Annotations- Bank Accounts Page1

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6332 Annotations: Bank Accounts- Levy

 

Penalty for Failure to Surrender Property: Bank Accounts

Rev. Rul. 73-310 ¹, 1973-2 CB 408

Section 6332.--Surrender of Property Subject to Levy

26 CFR 301.6332-1: Surrender of property subject to levy.
(Also Section 6331; 301.6331-1.)

[IRS Headnote] Levy on taxpayer's bank account.--
A bank is required to pay over only the funds actually on hand at the time the levy was served on a delinquent taxpayer's bank account and not the amount indicated in its acknowledgment of service; G.C.M. 4783 superseded.

The purpose of this Revenue Ruling is to update and restate under the current statute and regulations the position set forth in G.C.M. 4783, VII-2 C.B. 183 (1928).

The question presented is whether, under the circumstances described below, a bank is required to pay over to the District Director of Internal Revenue the amount it acknowledged it was holding when a levy was made on a delinquent taxpayer's account or the amount that was actually in the taxpayer's bank account when the levy was served.

In the process of collecting taxes due from a taxpayer, a levy was made on his bank account. The bank accepted the levy, and a statement that $100.00 was in the taxpayer's bank account as of the day the levy was served was acknowledged on the notice of levy and signed by the assistant cashier of the bank. The bank later notified the Internal Revenue Service that on the same day that the levy was served, but prior to the service of levy, the taxpayer had withdrawn $90.00 leaving a balance of $10.00 which was being held subject to the levy.

Section 301.6331-1 of the Regulations on Procedure and Administration provides that levy may be made by serving a notice of levy on any person in possession of, or obligated with respect to, property or rights to property subject to levy, including bank accounts. A levy extends only to property possessed and obligations which exist at the time of the levy. The regulation further provides that if a levy is made on a bank with respect to the account of a delinquent taxpayer and the bank surrenders to the District Director the amount of the taxpayer's balance at the time the levy is made, the levy is satisfied.

Section 6332(a) of the Internal Revenue Code of 1954 provides that any person in possession of property or rights to property subject to levy upon which a levy has been made shall, upon demand of the District Director, surrender such property or rights to the District Director.

In view of the specific provisions of the regulations cited above, the liability of a bank is limited by the amount of funds on hand at the time the levy was made and is not determined by the amount indicated in the acknowledgment of service. Thus the bank is required to pay over only the $10.00 it held at the time of the service of levy.

G.C.M. 4783 is hereby superseded, since the position stated therein is set forth under the current law in this Revenue Ruling.

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¹ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.

Rev. Rul. 79-38, 1979-1 CB 406

Section 6332.--Surrender of Property Subject to Levy

26 CFR 301.6332-1: Surrender of property subject to levy.
(Also Section 6331; 301.6331-1.)

[IRS Headnote] Levy on taxpayer's bank account.--
A bank is required to treat uncollected funds in a customer's account as subject to levy if, by custom or agreement between the bank and the customer, the customer has a legal, fixed right to draw against uncollected funds; Rev. Rul. 73-310 amplified.

ISSUE

Is a bank required to treat uncollected funds in a checking account of its customer as subject to levy?

FACTS

A owes $5,000 in unpaid federal income taxes, penalties, and interest for the years 1970 and 1971. Notice of levy by the Internal Revenue Service was received on May 3, 1976, by a bank in which A maintains a checking account. On that date, A had a balance of $5,000, which balance represents uncollected funds from a check deposited by A for which payment had not been received by the depositary bank.

By agreement with the bank, the entire amount of the items deposited to A's account, including checks, are immediately credited to that account so that A may draw against them, even though the amounts of these funds may not be collected by the bank for several days. If any of the items deposited by A are dishonored, the bank charges back against the account the amount of the dishonored item. If this chargeback results in an overdraft in A's account, A becomes liable to repay the amount to the bank together with service charges.

Under the applicable state law, section 4-201(1) of the Uniform Commercial Code, the general status of the bank is as an agent of the depositor and not as a creditor. This rule applies regardless of the form of endorsement or lack of endorsement and even though credit given for the item is subject to immediate withdrawal as of right or is in fact withdrawn; but the continuance of ownership of an item by its owner and any rights of the owner of proceeds of the item are subject to rights of a collecting bank such as those resulting from outstanding advances on the item and valid rights of setoff.

LAW AND ANALYSIS

Section 6331 of the Internal Revenue Code of 1954 grants the Secretary or the Secretary's delegate the authority to collect, by levy, taxes owed by a taxpayer who has refused to pay such taxes within 10 days following notice and demand by the Secretary or the Secretary's delegate. Levy may be made on all property or rights to property owned by the taxpayer and not otherwise exempt from levy.

Section 6332 of the Code, with exceptions not here relevant, requires 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, to surrender such property or rights (or discharge such obligation) to the Secretary or the Secretary's delegate.

Both federal and state courts look to state law to determine whether there is property or a right to property to which a tax levy may attach.

In many situations, the depositary bank acts merely as a collecting agent or sub-agent of the taxpayer-customer with regard to uncollected funds and does not credit the funds to the taxpayer-customer's account or permit the taxpayer-customer to draw against the uncollected funds until final settlement. In such cases, the levy is satisfied by a surrender of the balance in the account at the time of the levy not including uncollected items. See section 301.6331-1(a)(1) of the Regulations on Procedure and Administration and Rev. Rul. 73-310, 1973-2 C.B. 408.

An exception exists, however, when, by agreement or custom, the taxpayer-customer's account is credited by the bank with the amount of the uncollected items and the taxpayer-customer has the legal, fixed right to draw against the entire balance of the account. In such cases, the taxpayer has a property right in the entire balance in the account (including the uncollected funds) at the time of levy. Since the Government's levy attaches to rights to property possessed by the taxpayer, such levy reaches the entire balance in the account, whether or not the uncollected items later reach final settlement. See United States v. Euclid National Bank, 510 F. 2d 461 (6th Cir. 1975).

HOLDING

Accordingly, a bank is required to treat the funds in a customer's account as subject to levy if, by custom or agreement between the bank and the customer, the customer has a legal, fixed right to draw against uncollected funds.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 73-310 is amplified.

 

[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, 6/26/85, Reversing CA-8, 84-1 USTC ¶9191, 726 F. 2d 1292

On writ of certiorari to the United States Court of Appeals for the Eighth Circuit.

[Code Secs. 6331 and 6332]

Deficiency: Levy and distraint: Bank account: Ownership: Surrender of property.--The U. S. Supereme Court ruled that a bank wrongfully refused to comply with a levy that the IRS placed on a delinquent taxpayer's joint bank accounts and, therefore, held the bank liable for the amount of the delinquent taxes. The court determined that the taxpayer had "property" or "rights to property" in the joint bank accounts because he had an unqualified right to withdraw the full amounts on deposit in the joint accounts without notice to his codepositors pursuant to state law. Because the IRS steps into the taxpayer's shoes and acquires whatever rights the taxpayer himself possesses in a levy proceeding, the court found it inconceivable that Congress intended to prohibit the IRS from levying on bank accounts which were plainly accessible to a delinquent taxpayer. Further, the court noted that a Code Sec. 6331(a) administrative levy 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. One dissent, in which three Justices joined.

Syllabus

Section 6331(a) of the Internal Revenue Code of 1954 provides that the Government may collect taxes of a delinquent taxpayer "by levy upon all property and rights to property . . . belonging to such person." Section 6332(a) then provides that "any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary [of the Treasury], surrender such property or rights . . . to the Secretary, except such part of the property or rights as is . . . subject to an attachment or execution." The Internal Revenue Service (IRS) levied on two joint accounts in respondent bank in Arkansas for delinquent income taxes owed by only one of the persons in whose names the accounts stood. When respondent, contending that it did not know how much of the money on deposit belonged to the delinquent taxpayer as opposed to his codepositors, refused to comply with the levy, the United States brought an action in Federal District Court , seeking judgment against respondent for the amount of the delinquent taxes. The District Court granted respondent's motion to dismiss. The Court of Appeals affirmed, holding that because under Arkansas garnishment law a creditor of a bank depositor is not subrogated to the depositor's power to withdraw the account, the IRS, too, could not stand in the depositor's shoes, and that the Government could not make use of the administrative procedure without negating or quantifying the claims that the delinquent taxpayer's codepositors might have to the funds in question. The court reasoned that the delinquent taxpayer did not possess a sufficient property interest in the funds to support the levy, that the codepositors might possess competing claims to the funds, and that an IRS levy is not normally intended for use against property in which third parties have an interest or which bears on its face the names of third parties.

Held: The IRS had a right to levy on the joint accounts in question. Pp. 6-20.

(a) A bank served with an IRS notice of levy has only two defenses for failure to comply with the demand: that it is neither "in possession of" nor "obligated with respect to" property or rights to property belonging to the delinquent taxpayer, or that the taxpayer's property is "subject to a prior judicial attachment or execution." Here, the latter defense was not available, and so respondent's only defense was that the joint accounts did not constitute "property or rights to property" of the delinquent taxpayer. P. 8.

(b) In applying the Internal Revenue Code, state law controls in determining the nature of the legal interest which the taxpayer has in property. In this case, the delinquent taxpayer had an absolute right under state law to withdraw from the joint accounts, and such state-law right constitutes "property [or] rights to property" belonging to him within the meaning of §6331(a). Respondent, in its turn, was "obligated with respect to" the taxpayer's right to that property under §6332(a), since state law required it to honor any withdrawal request he might make. Respondent thus had no basis for refusing to honor the levy. In a levy proceeding, the IRS acquires whatever right the taxpayer himself possesses. Pp. 9-13.

(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 (IRS) has a right to levy on those accounts for delinquent federal income taxes owed by only one of the persons in whose names the joint accounts stand in order that the IRS may obtain provisional control over the amount in question.

I

A

The relevant facts are stipulated. On December 10, 1979, the IRS assessed against Roy J. Reeves federal income taxes, penalties, and interest for the taxable year 1977 in the total amount of $3,607.45. As a result of payments and credits, the amount owing on the assessment was reduced to $856.61. App. 11.

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

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

The bank, contending that it did not know how much of the money on deposit belonged to Roy as opposed to Ruby and Neva , refused to comply with the levy. Ibid. The United States thereupon instituted this action in the United States District Court for the Eastern District of Arkansas, pursuant to §6332(c)(1) of the Code, 26 U. S. C. §6332(c)(1), seeking judgment against the bank in the amount of $856.61. 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 IRS to identify the codepositors of the delinquent taxpayer and to provide them with notice and an opportunity to be heard. Id. , at 114-115. The court then outlined the procedures it believed the Constitution requires the IRS to follow when levying on a joint account. Specifically, it ruled that a bank, upon receiving a notice of levy, should freeze the assets in the account and provide the IRS with the names of the co-depositors. Id. , at 114. The IRS then should notify the codepositors and give them a reasonable time "in which to respond both to the government and to the bank by affidavit or other appropriate means, specifically setting out any ownership interest in the joint account which they claim and the factual and legal basis for that claim." Id. , at 115. If the bank, on the basis of such information, "believes that a genuine dispute exists as to the legality of any ownership claim made by" the codepositors, "it may refuse to surrender any portion of the funds so claimed." Id. , at 116. At that point, "the government may bring suit to enforce the levy on the contested funds," ibid., but it must name the codepositors as defendants along with the bank.

The United States Court of Appeals for the Eighth Circuit 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 IRS, when levying on a joint bank account, has the burden of proving "the actual value of the delinquent taxpayer's interest in jointly owned property." Id. , at 1293. It observed that here "the rights of the various parties," id., at 1300, had not been determined. Therefore, the Government had not shown the bank to be in possession of property or rights to property belonging to the delinquent taxpayer, Roy J. Reeves, at §6331(a) required.

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 IRS administrative levy "is not normally intended for use as against property in which third parties have an interest" or as "against property bearing on its face the names of third parties." Id. , at 1300. In such a situation, the Government was free to "brin[g] suit to foreclose its lien under Section 7403," joining the codepositors as defendants. Ibid.

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

II

A

Section 6321 of the Code, 26 U. S. C. §6321, provides: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." Under the succeeding §6322, the lien generally arises when an assessment is made, and it continues until the taxpayer's liability "is satisfied or becomes unenforceable by reason of lapse of time."

The statutory language "all property and rights to property," appearing in §6321 (and, as well, in §§ 6331(a) and 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 IRS is required to enforce collection of the unpaid taxes. The Internal Revenue Code provides two principal tools for that purpose. The first is the lien-foreclosure suit. Section 7403(a) authorizes the institution of a civil action in federal district court to enforce a lien "to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax." Section 7403(b) provides: "All persons having liens upon or claiming any interest in the property involved in such action shall be made parties thereto." The suit is a plenary action in which the court "shall . . . adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property." §7403(c). See generally United States v. Rodgers [83-1 USTC ¶9536], 461 U. S. 677, 680-682 (1983). The second tool is the collection of the unpaid tax by administrative levy. The levy is a provisional remedy and typically "does not require any judicial intervention." Id. , at 682. The governing statute is §6331(a). See n. 1, supra. It authorizes collection of the tax by levy which, by §6331(b), "includes the power of distraint and seizure by any means."

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 IRS the right to all property levied upon, United States v. Eiland [55-1 USTC ¶9487], 223 F. 2d 118, 121 (CA4 1955), and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government. Phelps v. United States [75-1 USTC ¶9467], 421 U. S. 330, 334 (1975). If the custodian honors the levy, he is "discharged from any obligation or liability to the delinquent taxpayer with respect to such property or rights to property arising from such surrender or payment." §6332(d). If, on the other hand, the custodian refuses to honor a levy, he incurs liability to the Government for his refusal. §6332(c)(1).

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 CFR §301.6331-1(a)(1) (1984).

The courts uniformly have held that a bank served with an IRS notice of levy "has only two defenses for a failure to comply with the demand." United States v. Sterling National Bank & Trust Co. of New York [74-1 USTC ¶9336], 494 F. 2d 919, 921 (CA2 1974), and cases cited. One defense is that the bank, in the words of §6332(a), is neither "in possession of" nor "obligated with respect to" property or rights to property belonging to the delinquent taxpayer. The other defense, again with reference to §6332(a), is that the taxpayer's property is "subject to a prior judicial attachment or execution." 494 F. 2d, at 821. Accord, Bank of Nevada v. United States [58-1 USTC ¶9228], 251 F. 2d 820, 824 (CA9 1957), cert. denied, 356 U. S. 938 (1958).

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 IRS levy, regardless of the facts that other claims to the funds may exist and that the question of ultimate ownership may be unresolved at the time. See, e. g., United States v. Sterling National Bank & Trust Co. of New York, 494 F. 2d, at 921-922; 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); Citizens & Peoples National Bank of Pensacola, Fla. v. United States [78-1 USTC ¶9365], 570 F. 2d 1279, 1282-1284 (CA5 1978); Babb v. Schmidt [74-1 USTC ¶9476], 496 F. 2d 957, 958-960 (CA9 1974); Bank of Nevada v. United States, 251 F. 2d, at 824-826; United States v. First National Bank of Arizona, 348 F. Supp. 388, 389 (Ariz. 1970), aff'd [72-2 USTC ¶9655], 458 F. 2d 513 (CA9 1972); United States v. Equitable Trust Co., 49 AFTR2d ¶82-428 (Md. 1982); Sebel v. Lytton, Savings & Loan Ass'n, 65-1 USTC ¶9343 (SD Cal. 1965); Tyson v. United States, 63-1 USTC ¶9300 (Mass. 1962); United States v. Third Nat. Bank & Trust Co. [53-1 USTC ¶9255], 111 F. Supp. 152, 155-156 (MD Pa. 1953). And the Eighth Circuit itself has observed that the "unqualified contractual right to receive property is itself a property right subject to seizure by levy." St. Louis Union Trust Co. v. United States [80-1 USTC ¶9282], 617 F. 2d 1293, 1302 (1980). ⁹

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 IRS `steps into the taxpayer's shoes,'" United States v. Rodgers, 461 U. S., at 691, n. 16, quoting 4 Bittker, at ¶111.5.4, p. 111-102; M. Saltzman, IRS Practice and Procedure ¶14.08, p. 14-32 (1981); Brief for Respondent 8. The IRS acquires whatever rights the taxpayer himself possesses. And in such circumstances, where, under state law, a taxpayer has the unrestricted right to withdraw funds from the account, "it is inconceivable that Congress . . . intended to prohibit the Government from levying on that which is plainly accessible to the delinquent taxpayer-depositor." United States v. First National Bank of Arizona , 348 F. Supp., at 389. Accord , United States v. Citizens & Southern National Bank, 538 F. 2d, at 1107. ¹⁰ The taxpayer's right to withdraw is analogous in this sense to the IRS' right to levy on the property and secure the funds. Both actions are similarly provisional and subject to a later claim by a codepositor that the money in fact belongs to him or her.

III

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 IRS to certain consequences of state property law. Because under Arkansas garnishment law, a creditor of a depositor is not subrogated to the depositor's power to withdraw the account, the court reasoned that the IRS, too, could not stand in the depositor's shoes. This gloss, it seems to us, is contrary to the analysis and holding in United States v. Bess, supra. The Court of Appeals adduced three principal justifications for its result. The first was its belief that under Arkansas law Roy did not have a sufficient property interest in the funds to support the levy. The second was its concern that Ruby and Neva might possess competing claims to the funds on deposit, and that the bank might be subject to claims asserted by them. The third was its stated conclusion that "levy is not normally intended for use as against property . . . bearing on its face the names of third parties, and in which those third parties likely have a property interest." 726 F. 2d, at 1300.

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 IRS could levy rested heavily on its understanding of the Arkansas law of creditors' rights, particularly those in garnishment. Id. , at 1295-1296. See Hayden v. Gardner, 238 Ark. 351, 381 S. W. 2d 752 (1964). As we have suggested, this misconceives the role properly played by state law in federal tax-collection matters. The question whether a state-law right constitutes "property" or "rights to property" is a matter of federal law. United States v. Bess, 357 U. S. , at 56-57. Thus, the facts that under Arkansas law Roy's creditors, unlike Roy himself, could not exercise his right of withdrawal in their favor and in a garnishment proceeding would have to join his codepositors are irrelevant. The federal statute relates to the taxpayer's rights to property and not to his creditors' rights. The Court of Appeals would remit the IRS to the rights only an ordinary creditor would have under state law. That result "compare[s] the government to a class of creditors to which it is superior." Randall v. H. Nakashima & Co. [76-2 USTC ¶9770], 542 F. 2d 270, 274, n. 8 (CA5 1976).

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 CFR §301.6343-1(b)(2) (1984). ¹²

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 IRS to levy on the assets at once, leaving ownership disputes to be resolved in a post-seizure administrative or judicial proceeding. See United Sand & Gravel Contractors, Inc. v. United States [80-2 USTC ¶9626], 624 F. 2d 733, 739 (CA5 1980); Valley Finance Inc. v. United States [80-2 USTC ¶9554], 203 U. S. App. D. C. 128, 136-137, 629 F. 2d 162, 170-171 (1980), cert. denied, 451 U. S. 1018 (1981). Its decision that certain property rights must yield provisionally to governmental need should not have been disregarded by the Court of Appeals. Nor would the bank be exposed to double liability were it to honor the IRS levy. The Code provides administrative and judicial remedies for codepositors against the Government, and any attempt to secure payment in this situation from the bank itself would be contrary to the federal enforcement scheme. ¹³

The Court of Appeals' final justification for its holding was its belief that an IRS levy "is not normally intended for use as against property in which third parties have an interest" or "as against property bearing on its face the names of third parties, and in which those third parties likely have a property interest." 726 F. 2d, at 1300. The court acknowledged the existence of §7426 but felt that that statute was designed to protect only those third parties "whose property has been seized 'inadvertently.'" 726 F. 2d, at 1300.

We disagree. The IRS' understanding of the terms of the Code is entitled to considerable deference. Here, moreover, collection provisions plainly contemplate that a taxpayer's interest in property may be less than full ownership. The tax lien attaches not only to "property" but also to "rights to property." See S. Rep. No. 1708, at 29. Further, we see nothing in the language of §7426 that distinguishes among various species of third-party claimants. The language of the statute encompasses advertent seizures as well as inadvertent ones. ¹⁴ There is nothing express or implied in United States v. Rodgers, supra, to the contrary.

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 IRS, if it wished to pursue a delinquent taxpayer's interest in a joint bank account, to institute a lien-foreclosure suit under §7403, joining all codepositors as defendants. The practical effect of this would be to eliminate the alternative procedure for administrative levy under §§ 6331 and 6332. We do not lightly discard this alternative relief that Congress so clearly has provided for the Government. If the IRS were required to bring a lien-foreclosure suit each time it wished to execute a tax lien on funds in a joint bank account, it would be uneconomical, as a practical matter, to do so on small sums of money such as those at issue here. And it would be easy for a delinquent taxpayer to evade, or at least defer, his obligations by placing his funds in joint bank accounts. While one might not be enthusiastic about paying taxes, it is still true that "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).

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 March 25, 1983, after the issuance of the notice of levy here, §67-552 was amended and §67-521 was repealed. 1983 Ark. Gen. Acts, No. 843, §§ 1 and 2. The result was recodification without substantial change.

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 IRS would likewise insulate the bank from actions by Roy 's codepositors.

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 July 20, 1868, ch. 186, §8, 15 Stat. 128. See 135 U. S. , at 328-329, 338-339. The Court held that this waiver did not entitle the Government to treat the property as if it belonged to the distiller for purposes of the then tax code's levy provisions. Id. , at 338. The waiver, the Court held, did not give the distiller a fee interest in the premises, nor did it give the Government the right to anything more than a first or prior lien. Id. , at 339.

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 (IRS) may lawfully seize a joint bank account for payment of a single codepositor's delinquent taxes when it does not know how much, if any, of the account belongs to the delinquent. As it seems to me that the Court today misreads the relevant statutory language, in effect overrules prior decisions of this Court, and substantially ignores the property rights of nondelinquent taxpayers, I dissent.

I

The parties have stipulated the following facts. On June 13, 1980, respondent bank held $321.66 in a checking account and $1,241.60 in a savings account, each in the names of "Roy Reeves or Ruby Reeves or Neva R. Reeves." App. 11-12. Under state law and by contract with the bank, each of these individuals could withdraw any amount from either account. Also on June 13, the IRS served a notice of levy on the bank demanding that it pay over all sums owed to Roy J. Reeves up to $1,302.56, the balance of a tax assessment against him. It later issued a partial release of levy for monies in excess of $856.61 and served a final demand for payment on the bank. The bank, however, refused to pay over this amount because it did not know how much of the money in the accounts belonged to Roy Reeves as opposed to Ruby and Neva . The Government, to enforce its levy, then sued the bank for $856.61. Before the District Court the parties agreed to submit "[n]o further evidence as to the ownership of the monies in the subject bank accounts . . .." App 17. As a result, neither the Government nor the Court knows how much of the funds in each account was owned by each codepositor.

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 IRS to give codepositors notice of the levy action before seizing the accounts. Id. , at 114-115. The Court of Appeals for the Eighth Circuit affirmed without expressing any opinion on the District Court's due process analysis. 726 F. 2d 1292 (1984). Instead, it reached a similar result as a matter of statutory construction. In particular, it held that the Government had not shown the bank to be in possession of property or rights to property belonging to the tax delinquent, as the levy statute requires.

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.

III

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 IRS to collect unpaid taxes without judicial intervention. It is a "summary, non-judicial process, a method of self-help authorized by statute which provides the Commissioner with a prompt and convenient method for satisfying delinquent tax claims." United States v. Sullivan [64-1 USTC ¶9392], 333 F. 2d 100, 116 (CA3 1964). It provides no notice to third parties that property in which they may have an interest has been seized. If an individual discovers a levy and believes that it was wrongful, his or her only recourse is to seek administrative review under 26 U. S. C. §6343(b) within nine months ² or file suit in federal district court under 26 U. S. C. §7426(a)(1) within the same amount of time. ³

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.

IV

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 IRS's own interpretation of its levy powers. Rev. Ruling 55-187 ("A joint checking account is subject to levy only to the extent of a taxpayer's interest therein, which will be determined from the facts in each case."). This position, moreover, effectively overrules not only Mansfield but also part of United States v. Bess, supra, a case in which this Court held that a delinquent could have no "property or right to property" in funds over which he had no right of possession. 357 U. S. , at 55-56.

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 IRS levy. In short, the Court's decision often will place the property rights of third parties in serious jeopardy. ¹³

V

On the stipulated facts, the IRS did not know what portion, if any, of the joint accounts levied upon "belong[ed] to" Roy Reeves. It knew only that he had a right to withdraw that under state law encompassed no right to the possession, use, or ownership of the funds when withdrawn. In allowing the levy under these circumstances, the Court today not only decides this case contrary to all of the relevant decisions of the Courts of Appeals but also effectively overrules sub silentio its own prior decisions. Moreover, the Court relies on remedies that, because no notice is provided, may in many cases prove ineffective in protecting the rights of third parties. ¹⁴

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 IRS can levy on jointly held property to pay a co-owner's taxes have held that it cannot when it does not know how much of the property actually belongs to the delinquent. In United States v. Stock Yards Bank of Louisville, [56-1 USTC ¶9418], 231 F. 2d 628 (CA6 1956), Justice (then Judge) Stewart, writing for the court, held that a joint bondholder's right to present a bond for redemption, receive payment in full, and thereby eliminate completely the other co-owner's interest as far as the issuer was concerned did not give the IRS the right to levy on the entire bond to pay one co-owner's taxes. "Proof of the actual value of the taxpayer's interest was an essential element of the government's case under the statute, and for lack of such proof the case falls." Id. , at 631 (citation omitted). The Court attempts to distinguish this case on the ground that "[s]avings bonds . . . are different from joint bank accounts . . .." Ante, at 15, n. 11. In Stock Yards Bank, however, the Court of Appeals expressly analogized savings bonds to joint bank accounts, 231 F. 2d, at 631, and the Court today points to no relevant distinguishing feature. It merely creates a distinction without a difference.

Likewise, in Raffaele v. Granger [52-1 USTC ¶9321], 196 F. 2d 620 (CA3 1952), the Court of Appeals rejected the IRS's view that it could levy on joint bank accounts held as tenancies by the entirety when "either spouse may draw upon them." Id. , at 622. The court found that the "power of each spouse to withdraw funds," which the IRS argued was determinative, ibid., was actually irrelevant because under state law "the ownership of both [spouses] attaches to funds withdrawn by either," ibid. "The United States," it held, "has no power to take property from one person, the innocent spouse, to satisfy the obligation of another." Id. , at 623. The Court attempts to distinguish this case on the ground that it "did not concern the propriety of a provisional remedy, but the final ownership of the property in question." Ante, at 15, n. 11. This is misleading. In Raffaele, the Court of Appeals affirmed the District Court's quashing of a warrant of distraint. It thus held that the IRS had no right to seize the property as an initial matter. It did not hold that the IRS had properly seized the property but had to return it.

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 IRS levy, regardless of the facts that other claims to the funds may exist and that the question of ultimate ownership may be unresolved at the time." Ante, at 11. Insofar as the Court states that the IRS can levy on the right to withdraw, one can assume, without deciding, that it is correct, because the statement is irrelevant. In the present case, the IRS is not levying on the right to withdraw, but on the underlying right in the property, which may well belong to innocent third parties. See, supra, at 9-10. On the other hand, insofar as the Court states that "these cases all stand for the proposition that a delinquent's state law right to withdraw funds from [a] joint bank account is a property interest sufficient for purposes of federal law for the Government to levy the account . . .," ante, at 12, n. 9, it is simply mistaken. Not one, let alone "all," of these cases stand for this proposition. The cases the Court cites from the Courts of Appeals, the District Courts, and the Tax Court either decide a different question or actually support the position taken by the Third and Sixth Circuits, see n. 5, supra. Four of the Court of Appeals cases and one of the District Court cases concern the amount of "property" in an individual's account when the bank has either an unexercised right to set off or checks still to be drawn against the account at the time of the levy. Citizens & Peoples National Bank v. United States [78-1 USTC ¶9365], 570 F. 2d 1279 (CA5 1978) (unpaid checks); United States v. Citizens & Southern National Bank (unexercised right of set off), cert. denied, 430 U. S. 945, (1977); United States v. Sterling National Bank & Trust Co. [74-1 USTC ¶9336], 494 F. 2d 919 (CA2 1974) (same); Bank of Nevada v. United States [58-1 USTC ¶9228], 251 F. 2d 820 (CA9 1957) (same), cert. denied, 356 U. S. 938 (1958); United States v. First National Bank of Arizona [72-2 USTC ¶9654], 348 F. Supp. 388 ( Ariz. 1970) (same), aff'd, [72-2 USTC ¶9655], 458 F. 2d 513 (CA9 1972). The fifth Court of Appeals case, the other District Court case, and all the Tax Court cases support a holding opposite to the Court's today. In Babb v. Schmidt [74-1 USTC ¶9476], 496 F. 2d 957 (CA9 1974), for example, the court allowed the levy against community property only because state law "ha[d] . . . given the [delinquent] rights in that property . . .." Id. , at 960. And in the other District Court case and all the Tax Court cases the court found that state law gave the delinquent not only a right of withdrawal but also a right of use or possession in the underlying funds themselves. United States v. Third National Bank & Trust Co., 111 F. Supp. 152, 155 (MD Pa. 1953) (delinquent was either sole owner of funds or joint tenant); United States v. Equitable Trust Co. [82-1 USTC ¶9182], 49 AFTR 2d ¶82-428, at 82-725 (Md. 1982) ("[P]rior to the federal tax levy, both [codepositors] owned the accounts as joint tenants, each having the absolute right to use or withdraw the entire fund. . . . Consequently, [the delinquent co-depositor] had property rights in the checking account . . ."); Sebel v. Lytton Savings & Loan Ass'n, 65-1 USTC ¶9343 (SD Cal. 1965) (joint tenancy); Tyson v. United States, 63-1 USTC ¶9300 (Mass. 1962) (holding in the alternative that assessment was jointly against both codepositors or that state law granted any creditor the right to possession of either codepositor's funds).

These cases should also dispel the Court's fear that the IRS will be forced to "bring a lien-foreclosure suit each time it wishe[s] to execute a tax lien on funds in a joint bank account . . .." Ante, at 19. Nothing in my opinion suggests that under existing federal law the IRS can never levy on a joint bank account. As the cited cases make clear, many, if not most, States give codepositors property rights in all the funds in a joint account. As long as state law grants such a right--which Arkansas law does not, see n. 7, supra-- levy on all the funds to pay a single codepositor's taxes is proper. It is only when state law does not grant such a right that the IRS should not be allowed to levy under §6331 without first determining that the funds "belong to" the delinquent. The Court's position, however, would permit levies even when the IRS knows that none of the funds in the account belongs to the delinquent taxpayer.

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 IRS has the power not only to seize but also to sell property. 26 U. S. C. §6331(b). A co-owner of a house seized and sold to pay a delinquent's taxes would indeed be surprised to discover that the IRS's levy "merely protects the Government's interests . . .." Assuming that the co-owner discovered within nine months that the IRS had levied on the property (for no notice to him is required), he could recover in a wrongful levy action at most some of the proceeds from the sale. This "remedy" hardly "punctiliously protect[s]" the rights of third parties, as the Court claims. Ante, at 18, n. 15.

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 IRS could levy on anyone's property to pay anyone else's taxes because such wrongful seizures are nearly always "subject to a later claim by [the owner] that the [property] in fact belongs to him or her." The fact that every wrongful taking is subject to a subsequent claim for conversion does not justify the taking.

¹⁴ The IRS may reach funds like these by following the procedure prescribed by §7403. And, of course, Congress, if it wishes, may authorize collection of funds under a levy-type procedure, provided it observes constitutional requirements, particularly that of notice. As I would find the statutory language dispositive (as did the Court of Appeals), I do not address the due process claim relied on by the District Court.

 

 

[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, 9/6/85, On remand from Supreme Court, Remanding to District Court, 85-2 USTC ¶9482

[Code Secs. 6331 and 6332]

Levy: Joint bank account: Innocent co-owner.--On remand from the U. S. Supreme Court, the 8th Circuit Court of Appeals remanded the case back to the district court and ordered both parties to the suit, which involved a dispute over the levy of joint bank accounts, to submit briefs expressing what further action should be taken by the district court--especially in regard to whether the IRS had any duty to notify innocent co-owners of joint bank accounts of a levy. The Supreme Court had rebuffed the efforts of innocent co-owners of joint bank accounts to shield their shares of such accounts from an IRS levy against co-owners who had taxes past due. According to the High Court, all the assets of a joint account may be seized to satisfy a tax delinquency of only one of the co-owners of the account; nondelinquent owners may not protect their ownership interests in the account until after the levy. The IRS has the same rights to a joint account as the deficient co-owner; if he has the right to withdraw all of the assets of an account, so does the IRS.

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. June 26, 1985). On August 8, 1985, the mandate of the Supreme Court, issued August 5, 1985, was received by this Court, and the case is therefore before use for further proceedings.

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 ¶9676] United States of America , Appellee v. Joseph R. Pisani, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 84-1330, 773 F2d 397, 9/12/85, Reversing, remanding and affirming unreported District Court convictions

[Code Secs. 61, 102, 7202, and 7207]

Campaign contributions: Use for personal purposes: Income v. gifts: Issue of law v. issue of fact.--A state senator who diverted campaign contributions to his personal use and filed false campaign statements was improperly convicted of income tax evasion, filing false tax returns, and mail fraud. Although he had been unable to show that the trial judge's conduct had otherwise deprived him of a fair trial or that the indictment was invalid, he successfully showed that the judge erred by instructing the jury that political contributions are, per se, includible in gross income when they are used for personal purposes. The issue was one of fact which should have been resolved by the jury according to the donors' intent. In addition, because the "fraudulent scheme" charged in the indictment was not established at trial, the related mail fraud convictions were also reversed and dismissed.

Rudolph W. Giuliani, United States Attorney, Charles G. LaBella, Assistant United States Attorney, Stacy J. Moritz, Assistant United States Attorney, New York, N. Y., for plaintiff-appellee. John R. Wing, Weil, Gotshal & Manges, 767 Fifth Ave. , New York , N. Y. 10153, for defendant-appellant.

Before NEWMAN, KEARSE, and PRATT, Circuit Judges.

PRATT, Circuit Judge:

Joseph R. Pisani appeals from a judgment of conviction entered on jury verdicts after a five-week trial before Hon. David N. Edelstein in the United States District Court for the Southern District of New York. The jury acquitted Pisani on eleven counts of mail fraud, and could not agree on ten counts relating to a real estate transaction, but convicted him on ten other counts of mail fraud, four counts of income tax evasion, and four counts of filing false income tax returns. Judge Edelstein sentenced Pisani to a total of four years' imprisonment followed by four years' probation, imposed fines totaling $69,000, and, on one of the mail fraud counts, required restitution to a former law client of defendant in the amount of $3,604.

On appeal Pisani raises numerous issues, of which the following require discussion: (1) whether Judge Edelstein's conduct deprived Pisani of a fair trial; (2) whether the grand jury that returned the indictment was lawfully constituted; (3) whether the trial court erred in instructing the jury that political contributions used for personal purposes constituted taxable income; and (4) whether Pisani's conduct in using campaign funds for personal purposes and then falsely reporting those personal expenses as campaign expenditures violated the federal mail fraud statute.

We reverse and dismiss the nine mail fraud counts that are based on filing false reports of campaign expenditures (counts 12, 13, 15, 16, 18, 22, 23, 25, and 26), and we reverse and remand for a new trial on the income tax charges (counts 32 through 39). We affirm the conviction on the mail fraud charge that involved funds of one of Pisani's former clients (count 28).

Background Facts

Pisani was originally elected to the New York State Senate for the 62nd District in Westchester County in 1972 and was reelected to that position every two years up through 1982. During that ten-year period Pisani also campaigned for the offices of New York State Attorney General, Westchester County Executive, and Governor of New York State.

In addition to his public activities, Pisani maintained an active law practice in association with two other lawyers in Westchester County , first as a partner from 1976 to 1980, and thereafter until 1983, as counsel to the firm.

Proceedings Below

On March 8, 1984, the government filed a 39-count indictment against defendant and one Kathryn Godfrey. For discussion purposes, the charges of the indictment can be viewed in four groups:

1. Mallon real estate transaction. Counts 1 through 10 focused on an alleged transaction by which Pisani purchased a summer home from Joseph and Roberta Mallon, and compensated them by providing Joseph Mallon with a no-show job in a state agency. Included in these counts were charges of mail fraud against the state agency, perjury, obstruction of justice, subordination of perjury, and conspiracy to commit mail fraud and perjury and to obstruct justice. Godfrey was named as a codefendant on two counts of perjury (counts 6 and 7), and one count of obstruction of justice (count 9). In all other counts of the indictment Pisani was the only defendant.

2. Campaign fund mail fraud. Counts 11 through 26 charged defendant with mail fraud based on his use of campaign funds for personal purposes and filing false reports of his campaign expenditures.

3. Law practice mail fraud. Counts 27 through 31 charged Pisani with mail fraud in his dealings with his law partners and clients.

4. Tax violations. Counts 32 through 39 charged Pisani with four years of income tax violations.

After a one-month trial and 31/2 days of deliberations the jury could not agree on any of the ten counts relating to the Mallon real estate transaction; it found him guilty on nine and acquitted on seven of the campaign fund mail fraud counts; it found him guilty on one and acquitted him on four of the law practice mail fraud counts; and it found him guilty on all eight of the income tax counts.

As to defendant Godfrey, who is not a party to this appeal, the jury acquitted her on one count of perjury, and could not agree on the other two charges brought against her.

On the nine campaign fund mail fraud convictions Judge Edelstein sentenced Pisani to nine concurrent three-year prison terms and nine $1,000 fines. On the law practice mail fraud conviction, which involved a client's escrow account, Judge Edelstein sentenced Pisani to a three-year prison term, but suspended execution of sentence and imposed probation of four years to commence on his release from prison, on condition that Pisani pay restitution of $3,604 to the defrauded former client. On the four income tax evasion convictions, Judge Edelstein sentenced Pisani to four three-year prison terms to run concurrently with each other and with the nine mail fraud jail sentences, plus four $10,000 fines. On the four convictions for filing false income tax returns, Judge Edelstein sentenced Pisani to four one-year prison terms, to run concurrently with each other, but consecutively to the other sentences, plus four $5,000 fines. Overall, therefore, Pisani was sentenced to four years in prison to be followed by four years' probation, fined a total of $69,000, and required to pay restitution of $3,604.

Issues

On appeal Pisani raises a variety of claims. Some of them are rendered moot by our conclusions on other issues; others have been carefully reviewed and found to be lacking both in merit and jurisprudential significance. Of the claims discussed below two are directed at all counts on which Pisani was convicted: (1) that the trial judge's misconduct deprived him of a fair trial, and (2) that the indicting grand jury was not legally constituted. In addition, Pisani attacks his convictions of mail fraud by use of the mails to embezzle, divert, and convert money from his campaign funds and concealment of the diversions and embezzlement on the ground that his conduct as proved is not proscribed by the federal mail fraud statute. He attacks all of his tax convictions, on the ground that the trial court erred in removing from the jury the issue of whether or not his campaign contributions were gifts and therefore not includible in gross income. Pisani raises no argument on appeal, however, that is directed particularly at his conviction on count 28 of mail fraud with respect to the client's escrow account.

Discussion

A. Judge Edelstein's Conduct. Pisani contends that Judge Edelstein's "hostile and disparaging" treatment of defendant, defense counsel, and defense witnesses during the trial, combined with his "coercive and demeaning" treatment of the jurors, deprived Pisani of his constitutional rights to a fair trial, due process, and the effective representation of counsel. This alleged judicial misconduct, he claims, entitles him to a new trial.

Reviewing Pisani's claim is difficult because, of course, we are unable to observe directly the interaction of personalities during trial; our review is necessarily limited to `the cold black and white of a printed record'". United States v. Grunberger, 431 F. 2d 1062, 1067 (2d Cir. 1970) (quoting United States v. Ah Kee Eng, 241 F. 2d 157, 161 (2d Cir. 1957)). For this reason, we have no handy tool with which to gauge automatically whether the trial judge's conduct has improperly tipped the balance of the trial against the defendant. United States v. Nazzaro, 472 F. 2d 302, 304 (2d Cir. 1973). Our disposition of the claim must flow from careful deliberation after close scrutiny of the record. Our role, however, is not to determine whether the trial judge's conduct left something to be desired, or even whether some comments would have been better left unsaid. Rather, we must determine whether the judge's behavior was so prejudicial that it denied Pisani a fair, as opposed to a perfect, trial. United States v. Robinson, 635 F. 2d 981, 984 (2d Cir. 1980), cert. denied, 451 U. S. 992 (1981). If we conclude that the conduct of the trial had so impressed the jury with the trial judge's partiality to the prosecution that this became a factor in determining the defendant's guilt, then the convictions should be reversed. United States v. Guglielmini, 384 F. 2d 602, 604 (2d Cir. 1967). In light of these general standards we turn to Pisani's various complaints about Judge Edelstein's conduct.

1. Rulings on objections. Pisani first objects to the manner in which Judge Edelstein ruled on objections throughout the trial, emphasizing that Pisani's counsel usually came out on the losing side. Of course, a trial judge must be ever conscious of the special attention and respect he commands from the jury and must exercise caution to maintain an appearance of impartiality. United States v. Vega, 589 F. 2d 1147, 1153 (2d Cir. 1978). But a trial judge must rule on countless objections, and a simple numerical tally of those sustained and overruled, one which here favors the government, is not enough to establish that the scales of justice were tipped against a defendant. Of far greater importance is the correctness and fairness of the judge's evidentiary rulings.

After carefully reviewing the trial transcript we conclude that Judge Edelstein's rulings on objections from both sides were generally sound. Pisani has not pointed to any prejudicially erroneous rulings, and lacking such support, we will not fault the trial judge simply because defense counsel would have preferred a more favorable scorecard. There were numerous instances when the trial judge did sustain defense objections. Moreover, if defense counsel objects when objections are unwarranted--as he did on numerous occasions--he can hardly complain that "it is hard to find a defense objection that was sustained." Similarly, if defense counsel pursues an objectionable line of questioning, he can hardly cry "foul" when the judge sustains a government objection or even excludes the testimony sua sponte.

2. Requiring written argument on objections. Defendant next complains that "the most shocking illustration of the trial court's prejudicial partiality was his imposition on defense counsel--and only defense counsel--of the novel and totally unfair procedural requirement that objections be made by means of written notes". In the first place, this assertion is untrue; Judge Edelstein also required the government to write out its objections on occasion. Second, Judge Edelstein required written submissions only with respect to extended arguments; as the record shows, he entertained repeated oral objections from both sides, and allowed brief side bar conferences at the request of either party. Third, Judge Edelstein adopted this procedure to avoid distracting the court and jury from the examination of witnesses, and we have long recognized that a trial judge has wide discretion to adopt methods designed to expedite a trial. United States v. Dardi, 330 F. 2d 316, 330 (2d Cir.), cert. denied, 379 U. S. 845 (1964). This procedure effectively served that end.

Finally, Pisani claims prejudice because the practice allowed evidence to be received and absorbed by the jury before the court could make a considered ruling on the objection. Aside from the fact that the trial judge could have cured most prejudicial effects by proper instructions to the jury, the defendant points to no instance, nor do we find any, where prejudicial evidence was erroneously revealed to the jury under this practice and then later excluded.

3. Questioning defense witnesses. Pisani also contends that Judge Edelstein exceeded the proper scope of his duties by interrupting defense counsel to ask questions of both Pisani and the other defense witnesses. But as Judge Edelstein colorfully informed this jury, a trial judge need not sit like "a bump on a log" throughout the trial. He has an active responsibility to insure that issues are clearly presented to the jury. Vega, 589 F. 2d at 1152. Thus, the questioning of witnesses by a trial judge, if for a proper purpose such as clarifying ambiguities, correcting mistatements, or obtaining information needed to make rulings, is well within that responsibility. United States v. Bronston, 658 F. 2d 920, 930 (2d Cir. 1981), cert. denied, 456 U. S. 915 (1982). Here, some of the interruptions were invited by defense counsel's often ambiguous or repetitive questions. See United States v. Pellegrino, 470 F. 2d 1205, 1207 (2d Cir. 1972), cert. denied, 411 U. S. 918 (1973). Even though it is sometimes difficult to tell from the written record whether a judge's questions unfairly disparaged the defense, see Grunberger, 431 F. 2d at 1067, it does not appear here that the judge's limited questioning of either the defendant or the other defense witnesses exceeded any proper bounds or conveyed to the jury and impression of the judge's belief in the defendant's probable guilt. See United States v. De Sisto, 289 F. 2d 833, 835 (2d Cir. 1961).

4. Criticisms of counsel. Somewhat more troubling for us is the abrupt tenor of some of Judge Edelstein's instructive and evaluative comments to defense counsel. We have repeatedly insisted that a trial judge display patience with counsel "so as not to prejudice a party or create an impression of partisanship before the jury", see e.g., United States v. Pellegrino, 470 F. 2d at 1207. However, we must also keep in mind the enormous pressures placed upon our trial judges by their ever-expanding dockets and the increasing complexity of modern trials, and we recognize that those pressures, particularly in a protracted case, can on occasion cause even the most imperturbable judge to vent irritation or impatience that ideally should be suppressed. See United States v. Nazzaro, 472 F. 2d at 304.

With distressing frequency, however, Judge Edelstein made comments in the jury's presence that could better have been avoided, such as needlessly characterizing counsel's questions or statements as "improper" and "completely without merit". He also may have suggested to the jury a negative perception of defense counsel's competence by directing him to "stop mumbling", by stating that a particular line of questioning was "a bore and a waste of time", and by implying several times that counsel was misleading the jury.

While we regard such unnecessary barbs most seriously, we have carefully evaluated the incidents complained of and, on balance, have concluded that they did not deprive defendant of a fair trial. At least some of Judge Edelstein's comments were provoked by counsel's continuing to do things that the court had specifically cautioned him to avoid, a factor that properly may be taken into account to determine whether defendant was prejudiced. Robinson, 635 F. 2d at 985.

Moreover, as serious as some of the incidents are, they occupy but a very small part of this extensive trial record. Most importantly, Judge Edelstein at least partially mitigated the possibly prejudicial impact of his comments by explaining to the jury several times that his admonishments of counsel should have no bearing on their deliberations or determinations. See id. Fortunately, he also saved his most intemperate comments for delivery outside the presence of the jury. Viewing the record as a whole, therefore, we conclude that while some of the trial judge's comments and behavior toward defense counsel were regrettable, they did not convey to the jury an impression of partiality toward the government to such an extent that it became a factor in their deliberations.

5. Treatment of jurors. We find no support in the record for Pisani's assertion that Judge Edelstein treated the jurors in a demeaning fashion. On the contrary, Judge Edelstein seems to have established a friendly rapport with the jurors and made reasonable efforts to help them deal with the inconvenience attendant to jury service in any lengthy trial.

Finally, we reject Pisani's assertion that Judge Edelstein coerced a verdict by his statements to the jurors on Thursday, the third day of deliberations, when he informed them that they would have to deliberate through the weekend if they did not reach a verdict by Friday. Although some of his comments concerning the difficulties faced by judges, court personnel, and others involved in the trial process could better have been omitted, nothing he did say exceeded a permissible level of encouragement to the jurors to responsibly pursue their duties as jurors. See United States v. Bermudez, 526 F. 2d 89, 100 (2d Cir. 1975), cert. denied, 425 U. S. 970 (1976).

In short, we reject Pisani's claim that Judge Edelstein's conduct at trial, whether viewed as separate incidents or as a whole, deprived Pisani of a fair trial or effective representation of counsel.

B. Validity of the indictment. Pisani attacks the validity of his indictment, claiming that the term of the grand jury had expired because the rule under which it had been extended was illegally adopted. This attack rests on an intricate chain of reasoning. The grand jury that indicted Pisani was originally empanelled on March 23, 1982, for a term of 18 months to expire on September 23, 1983, the maximum term permitted by Fed. R. Crim. P. 6(g). An amendment to rule 6(g), which permits a six-month extension of a grand jury's term if the district court determines that the extension was "in the public interest", became effective on August 1, 1983. By order dated August 18, 1983, Chief Judge Motley of the Southern District of New York extended the term of Pisani's grand jury for six months to March 23, 1984. During the extension period the grand jury returned the original and first superseding indictments against Pisani, as well as the second superseding indictment on which he was tried.

Rule 6(g) was amended by the "report and wait" procedure set forth in 18 U. S. C. §3771. Under that procedure, the Supreme Court is authorized to prescribe rules of "pleading, practice and procedure" for criminal cases. The rules are reported to congress and take effect after 90 days, unless rejected, postponed or amended by congress.

Relying upon Costello v. United States [56-1 USTC ¶9321], 350 U. S. 359, 362 (1956), and United States v. Fein, 504 F. 2d 1170, 1173-79 (2d Cir. 1974), Pisani argues that he has a substantive right to be indicted by a grand jury that is independent from prosecutorial control and that the length of the grand jury's term is directly related to its independence. Pisani reasons that since the tenure of the grand jury is thus a matter of substance, and not one of "pleading, practice or procedure", any attempted amendment by the "report and wait" procedure was invalid. He concludes that since the life of the grand jury had been extended pursuant to an invalidly adopted rule, his indictment was returned by a grand jury whose term had expired, and, under United States v. Fein, must be dismissed.

One flaw in Pisani's reasoning rests with his attempted characterization of the tenure of a grand jury as substantive, rather than procedural. Although we expressed concern in United States v. Fein, 504 F. 2d at 1179, that grand jurors "might by dint of longer service become themselves arms of the state instead of representatives of the citizenry", we did not thereby create any substantive right to indictment within 18 months. Indeed, congress itself in 18 U. S. C. §3331 has provided that the term of a grand jury empanelled pursuant to the Organized Crime Control Act may be extended to a maximum of 36 months, and we have upheld the validity of that statute. United States v. Schwartzbaum, 527 F. 2d 249, 256 (2d Cir. 1975), cert. denied, 424 U. S. 942 (1976).

A further flaw in Pisani's argument is the fact that former rule 6(g) which established the 18 month term for a grand jury was adopted by the same "report and wait" procedure used to enact the challenged 1983 amendment. Pisani responds that the former rule merely restated law already on the books, 28 U. S. C. §421, which had been enacted by express congressional action, but we see no significance to this historical fact. Its very nature, as well as its inclusion in the Federal Rules of Criminal Procedure (emphasis added,) demonstrates the procedural character of the amendment to rule 6(g), which was adopted after a history of congressional experimentation with grand jury tenure. See United States v. Fein, 504 F. 2d at 1173-9.

We conclude that Pisani's indictment by a grand jury whose tenure had been extended pursuant to the 1983 amendment of rule 6(g) was not invalidated by the manner in which the amendment authorizing that extension had been adopted.

C. The erroneous charge on income. Pisani contends that Judge Edelstein's jury instructions on the income tax counts improperly removed from the jury's consideration "the question of whether gifts to Pisani's campaign funds yielded taxable income to him when spent on personal items."

To prove a substantial tax due in this criminal case the government followed the "specific items" approach, whereby it presented evidence of specific items of claimed taxable income that Pisani had received but not reported on his relevant returns. With respect to his campaign contributions, the specific items relied upon by the government were those funds that Pisani had taken from his campaign funds and used for personal, rather than political, purposes.

One of Pisani's central contentions at trial was that the money contributed to his campaign by his supporters constituted nontaxable gifts to him because the money was donated without restriction as to use. Four of Pisani's witnesses testified substantially to that effect. One government witness, a former law partner of Pisani, testified that when he gave Pisani money he expected it would be used for campaign purposes. Pisani, himself, testified that he believed that a number of the contributions were unrestricted gifts that he was not required to report as income. A factual issue was thus generated as to whether the campaign funds Pisani used personally came from contributions and gifts that were unrestricted as to use. If so, should they have been excluded from Pisani's taxable income?

The Internal Revenue Code defines income to include all income received from any source, except as otherwise provided. 26 U. S. C. §61. It is "otherwise provided", however, that the value of property acquired by gift is not included in gross income. 26 U. S. C. §102(a).

The fourth and sixth circuits have held than any funds contributed to a recipient's political campaign and then diverted to his personal use are income taxable to the recipient. United States v. Miriani [70-1 USTC ¶9248], 422 F. 2d 150, 152 (6th Cir.), cert. denied, 399 U. S. 910 (1970) (criminal); United States v. Jett [65-2 USTC ¶9706], 352 F. 2d 179, 182 (6th Cir. 1965), cert. denied, 383 U. S. 935 (1966) (criminal); O'Dwyer v. Commissioner [59-1 USTC ¶9441], 266 F. 2d 575, 585-86 (4th Cir.), cert. denied, 361 U. S. 862 (1959) (civil).

In reaching their conclusions in Miriani, Jett, and O'Dwyer, these courts all relied on a 1954 revenue ruling in which the IRS had declared that any political gift "used by a candidate or other individual for personal use constitutes taxable income to such candidate or other individual for the year in which the funds are so diverted." Rev. Rul. 54-80, 1954-1 C. B. 11, 12. In Jett, the court also cited Reichert v. Commissioner [Dec. 19,504], 19 T. C. 1027, (1953), which stated a similar proposition, see 19 T. C. at 1038-39.

In 1968, however, the I. R. S. modified its position. It abandoned its absolute, inflexible rule that made taxable all personal diversions of campaign funds and adopted a rebuttable presumption focused upon the donors' intent. In Rev. Proc. 68-19 it stated that

The service will presume in the absence of evidence to the contrary that contributions to a political candidate are political funds which are not intended for the unrestricted personal use of such recipient. If it can be shown that the funds were intended for the unrestricted personal use of the political candidate, then the Service will apply the principles set forth in Commissioner v. Mose Duberstein, et al., [60-2 USTC ¶9515], 363 U. S. 278 (1960) * * * to determine whether or not the funds may [as gifts] be excluded from his gross income under section 102 of the Code.

Rev. Proc. 68-19, 1968-1 C. B. 810, 811.

Quoting Rev. Proc. 69-19 in Stratton v. Commissioner [Dec. 29,958], 54 T. C. 255, 280 (1970), the tax court held that "[t]he line between an outright gift and a campaign contribution is a very thin line." The court then analyzed whether funds received by Stratton, the former governor of Illinois , constituted untaxable gifts. Based on the unequivocal testimony of several individuals that they had intended "to make outright gifts to [Stratton] to do with as he pleased with no strings attached", the court found that these transfers "were made from a 'detached and disinterested generosity,' 'out of affection, respect, admiration, charity or like impulses [,]' Commissioner v. Duberstein [60-2 USTC ¶9515], 363 U. S. 278, 287 (1960)" and therefore were not taxable income. Stratton v. Commissioner, 54 T. C. at 281.

We think that this approach is correct. See United States v. Scott [81-2 USTC ¶9663], 660 F. 2d 1145, 1164 & n. 37 (7th Cir. 1981), cert. denied, 455 U. S. 907 (1982). Moreover, it would be unfair to Pisani not to treat the question as a factual one when the commissioner and the tax court had, prior to the tax years in question, expressly declared that the question was factual.

Judge Edelstein, however, did not submit that issue of fact to the jury. He charged the automatic rule that was adopted by Miriani, Jett, and O'Dwyer and was based on Rev. Rul. 54-80. He charged the jury:

[P]olitical contributions that are diverted to personal use are not gifts. They are includable in gross income in the year in which the funds are used personally.

In effect, therefore, he ignored Rev. Proc. 68-19 and Stratton, and he did so despite Pisani's specific request for a charge that would have permitted the jury to determine whether the political contributions were non-taxable gifts or taxable income. Although Pisani's counsel took no specific exceptions after the charge was given, the charge was erroneous and the magnitude of its error was enhanced in the very next paragraph when Judge Edelstein instructed the jury to determine whether other moneys Pisani had received from clients were actually gifts as he claimed. The proper instruction on gifts from clients contrasted sharply with the immediately prior instruction that political contributions could not be gifts, and it virtually guaranteed Pisani's conviction on the tax counts. On this record, therefore, and in light of defendant's specific request to charge, we conclude that this erroneous instruction constituted plain error requiring reversal of all eight of Pisani's income tax convictions.

D. Mail fraud based on Pisani's personal use of campaign funds. Pisani challenges his campaign fund mail fraud convictions on the ground that his conduct did not constitute the crime of mail fraud proscribed under 18 U. S. C. §1341. That section provides:

Whoever, having devised * * * any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, * * * for the purpose of executing such scheme or artifice [uses the mails, shall be guilty of a crime].

The "fraudulent scheme" charged against Pisani in paragraph 40 of the indictment was one

to obtain, divert and embezzle at least $45,000 unlawfully from the Joseph R. Pisani Campaign Funds, to convert said funds to the personal use, enjoyment and benefit of the defendant PISANI * * *, and to conceal said diversion and embezzlement. (emphasis added).

The italicized words above support the thrust of Pisani's argument on this issue. He contends that his use of campaign funds for personal purposes was not unlawful and therefore that there simply was no "fraudulent scheme" as charged in the indictment.

At the heart of this issue lies the question of whether New York law required Pisani to use moneys contributed by his compaign fund solely for campaign purposes, and prohibited him from putting them to personal use. The government contends that applicable New York law did prohibit personal use of campaign funds, and that Pisani's conceded use of some of them for personal purposes constituted embezzlement and conversion. Pisani contends and we agree, that at the time of the events in question, nothing in New York law prohibited a candidate from using campaign funds for personal purposes. Consequently, the "fraudulent scheme" charged in the indictment was not established at trial, and those campaign fund mail fraud counts on which Pisani was not acquitted must be dismissed.

1. Factual background. Campaign funds of state offices in New York state are typically handled through a candidate's political campaign committees which collect contributions and disburse funds. Those committees, which often consist of no more than the candidate and a bookkeeper, are required to file statements of their receipts and expenditures periodically with the state board of elections. N. Y. Elect. Law §§ 14-110, 14-118 (McKinney 1978 & Supp. 1984).

Senator Pisani maintained several political campaign committees that collected and disbursed funds for his candidacies for public office. Lillian Steinberg, Pisani's secretary, kept the books and prepared and filed with the New York State Board of Elections the required financial disclosure statements. These statements required identification of the recipient, amount, and purpose of all disbursements of $50 or more, and noted that any false statement was punishable as a misdemeanor. In preparing the statements, Steinberg obtained the required information by reviewing the campaign books and by asking Pisani for more information when the books did not provide an explanation.

It is undisputed that Pisani used substantial amounts from the campaign funds to pay personal expenses of himself, of members of his family, and of his codefendant, Kathryn Godfrey, as well as for various business investments. It is also undisputed that the corresponding entries on his disclosure statements did not accurately reflect the true purpose of those personal expenditures, and it may be, although we do not decide the question, that a scheme to defraud his contributors could have been alleged and proved.

As this particular case was charged by the grand jury and presented to the trial jury, however, the essence of the alleged fraudulent scheme was that Pisani unlawfully defrauded his own campaign funds for personal purposes. This position was set forth in the indictment, urged in the government's opening statement and summations, and reinforced by the charge of the trial judge who provided no separate description of the alleged scheme to defraud but, instead, simply referred the jury back to the scheme of embezzlement and conversion charged in the indictment.

As he presented what the case was about, in his opening statement, the prosecutor stated that

Pisani took money from his campaign funds to pay for personal expenses * * *. Tr. 3

The fourth group of charges involves the campaign funds * * *. From these funds wre [sic] taken money by Joseph Pisani, Senator Pisani, for his personal expenses, for his personal use, not related to legitimate campaign expenses. Tr. 7

Finally, you will hear how Senator Pisani used his campaign funds like a personal bank account. The Senator freely took money from the campaign funds to pay for his vacation, to pay for expenseive [sic] gifts he gave to others and to pay for personal business investments. Tr. 15

The evidence will show that Senator Pisani withdrew money from his campaign funds for personal expenses and falsely represented those expenditures on the financial disclosure statements. Tr. 15

You will hear many such examples of money taken out of the campaign funds, used for personal expenses and the purpose for the disbursement falsely represented on the disclosure statement filed with the Board of Elections. Tr. 17

In his main summation the prosecutor stated:

The government has proven that Senator Pisani engineered and carried out a scheme to defraud his various campaign committees by filing false financial returns, false financial disclosure statements. Tr. 2245

On his rebuttal summation the prosecutor repeated:

What the case is about, this case comes down to, is the 3 frauds, the Mallon house in Blooming Grove , New York , and the coverup of that transaction, the fraud against the law firm and the clients of the law firm, and the fraud against the campaign, the campaign funds. Tr. 2396 He further stated on rebuttal:

The real point here is that Joe Pisani used thousands of dollars in his campaign funds for personal expenses * * *. Not only that, he hid how he used that money. Tr. 2428

In at least two portions of his charge Judge Edelstein reinforced the prosecutor's view that these mail fraud charges involved a scheme to defraud the campaign funds. When reviewing the various counts of the indictment he stated:

Counts 11 through 26 charge that Joseph R. Pisani violated the mail fraud statute, Title 18 of the United States Code, section 1341, by scheming to defraud his political campaign funds of at least $36,000 to pay personal expenses for himself, his family and others. Tr. 2446-7

When he discussed the elements of mail fraud, Judge Edelstein reminded the jury that it was "not necessary that the government prove every single allegation set forth in that count of the Indictment", Tr. 2465, but that it was necessary that three elements be proved, including the existence of a fraudulent scheme. But he made no reference to either the proof or the government's contentions with respect to the fraudulent scheme and thereby left the jury to decide the case based on the indictment and the arguments, all of which focused upon the claim that Pisani had defrauded his own funds by taking from them moneys that he was not entitled to have for personal purposes, and by concealing what he had done by filing false disclosure statements through the mails.

2. The Mail Fraud statute. The two key elements of a mail fraud violation are a scheme to defraud and use of the mails in furtherance of that scheme. Use of the mails is not in issue; we are concerned only with the alleged fraudulent scheme. Although congress has not defined the term "scheme to defraud", the federal courts have broadly interpreted it in determining the reach of the mail fraud statute. United States v. Buckner, 108 F. 2d 921, 926 (2d Cir.), cert. denied, 309 U. S. 669 (1940). The United States Supreme Court has held that congress may forbid any use of the mails that furthers a scheme to defraud that it regards as contrary to public policy, even if congress could not forbid the scheme itself. Parr v. United States , 363 U. S. 370, 389 (1960). This versatility has led to the observation that

[t]o federal prosecutors of white collar crime, the mail fraud statute is our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart--and our true love. We may flirt with RICO, show off with 10b-5, and call the conspiracy law "darling," but we always come home to the virtues of 18 U. S. C. §1341, with its simplicity, adaptability, and comfortable familiarity.

Rakoff, The Federal Mail Fraud Statute (Part 1), 18 Duq. L. Rev. 771, 771 (1980) (footnotes omitted).

Even the best of relationships, however, must occasionally experience some strain, and in the context of Pisani's campaign fund mail fraud counts, we think that occasion has arrived.

3. New York law on use of campaign funds. It seems clear that no provision of New York law in effect prior to this indictment prohibited a candidate from using campaign funds for personal purposes. Certainly, there was no express provision on the subject in the New York statutes, and both the attorney general and the board of elections of the state have rendered opinions indicating that nothing in New York 's election law governs how campaign moneys that are not disbursed for campaign purposes may be spent.

In 1983 the attorney general was asked by a city government to consider

whether a local government is authorized to enact regulations prohibiting the use or expenditure of campaign contributions for non-campaign related purposes.

Op. Att'y Gen., No. I-83-57 (Sept. 28, 1983). He concluded that precisely because state law does not address that issue, a locality may properly enact an ordinance prohibiting the personal use of campaign funds. His opinion reads, in part:

[W]e have found no provision of the Election Law that deals with the disposition of surplus campaign funds. * * * Nor have we discovered from the legislative history of Article 14 of the Election Law or from the provisions of the Article any intent that reporting was viewed as a means to regulate the use of campaign funds. While disclosure may tend to inhibit the personal use of funds, such use is not prohibited and is not subject to sanction.

Id. (emphasis added).

Along similar lines, the state board of elections concluded that

there is nothing in the Election Law which limits the use of surplus funds. * * * [T]here is nothing in the Election Law which would prohibit an elected official from using surplus campaign funds for any lawful purpose * * *.

New York State Board of Elections, 1979 Opinion No. 3.

The government seizes upon the term "surplus funds" in these opinions as limiting their applicability only to those funds that are left over at the end of a campaign. We do not think this is a fair interpretation of the principle discussed, and in any event, there was nothing in the New York statutory system covering campaign funds to warrant drawing a restrictive distinction between "surplus" and "active" campaign funds that would permit personal use of the former but prohibit it as to the latter.

The government also attempts to deduce a prohibition upon personal use of campaign funds from Election Law §17-140. Both the language and history of that lengthy statute, which was enacted long before the modern concept of campaign committees and campaign funds was developed, reveal that its purpose was not to limit the uses to which contributed campaign moneys could be put, but to regulate how any moneys, whether contributed to a candidate or drawn from his own personal resources, could be spent in connection with election campaigns.

At the relevant times, §17-140 read: Any person who directly or indirectly by himself or through any other person in connection with or in respect of any election:

1. On a day of a general, special or primary election, gives or provides, or causes to be given or provided, or shall pay for wholly or in part, any meat, drink, tobacco, refreshment or provision, to or for any person, other than persons who are official representatives of the board of elections or political parties and committees and persons who are engaged as watchers, party representatives or workers assisting the candidate; or,

2. Pays, lends or contributes, or offers or promises to pay, lend or contribute any money or other valuable consideration, for any other purpose than the following matters and services at their reasonable, bona fide and customary value is guilty of a class A misdemeanor: [There follows a list of authorized expenditures such as publicity, rent, telephone, travel, etc.]

Nothing in this section refers to campaign committee funds or in any other way identifies the source of the moneys from which expenditures may be made. The clear intent was to regulate what could be spent "in respect of any election", and not to regulate or restrict a candidate's expenditures for nonelection purposes.

Finally, the New York legislature, after argument of this appeal, enacted Chapter 152 of the Laws of 1985 which directly addresses this issue. It added to the Election Law a new section 14-130 which provides:

Campaign funds for personal use. Contributions received by a candidate or a political committee may be expended for any lawful purpose. Such funds shall not be converted by any person to personal use which is unrelated to a political campaign or the holding of a public office or party position.

Had this new provision been in effect during the period covered by Pisani's indictment, we would not hesitate to affirm his convictions here. But since no similar provision had ever been enacted previously, we conclude that prior to 1985 a candidate in New York state was not prohibited from using campaign funds for personal purposes. That being so, the central premise underlying the fraudulent scheme charged against Pisani fails.

As a fall-back position the government, on appeal, has shifted its emphasis. Now it argues that even if the scheme to defraud did not involve embezzlement and conversion of campaign funds, the evidence shows that Pisani fraudulently schemed to file false reports of how he used his campaign funds. In essence, the government argues that Pisani reported the information falsely, and that he did so to conceal the truth of his personal expenditures from the board of elections and from his contributors, who would not have continued to support him had they known he was using some of their contributions for private investments and other personal purposes.

As to a claimed scheme to defraud the state board of elections, there is no indication before us that had the board known the truth about the nature of the expenditures it would have been able or willing to take any corrective action. As to the claimed scheme to defraud the contributors, there is scant evidence to establish that contributors entertained the expectations attributed to them by the government. While one witness, Pisani's former law partner, testified that he had contributed to Pisani's campaign funds and expected that the money would be spent for campaign expenses, four others who testified about how they expected their contributions to be used all agreed that they did not care whether Pisani used them for political or personal purposes. Now was there any evidence that any of Pisani's political contributors ever saw or heard about the contents of the disclosure statements he filed with the board of elections.

In any event, we think this shift in theory and emphasis in the government's case comes far too late to sustain Pisani's campaign fund mail fraud convictions. We need not now decide whether a mail fraud charge might be based on misleading contributors through false reports of campaign fund expenditures, because that is not the case that the government brought against Pisani and tried to the jury. Since the government has failed to uphold the legal premise of the fraudulent scheme on which it chose to prosecute Pisani, namely, that personal use of campaign funds was prohibited under New York law, the campaign fund mail fraud convictions must be dismissed.

Conclusion

The convictions on the campaign fund mail fraud counts are reversed, and those counts of the indictment are dismissed. The convictions on the income tax counts are reversed, and those counts are remanded for a new trial. The conviction on the law practice mail fraud count is affirmed.

[73-2 USTC ¶9751] United States of America v. First National Bank of Commerce in New Orleans

U. S. District Court, East. Dist. La., Civil Action No. 72-247, Section B, 10/10/73

[Code Sec. 6332]

Levy: Bank checking account: Penalty for failure to surrender property.--A bank at the time of levy was entitled under state law to set off against the balance in the delinquent taxpayer's checking account only those debts owed to the bank by the taxpayer which were liquidated and demandable at the time of the levy. The bank was not entitled to set off charges posted after the date of the levy for services rendered before that date for several returned checks (NSF) and for cancelled Bank Americard transactions which had been previously credited upon deposit on or before the date of the levy. Further, the bank was liable for the penalty (costs and interest at a rate of 6% per annum from the date of the levy) since its failure to honor the levy was not due to reasonable cause.

Gerald J. Gallinghouse, United States Attorney, John R. Schupp, Assistant United States Attorney, New Orleans, La., for U. S. Henry P. Dart, III, Dart & Dart, 1008 Nat'l Bank Commerce Bldg., New Orleans, La., for defendant.

HEEBE, District Judge:

In this civil action brought pursuant to 26 U. S. C. §6332, the United States of America seeks to recover from the First National Bank of Commerce in New Orleans (hereinafter referred to as the Bank) the amount of money in the checking account of a delinquent taxpayer, Leisure Systems, Inc., which the Bank failed to surrender upon a notice of a tax levy served on April 29, 1971. The government also seeks a penalty pursuant to 26 U. S. C. §6332(c)(2), together with interest and costs.

It is the contention of the Bank that the amount of money shown by the taxpayer's bank statement to be in its account on the date in question was not the true balance on that day. The Bank asks this Court to subtract from that figure various charges posted after April 29, 1972 for services rendered prior to that date and several "Returned Checks" (NSF) and cancelled Bank Americard transactions which had been previously credited upon deposit on or before April 29, 1972.

The Bank further asks that penalties not be assessed according to 26 U. S. C. §6332(c)(2) which states in pertinent part, ". . . if any person required to surrender property or rights to property fails or refuses to surrender such property or rights to property without reasonable cause, such person shall be liable for a penalty equal to 50 per cent of the amount recoverable . . .." The Bank maintains that the amount was not immediately ascertainable since, for example, checks returned NSF may take several weeks before they are actually debited and that, therefore, it was reasonable to fail to surrender the money to the government.

The Bank has filed a third party complaint against the taxpayer, Leisure Systems, Inc., to which the third party defendant has not answered.

In addition, the Bank filed an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure for an amount approximately equal to the "adjusted" balance of the taxpayer's account.

Findings of Fact

1. On April 29, 1973, a Notice of Levy upon the account of Leisure Systems, Inc., was served on the First National Bank of Commerce in New Orleans by the Internal Revenue Service.

2. On April 29, 1971, Leisure Systems, Inc., had a balance of $1,925.30 in its checking account. Included in this sum were credits for checks which had not yet been paid as well as credits for accounts receivable vouchers arising out of Bank Americard transactions. The taxpayer was permitted to draw upon these credits.

3. Having received no remittance from the Bank, the Internal Revenue Service served a Final Demand on the Bank on May 20, 1971.

4. Still having received no remittance from the Bank, the Internal Revenue Service served a second Notice of Levy on the Bank on May 25, 1971, on which date Leisure Systems, Inc., had a balance of $189.91 in its checking account.

5. On April 29, 1971, the Bank failed to "freeze" the account of Leisure Systems, Inc., and permitted it to be drawn upon until May 25, 1971.

6. On June 2, 1971, the Internal Revenue Service received a check for $189.91 from the Bank.

7. Between April 30, 1971, and June 28, 1971, the Bank debited the checking account of Leisure Systems, Inc., for various Returned Checks (NSF) which checks had been credited to Leisure System's account prior to April 29, 1971, for check printing and Bank Americard charges for services rendered prior to April 29, 1971, and for cancelled Bank Americard transactions which arose prior to April 29, 1971, totalling $201.41.

Conclusions of Law

1. 26 U. S. C. §6332 provides for the surrender of property or rights to property of a delinquent taxpayer in possession of any person upon whom a levy has been made.

2. This Court must look to Louisiana law to determine the extent to which a taxpayer had property or rights to property subject to levy by the Internal Revenue Service. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509, 80 S. Ct. 1277, 4 L. Ed. 2d 1365 (1969); United States v. St. Johns Community Bank [69-2 USTC ¶9518], 302 F. Supp. 149 (E. D. Mo. 1969).

3. Under Louisiana law the bank, at the time of the levy, was entitled to set-off (also referred to as "compensation" under Louisiana law) against the $1,925.30 in the taxpayer's checking account only those debts owed to the Bank by the taxpayer which were liquidated and demandable at the time of the levy. L. S. A.-C. C. Arts. 2207, 2208, 2209; see also, Hughes Realty, Company v. Pfister, 245 So. 2d 757 (4th Cir. 1971).

4. The charges totalling $201.41 which the Bank seeks to set-off against the $1,925.30 in the taxpayer's account on April 29, 1971, were not "liquidated and demandable" on April 29, 1971; they became "liquidated and demandable" only after April 29, 1971, when actually debited against the taxpayer's account.

5. Therefore, the Court concludes that on April 29, 1971, the $1,925.30 in the taxpayer's checking account constituted property of the taxpayer in possession of the Bank which the Bank failed to surrender without reasonable cause.

6. Plaintiff is entitled to judgment in the amount of $1,735.39 (the difference between the $1,925.30 in taxpayer's account and the $189.91 which the Bank eventually remitted) together with a penalty of $867.70 pursuant to 26 U. S. C. §6332(c)(2) for a total of $2,603.09, plus interest dating from April 29, 1971. Since the amount recovered by the government is greater than the Bank's offer of judgment, the government is entitled to costs, and the motions of the United States to strike the offer of judgment and of the defendant to correct the offer of judgment are declared to be moot.

7. While the Bank, as third party plaintiff, may be entitled to judgment by default against the third party defendant, Leisure Systems, Inc., the Court cannot enter such judgment until the Bank complies with Rule 55(b) of the Federal Rules of Civil Procedure.

Let judgment be entered accordingly.

Partial Judgment

This cause came on for trial on a former day, and after hearing the evidence, the Court took the matter under submission.

Now, therefore, considering the written reasons of the Court and the direction as to entry of judgment;

It is ORDERED, ADJUDGED AND DECREED that plaintiff, United States of America, is entitled to judgment in the amount of $1,735.39 (the difference between the $1,925.30 in taxpayer's account and the $189.91 which the Bank eventually remitted) together with a penalty of $867.70 pursuant to 26 U. S. C. Sec. 6332(c)(2) for a total of $2,603.09, plus interest dating from April 29, 1971, plus costs.

74-2 USTC ¶9494]United States of America , Plaintiff-Appellee v. First National Bank of Commerce in New Orleans, Defendant-Third Party Plaintiff-Appellant, Leisure Systems, Inc., et al., Third Party Defendants-Appellees

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 73-4039, Summary Calendar, ^*, 493 F2d 1228, 5/9/74, Aff'g District Court, 73-2 USTC ¶9751

[Code Sec. 6332]

Levy: Failure to honor: Bank: Effect.--A bank improperly failed to honor an IRS levy on funds in a depositor's account and was liable for the penalty for such a failure. The bank was not entitled to set off charges it made against the depositor's account after the date of levy for services it rendered prior to that date.

Gerald J. Gallinghouse, United States Attorney, Michaelle F. Pitard, John R. Schrupp, Assistant United States Attorneys, New Orleans, La., Marlow R. Preston, 569 Jacinto Bldg., 911 Walker St., Houston, Tex., for plaintiff-appellee. Henry P. Dart, III, 1008 First Nat'l Bank of Commerce Bldg., New Orleans, La., for defendant-third party plaintiff-appellant.

Before COLEMAN, DYER and RONEY, Circuit Judges.

PER CURIAM:

In this appeal from a bench trial the district court's findings of fact are not attacked. After a careful review of the record we are satisfied that the court applied proper legal standards, and the judgment entered below should therefore be

Affirmed. ¹

^* Rule 18, 5 Cir.; See Isbell Enterprises, Inc. v. Citizens Casulalty Co. of New York et al., 5 Cir., 1970, 431 F. 2d 409, Part I.

¹ Although the district court made no finding or conclusion concerning the sufficiency of the service of the levy on the Bank's Vice-President and Controller we find the Bank's contention that the service was invalid to be without merit.

 

 

 

 

 

 

 

 

[63-2 USTC ¶9501]Bank of America National Trust & Savings Association, a National Banking Association, Appellant v. United States of America , Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 18,142, 317 F2d 859, 5/24/63, Affirming District Court, 62-2 USTC ¶9563

[1954 Code Sec. 6332]

Tax liens: Banks accounts: Failure of bank to pay over after levy and demand: More comprehensive stipulation needed.--The lower court had held that Federal tax liens were perfected before the bank had a right of set-off against the taxpayer's accounts, and the Government was entitled to judgment against the bank when it failed to pay over the money after levy and demand. This decision was vacated and remanded for a more comprehensive stipulation on the accounts and the bank's claimed set-off.

Samuel B. Stewart, Robert H. Fabian, Alfred T. Twigg, Bank of America, N. T. & S. A., Los Angeles, Calif., for appellant. Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph Kovner, Fred E. Youngman, Department of Justice, Washington 25, D. C., Francis C. Whelan, United States Attorney, Walter S. Weiss, Herbert D. Sturman, Assistant United States Attorneys, Los Angeles, Calif., for appellee.

Before CHAMBERS and BARNES, Circuit Judges, and WEIGEL, District Judge.

CHAMBERS, Circuit Judge:

J. B. Edmondson in August, 1959, was a customer of the Bank of America at its West Orangethorpe Road office in Fullerton , Orange County , California . Credit balances owed him by the bank on August 27, 1959, which, if there were no liens or set-offs, all would agree, amounted to $6,658.31.

Dating from 1955 to and including August 27, 1955, the government (the Internal Revenue Service) had balances due from the bank's customer Edmondson in excess of eight thousand dollars plus interest on three assessments made in 1955 for deficiencies in taxes for that year, either payroll withholding or F. I. C. A. (i.e. social security) payable in 1955 for the first three quarters thereof. The process of making the assessments, notifying the taxpayer Edmondson of the assessments and filing notices of lien in the recorder's office of Orange County , California , was all completed by January 28, 1958. Then on August 27, 1959, the date herein mentioned at the outset, the District Director of Internal Revenue served a notice of levy upon the bank upon "all property or rights to property belonging to" Edmondson. Thereafter a final demand was made upon the bank. This was refused and on April 11, 1961, the United States sued the Bank of America for its book balances of $6,658.31 as of August 27, 1959, in favor of Edmondson. ¹

Very promptly and on August 28, 1959, the bank proceeded to protect itself by asserting a right of set-off against Edmondson. It made bookkeeping entries disposing of the customer's previous balance of $6,658.31 as follows:

1. On "boat mortgage" indebtedness

of Edmondson

to the bank ..............................            $1,130.68

2. On unsecured note .....................             1,230.10

3. On four or five conditional

sales contracts assigned

by Edmondson to

the bank .................................           2 4,297.53

Total ....................................            $6,658.31

 

The question of the case is whether the bank's self-help here was grounded on its legal right under applicable statutes, or did the federal levy get in between Edmondson's rights against the bank and the bank's rights against Edmondson.

After a "Pre-trial Stipulation of Facts and Statement of Contentions and Issues" was signed by the parties, each made a motion for summary judgment for the sum of $6,658.31. The trial court granted the government's motion. The bank appeals.

We have here a case which is obviously related to our case of Bank of Nevada v. United States [58-1 USTC ¶9228], 251 F. 2d 820, but as of now one has difficulty in determining whether it is a sister case or a case of third cousins twice removed. The trouble is in the stipulation and pre-trial order.

The exact nature of Edmondson's liability to the bank under the conditional sales contracts (apparently the seller's ends of the contracts were assigned to the bank) is not shown. The debt on the boat is described as "boat mortgage." The note is described as "unsecured note." Where reference is made to the conditional sales contracts two items of $132.33 and $52.14 called "unearned time price differential" are inserted. In simple English one can assume this pretty phrase means "unearned interest."

This court is not satisfied that the stipulation tells clearly how or when the balances became due. The bank thinks it is clear enough one way. The government does not agree and thinks it clear another way. ³

The court is of the opinion that the stipulation just does not tell enough "who, what, when, where and how" for the trial court or this court to make a definitive ruling. There is enough chance of error if the facts are fully developed.

It would appear that there still is little likelihood of a dispute as to the actual facts and that the matter could be handled on a more comprehensive stipulation. Certainly a stipulation should include and could be entered into as to copies of all the bank records and documents showing how and when the liability of Edmondson to the bank came about. Eventually it may be decided that the contents of the conditional sales contracts, the boat mortgage, and the unsecured note are not too important. But let the court decide that.

The judgment along with the findings and conclusions of the trial court are vacated. The case is remanded for proceedings consistent with the foregoing opinion. See Plastino v. Mills, 9 Cir., 236 F. 2d 32. ⁴

¹ The sequence of how Edmondson acquired the balances in accounts for a total of $6,658.31 is set forth in an affidavit which accompanied the bank's motion for summary judgment.

² The asserted set-off did not fully satisfy the claimed balance on the fourth conditional sales contract and did not reach the fifth.

³ During oral argument approximately an hour was spent by the court in colloquy with counsel as to what the stipulation should be. Counsel had diverse but positive notions. The court was in doubt as to the basic facts on the claimed offsets.

⁴ Plastino v. Mills, supra, is a case at the other end of the spectrum. There a simple story was expanded into an overlong and confused discourse which at points was within itself contradictory. But in both cases, Plastino and Bank of America, the stipulation or pretrial order can be said to be not sufficiently definitive.

 

[94-2 USTC ¶50,629] United States of America , Plaintiff v. Key Bank, N.A., Defendant

U.S. District Court, No. Dist. N.Y., 94-CV-0016, 11/4/94

[Code Sec. 6332 ]

Levy and distraint: Notice of levy, effect: Surrender of property subject to levy: Bank accounts: Reasonable cause.--A bank was found personally liable for failing to honor a levy imposed on a delinquent taxpayer's checking account where it offset the funds against an outstanding loan it had made to the taxpayer after the notice of levy had been served. The bank could not refuse to honor the levy because it was in possession of the taxpayer's property and the property was not subject to any prior judicial attachments or executions. In addition, the bank's claim that it held a superior lien interest was no defense to its failure to honor the IRS levy. Further, a penalty for failure to comply with the tax levy was imposed because the superior lien interest defense was a settled question of law. Sterling Nat'l Bank & Tr. Co. of N.Y. ((CA-2) 74-1 USTC ¶9336 ) followed.

Steven E. Cole, Department of Justice, Washington , D.C. 20530 , for plaintiff. Anthony Carpinello, Hiscock & Barclay, 30 S. Pearl St. , Albany , N.Y. 12207 , for defendant.

MEMORANDUM--DECISION AND ORDER

The instant action arises out of defendant Key Bank's (hereinafter "defendant") failure to honor the Internal Revenue Service's (hereinafter "IRS") tax levy served upon the defendant. Presently before the Court is the government's motion for summary judgment made pursuant to Fed. R. Civ. P. 56.

I.

The Bryar Trucking Company (hereinafter "taxpayer") was assessed $178,788.69 and $45,843.78 for unpaid employment taxes for the first taxable quarter of 1988 and the fourth taxable quarter of 1988 respectively. These figures represent tax delinquencies including penalties and interests. The IRS filed with the New York State Secretary of State and also the Albany County Clerk's office a Notice of Federal Tax Lien Under Internal Revenue Laws. Thereafter, on April 4, 1989, the IRS served a Notice of Levy upon the defendant. The Levy gave defendant notice of the above-mentioned liabilities of taxpayer. It also demanded that the defendant surrender to the IRS all of the taxpayer's property and rights to property, including all bank deposits. At the time of the levy, it is alleged that the taxpayer kept a checking account with the defendant with deposits amounting to $28,781.77. It is alleged that the defendant failed to turn over taxpayer's funds in the checking account to the IRS and, on April 13, 1989, defendant offset the funds in the account against an outstanding loan it had made to the taxpayer.

II.

Rule 56(c) provides that the court may grant summary judgment where there are no genuine issues of material fact for trial. Fed. R. Civ. P. 56(c). If there are no genuine issues, the movant is entitled to judgment as a matter of law. When the movant meets this standard, the opposing party must present sufficient facts to demonstrate that there exists some genuine issues of material fact in order to defeat the movant's motion for summary judgment. An issue is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986). The court must view the evidence in light most favorable to the party opposing the motion. See Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987).

It is now well settled that a federal tax lien is not self-executing. United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 720 (1985). "Affirmative action by the IRS is required to enforce collection of the unpaid taxes." Id. Two principal tools for such action are provided within the Internal Revenue Code. The first of the two deals with lien-foreclosure suits. 26 U.S.C. §7403 . More relevant to our case, however, is the second of the two which deals [with] third party property holders--i.e. when a taxpayer's property is held by another. Under such circumstances, the Internal Revenue Code allows the IRS to serve upon the custodian with a notice of levy. 26 U.S.C. §6332(a) . "This notice gives the IRS the right to all property levied upon, United States v. Eiland [55-1 ustc ¶9487 ], 223 F.2d 118, 121 (4th Cir. 1955), and creates a custodial relationship between the person holding the property and the IRS so that the property comes into the constructive possession of the Government." National Bank of Commerce [85-2 ustc ¶9482 ], 472 U.S. at 720 (citing Phelps v. United States [75-1 ustc ¶9467 ], 421 U.S. 330, 334 (1975)). If the custodian honors the levy, the custodian is "discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment." 26 U.S.C. §6332(e) . "If, on the other hand, the custodian refuses to honor a levy, he incurs liability to the Government for his refusal." National Bank of Commerce [85-2 ustc ¶9482 ], 472 U.S. at 721; see 26 U.S.C. §6332(d) .

The issue then becomes, when can a custodian refuse to honor a levy imposed upon by the Government? The Second Circuit has specifically addressed this issue. In United States v. Sterling National Bank & Trust Co. [74-1 USTC ¶9336 ], 494 F.2d 919 (2d Cir. 1974), under very similar facts to the case at bar, the Court stated that the custodian may refuse to honor the levy only under two circumstances: (1) the custodian is neither "in possession of" nor "obligated with respect to" the taxpayer's property or rights to property belonging to the delinquent taxpayer; or (2) the property is subject to a prior judicial attachment or execution. Id. at 921; see National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. at 721-22.

The defendant has not raised any of the above-mentioned defenses. From the facts, it is clear that the defendant was indeed in possession of the taxpayer's property. Furthermore, the evidence indicates that the taxpayer's checking account was not subject [to] any prior judicial attachments or executions. Under such circumstances, the Court determines as a matter of law that the defendant has no defense to its failure to honor the Government's levy. Consequently, pursuant to 26 U.S.C. §6332(d)(1) , the defendant is personally liable for the amount of $28,781.77 plus interest from the date of levy. This sum represents the amount present in taxpayer's checking account at the time the levy was served upon the defendant. This conclusion is reached even if the facts are looked at in light most favorable to the defendant. There simply is no material issue of fact to be determined by the fact-finders.

The defendant contends that the levy at issue was not made effective on the proceeds in the taxpayer's checking account because the defendant had a lien which was superior to that of the Government's. The defendant argues that a superior lien is in fact a valid ground under which the Government's levy may be dishonored. This argument is footless and was expressly rejected by the Second Circuit in Sterling National Bank.

In Sterling National Bank, under facts very similar to our own, the Second Circuit rejected the bank's argument that it had a superior lien interest to that of the Government's. The Court stated that superior lien interest was not a defense to the bank's failure to honor the levy imposed by the IRS. Sterling National Bank [74-1 USTC ¶9336 ], 494 F.2d at 921. The Court noted that there were other procedures under which the bank could have sought to protect its lien interest but, concomitantly, stated that lien priority was not an appropriate argument when dealing with levies imposed pursuant to 26 U.S.C. §6332 . Id. at 921 n. 1.

In the case at bar, the defendant is making an argument which was expressly rejected by Sterling National Bank Court . Accordingly, defendant's defense of superior lien interest is without merit and must be rejected.

It is here noted that the cases cited by the defendant in support of its argument are inapplicable since they are either distinguishable on the facts or inconsistent with the controlling law of this Circuit.

The determination that defendant is personally liable under 26 U.S.C. §6331(d)(1) does not end our inquiry, however. This is because the Government is also seeking a penalty of 50% of the total amount recovered under 26 U.S.C. §6332(d)(1) for defendant's failure, without reasonable cause, to honor the levy imposed.

26 U.S.C. §6331(d)(2) states, in pertinent part,

Penalty for violation.--In addition to the personal liability imposed by paragraph (1), if any person required to surrender property or rights to property without reasonable cause, such person shall be liable for a penalty equal to 50 percent of the amount recoverable under paragraph (1). . . . .

Accordingly, under the statute, no penalty can be imposed on the bank if the bank acted with "reasonable cause" when failing to honor the Government's levy. Sterling National Bank [74-1 USTC ¶9336 ], 494 F.2d at 923. The test for "reasonable cause" is whether or not a unsettled question of law exists. Id. It is important to note that the Sterling National Bank Court, again, under very similar facts, warned that banks "confronted with levies in similar circumstances after this decision cannot reasonably refuse to comply," since the law has been settled by the Court's decision. Id.

In accordance with the holding of Sterling National Bank, the Court determines that the instant defendant has failed to give reasonable cause for its failure to comply with the levy at issue. As stated earlier, a defense of superior lien interest has been addressed and rejected by the courts and, thus, cannot be considered a unsettled question of law. Thus, defendant has failed to demonstrate to the Court any "reasonable cause" for its failure to comply with the levy, ¹ and accordingly, defendant is liable for the 50% penalty imposed by §6332(d)(2) .

III.

For the reasons stated herein, summary judgment is granted for the Government, and judgment is entered for the Government in the amount of $28,781.77 plus interest from the date of levy pursuant to 26 U.S.C. §6332(d)(1) . The Court, furthermore, imposes a penalty on the defendant for failure to comply with the tax levy pursuant to 26 U.S.C. §6332(d)(2) for the amount equaling 50% of the amount awarded under §6332(d)(1) .

IT IS SO ORDERED.

¹ It is here noted that defendant's reliance on the United States v. Cuti [75-2 USTC ¶9555 ], 395 F. Supp. 1064 (E.D.N.Y. 1975), is misplaced since that case is factually distinguishable from the case at bar.