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

United States v. National Bank of Commerce

No. 84-498

Argued April 15, 1985
Decided June 26, 1985
472 U.S. 713

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE EIGHTH CIRCUIT

Syllabus

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

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

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

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

(a) A bank served with an IRS notice of levy has only two defenses for failure to comply with the demand: that it is neither "in possession of " nor "obligated with respect to" property or rights to property belonging to the delinquent taxpayer, or that the taxpayer’s property is "subject to a prior judicial attachment or execution." Here, the latter defense was not available, and so respondent’s only defense was that the joint accounts did not constitute "property or rights to property" of the delinquent taxpayer. Pp. 721-722.

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

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

726 F.2d 1292, reversed.

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