court. We must now decide what further proceedings should be undertaken. The District Court, 554 F. Supp. 110 (E. D. Ark. 1982), held that the statute authorizing Internal Revenue Service levies, 26 U. S. C. §6331, would be unconstitutional under the Due Process Clause of the Fifth Amendment, as applied to joint bank accounts, unless interpreted to require that the Internal Revenue Service notify all codepositors and give them a reasonable time within which to claim ownership interest in a joint account. If such an interest were claimed, and if the bank on which the levy was served believed that a genuine dispute existed as to any such ownership, it could refuse to surrender the funds. At that point the government could bring suit to enforce the levy, but would have to name the codepositors as defendants along with the bank. On appeal, we expressed no opinion on the District Court's constitutional analysis, but reached the same result as a matter of statutory construction. The Supreme Court's opinion reversing our judgment specifically refrains from passing upon the constitutional questions that were addressed by the District Court. The Court says, 53 U. S. L. Week at 4860 n. 12: We do not pass upon the constitutional questions that were addressed by the District Court, but not by the Court of Appeals, concerning the adequacy of the notice provided by §6343(b) and §7426 to persons with competing claims to the levied property. There is nothing in the sparse record in this case to indicate whether Ruby and Neva Reeves were on notice as to the levy, or as to what the Government's practice is concerning the notification of codepositors in this context. As the parties are free to address this issue on remand, the dissent's concerns on this score, see post, at 15-16, are decidedly premature. It therefore seems inappropriate for us to enter an immediate judgment enforcing the levy against the National Bank of Commerce. The Supreme Court's opinion clearly contemplates that the constitutional questions addressed by the District Court, but not by us, should be further explored. In addition, the footnote above quoted appears to contemplate that additional proof might be offered as to whether the particular codepositors involved here had notice of the levy, and as to what the government's practice is concerning notification of codepositors in this context. If further proof is to be offered, obviously a further remand to the District Court is necessary, since the proof would have to be heard and assessed by that court in the first instance. It seems, therefore, that our obligation in the present situation is to remand this case to the District Court for further proceedings in conformity with the opinion of the Supreme Court, with particular reference to the factual matters mentioned in footnote 12. The parties are invited to express their views as to what further proceedings should be undertaken. Since the United States is the prevailing party, we believe it should make its statement first. The United States is therefore directed to file with the Clerk of this Court a brief, which may be in letter form, not to exceed ten pages in length, discussing the nature of further appropriate proceedings on remand, within 30 days after receipt by counsel of this opinion. The appellee National Bank of Commerce will have 15 days after receipt of the United States' brief within which to respond in kind. We will then enter whatever further order seems appropriate. It is so ordered. 85-2 USTC ¶9482]United States, Petitioner v. National Bank of Commerce Supreme Court of the United States, No. 84-498, 105 SCt 2919, 472 US
713, 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], 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 ( Held:
The (a)
A bank served with an (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 (c) The question whether a state-law right constitutes "property" or "right to property" 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. 13-20. [84-1 USTC ¶9191] 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, MARSHALL, and STEVENS, JJ., joined. 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 upon all property and rights to property . . . belonging to such person." 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." 2 The
controversy in this case concerns two joint accounts in a bank in
Arkansas. 3
The issue is whether the Internal Revenue Service ( I The
relevant facts are stipulated. On On
On
the same date, that is, on 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. 5 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." App. 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
summmary 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
"immature." 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 The
United States Court of Appeals for the Eighth Circuit affimed.
[84-1 USTC ¶9191] 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 The Court of Appeals acknowledged that "Roy could have withdrawn any amount he wished from the accounts 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 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 Because the opinion of the Court of Appeals appeared to us to conflict, directly or in principle, with decisions of other Courts of Appeals, 6 we granted certiorari. -- U. S. -- (1985). II 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 6332(a), see nn. 1 and 2, supra), is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have. See 4 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶111.5.4, p. 111-100 (1981) (Bittker). "Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes." Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 265, 267 (1945). A
federal tax lien, however, is not self-executing. Affirmative
action by the In
the situation where a taxpayer's property is held by another, a
notice of levy upon the custodian is customarily served pursuant
to §6332(a). This notice gives the The administrative levy has been aptly described as a "provisional remedy." 4 Bittker, at ¶111.5.5, p. 111-108. In contrast to the lien-foreclosure suit, the levy does not determine whether the Government's rights to the seized property are superior to those of other claimants; it, however, does protect the Government against diversion or loss while such claims are being resolved. "The underlying principle" justifying the administrative levy is "the need of the government promptly to secure its revenues." Phillips v. Commissioner [2 USTC ¶743], 283 U. S. 589, 596 (1931). "Indeed, one may readily acknowledge that the existence of the levy power is an essential part of our self-assessment tax system," for it "enhances voluntary compliance in the collection of taxes." G. M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U. S. 338, 350 (1977). "Among the advantages of administrative levy is that it is quick and relatively inexpensive." United States v. Rodgers, 461 U. S., at 699. The constitutionality of the levy procedure, of course, "has long been settled." Phillips v. Commissioner, 283 U. S., at 595. See G. M. Leasing Corp. v. United States, 429 U. S., at 352, n. 18. B It
is well established that a bank account is a species of property
"subject to levy," within the meaning of §§ 6331 and
6332. A levy on a bank account has been permitted since the
Revenue Act of 1924, §1016, 43 Stat. 343, and the Treasury
Regulations explicitly authorize such levies. Treas. Reg. §301.6331-1(a)(1),
26 The
courts uniformly have held that a bank served with an There is no suggestion here that the Reeves accounts were subject to a prior judicial attachment or execution. Nor is there any doubt that the bank was "obligated with respect to" the accounts because, as it concedes, "Roy Reeves did have a right under Arkansas law to make withdrawals from the bank accounts in question." Brief for Respondent 2. The bank's only defense, therefore, is that the joint accounts did not constitute "property or rights to property" of Roy J. Reeves. See §6331(a). C `[I]n the application of a federal revenue act, state law controls in determining the nature of the legal interest which the taxpayer had in the property.'" Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513 (1960), quoting Morgan v. Commissioner [40-1 USTC ¶9210], 309 U. S. 78, 82 (1940). See also Sterling National Bank, 494 F. 2d, at 921. This follows from the fact that the federal statute "creates no property rights but merely attaches consequences, federally defined, to rights created under state law." United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55 (1958). And those consequences are "a matter left to federal law." United States v. Rodgers, 461 U. S. at 683. "[O]nce it has been determined that state law creates sufficient interests in the [taxpayer] to satisfy the requirements of [the statute], state law is inoperative," and the tax consequences thenceforth are dictated by federal law. United States v. Bess, 357 U. S., at 56-57. See also Fidelity & Deposit Co. of Maryland v. New York City Housing Authority [57-1 USTC ¶9410], 241 F. 2d 142, 144 (CA2 1957); Note, Property Subject to the Federal Tax Lien, 77 Harv. L. Rev. 1485, 1486-1487 (1964). In the Bess case, the Court held that a delinquent taxpayer, who had purchased life insurance policies, did not have "property or rights to property" in the death proceeds of the policies, but that he did have such rights in their cash surrender value. 357 U. S., at 55-56. The latter conclusion, it was said, followed from the fact that the taxpayer insured had "the right under the policy contract to compel the insurer to pay him this sum." Id., at 56. Thus, the insured's interest in the cash surrender value was subject to the federal tax lien. The fact that "under State law the insured's property right represented by the cash surrender value is not subject to creditors' liens" was irrelevant. Id., at 56-57. State law defined the nature of the taxpayer's interest in the property, but the state law consequences of that definition are of no concern to the operation of the federal tax law. As noted above, it is stipulated that Roy J. Reeves had the unqualified right to withdraw the full amounts on deposit in the joint accounts without notice to his co-depositors. In any event, wholly apart from the stipulation, Roy's right of withdrawal is secured by his contract with the bank, as well as by the relevant Arkansas statutory provisions. See Ark. Stat. Ann. §§ 67-521 and 67-552 (1980). 7 On its part, the bank was obligated to honor any withdrawal requests Roy might make, even up to the full amounts of the accounts. The Court of Appeals thus correctly concluded that, under Arkansas law, "Roy could have withdrawn any amount he wished from the account and used it to pay his debts, including federal income taxes, and his co-owners would have had no lawful complaint against the bank." 726 F. 2d, at 1295. Roy, then, had the absolute right under state law and under his contract with the bank to compel the payment of the outstanding balances in the two accounts. This, it seems to us, should have been an end to the case, for we agree with the Government that such a state-law right constituted "property [or] rights to property . . . belonging to" Roy, within the meaning of §6331(a). The bank, in its return, was "obligated with respect to" Roy's rights to that property, §6332(a), since state law required it to honor any withdrawal request he might make. The bank had no basis for refusing to honor the levy. 8 The
overwhelming majority of courts that have considered the issue has
held that a delinquent taxpayer's unrestricted right to withdraw
constitutes "property" or "rights to property"
subject to provisional Common
sense dictates that a right to withdraw qualifies as a right to
property for purposes of §§ 6331 and 6332. In a levy proceeding,
the The
Court of Appeals, however, applied state law beyond the point of
that law's specification of the nature of the property right, and
bound the We are not persuaded by any of these asserted justifications. The
Court of Appeals' conclusion that Roy did not possess
"property [or] rights to property" on which the The Court of Appeals also was concerned that Ruby and Neva might have rights that are affected if the levy were honored. 726 F. 2d, at 1297-1300. This reasoning, however, runs counter to the observation above that a bank served with a notice of levy has two, and only two, possible defenses for failure to comply with the demand: that it is not in possession of property of the taxpayer, or that the property is subject to a prior judicial attachment or execution. As we have stated, neither defense is applicable here. That another party or parties may have competing claims to the accounts is not a legitimate statutory defense. In
its understandable concern for Ruby's and Neva's property
interests, the Court of Appeals has ignored the statutory scheme
established by Congress to protect those rights. Crucially, the
administrative levy, as has been noted, is only a provisional
remedy. "The final judgment in [a levy] action settles no
rights in the property subject to seizure." United States
v. New England Merchants National Bank [79-1 USTC 9250], 465
F. Supp. 83, 87 (Mass. 1979). Other claimants, if they have
rights, may assert them. Congress recognized this when the Code's
summary-collection procedures were enacted, S. Rep. No. 1708, 89th
Cong., 2nd Sess., 29 (1966), and when it provided in §7426 of the
Code, 26 U. S. C. §7426, that one claiming an interest in
property seized for another's taxes may bring a civil action
against the United States to have the property or the proceeds of
its sale returned. 11
Congress also has provided, by §6343(b), an effective and
inexpensive administrative remedy for the return of the property.
See Treas. Reg. §301.6343-1(b)(2), 26 Congress
thus balanced the interest of the Government in the speedy
collection of taxes against the interests of any claimants to the
property, and reconciled those interests by permitting the The
Court of Appeals' final justification for its holding was its
belief that an We
disagree. The Rodgers held that §7403 empowers a District Court to order the sale of a family house in which a delinquent taxpayer has an interest, even though a nondelinquent spouse also has a homestead interest in the house under state law. 461 U. S., at 698-700. In so ruling, the Court contrasted the operation of §7403 with that of §6331. See 461 U. S., at 696. The Court noted that §6331, unlike §7403, does not "implicate the rights of third parties," because an administrative levy, unlike a judicial lien-foreclosure action, does not determine the ownership rights to the property. Instead, third parties whose property is seized in an administrative levy "are entitled to claim that the property has been 'wrongfully levied upon,' and may apply for its return either through administrative channels . . . or through a civil action." Id., at 696. The Court, in other words, recognized what we now make explicit: that §6331 is a provisional remedy, which does not determine the rights of third parties until after the levy is made, in postseizure administrative or judicial hearings. 15 The
Court of Appeals' result would force the The judgment of the Court of Appeals is reversed. It is so ordered. 1 Section 6331(a) reads in pertinent part: "If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person. . . ." Section 7701(a)(11)(B) of the Code reads: "The term 'Secretary' means the Secretary of the Treasury or his delegate." 2 Section 6332(a) reads: "Except as otherwise provided in subsection (b), 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 (or discharge such obligation) to the Secretary, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process." 3 "The basic legal concept of 'joint account' means that it be in two or more names." Harbour v. Harbour, 207 Ark. 551, 555, 181 S. W. 2d 805, 807 (1944). 4 No point is made as to any distinction between the "Roy J. Reeves" against whom the assessment was made, and the "Roy Reeves" whose name was on the two accounts. We assume, accordingly, that Roy J. Reeves and Roy Reeves are one and the same person. The record does not disclose any relationship that may exist among the three codepositors. The parties have indicated that Neva is Roy's wife and that Ruby is his mother. 5 The complaint also asserted liability, under §6332(c)(2), for a 50% penalty. See App. 7. The Government, however, subsequently waived the penalty claim, and the complaint was amended accordingly. Id., at 13-15. 6 See e.g., United States v. Sterling National Bank & Trust Co. of New York [74-1 USTC ¶9336], 494 F. 2d 919, 922 (CA2 1974); United States v. Citizens & Southern National Bank [76-2 USTC ¶9665], 538 F. 2d 1101, 1105-1107 (CA5 1976), cert. denied, 430 U. S. 945 (1977); Babb v. Schmidt [74-1 USTC ¶9476], 496 F. 2d 957, 958-960 (CA9 1974); Bank of Nevada v. United States [58-1 USTC ¶9228], 251 F. 2d 820, 824-826 (CA9 1957), cert. denied, 356 U. S. 938 (1958). See also Rev. Rul. 79-38, 1979-1 Cum. Bull. 406, 407. 7
Effective 8 The dissent misunderstands the import of United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55 (1958). See post, at 9-16. Because state law gives the delinquent the right to withdraw, but puts certain limits on the rights of creditors, and attaches certain consequences to that right as regards the delinquent himself, the dissent asserts that the Government is limited by these same state-law constraints. Thus it urges that the Government's right here is no greater than the rights given under state law, the right to withdraw and nothing else. It therefore erroneously characterizes the Government's authority here as limited to the right to levy on the right to withdraw, and nothing else. See post, at 9-13 and nn. 9 and 10. But under Bess, state law controls only in determining the nature of the legal interest which the taxpayer has in the property. See also Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513 (1960). Once it is determined that under state law the delinquent has the right to withdraw property in a joint bank account, it is a matter of federal law what consequences attach to this right. And we agree with the Government that as a matter of federal law, the state-law right to withdraw money from a joint bank account is a "right to property" adequate to justify the use of the provisional levy procedure of §6331. The dissent's references to state cases concerning the state-law implications of the right to withdraw, see post, at 9, thus are entirely irrelevant, for such state law is "inoperative" in determining the federal tax consequences of the delinquent's right to withdraw. See Bess, 357 U. S., at 56-57. 9 The dissent's suggestion that these cases are "irrelevant," see post, at 12-13, n. 9, stems from its erroneous assumption that state law dictates the extent of the Government's power to levy. It does not, and these cases all stand for the proposition that a delinquent's state-law right to withdraw funds from the joint bank account is a property interest sufficient for purposes of federal law for the Government to levy the account, notwithstanding the fact that questions as to the ultimate ownership of the funds may be unresolved. 10 We stress the narrow nature of our holding. By finding that the right to withdraw funds from a joint bank account is a right to property subject to administrative levy under §6331, we express no opinion concerning the federal characterization of other kinds of state-law created forms of joint ownership. This case concerns the right to levy only upon joint bank accounts. 11 The dissent would find support in United States v. Stock Yards Bank of Louisville [56-1 USTC ¶9418], 231 F. 2d 628 (CA6 1956), and Raffaele v. Granger [52-1 USTC ¶9321], 196 F. 2d 620 (CA3 1952). See post, at 11, n. 8. Both cases are clearly distinguishable. Stock Yards Bank concerned an attempted levy upon United States Savings Bonds, held in the names of husband and wife, to satisfy the husband's tax liability. Savings bonds, however, are different from joint bank accounts and possess "limitations and conditions . . . which are delineated by the terms of the contract and by federal law." 231 F. 2d, at 630. Furthermore, the case was decided prior to the enactment of §7426, which was added to the Internal Revenue Code by the Federal Tax Lien Act of 1966, §110(a), 80 Stat. 1142. Raffaele v. Granger is even less on point. The decision there did not concern the propriety of a provisional remedy, but the final ownership of the property in question. The court held that under Pennsylvania law a husband and wife's joint bank account was held by them together as tenants by the entirety, and that therefore the Government could not use the money in the account to satisfy the tax obligations of one spouse. The fact that either spouse could withdraw the property did not mean that it could be used to satisfy either spouse's tax obligations. 196 F. 2d, at 622-623. The Government here does not claim otherwise; it merely asserts the right to levy on such property and have all third-parties who claim to own it come forward and make their claim. 12 We do not pass upon the constitutional questions that were addressed by the District Court, but not by the Court of Appeals, concerning the adequacy of the notice provided by §6343(b) and §7426 to persons with competing claims to the levied property. There is nothing in the sparse record in this case to indicate whether Ruby and Neva Reeves were on notice as to the levy, or as to what the Government's practice is concerning the notification of codepositors in this context. As the parties are free to address this issue on remand, the dissent's concerns on this score, see Post, at 15-16, are decidedly premature. 13
As a result, it may well be that any attempt to recover against
the bank under state law would be pre-empted. We need not resolve
that question, however, for, under Arkansas law, the bank's
payment to one depositor was a complete defense against suit on a
codepositor's claim. Ark. Stat. Ann. §§ 67-521, 67-552(h)
(1980). Since the Government stood in Roy's shoes when it levied
upon the joint account, the bank's payment to the 14 The dissent's central argument apes the decision of the Court of Appeals in suggesting that there is something in the language of §6331 that, when compared to the language of §7403, requires that it be read to apply only to the case where the Government has proof that the property levied upon "completely belong[s]" to the delinquent. See post, at 9 (emphasis added). The adverb, however, simply is not part of the statutory, language. The dissent bases its reading on the contrast between the language in §7403, "property . . . in which [the delinquent] has any right, title, or interest," with the language in §6331, "property and rights to property . . . belonging to the delinquent." See id., at 5-9. While the dissent's reading of the statutes in contrast is plausible, so too is the Government's, especially in light of the fact that §6331 refers to "rights to property" as well as "property." The legislative history also supports the agency's understanding of the statutory language. Thus when Congress in §7426 enacted a cause of action for one whose property was wrongfully levied, it explicitly recognized that it was protecting against the situation "where the Government levies on property which, in part at least, a third person considers to be his." S. Rep. No. 1708, 89th Cong., 2d Sess., 29 (1966) (emphasis added). If Congress intended §6331 to give the Government the power to levy only upon property it knows to be wholly owned by the delinquent, it never would have felt the need to enact §7426. When the agency's plausible interpretation of its statute is supported by the plain meaning of the statute, the statutory scheme as a whole, and the legislative history, we shall not reject it because another plausible reading of the statute is possible. The dissent also is incorrect when it implies that the Court gives the word "wrongful" a strained understanding in finding that a third party's property could be "wrongful[ly]" levied even though the Government properly was following the procedures of §6331. See post, at 14, n. 11. The legislative history makes clear that the word "wrongful" as it is used in §7426(a) refers not to intentional wrongdoing on the Government's part, but rather "refers to a proceeding against property which is not the taxpayer's." S. Rep. No. 1708, at 30. 15 The dissent's misreading of Rodgers is of a piece with its misunderstanding of the Government's use of §6331 as a provisional remedy to seize property. See ante, at 8-11, and n. 6. The reason that §6331 is not itself "punctilious in protecting the vested rights of third parties caught in the Government's collection effort." Rodgers, 461 U. S., at 699, is that the levy does not purport to determine any rights to the property. It merely protects the Government's interests so that rights to the property may be determined in a postseizure proceeding. It is in those proceedings that the rights of any who claim an interest to the property are punctiliously protected. In comparing §6331 to §7403 in this manner, the dissent compares apples and oranges. A more telling comparison to the lien-foreclosure proceeding of §7403 would be with the administrative and judicial remedies for third parties whose property has been subject to wrongful levy, that is, with §§ 6343(b) and 7426(a)(1). It was just such a comparison that was made in this context by the Court in Rodgers. See 461 U. S., at 696. Nor
is Mansfield v. Excelsior Refining Co., 135 U. S. 326
(1890) (which not surprisingly was not relied on by the District
Court or the Court of Appeals or by any of the parties here), in
any way related to our holding today. That case involved
provisions of the 1868 tax code that required a distiller who
rented the property upon which it ran its distillery to obtain a
"waiver" from the fee holder stipulating that a lien of
the United States on the property for taxes owed by the distiller
shall have priority over any mortgage held by the person executing
the waiver, and giving the Government the rightful title to the
property in case of forfeiture. Act of That holding is irrelevant to the present controversy. Insofar as the case stands for any general proposition at all concerning the Government's power to levy, it is not that a levy cannot be used to freeze assets when the delinquent "had less than a complete interest" in the property levied, see post, at 6, but that the Government may not levy upon a leasehold interest and then turn around and sell a fee interest--an entirely different kind of interest. In Mansfield, the Court held that the delinquent held no interest in the fee that could be levied upon, and so that case has nothing to do with the question whether the Government can levy when the extent of the delinquent's interest in the property is not finally determined. The part of the decision relied upon by the dissent has to do with the nature of the "waiver" as it affects the characterization of the interest held by the renter/distiller in the underlying fee. The phrase cited by the dissent in context stands for the proposition that the waiver did not give the delinquent a fee interest that the Government could levy upon, but rather gave the Government the right to foreclose on its lien through a suit in equity. Dissenting
Opinion JUSTICE POWELL, with whom JUSTICE BRENNAN, JUSTICE MARSHALL, and JUSTICE STEVENS join, dissenting: The
issue presented is whether the Internal Revenue Service ( I The
parties have stipulated the following facts. On The
District Court dismissed the complaint as "premature."
554 F. Supp. 110, 117 (ED Ark. 1982). It held that "the
interest of [a] co-depositor in not having his ownership interest
in the account erroneously taken by the government . . ..
[required] some notice procedure at the levy stage . . .." Id.,
at 114. Due process, it found, required the II Because "taxes are the life-blood of government, and their prompt and certain availability an imperious need," Bull v. United States [35-1 USTC ¶9346], 295 U. S. 247, 259 (1935), Congress has created a "formidable arsenal of collection tools . . .," United States v. Rodgers, 461 U. S. 677, 683 (1983). Central to this "arsenal" are administrative levy, 26 U. S. C. §6331, and judicial foreclosure, id. §7403, two procedures by which the Government can seize and sell property in which the delinquent taxpayer has an interest. Each procedure is designed to apply to specific kinds of situations to ensure that taxes owed are paid while respecting the rights of nondelinquents who may have an interest in the property. The Court today, however, ignores the property rights of nondelinquents. It holds that a delinquent's right to compel payment from a bank of balances in a joint account entitles the Government to levy on all of those funds--even when it is stipulated, as in this case, that the Government does not know that any of the money in the account actually belongs to the delinquent. By so holding, the Court disregards both the plain language and structure of the statute, ignores this Court's century-long interpretation of the Code (effectively overruling Mansfield v. Excelsior Refining Co., 135 U. S. 326 (1890), and part of United States v. Bess, 357 U. S. 51 (1958)), and disregards the fact that under Arkansas law a codepositor may have no property interest in funds that he may withdraw from the joint account. Administrative
levy under 26 U. S. C. §6331 is the more drastic of the
Government's two primary collection procedures. 1
See United States v. Bull, supra, at 259-260. By allowing
the Government summarily to seize and sell "all property or
rights to property . . . belonging to [the delinquent]," 26
U. S. C. §6331(a), administrative levy permits the Section 7403 provides a quite different method for collecting delinquent taxes. 4 Under §7403, the Attorney General, at the request of the Secretary of the Treasury, institutes a civil action in federal district court "to subject any property . . . in which [the delinquent] has any right, title, or interest, to the payment of such tax." 26 U. S. C. §7403(a). All persons "claiming any interest in the property" must be joined as parties, id. §7403(b), and "duly notified of the action," id. §7403(c). Unlike a §6331 levy, a §7403 suit is a plenary action in which the court "adjudicate[s] all matters involved" and "finally determine[s] the merits of all claims to and liens upon the property." Id. §7403(c). The district court may decree the sale of the property and distribution of the proceeds "according to the findings of the court in respect to the interests of the parties and of the United States." Ibid. The language of these two provisions reveals the central difference between them. While §6331 applies to "property and rights to property . . . belonging to [the delinquent]," id. §6331(a), §7403 applies to "property . . . in which [the delinquent] has any right, title, or interest . . .," id. §7403(a). In other words, §6331 permits seizure and sale of property or property rights belonging to the delinquent, while §7403 allows the Government to seize and sell any property right in which the delinquent has an interest--even a partial interest. In many cases, of course, this difference is unimportant. Both procedures, for example, apply to any property interest that belongs completely to the delinquent, for it is necessarily true that any right to property "belonging to" the delinquent is also property in which he "has a[n] . . . interest." In general, however, the opposite is not always true. A property right in which the delinquent has only a partial interest does not "belon[g] to" the delinquent and hence is not susceptible to levy. Until today, this Court has followed this interpretation of the levy and foreclosure provisions for the past century. In Mansfield v. Excelsior Refinding Co., 135 U. S. 326 (1890), the Court held that the Government could not levy on property rights in which a delinquent had less than a complete interest. In that case, the Government had levied on the fee interest in property that the delinquent had leased for a term of years. One issue presented was whether the Government's subsequent sale of the property conveyed the freehold or only the leasehold interest. The first Justice Harlan analyzed the issue as follows: "The government neglected to pursue the only mode by which the fee could be sold; namely, a suit in equity, in which all persons interested in the property could have been made parties. When the [delinquent] was in default in respect to taxes, it was for the proper officers of the government to elect whether they would seek satisfaction of its demands by means of a seizure and sale by the collector of the [delinquent's] interest only, or by a suit to which all persons having claims upon the premises on which the government had a lien should be made parties. They chose to adopt the former method, under which only the interest of the delinquent . . . could be seized and sold." Id., at 341. In
other words, the Government could have either levied
administratively only on the leasehold or proceeded in equity (the
forerunner of §7403) to condemn the entire freehold interest.
Under the former approach, it could take only the interest that
completely "belong[ed] to" the delinquent, while under
the latter, it could take property interests of which the
delinquent owned only a part. 5
Accord, Blacklock v. United States, 208 U. S. 75 (1908). In United States v. Rodgers, 461 U. S. 677 (1983), we recently reaffirmed this understanding of the statutory scheme. After noting that §7403 exhibits "grea[t] solicitude for third parties," id., at 695, we discussed how §§ 6331 and 7403 differ: "Under . . . §6331(a), the Government may sell for the collection of unpaid taxes all nonexempt 'property and rights to property . . . belonging to [the delinquent taxpayer] . . ..' Section 6331, unlike §7403, does not require notice and hearing for third parties, because no rights of third parties are intended to be implicated by §6331. Indeed, third parties whose property or interests in property have been seized inadvertently are entitled to claim that the property has been 'wrongfully levided upon,' and may apply for its return either through administrative channels . . . or through a civil action filed in a federal district court. . . . In the absence of such 'wrongful levy,' the entire proceeds of a sale conducted pursuant to administrative levy may be applied, without any prior distribution of the sort required by §7403, to the expenses of the levy and sale, the specific tax liability on the seized property, and the general tax liability of the delinquent taxpayer." Id., at 696 (first emphasis in original, second added). The
Court later described the various advantages of each method of tax
collections as follows: "Among the advantages of administrative levy is that it is quick and relatively inexpensive. Among the advantages of a §7403 proceeding is that it gives the Federal Government the opportunity to seek the highest return possible on the forced sale of property interests liable for the payment of federal taxes. The provisions of §7403 are broad and profound, Nevertheless, §7403 is punctilious in protecting the vested rights of third parties caught in the Government's collection effort, and in ensuring that the Government not receive out of the proceeds of the sale any more than that to which it is properly entitled." Id., at 699 (emphasis added). 6 As
Mansfield and Rodgers make clear, this Court long
has interpreted "property and rights to property belonging
to the delinquent" to mean exactly that. Section 6331's
reach extends only to property rights completely belonging to the
delinquent. The narrow question presented, then, is whether the Government levied upon property or rights to property belonging only to Roy Reeves. The Court holds that the Government did so because it levied on Roy Reeves's right under state law to require the bank to pay over to him the outstanding balances in the accounts. This right unquestionably belonged to Roy Reeves, as it did to each of the other codepositors. They all had the same right to withdraw. But the right to withdraw funds was no more than that. It was a right accorded parties to joint accounts as a matter of mutual convenience and it was independent of any right to or in the property. It encompassed no right of possession, use, or ownership over the funds when withdrawn. See Black v. Black, 199 Ark. 609, 617, 135 S. W. 2d 837, 841 (1940); Hayse v. Hayse, 4 Ark. App. 160-B, 160-F, 630 S. W. 2d 48, 49-50 (1982). These property rights, that the levy provides no way of determining, are defined by independent principles of Arkansas law that are not now at issue. 7 The Government, however, is not levying on the mere right to withdraw, which is of little value without any right of ownership. The levy at issue reaches the underlying funds in the accounts--no matter whom they belong to. Roy Reeves could, as the Court argues, have withdrawn all the joint funds, but, if under state law he had no independent right in the property itself, he could not legally possess the funds of the others, let alone use them to pay his taxes. That the delinquent might unlawfully convert the money of others to pay his taxes does not give the Government the right to do so. The Government cannot "ste[p] into the taxpayer's shoes," ante, at 12, quoting United States v. Rodgers, 461 U. S., at 691, n. 16, in this sense. It hardly comports with the "[c]ommon sense" the Court relies on, ante, at 12, to hold that the Government may seize and sell property belonging only to third parties to pay taxes owed by the delinquent. 8 The
Court nevertheless holds that the right to withdraw all of a joint
account is determinative because `it is inconceivable that
Congress . . . intended to prohibit the Government from levying on
that which is plainly accessible to the delinquent
taxpayer-depositor.'" 9
Ante, at 12, quoting United States v. First National
Bank of Arizona [72-2 USTC ¶9654], 348 F. Supp. 388, 389
(Ariz. 1970) (emphasis added), aff'd, [72-2 USTC ¶9655], 458 F.
2d 513 (CA9 1972) (per curiam). By holding that mere
accessibility controls, the Court simply ignores the plain
language of §6331. It also effectively overrides state law that
"controls in determining the nature of the legal interest
which the taxpayer ha[s] in the property." 10
Aquilino v. United States [60-2 USTC ¶9538], 363 U. S.
509, 513 (1960), quoting Morgan v. Commissioner [40-1 USTC
¶9210], 309 U. S. 78, 82 (1940); United States v. Bess
[58-2 USTC ¶9595], 357 U. S. 51, 55 (1958). Under the Court's
reasoning, for example, a codepositor's right to withdraw would
allow the Government to levy on a joint account even if the
Government knew that under state law none of the funds in the
joint account "belonged to" the delinquent codepositor, i.
e., the delinquent had no property interest in the
funds themselves. 11
Cf. Aquilino v. United States, supra, at 513, n. 3
("It would indeed be anomalous to say that the taxpayer's
'property and rights to property' included property in which,
under the relevant state law, he had no property interest at
all."). Such a position exceeds even the The
Court also disregards the statutory language and its prior cases
when it argues that the levy authorized by §6331 is only a
"provisional" remedy. Ante, at 2, 7, 12, and 14.
Third parties who have their property taken may pursue--if they
know about the taking--either administrative or judicial relief.
But one would hardly characterize as "provisional" the
Government's taking of an innocent party's property without
notice, especially when, even if the taking is discovered, the
burden is then on the innocent party to institute recovery
proceedings. 12
Furthermore, absent notice of any kind, the nine months that the
administrative, 26 U. S. C. §6343(b), and judicial, 26 U. S. C.
§6532(c)(1), remedies ordinarily give third parties to contest a
levy is a short time indeed. There is no certainty that within
this time they will discover that their property has been used to
pay someone else's taxes. This may be particularly true as to the
owners of joint savings accounts, owners in common of
unimproved real estate, and owners in other situations where there
may be little occasion to know that one's property has been seized
by an V On
the stipulated facts, the I accordingly dissent, and would affirm the judgment of the Court of Appeals. 1 Section 6331 provides in pertinent part: "(a) Authority of Secretary. If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax . . . by levy upon all property and rights to property . . . belonging to such person . . .. "(b) Seizure and sale of property The term 'levy' . . . includes the power of distraint and seizure by any means. . . . In any case in which the Secretary may levy upon property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible)." 26 U. S. C. §6331. 2 Section 6343(b) states in pertinent part: "If the Secretary determines that property has been wrongfully levied upon, it shall be lawful for the Secretary to return-- (1) the specific property levied upon, (2) an amount of money equal to the amount of money levied upon, or (3) an amount of money equal to the amount of money received by the United States from a sale of such property. Property may be returned at any time. An amount equal to the amount of money levied upon or received from such sale may be returned at any time before the expiration of 9 months from the date of such levy." 26 U. S. C. §6343(b). 3 Section 7426(a)(1) provides as follows: "If a levy has been made on property or property has been sold pursuant to a levy, and any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary." 26 U. S. C. §7426(a)(1). Section 6532(c)(1) requires third parties who are not seeking administrative review to file suit within nine months of the levy. 4 Section 7403 provides in pertinent part as follows: "(a) Filing In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, or whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. . . . "(b) Parties All persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto. "(c) Adjudication and decree The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property . . . and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States. . . ." 26 U. S. C. §7403. 5 The Court argues that Mansfield is irrelevant to today's decision because it stands for the unremarkable proposition that "the Government cannot levy upon a leasehold interest and then turn around and sell a fee interest--an entirely different kind of interest." Ante, at 19, n. 15. It bases this reading of Mansfield on the presence of a waiver from the feeholder, which was in fact tangential to the Court's holding in that case. The Court in Mansfield discussed the feeholder's waiver only in order to determine whether it gave the Government an interest in the fee. Id., at 338-339. If it did, it was clear that the Government could sell the fee. The Court, however, concluded that the waiver gave the Government no such interest. Id., at 339. Thus, the Court had to consider whether the levy on the property could by itself effectively transfer more than the delinquent's leasehold interest. Justice Harlan, writing for the Mansfield Court, found that the levy could not, and it is in this respect that Mansfield is a highly pertinent--if not a controlling--authority. 6 The Court attempts to minimize the conflict between its holding today and the holding in Rodgers by mischaracterizing that case. The Court states that "[t]he [Rodgers] Court noted that §6331, unlike §7403, does not 'implicate the rights of third parties,' because an administrative levy, unlike a judicial lien-foreclosure action, does not determine the ownership rights to the property." Ante, at 18. Nothing in Rodgers, however, suggests that §6331 is not intended to implicate third-party rights for this reason. As the first quotation from Rodgers in the text above clearly indicates, §6331 is not meant to implicate such rights because its explicit language limits levies for "unpaid taxes [to] all nonexempt 'property and rights to property . . . belonging to [the delinquent taxpayer] . . .." (emphasis in Rodgers). The Court also argues that comparing §6331 and §7403 is like comparing "apples and oranges." Ante, at 18, n. 15. It suffices to say that this Court always has relied on comparison of these two provisions. See United States v. Rodgers, supra, at 695-697; Mansfield v. Excelsior Refining Co., supra, at 341. Furthermore, the "more telling" comparison that the Court believes Rodgers made between §7403 and a wrongful levy action, see ante, at 18, n. 15, actually works against today's result. By stating that wrongful levy actions can be pursued when "property ha[s] been seized inadvertently," 461 U. S., at 696, the Rodgers Court makes clear its assumption that the Government cannot levy on property it knows may belong to third parties. The reasoning of the Court today, however, would allow exactly this result. 7 The Arkansas Supreme Court has described the statute granting codepositors the right to withdraw in the following terms: "[The statute] was passed for the protection of the bank in which the deposit was made. It permits the bank to pay out the deposit . . . and protects the bank in doing so. . . . The statute, [however,] effects no investiture of title as between the depositors themselves, but only relieves the bank of the responsibility and duty of making inquiry as to the respective interests of the depositors in the deposit . . ." Black v. Black, 199 Ark. 609, 617, 135 S. W. 2d 837, 841 (1940). The Court of Appeals accepted this characterization of Arkansas law and described the interrelationship between the right to withdraw and the underlying property rights as follows: "Roy [Reeves] could have withdrawn any amount he wished from the account and used it to pay his debts, including federal income taxes, and his co-owners would have had no lawful complaint against the bank. But they might have had a claim against Roy for conversion. The rights of the co-owners inter sese are not determined by the . . . Arkansas statutes [granting a right of withdrawal]. Those rights depend on the intention of whoever deposited the money, or on whatever agreement, if any, might have been made among the co-owners, or on some other applicable rule of state law. If, for example, a spouse makes a deposit in a bank account that bears both spouses' names, a tenancy by the entirety is created, defeasible by either spouse at will simply by making a withdrawal. But here we do not know whether Roy is married to Ruby or Neva. In fact, both the government and the bank have studiously avoided finding out. . . . In short, we know, or presume, that each co-owner could withdraw all of both accounts, but that is all we know." 726 F. 2d 1292, 1295 (CA8 1984) (citation omitted) (emphasis added). The Court accepts, as it must, the state court's determination of Arkansas law. It simply holds that federal law overrides it, despite what this Court has held in Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 513 (1960), quoting Morgan v. Commissioner [40-1 USTC ¶9210], 309 U. S. 78, 82 (1940); United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51, 55 (1958); see infra, at 13-14. 8
The Courts of Appeals that have considered whether the Likewise,
in Raffaele v. Granger [52-1 USTC ¶9321], 196 F. 2d 620
(CA3 1952), the Court of Appeals rejected the 9
The Court today states that "[t]he overwhelming majority of
courts that have considered the issue has held that a delinquent
taxpayer's unrestricted right to withdraw constitutes 'property'
or 'rights to property' subject to provisional These
cases should also dispel the Court's fear that the 10 At several points, the Court mischaracterizes my reliance on state law. I do not suggest that because state law "puts certain limits on the right of creditors . . . and attaches certain consequences to [the right to withdraw] as regards the delinquent himself the Government is limited by these same state-law constraints." Ante, at 10, n. 8. Nor do I suggest that "state law dictates the extent of the Government's power to levy." Ante, at 12, n. 9. These are strawmen that the Court long ago rejected. United States v. Bess, 357 U. S., at 56-57. Like the Court, I would follow the statement in Bess that §6331 "creates no property rights but merely attaches consequences, federally defined, to rights created under state law . . .." Id., at 55 (emphasis added). As the Court today states, "under Bess, state law controls only in determining the nature of the legal interest which the taxpayer has in the property." Ante, at 11, n. 8. Here, however, the delinquent taxpayer may have no legal interest in the property. All that is known is that he has a right of withdrawal that is completely independent of the funds themselves. See n. 7, supra. Nevertheless, the Court attaches "federal consequences" sufficient to levy on the accounts. In effect, what the Court holds today is that the delinquent's right against the bank creates "federal consequences" that attach to the completely different right to the funds themselves. By so construing the "federal consequences" of Bess, the Court does nothing less than rewrite §6331, a provision that authorizes levy only on "property and rights to property belonging to" the delinquent. 11 Moreover, if taken seriously, the Court's reasoning would make any action for wrongful levy fruitless. If the mere right to withdraw payment is indeed the determinative interest, then a levy on a joint account for payment of a codepositor's taxes can never be wrongful. It will always be true that a right to withdraw belonged to the delinquent codepositor. The Court, of course, does not actually take this extreme position. It would apparently allow a third party subsequently to contest a levy on the ground that "the money in fact belongs to him or her." Ante, at 12 (emphasis added). This, however, amounts to recognition that it is the right of ownership, rather than the right to withdraw, that controls. To avoid taking a transparently unreasonable position, the Court switches the basis of its analysis. The relevant property interest, it appears, depends upon whether the Government is trying to seize property or a third is trying to recoup it. The Court offers no reason for applying this double standard and the statute itself yields none. 12
The Court also argues that a levy on third-party property may be
justified because "[the levy] merely protects the
Government's interests so that rights to the property may be
determined in a postseizure proceeding." Ante, at 18,
n. 15. This statement incorrectly states the law. Under the levy
statute, the 13 The Court also emphasizes that administrative levy is
justified because, like the delinquent's right to withdraw, it is
"subject to a later claim by a codepositor that the money in
fact belongs to him or her." Ante, at 12-13. This
statement proves too much. Under the Court's reasoning, the 14
The [81-1 USTC ¶9341]Robert S. Loomis and Rilla L. Loomis v. The Internal Revenue Service; The United States of America; Jerome Kurtz, Commissioner of the Internal Revenue Service; Barbara Villecco, Auditor for the Internal Revenue Service; Robert Daley, Revenue Officer for the Internal Revenue Service, and Unknown persons working for the Internal Revenue Service U.
S. District Court, Dist. Conn., Civil No. H-80-226, Richard J. Pober, Tirola and Herring, 1200 Post Road East, Westport, Ct. 06881, for plaintiffs. George J. Kelly, Jr., Assistant United States Attorney, 450 Main St., Hartford, Ct. 06103, for defendants. Ruling
on Defendant's Motion for Summary Judgment CLARIE, Chief Judge: This
motion to dismiss, or in the alternative for summary judgment, is
before the Court pursuant to Federal Rules of Civil Procedure
12(b) and 56. The plaintics claim in their complaint that the
Internal Revenue Service improperly reproduced part of their 1040
tax form and then sent it to Connecticut tax authorities.
Furthermore, they claim that the Internal Revenue Service ( Jurisdiction The Court has jurisdiction in this case, according to the allegations in the complaint, pursuant to 28 U. S. C. §§ 1331, 1346. Facts The
plaintiffs attached a "restriction" to their 1974 1040
tax form in which they claim to have "forbidden" the The
plaintiffs, in 1977, entered deductions from schedules A, B, and E
on their form 1040. However, due to their claim that the On
September 13, 1979, the The
plaintiffs appear to rely on their claim of "right to
privacy" as the basis for their actions throughout this case.
Their alleged injuries all flow from the Discussion
of the Law The plaintiffs' case cannot legally withstand review. No relief can be granted against most of the named defendants, the constitutional claims are without merit, and the relief requested is wholly unavailable to the plaintiffs in this Court. The
Court notes, first, that the The
plaintiffs claims to have "forbidden" the The
plaintiffs' principal claim is that the transmittal of information
from the Section 6103(d) is a minimal intrusion on the plaintiffs' right to privacy. Information given to a federal tax authority was transmitted to a state tax authority, as provided by the statute. The material conveyed was not made public, and such conveyance was clearly intended by the Congress. See Gorod v. Internal Revenue Service, 43 Am. Fed. Tex Rep. 79-678 (D. Mass. 1979). The plaintiffs have failed to demonstrate the slightest constitutional infirmity in this statute, and the Court is unable to discover any such defect. 1 On
August 16, 1978, the plaintiffs objected to the disallowance of
the deductions which were claimed in their 1977 return. The
plaintiffs now claim that this audit was a denial of equal
protection rights. This claim, like the right to privacy argument,
is frivolous. By objecting to the disallowance and withholding the
schedule which supposedly justified the deductions, the plaintiffs
invited an audit. The Court cannot fault the The
plaintiffs next claim that auditor Villeco, having asked them to
attend an audit, refused to discuss their claims. The auditor
alleges that the plaintiffs refused to produce their verification
of the claimed deductions absent assurance by her "that such
verifying documentation . . . would never be transmitted to any
governmental agency or to the State of Connecticut, which
assurance [she] could not give." There has been no allegation
by the plaintiffs that they subsequently submitted the necessary
documentation to the The
last of plaintiffs' constitutional claims is based on the levy of
their bank account. It is clear that, without the itemized
schedules, the The
plaintiffs' final requested relief is for a refund of the amount
which was seized from their account. The defendants claim that
there can be no suit for a refund until an administrative claim
has first been filed. 26 U. S. C. §7422(a); Dodge v. Osborn
[1 USTC ¶6], 240 U. S. 118, 122 (1916) (requiring a claim for a
refund before bringing suit is not a denial of due process); Hazzard
v. Weinberger, 382 F. Supp. 225 (S. D. N. Y. 1974), aff'd,
519 F. 2d 1397 (2d Cir. 1975). See also Crismon v. United
States [77-1 USTC ¶9350], 550 F. 2d 1205, 1206 (9th Cir.
1977). The plaintiffs have not alleged that any such claim for a
refund was ever made. Their objection to the disallowance of
deductions cannot be viewed as a "claim for refund",
because, at that time, the disputed tax had not yet been collected
by the The defendant's motion for summary judgment is granted. SO ORDERED. 1 The plaintiffs' request for an injunction, based on their "right to privacy" claim, is consequently denied. See 26 U. S. C. §7421; United States v. American Friends Service Committee [74-2 USTC ¶9774], 419 U. S. 7 (1974). 2 The plaintiffs appear to be withholding these documents based upon their mistaken views regarding their right to privacy. 3 Based upon the facts alleged, it appears that the plaintiffs still have an opportunity to obtain an administrative review of their claim for a refund. See 26 U. S. C. §6511. |