Annotations- Bank Accounts Page2

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Moreover, defendant's contention that the lapse of time between the Notice of Levy and the commencement of the instant action prejudiced defendant is without merit. Defendant fails to cite to any authority for the proposition that lapse of time plays a factor in cases dealing with tax levies.

 

[56-2 USTC ¶9603] United States of America v. Washington Trust Company of Pittsburgh , Pa.

U. S. District Court, West. Dist., Pa., Civil Action No. 9483, 4/13/56

[1939 Code Secs. 3690 and 3692--similar to 1954 Code Sec. 6331; 1939 Code Sec. 3710--similar to 1954 Code Sec. 6332]

Distraint and levy for taxes: Assignment of account receivable before levy: Comingling of funds in bank account.--Although a valid assignment of an account receivable took place before the time of the government's distraint and levy for unpaid taxes, the action of the assignee, permitting the assignor (party owing taxes) to make collection and deposit the funds in its own bank account, caused the assignment to be ineffective against the government's levy. When the co-mingling of the funds in the assignor's bank account took place, the property interest of the assignee in the funds was lost and the assignor was no longer the agent of the assignee, but its debtor. Accordingly, the funds in the assignor's bank account were its own property and the defendant bank was required to pay over such funds, for which the levy was made, to the government.

United States Attorney, 613 New Postoffice and Courthouse, Pittsburgh 30, Pa. , for plaintiff. Edward Goldberg, 1806 Law and Finance Building , Pittsburgh , Pa. , for defendant.

Findings of Fact

SORG, District Judge:

1. In March, 1950, Jones Coke & Briquette Company was a corporation engaged in the business of recovering usable fuels from old coke piles which product was then sold to National Carbide Corporation.

2. The officers of Jones Coke and Briquette Company were Marshall Jones, president, David Stern, secretary, and Louis Vinocur, treasurer.

3. Due to the financial condition of Jones Coke & Briquette, arrangements were made for the advance of moneys to it from Samuel Hyman, through the Jones Pittsburgh Coal Company, a partnership in which the above named David Stern, Marshall Jones and the said Samuel Hyman were partners.

4. These arrangements were negotiated by David Stern, brother-in-law of Samuel Hyman, and they were made as an accommodation to Stern by Hyman.

5. Under the partnership agreement, funds of the Jones Pittsburgh Coal Company could be disbursed only upon the signature of Samuel Hyman who advanced the moneys necessary to finance Jones Coke & Briquette Company.

6. On March 18, 1950, the Jones Pittsburgh Coal Company advanced $2600.00 to the Jones Coke & Briquette Company; on March 24, 1950, the sum of $2000.00 and on April 6, 1950, the sum of $2500.00.

7. In accordance with a previously established practice between Jones Coke and Jones Pittsburgh, these advances were made upon presentation to Hyman of certain weigh slips for shipments to National Carbide Company. The following notation was made on the books of Jones Coke & Briquette Company: "On March 31, 1950, this account receivable assigned, transferred and pledged to the Jones Pittsburgh Coal Company of Pittsburgh , its successors and assignees. Jones Coke & Briquette Company, Louis M. Vinocur, Treasurer."

8. Shipments to National Carbide were made in the name of Jones Coke & Briquette Company and payments were received by Jones Coke & Briquette Company for credit reasons, with the consent of Jones Pittsburgh Coal Company and Hyman.

9. On April 14, 1950, the Jones Coke & Briquette Company received a check from National Carbide Company in the amount of $6391.00.

10. This check was deposited in the Washington Trust Company on April 17, 1950, in the account of Jones Coke & Briquette Company.

11. On April 14, 1950, Jones Coke & Briquette Company made its check payable to Jones Pittsburgh Coal Company in the amount of $6391.00.

12. On April 17, 1950, the check was signed by Vinocur, treasurer of Jones Coke & Briquette Company and placed in his hands for delivery to Hyman.

13. Vinocur delivered the check to Hyman on April 26, 1950.

14. Warrants for distraint covering assessments against Jones Coke & Briquette Company for withholding taxes and F. I. C. taxes in the amount of $3542.07, with interest, were issued against Jones Coke & Briquette Company on April 26, 1950, and a notice of levy dated April 26, 1950, together with copies of the warrants for distraint, was addressed by United States of America, plaintiff, to and served upon the defendant, Washington Trust Company of Pittsburgh, Pa., on April 26, 1950, at 10:45 A. M.

15. A final notice and demand dated May 5, 1950, was addressed by the plaintiff, United States of America , to and served upon the defendant, Washington Trust Company of Pittsburgh , Pa. , on that date.

16. At the time the notice of levy and final notice were served upon the defendant, Washington Trust Company, it had in its possession and on deposit in a general checking account of Jones Coke & Briquette Company, an amount in excess of $6000.00.

17. The defendant, Washington Trust Company, has refused to pay the amount for which levy was made.

Conclusions of Law

1. This Court has jurisdiction over the subject matter and the parties.

2. There was an assignment from Jones Coke to Jones Pittsburgh Coal Company of the funds in question for a good and valuable consideration which became effective between Jones Coke and Jones Pittsburgh prior to the time of the levy by the plaintiff.

3. By permitting collection of the account by Jones Coke, the relationship of principal and agent between Jones Pittsburgh, as principal, and Jones Coke as agent for collection purposes was established.

4. By the consent of Jones Pittsburgh to the depositing of the funds by Jones Coke in its general checking account, a co-mingling of funds was authorized.

5. At the moment the co-mingling of funds took place, the special property of Jones Pittsburgh in such funds was lost and the relationship between agent and principal became that of debtor and creditor.

6. The assignment to Jones Pittsburgh was not effective as against plaintiff's levy on April 26, 1950, and judgment will be entered accordingly.

 

[88-1 USTC ¶9340] United States of America , Plaintiff v. First National Bank and Trust Company, Defendant

U.S. District Court, West. Dist. Pa. , Civ. 84-239, 4/4/88

[Code Sec. 6332 --Result unchanged by the Tax Reform Act of 1986]

Surrender of property subject to levy: Certificate of deposit.--A taxpayer lacked a property interest in a $25,000 bank deposit he made to secure extensions of credit by a bank to a corporation of which he was president and principal shareholder. At the time of the IRS notice of levy, the demand obligation was mature, and because it exceeded the amount of the deposit, the bank had the right to automatically set off the deposit against the demand obligation for which the deposit was collateral. As a consequence of this right of setoff, the taxpayer had no property right in the certificate of deposit at the time of levy, and there was nothing to which the government's levy could attach.

Craig R. McKay, Assistant United States Attorney, Pittsburgh , Pa. 15219 , for plaintiff. Berkman, Ruslander, Pohl, Lieber & Engel, One Oxford Center, Pittsburgh, Pa. 15219-6498, Bela A. Karlowitz, William M. Hoffman, Karlowitz, Hoffman & Kane, 600 Grant St., Pittsburgh, Pa. 15219, Gary J. Gaertner, 2917 Koppers Bldg., Pittsburgh, Pa., for defendants.

MEMORANDUM OPINION

DIAMOND, District Judge:

This is an action by the plaintiff to recover the value of certain property plus interest, costs and a penalty of fifty percent (50%) of that value pursuant to 26 U.S.C. §6332(c)(1) and (2), as a result of defendant's failure to surrender on plaintiff's demand certain property of a delinquent taxpayer. The property in question is a $25,000 certificate of deposit made by Bert Gigli, Jr. ("taxpayer") to secure extensions of credit ¹ by the defendant bank to a corporation of which the taxpayer was president and principal shareholder. Presently before the court are cross-motions for summary judgment.

On October 16, 1985, this court issued an opinion and order granting summary judgment for the plaintiff on the grounds that there are only two defenses to an action to recover property pursuant to §6332 , see United States v. Citizens Southern National Bank [76-2 USTC ¶9665 ], 538 F.2d 1101 (5th Cir. 1976), cert. denied, 430 U.S. 945 (1967), neither of which were available to this defendant. ² Subsequently, the defendant brought to the court's attention United States v. National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, 86 L.Ed.2d 565 (1985). In that case, the Supreme Court recognized a third defense to a §6332 action, namely, that at the time of levy, the levied property did not constitute property or rights to property of the taxpayer. Id. at 722. Since the court had not considered this specific issue, defendant's motion to reconsider was granted. Accordingly, the sole issue before the court is whether the taxpayer in the present case had any interest in the certificate of deposit at the time of levy.

The defendant asserts that the taxpayer did not have a property interest in the certificate of deposit at the time of levy for essentially two reasons. First, the defendant argues that under the National Bank of Commerce case [85-2 USTC ¶9482 ], 472 U.S. 713, the taxpayer in the present case lacked a property interest in the certificate of deposit because the taxpayer lacked the absolute right to withdraw the funds in the bank at the time of levy. Second, the defendant argues that under the principles of Pennsylvania law set forth by this court in Pittsburgh National Bank v. United States [81-1 USTC ¶9239 ], 498 F.Supp. 101 (W.D.Pa. 1980), aff'd [81-2 USTC ¶9626 ] 657 F.2d 36 (3d Cir. 1980), the taxpayer lacked a property interest in the deposit since at the time of levy, the defendant had the right to automatically setoff the deposit against the demand obligation for which the deposit was collateral. ³ For the reasons set forth below, the court agrees with defendant's second assertion and will grant defendant's motion for summary judgment.

Regarding defendant's first assertion under National Bank of Commerce [85-2 USTC ¶9482 ], 472 U.S. 713, the court notes that in that case, the Supreme Court recognized that a bank served with an IRS notice of levy could assert a successful defense by showing that the account in question "did not constitute 'property or rights to property' " of the taxpayer. Id. at 722. The Court stated that the question of whether the taxpayer had a legal interest in the property is to be determined by application of state law. Id. (citing Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 513 (1960)).

In the National Bank case, the property in question was a joint bank account. The Court noted that under the taxpayer's contract with the bank, the relevant state law, and by stipulation of the parties, the taxpayer had the "absolute right" to withdraw the full amounts on deposit, notwithstanding the joint nature of the account. Id. at 724. The Court concluded that "[c]ommon sense dictates that a right to withdraw qualifies as a right to property for purposes of §§6331 and 6332 ." Id. at 725.

Although an absolute right to withdraw funds from a bank sufficiently shows a right to property within the meaning of §6332 , this court concludes that it does not follow that an inability to make withdrawals is equally compelling to show a lack of any interest in the property sufficient to constitute the defense recognized in National Bank. Thus, the assertion by the defendant that the taxpayer in the present case lacked the ability to withdraw funds from the certificate of deposit because it was collateral for the letter of credit and other loans are not sufficient under National Bank to show that the taxpayer lacked any interest in the deposit.

The defendant also argues, however, that the principles of Pennsylvania law as outlined by this court in Pittsburgh National Bank v. United States [85-2 USTC ¶9482 ], 498 F.Supp. 101, support the conclusion that the taxpayer in the present case lacked any interest in the deposit in question. In that case, the bank had sued the IRS challenging a levy made against one of its depositor's accounts which had been pledged to the bank as security for an outstanding loan. The court noted that under Pennsylvania law, "where a demand note exceeds the debtor's deposits in which the bank has been given a security interest, the bank may setoff, at any time against the note, the debtor's deposits on hand." Id. at 104 (citing Duffy v. Building and Loan Association, 325 Pa. 127 (1937), Aarons v. Public Service Building and Loan Association, 318 Pa. 113 (1935)). This court went on to note that the Pennsylvania Supreme Court has held that this right of setoff actually extinguishes the depositor's rights to draw upon the deposit leaving nothing belonging to the depositor. Id. (quoting Aarons, 318 Pa. at 116). The court then held that since at no time after the debt had matured could the taxpayer have compelled the bank under state law to deliver any of the money on deposit, "the taxpayer had no property right in the account, and there was nothing to which the government's levy could attach." Pittsburgh National Bank, 498 F.Supp. at 104 (citation omitted).

The right of automatic setoff under Pennsylvania law referred to in the Pittsburgh National Bank case only applies, however, when the debt owed to the bank by the depositor is mature. 498 F.Supp. at 104; see Pittsburgh National Bank v. United States [81-2 USTC ¶9626 ], 657 F.2d 36, 38 (3d Cir. 1981) (citing Aarons v. Public Service Building and Loan Association, 318 Pa. 113, 116 (1935); General Electric Credit v. Tarr, 457 F.Supp. 935 (W.D.Pa. 1978)). The defendant claims that in the present case, the $40,716.00 demand obligation was such a mature debt giving the bank the right to automatically setoff the $25,000 certificate of deposit against the demand note at the time of levy.

The plaintiff, however, contests the maturity of the demand note. Specifically, the plaintiff claims that the mere fact that the debt was a demand obligation does not, in and of itself, make the debt mature. Rather, plaintiff argues that the obligation must also be in default; and, insofar as the obligation was not in default in the present case, the debt was not mature and no right of automatic setoff applied.

Under Pennsylvania law, a "demand note is due and payable immediately at the option of the holder." Cheltenham National Bank v. Snelling, 326 A.2d 557, 558 n.1 (Pa.Super. 1974) (citing Master Homecraft Co. v. Zimmerman, 222 A.2d 440 (Pa. Super. 1966)). Regarding maturity, the Pennsylvania Supreme Court has stated that "a demand note has, in a sense, no maturity since payment is due immediately on execution and delivery, without any demand." Heimpel v. First National Bank & Trust Co., 12 A.2d 28, 30 (1940) (citations omitted). The court conceded that since the demand note was at all times due and payable, it had 'matured.' " Id. (citation omitted).

The district court decision cited by the plaintiff, General Electric Credit Corp. v. Tarr, 457 F.Supp. 935 (W.D.Pa. 1978), is not to the contrary. In that case, the court had to determine, as in the present case, whether or not the demand obligation was a mature debt and, thus, subject to a valid setoff by the bank. In concluding that the debt was mature, the court relied on the fact that the debtor had defaulted by filing a bankruptcy petition. Id. at 937-38. From that reliance upon default, the plaintiff would have this court impose a similar requirement in the present case. However, the terms of the demand note in the General Electric case specifically provided that the note would become " 'immediately due and payable' " upon the happening of certain events, one of which was the commencement of bankruptcy proceedings. Id. at 938. Thus, in that case, it could not be said that the demand note was at all times due and payable. There is no similar limitation in the present case. Although in the March 21, 1980, agreement, the bank agreed to accept payment of the demand obligation in monthly installments, the agreement specifically provided that "[n]otwithstanding that Bank has agreed to accept payment of the Loan in monthly installments, the Loan shall remain payable to the Bank on demand." Exhibit C to Supplemental Affidavit of Muriel A. Colbert in Support of Defendant's Motion for Summary Judgment at 3.

Thus, although the court agrees with plaintiff that the parties to a demand note may change the nature of a demand obligation by contract as in General Electric, the court concludes that the parties in the present case did not make such a change, notwithstanding the agreement to accept monthly payments. Therefore, the demand obligation was mature at the time of levy; and since it exceeded the amount on deposit, the defendant had the right automatically to setoff the certificate of deposit against the demand obligation. Because of this right of setoff, the taxpayer had no property right in the certificate of deposit at the time of levy and there was nothing to which the government's levy could attach. Accordingly, defendant's motion for summary judgment will be granted, and plaintiff's motion for summary judgment will be denied.

An appropriate order will follow.

ORDER OF COURT

AND NOW, this 4th day of April, 1988, for the reasons set forth in the memorandum opinion filed this day in the above case, IT IS ORDERED that defendant's motion for summary judgment be, and the same hereby is, granted; and,

IT IS FURTHER ORDERED that plaintiff's motion for summary judgment be, and the same hereby is, denied.

¹ At the time of the government levy, July 8, 1981, these extensions of credit were a $25,000.00 irrevocable letter of credit obligation, a $111,478.41 mortgage obligation, and a $40,716.00 demand obligation.

² This opinion assumes familiarity with this court's earlier memorandum opinion.

³ The defendant concedes that this argument does not apply to the letter of credit or mortgage obligations since those debts were not yet mature at the time of levy.

 

[55-2 USTC ¶9655] United States of America v. Peoples State Bank

In the United States District Court for the Southern District of Indiana, Indianapolis Division, Civil No. 3166, August 17, 1955

[1939 Code Sec. 3710--substantially unchanged in 1954 Code Sec. 6332]

Surrender of property subject to levy: Duty of bank: Taxpayer's funds on deposit.--The checking account of a delinquent income taxpayer in a local bank was subject to distraint under 1939 Code Sec. 3710(a). By its failure to pay to the Collector the amount levied against it within five days of the date of the final notice and demand, the bank became personally liable for this amount, plus interest thereon, notwithstanding the continuing liability of the taxpayer for an equivalent amount, pursuant to Sec. 3710(b). Had the bank surrendered out of the taxpayer's account the sum in question in compliance with the final notice and demand, and had it had no notice of any rights of third parties in the account, which, incidentally, it does not claim, the bank would have been released from further liability for what had been surrendered. The Commissioner, therefore, was entitled to judgment against the bank for the amount due plus interest.

United States Attorney for plaintiff. L. Roy Zapf, 601 Peoples Bank Building, Indianapolis , Ind. , for defendant.

Findings of Fact and Conclusions of Law

STECKLER, District Judge:

The above entitled cause came on regularly for trial and the Court having duly considered the evidence and the post trial briefs filed by the parties and being fully advised in the premises now finds the following:

Finding of Fact

1. This controversy arose out of the failure and refusal of the defendant to surrender to the Collector of Internal Revenue the amount on deposit in a checking account in defendant's bank in the name of a delinquent income taxpayer as required by the provisions of §3710(a), Title 26 United States Code. Defendant contends that it acted on advice of counsel and that had it complied with the demand of the Collector of Internal Revenue it would have acted in violation of the statutes of Indiana; that a compliance with the Collector's demand would have subjected the bank to possible double liability, particularly in respect to holders in due course of checks drawn by the depositor; that the bank stood in a debtor-creditor position with its depositor, the delinquent taxpayer, and that not until it was served with process or with an order from a court of competent jurisdiction would it surrender the contents of the bank account. This action was therefore brought under and pursuant to §3710(b), Title 26 United States Code.

2. The Court has jurisdiction over the parties and the subject matter in this cause of action.

3. The defendant, Peoples State Bank, is an Indiana corporation with an office and place of business in Indianapolis , Indiana , within the jurisdiction of this Court, and was so at the time of the filing of this suit on August 11, 1952.

4. This action was authorized by the Commissioner of Internal Revenue of the United States Treasury Department and was brought under the direction of the Attorney General of the United States .

5. On December 14, 1951, the Commissioner of Internal Revenue of the United States Treasury Department made an assessment of taxes on the income of one John J. Briggs for the years 1943 to 1946 amounting to a total tax liability of $18,414.70.

6. The aforesaid assessment list containing the particular assessments was received by the Collector for the District of Indiana on December 17, 1951; notice and demand for payment of said assessments were made upon the delinquent taxpayer on the same day.

7. At the time of the filing of this suit on August 11, 1952, the taxpayer had not paid the amount herein outstanding.

8. Warrants for distraint for each of the years 1943 to 1946, inclusive, were duly issued on January 14, 1952, and served upon the taxpayer, Dr. John J. Briggs, by Frank L. Clouds, Collection Officer of the Internal Revenue Service for the District of Indiana.

9. A notice of lien of the aforesaid tax liability of Dr. John J. Briggs was filed with the Recorder of Marion County, Indiana, on June 5, 1952. This lien for taxes was in the sum of $19,010.60, plus a lien fee of $1.00.

[Notice of Levy Served]

10. On June 5, 1952, a notice of levy, together with copies of warrants for distraint and a notice of a lien were served by the said Collector of Internal Revenue on the Peoples State Bank. The said notice of levy informed the defendant that the taxpayer, Dr. John J. Briggs, was liable for an outstanding tax liability of $19,010.60; that all property, rights to property, moneys, credits, and/or bank deposits then in its possession and belonging to said taxpayer and all sums of money owing from it to said taxpayer were thereby seized and levied upon for the payment of the aforesaid tax; and demand was made for the same or for such sum less than the tax liability that the defendant owed to the taxpayer.

11. On June 5, 1952, the defendant, Peoples State Bank, was in possession of and had under its control a checking account in the name of the taxpayer, Dr. John J. Briggs, in the amount of $9,599.71.

12. On June 5, 1952, a final notice and demand were made by the Collector of Internal Revenue upon the defendant, Peoples State Bank.

13. Immediately upon the service of the warrant of distraint, levy, final notice and demand upon the defendant bank, the bank took steps to inactivate or freeze the taxpayer's checking account.

14. Subsequent to June 5, 1952 and after the expiration of five days from said date, the delinquent taxpayer paid the difference between the amount on deposit in the Peoples State Bank and the total amount of his tax indebtedness. Thereupon the Collector of Internal Revenue gave authority to the bank to reactivate the taxpayer's checking account with respect to any amounts over and above the sum subject to distraint, namely, $9,599.71. Thereafter the delinquent taxpayer personally went to the Office of the Collector of Internal Revenue on at least two occasions and offered to make payment of his remaining tax indebtedness, including interest and penalty, once with a cashier's check in the amount of $9,599.71 drawn on the defendant bank, and once with $10,000.00 in currency furnished him by the defendant bank pursuant to an agreement with the bank. On the occasion that he took the cash to the Office of the Collector of Internal Revenue a messenger of the bank carried the funds to the door of the Office of the Collector of Internal Revenue but at that point the messenger turned over the cash to the taxpayer and the messenger waited in the corridor for the taxpayer. On each of the occasions when the taxpayer offered to pay the Collector of Internal Revenue the remaining balance of his tax indebtedness he was informed by the Assistant Director of Internal Revenue that he, the taxpayer, owed the Government nothing and that the Collector was looking to the bank for payment pursuant to the warrant of distraint, levy and final demand which had been made upon the bank with respect to the taxpayer's checking account. On the occasion that the cash was taken to the Office of the Collector of Internal Revenue the Court finds that Mr. Wilbur O. Plummer, the Assistant Director of Internal Revenue with whom the taxpayer conferred, was not aware of the fact that the taxpayer had on his person the $10,000.00 in currency. After leaving the Collector's Office on that occasion the money was returned to the bank by the messenger. The Collector was not aware that the messenger from the bank had accompanied the taxpayer to the Federal Building .

15. At no time did the defendant, Peoples State Bank, or any authorized representative thereof, pay or attempt to pay over all or a portion thereof of the indebtedness owing by it in this cause to the office of the Collector of Internal Revenue or its authorized representative.

16. On July 13, 1954, the defendant, Peoples State Bank, with the consent of Dr. John J. Briggs, the delinquent taxpayer, caused to be paid into the hands of the Clerk of this Court the sum of $9,599.71 to be used as the Court directs in this cause. The payment of said sum into the hands of the Clerk of the Court included only the principal amount of the demand involved in this cause and did not include any interest thereon.

17. During all conversations which the taxpayer, Dr. John J. Briggs, had with Mr. Wilbur O. Plummer, Assistant Director of Internal Revenue for the District of Indiana, in regard to the tax liability of Dr. Briggs, the taxpayer's checking account in the Peoples State Bank was frozen pursuant to the distraint as levied by the Collector of Internal Revenue.

18. At no time was defendant Peoples State Bank given authority by the Office of the Collector of Internal Revenue or its authorized representative to release the frozen checking account of Dr. John J. Briggs below the sum of $9,599.71 except to the Office of the Collector.

19. At the time of the final notice and demand by the Office of the Collector of Internal Revenue, the checking account of the taxpayer, Dr. John J. Briggs, held in the Peoples State Bank in the amount of $9,599.71 was not subject to an attachment or execution under any judicial process.

Conclusions of Law

From the foregoing facts the Court concludes:

1. This Court has jurisdiction over the parties and the subject matter in this cause of action.

2. The checking account of Dr. John J. Briggs in the sum of $9,599.71 at the Peoples State Bank, the defendant herein, on June 5, 1952 was subject to distraint under Section 3710(a) of the Internal Revenue Code, Title 26 United States Code.

3. By its failure to pay to the Collector of Internal Revenue for the Collection District of Indiana the amount levied against it within five days of the date of the final notice and demand, the defendant, Peoples State Bank, became personally liable for this amount, plus interest thereon, notwithstanding the continuing liability of the taxpayer for an equivalent amount, pursuant to Section 3710(b) of the Internal Revenue Code, Title 26 United States Code.

4. The terms of the statute under which this action has been brought permit the third person upon whom is made a demand for property in his possession, in this instance the bank, only two defenses, to-wit: That he is not in possession of the property of the taxpayer which is subject to distraint, or that the property is subject to a prior judicial attachment or execution. The statute admits of no other defenses. And had the defendant surrendered out of the account of Dr. John J. Briggs the sum of $9,599.71 in compliance with the final notice and demand, and had it had no notice of any rights of third parties in the account, which, incidentally, it does not claim, the bank would have been released from further liability for what had been surrendered. United States v. Manufacturers Trust Company, 2 Cir., 198 Fed. (2d) 366 [52-2 USTC ¶9417].

5. From the evidence presented at the trial, there was no valid legal tender made by the defendant, Peoples State Bank, to the Collector of Internal Revenue prior to the commencement of the trial.

6. Plaintiff is entitled to judgment against the defendant in the amount of $9,599.71 together with interest thereon from June 5, 1953, to and including the date of entry of judgment in this cause.

7. The costs of this action shall be taxed against the defendant.

8. Upon the payment of said judgment together with the costs of this action, the Clerk of the Court is directed to issue a refund check payable to J. J. Briggs and Peoples State Bank in the sum of $9,599.71 representing the amount paid into the hands of the Clerk of this Court by check dated July 12, 1954 and for the purpose of this proceeding, identified as Plaintiff's Exhibit B.

Let judgment be entered accordingly.

Entry

It having come to the attention of the Court that the Court's entry of August 15, 1955 setting forth the Court's Findings of Fact and Conclusions of Law contained a typographical error in Conclusion of Law Number 6 wherein it is provided that the plaintiff is entitled to judgment against the defendant in the amount of $9,599.71 together with interest thereon from June 5, 1953, whereas such date should have been June 5, 1952.

IT IS THEREFORE HEREBY ORDERED, ADJUDGED AND DECREED that the Court's Conclusion of Law Number 6 in this matter be amended to read as follows:

6. Plaintiff is entitled to judgment against the defendant in the amount of $9,599.71 together with interest thereon from June 5, 1952, to and including the date of entry of judgment in this cause.

The Clerk will enter judgment accordingly.

Judgment Entry

The above entitled cause of action came on to be heard by the Court without the intervention of a jury, and the Court having made and filed its Findings of Fact and Conclusions of Law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, and having ordered that judgment be entered in accordance therewith, it is hereby

ORDERED AND ADJUDGED that the plaintiff, United States of America, recover judgment against the defendant, Peoples State Bank, in the amount of $9,599.71 together with interest thereon from June 5, 1952, to and including the date of entry of judgment in this cause.

IT IS ORDERED AND ADJUDGED that upon the payment of said judgment together with costs of this action, the Clerk of Court is directed to issue a refund check payable to J. J. Briggs and Peoples State Bank in the sum of $9,599.71 representing the amount paid into the hands of the Clerk of this Court by check dated July 12, 1954, and identified in this cause as Plaintiff's Exhibit B.

IT IS FURTHER ORDERED AND ADJUDGED that the costs of this action be taxed against the defendant.

 

Rev. Rul. 55-187, 1955-1 CB 197


SECTION 6331.--LEVY AND DISTRAINT

26 CFR 301.6331-1: Levy and distraint.

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. Where one of the persons in whose name a joint account has been established can prove that the funds deposited therein are his sole property, no levy can be made on such funds to satisfy an outstanding tax liability of the other. Factors bearing on the question of the extent of a taxpayer's interest in such an account include the nature of the tenancy created under State law; the source of the funds deposited; and intent of the person opening the joint account; and whether in actual practice the account was under the control of one party even though the other had authority to withdraw funds from the account.

67-1 USTC ¶9406]Richard Bishop, Plaintiff v. Neal S. Warren, District Director, Internal Revenue Service, Defendant

U. S. District Court, East. Dist. Wash. , No. Div., Civil Action No. 2586, 270 FSupp 156, 4/14/67

[1954 Code Sec. 6332]

Levy: Surrender of property subject to levy: Joint checking account: Property held by court.--In a suit to recover monies paid under notices of levy resulting from his parents' tax delinquencies, R was the presumptive owner of a one-half interest in a checking account and was allowed recovery. A sum in the hands of a court paid in satisfaction of a judgment in favor of R's father was properly surrendered as was money collected by another upon a collection account referred to it by R's father.

Howard K. Michaelsen, Michaelsen & Richard, 2315 N. Monroe, Spokane, Wash., for plaintiff. Smithmoore P. Myers, United States Attorney, Robert M. Sweeney, Assistant United States Attorney, 334 Federal Bldg., Spokane, Wash., for defendant.

Findings of Fact and Conclusions of Law

LOWELL, District Judge:

This matter came on regularly for trial before this Court on December 20, 1966, the plaintiff being represented by Howard K. Michaelsen, attorney at law, and the defendant by Robert M. Sweeney, Assistant United States Attorney, and the Court having considered the pretrial order herein, the evidence adduced at trial, the argument of counsel, now makes the following

Findings of Fact

I. The plaintiff Richard Bishop is, and at all times material hereto was, a resident of the city of Newport , Pend Oreille County , State of Washington . The defendant Neal S. Warren is, and at all times material hereto was, the District Director for the Internal Revenue Service, Department of the Treasury of the United States .

II. The plaintiff is the son of Charles E. Bishop and Ruth N. Bishop, who at all times material hereto were also residents of the city of Newport , Pend Oreille County , State of Washington .

III. By quit-claim deed dated February 8, 1957, Charles E. Bishop conveyed to his son, the plaintiff herein, a motion picture theater business located in Newport , Washington , and operated under the name of the Roxy Theater. Thereafter, there was operated from the theater building in Newport , Washington , a loan and collection business.

IV. The plaintiff Richard Bishop devoted the majority of his time to the operation and management of the theater business. Charles E. Bishop devoted most of his time to and controlled the operation of the collection business. The said Charles E. Bishop prepared and filed complaints for collection in the Pend Oreille County courts. The complaints were filed in the name of Charles E. Bishop as the party in interest. Charles E. Bishop contacted other collection agencies in the course of the collection business. The collection agency bond required under the law of the State of Washington was written to Charles E. Bishop as the operator of the collection business.

V. For the taxable year 1958, and for the years thereafter, Charles E. Bishop and Ruth N. Bishop did not file income tax returns. During these years, the plaintiff Richard Bishop claimed Charles E. Bishop and Ruth N. Bishop as dependents on his tax returns.

VI. At the time this action was commenced, there was no federal tax liability assessed by the Internal Revenue Service against the plaintiff Richard Bishop.

VII. Prior to the commencement of this action, assessments for delinquent federal income and excise taxes had been duly and properly made against Charles E. Bishop and Ruth N. Bishop. Notices of such delinquent taxes against Charles E. Bishop and Ruth N. Bishop had been duly and properly filed in Pend Oreille County , Washington , as follows:

Type of Tax               Assessment          Amount of         Date Notice of

and period                      Date         Assessment         Tax Lien Filed

Income 1947 .....            4/12/63         $ 8,975.39                 6/4/63

Income 1948 .....            4/12/63           2,653.67                 6/4/63

Income1949 ......            4/12/63           1,315.38                 6/4/63

Income 1950 .....            4/12/63           4,478.79                 6/4/63

Income 1951 .....            4/12/63          16,607.94                 6/4/63

Income 1952 .....            4/12/63           8,871.70                 6/4/63

Income 1953 .....            4/12/63           3,273.63                 6/4/63

Income 1953 .....            4/12/63           3,970.28                 6/4/63

Income 1954 .....            4/12/63           3,436.99                 6/4/63

Income 1955 .....            4/12/63          12,005.49                 6/4/63

Excise 6/30/54 ..             8/9/63          49,668.65                9/17/63

Said delinquent taxes remain due, owing and unpaid to the United States , except for credits in the total amount of $684.62.

VIII. On May 7, 1964, a Notice of Levy was served by the defendant upon the National Bank of Commerce, Newport Branch, directing the bank to pay to the defendant any property it had belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notice of Levy, the National Bank of Commerce on June 5, 1964 paid to the defendant the sum of $409.10, which sum was paid from a checking account at the bank under the name of "City Finance Company," and upon which the plaintiff Richard Bishop and his father, Charles E. Bishop, were authorized to draw checks. The sum of $409.10 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

IX. On May 8, 1964 and June 18, 1964, Notices of Levy were served by the defendant upon the Clerk of the Superior Court of Pend Oreille County, Washington, directing the clerk to pay to the defendant any property he held belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notices of Levy, the Clerk of the Pend Oreille County Superior Court on July 6, 1964 paid to the Internal Revenue Service the sum of $268.85. This sum had been paid into the registry of the Pend Oreille County Clerk's office in satisfaction of a judgment obtained in favor of Charles E. Bishop by the said Charles E. Bishop as a part of the collection business. The sum of $268.85 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

X. On May 12, 1964, a Notice of Levy was served by the defendant upon the Bonded Adjustment Company of Spokane , Washington , directing the company to pay to the defendant any property it held belonging to Charles E. Bishop and Ruth N. Bishop. Pursuant to the Notice of Levy, the Bonded Adjustment Company on July 13, 1964 paid to the defendant the sum of $6.67, which sum was held by the Bonded Adjustment Company as an amount recovered by it upon a collection account referred to it from Charles E. Bishop operating as Bishop's Credit Service. The sum of $6.67 was paid into the Treasury of the United States and credited against the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop.

XI. In addition to the Notices of Levy mentioned in Findings of Fact Nos. VIII, IX and X, the Internal Revenue Service prior of the commencement of this action had served Notices of Levy upon fourteen other parties in connection with the delinquent tax liability of Charles E. Bishop and Ruth N. Bishop. No money or other property was paid to the Internal Revenue Service by virtue of these notices, all of which Notices named Charles E. Bishop and Ruth N. Bishop as taxpayers from whom there were federal taxes due, owing and unpaid and made demand for any money or property belonging to said taxpayers. No assets of the theater business were seized or levied upon the Internal Revenue Service.

XII. The sum of $268.85 paid by the Clerk of the Pend Oreille County Superior Court to the Internal Revenue Service pursuant to levy was money belonging to Charles E. Bishop and Ruth N. Bishop and not to the plaintiff Richard Bishop.

XIII. The sum of $6.67 paid by Bonded Adjustment Company to the Internal Revenue Service pursuant to levy was money belonging to Charles E. Bishop and Ruth N. Bishop and not to the plaintiff Richard Bishop.

XIV. There is no evidence by which it can be determined the division of interest, if any, as between the plaintiff Richard Bishop and Charles E. Bishop in the sum of $409.10 paid to the Internal Revenue Service by the National Bank of Commerce pursuant to levy from the City Finance Checking account and upon which the plaintiff Richard Bishop and Charles E. Bishop were authorized to draw checks.

From the foregoing Findings of Fact, the Court makes the following

Conclusions of Law

I. By virtue of 28 U. S. C. 2201, this Court does not have jurisdiction to enter a declaratory judgment herein. The Court had jurisdiction over the remaining subject matter of this action and over the parties expense for the taxable year. If, however,

II. At all times material herein, and pursuant to 26 U. S. C. 6321, the United States had valid and subsisting liens upon all the property and rights to property belonging to the delinquent taxpayers Charles E. Bishop and Ruth N. Bishop.

III. The sum of $268.85 paid by the Clerk of the Pend Oreille County Superior Court to the Internal Revenue Service pursuant to levy was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop.

IV. The sum of $6.67 paid by Bonded Adjustment Company to the Internal Revenue Service pursuant to levy was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop.

V. The sum of $409.10 paid by the National Bank of Commerce to the Internal Revenue Service pursuant to levy was presumptively owned by the plaintiff Richard Bishop and Charles E. Bishop in undivided one-half interests as joint tenants, and one-half thereof, or $204.55, was money belonging to Charles E. Bishop and was properly paid to the Internal Revenue Service and applied upon the tax delinquency of Charles E. Bishop and Ruth N. Bishop. The remaining one-half thereof, or $204.55, was presumptively owned by the plaintiff Richard Bishop.

VI. Except for the sum of $204.55 mentioned in Conclusion V, the defendant has not levied upon or attempted to levy upon property belonging to the plaintiff.

VII. The defendant is entitled to a judgment dismissing the complaint herein and dismiss the injunction issued by Order of this Court on November 6, 1964, provided that the plaintiff is entitled to a judgment that the defendant be directed to return to the plaintiff the sum of $204.55 besides interest.

 

52-1 USTC ¶9321]Antonio Raffaele and Marietta Raffaele v. Stanley Granger, Collector of Internal Revenue, Appellant

(CA-3), In the United States Court of Appeals for the Third Circuit, No. 10,586, 196 F2d 620, Filed May 14, 1952

Appeal from the United States District Court for the Western District of Pennsylvania.

Collection of delinquent taxes: Levy on joint account of taxpayer and his wife.--The distraint of the Collector on the joint bank account of taxpayer and his wife so as to collect taxes owed by taxpayer, is improper where, under state law, such account is treated as a tenancy by the entirety so as to be free from the demands of third parties claiming solely against either spouse.

Henry Kauffman, 7 Court Place, Pittsburgh , Pa. , for appellees. Frederic G. Rita, Special Assistant to Attorney General, Department of Justice, Washington 25, D. C., for appellant.

Before KALODNER and HASTIE, Circuit Judges, HARTSHORNE, District Judge.

Opinion of the Court

By HASTIE, Circuit Judge:

This is an appeal by a Collector of Internal Revenue from an order of a district court quashing a warrant of distraint.

Against one who fails upon demand to pay taxes owed the United States , a Collector of Internal Revenue has a statutory remedy of "distraint upon the goods, chattels or . . . bank accounts of the person delinquent". ¹ Purporting to exercise this power with reference to property of Antonio Raffaele, a tax delinquent, the Collector who is appellant here issued a warrant of distraint and levied thereunder upon certain deposits standing in banks in the Western District of Pennsylvania to the credit of Antonio Raffaele and his wife, Marietta