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

U.S. District Court, So. Dist. N.Y., 98 Civ. 4255 ( RPP ), 4/6/99

[Code Sec. 3406 ]

Backup withholding: Failure to file: Injunctive relief.--An individual who failed to file returns for several tax years was not entitled to injunctive relief from the IRS 's order to a third-party payor for back-up withholding with respect to his dividend payments.

Levy: Bank accounts: Tort claims: Injury: Sovereign immunity.--A delinquent taxpayer was not entitled to a return of funds levied from his bank account. The levy collected less than the amount of his deficiency, as determined by the Tax Court; thus, it caused him no injury. Moreover, the government did not waive its immunity from suit with respect to tort claims that arose in connection with tax collection activities.

[Code Sec. 6511 ]

Refund claims: Three-year statute of limitations: Taxes deemed paid.--Although an individual filed a claim for refund of withheld taxes within three years after filing a late return for the tax year at issue, the claim was dismissed as untimely because it was filed more than three years after the taxes were deemed paid.

[Code Sec. 7402 ]

Request for documents: Transcripts: Mootness.--An individual's request that the government be ordered to provide him with transcripts of his tax obligations and payments for several tax years was mooted by the government's agreement to furnish the documents.

OPINION AND ORDER

PATTERSON, District Judge:

Defendant United States of America moves to dismiss the Amended Complaint of plaintiff R. Devine. The Amended Complaint contains three causes of action. The first cause of action asserts that the Internal Revenue Service ("I.R.S.") improperly assessed the bank account of the plaintiff at the CoreStates Bank during the pendency of a U.S. Tax Court proceeding and requests the return of levied funds in the amount of $2,701.37 plus a service charge imposed of $75 for a total of $2,776.37. The second cause of action charges that despite his requests, the I.R.S has continued to fail to provide plaintiff with its record of his income received and payments made to his taxpaying account for the years 1990, 1991, 1993, 1995, and 1996, so that he can file reconstructed tax returns. The third cause of action charges that the I.R.S.'s willful malice towards plaintiff has subjected him to a backup withholding tax of 31 percent on dividends payable to him by a "payor of a certain dividend." (Am. Compl. ¶12.)

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 December 31, 1992 , terminated on February 17, 1998 with an order of dismissal and decision. That order stated that "there is a deficiency in income tax and an addition to tax under Internal Revenue Code §6651(a)(1) due from petitioner for the taxable year 1992 in the respective amounts of $3,392.00 and $65.00," for a total of $3,457.00. (Thomas Decl. Ex. A.) Devine has not filed an appeal from that decision. ( Id. ¶4.)

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 United States has not waived sovereign immunity for tort actions that arise "in the assessment or collection of any tax or customs duty." 28 U.S.C. §2680(c); Aetna Casualty & Surety Co. v. United States , 71 F.3d 475, 477-78 (2d Cir. 1995). Therefore, this Court lacks jurisdiction over plaintiff's first cause of action. ¹

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. ( Id. ) Section 3406(c)(1) of the Internal Revenue Code requires that third party payors withhold income tax from dividends and interest due to a taxpayer upon notice from the I.R.S. that they are required to do so. 26 U.S.C. §3406(c)(1). Plaintiff does not allege that he did not receive from the I.R.S. the notices of underreporting or failure to file a return required by 26 U.S.C. §3406(a)(1)(C). Accordingly, the I.R.S.'s action of imposing a backup withholding appears authorized by statute based on the facts described in the Amended Complaint. In any event, plaintiff's claim here is based on the defendant's alleged willful tort (Devine Aff. in Opp. dated Jan. 14, 1999 at 2) which is not actionable. 28 U.S.C. §2680(c); Aetna , 71 F.3d at 477-78. Accordingly, this cause of action is dismissed on that ground.

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 April 6, 1999 having issued its Opinion (82166) and Order granting defendant's motion to dismiss the complaint, it is,

ORDERED, ADJUDGED AND DECREED, That for the reasons stated in the Court's opinion (82166) and Order dated April 6, 1999, defendant's motion to dismiss the complaint is hereby granted.

OPINION AND ORDER

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. ( Id. ¶2.) In 1993, $4,434 was withheld from plaintiff's income and an estimated $2,000 tax was paid, for a total tax payment of $6,434. ( Id. ¶1.) On January 28, 1998, plaintiff filed an income tax return for the 1993 tax year, showing that he was due a refund of $4,488. ( Id. ¶2.) On or about May 27, 1998 , plaintiff filed form 1040X for the year 1993, requesting a refund in the amount of $4,488 with a request for immediate rejection of the claim so plaintiff could pursue an action in district court. ( Id. ¶3.) The IRS rejected plaintiff's refund request by letter dated July 27, 1998. ( Id. ¶4.)

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, 1/10/96

[Code Secs. 6331 and 7426 ]

Liens: Wrongful levy: Bank accounts: Ownership: State law: Standing.--An individual who received insurance proceeds and deposited the proceeds into a joint account held by her two daughters had no standing to challenge an IRS levy on the account because she was not an owner of the account under state (Illinois) law. One of the taxpayer's daughters named on the joint account was assessed deficiencies, as a responsible person for a company's obligation to pay over withheld employment taxes. The IRS 's levy was proper because, under state law, the daughter, as joint signatory on the account, could withdraw all the funds in the account. Even though the funds originated from the taxpayer and were to be used solely for the purposes of her support, the taxpayer was not named on the account and could not have withdrawn any funds from the account. The taxpayer's argument that the IRS levy was improper because a mistake was made and she did not intend to transfer funds into an account without her name on it was rejected. The taxpayer did not present any evidence that would give her a property interest in the account.

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 AND ORDER

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 IRS commenced proceedings against plaintiff's daughter, Renoda Williams, due to Directions Metropolitan, Inc.'s (" DMI ") failure to pay over to the IRS certain withheld employment taxes. The IRS assessed against Renoda Williams, as a person responsible for DMI 's obligation to pay over withheld employment taxes, federal income taxes in the amount of $248,368.07. On July 28, 1994 , after the assessment the IRS served a Notice of Levy upon First National Bank of Blue Island (hereinafter "Bank") where there was on deposit the sum of $102,310.97 in a joint bank account, Account No. 2160013055, in the name of plaintiff's two daughters, Renoda Williams and Adrianne Davis (hereinafter "Williams/Davis account"). In compliance with the levy, the Bank remitted to the IRS a check that included the $102,302.97 that was in the Williams/Davis account.

Plaintiff Ethel Fluellen claims that the IRS levy on the Williams/Davis account was wrongful because she had the property interest in the funds. Plaintiff Fluellen contends she was not liable for the taxes owed by Renoda Williams or DMI . According to plaintiff, the funds deposited into the Williams/Davis account came from insurance proceeds paid by State Farm Fire & Casualty Company to plaintiff on May 25, 1994 and were owned by her.

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 IRS serves notice of levy upon the custodian which gives the IRS the constructive possession of all property levied upon. United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 720 (1985).

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 IRS , in a levy proceeding, steps into the shoes of the taxpayer and acquires "whatever rights the taxpayer possesses." National [85-2 USTC ¶9482 ], 472 at 725. Because Renoda Williams could withdraw all of the funds in the Williams/Davis account, the IRS 's levy of the account was proper.

Plaintiff Fluellen argues that she is the proper owner of the account and is requesting the return of the money collected by the IRS from the Williams/Davis account. Plaintiff, however, has failed to raise any issue of material fact indicating that she has a property interest under Illinois law in the Williams/Davis account. Therefore, plaintiff has no remedy or standing to claim a wrongful levy action in this case.

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 IRS or creditors be able to claim the funds in the event that plaintiff Fluellen defaulted on an obligation. Likewise, plaintiff has no standing to challenge the levy on the account since she was not an owner of the account under Illinois law.

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, 3/31/92 , Vacating and remanding an unreported District Court decision

[Code Sec. 6331 ]

Levy and distraint: Bank account: Timing of levy.--The timing of the service of a notice of levy upon a bank account was not properly substantiated by the IRS ; therefore, genuine issues of material fact existed and summary judgment was vacated. A taxpayer closed her bank accounts moments before a hold was placed on them in adherence to the levy. The IRS did not sufficiently prove that the funds were in possession of the bank at the time of the levy, thereby creating an issue of material fact concerning the ownership of the funds.

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 III , Susan E. Buechley, Department of Justice, Washington, D.C. 20530 for Internal Revenue Service.

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 ( IRS ) assessed taxes and penalties against Gill, and in 1985 and 1986 it recorded five tax liens aggregating in excess of $10.5 million against her in Allegheny County, Pennsylvania. According to the affidavit of IRS Revenue Officer Jacob G. Pifer, Gill met with him on March 28, 1989 to discuss the nature and extent of her assets so that the IRS could collect the delinquent taxes owed. During the meeting, Gill disclosed that she maintained IRA accounts at First Federal. Alter the meeting, Pifer prepared a notice of levy directed to First Federal demanding all of Gill's property or rights to property.

On the same day, IRS Revenue Officer Darryl Davis served the notice of levy on First Federal. His affidavit states that while in the lobby of First Federal, he recognized Gill standing in the reception area. He informed the receptionist that he was present to serve the notice of levy and she directed him to Kim Himmelreich, a legal department employee one floor above, on whom he served the notice of levy. The affidavit of IRA department employee, Donald Nemchick, avers that upon service of the levy, the legal department promptly telephoned the IRA department to inform it of the levy on Gill's account. However, the IRA department had just closed Gill's accounts and issued two "bank checks" payable to her in the amount of $97,153.94 and $15,151.64. ² Before Gill had an opportunity to exit the Bank, Nemchick and another bank employee intercepted her and attempted to retrieve the two checks from Gill, but she refused to surrender them. Nemchick thereupon informed Gill that the Bank would stop payment on both checks.

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 IRS pursuant to the levy. Caputo's attorney responded by letter stating that the accounts were not subject to levy and instructed First Federal to honor the checks it had issued to Gill. Shortly thereafter, Caputo instituted a suit against First Federal in the Court of Common Pleas of Allegheny County, claiming that as a holder in due course of the bank checks, the Bank was liable to her for their payment.

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 IRS pursuant to a levy is "discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such . . . rights to property" arising from the surrender.

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 IRS Officers Pifer and Davis attached to the Government's motion and observed that Caputo had produced no evidence that the levy was not made before she received the checks from Gill. The court concluded that the Government therefore was entitled to the interpled funds and granted the Government's motion for summary judgment.

III . DISCUSSION

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 IRS the right to all property levied upon and creates a custodial relationship between the third party and the IRS so that the Government gains constructive possession of the property. National Bank [85-2 USTC ¶9482 ], 472 U.S. at 720. The IRS regulations provide that a levy is effective upon the IRS 's service of the notice of levy. 26 C.F.R. §301.6331-1(a) (1991). Unlike the second method of enforcing the collection of taxes, the lien-foreclosure suit, the levy occurs prior to any adjudication; therefore, it may occur prior to the determination of the parties' claims to the property. Michael J. Young, Note, Levying on Joint Bank Accounts: A Ticking Bomb for the Nondelinquent Joint Account Holder, 70 Minn. L. Rev. 1308, 1314-15 (1986). The levy is thus a speedy and powerful device to collect government taxes.

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 IRS . This is the Government's position and the ruling of the district court. Although Caputo has not expressly agreed, her argument is consonant with this view of the levy. Her disagreement is with the Government's position and the magistrate's conclusion adopted by the district court that "[t]here appears to be no question that the bank had the funds in Gill's account when it was served with the notice of levy." ⁵ There is a serious question, however, on the record before us, as to whether Gill had closed her accounts out before the levy. The party in the best position to know, the Bank, refused to admit to the Government's request for admission that at the time the notice of levy was served on the Bank the funds in Gill's IRA accounts were on deposit. The Bank admitted only that on the day of the levy the funds listed were on deposit and stated that further response would involve it in a question of law for the court to determine.

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