United States v. National Bank of Commerce
Headline: IRS allowed to levy joint bank accounts to collect one co-owner’s unpaid federal taxes, giving the Government provisional control of accessible funds and limiting immediate protections for other account holders.
Holding:
- Allows IRS to seize funds from joint accounts when a co-owner can withdraw them.
- Makes it harder for third-party account holders to avoid provisional seizure without pre-levy notice.
- Gives banks a duty to honor valid levies or face liability to the government.
Summary
Background
The dispute involved two joint bank accounts in Arkansas held in the names of Roy Reeves, Ruby Reeves, and Neva R. Reeves. The IRS had assessed Roy for 1977 income taxes, reducing the unpaid amount to $856.61. On June 13, 1980, the two accounts held $321.66 (checking) and $1,241.60 (savings). The IRS served a notice of levy on the bank for Roy’s debt, but the bank refused to pay because it did not know how much of the funds belonged to Roy versus the other codepositors. The government sued the bank, and the lower courts held against the IRS, concluding the agency had to prove the taxpayer’s exact ownership interest before levying.
Reasoning
The Supreme Court reversed. It explained that state law determines the nature of a taxpayer’s interest, but federal law decides the consequences for tax collection. Under Arkansas law and the stipulation, Roy had an unrestricted contractual and statutory right to withdraw the account funds. The Court held that such an unqualified right to withdraw is a "right to property" under the federal levy statute, so the IRS may use administrative levy to take provisional control of accessible joint-account funds. The levy is provisional and does not finally resolve competing ownership claims; those disputes can be addressed afterward through administrative return procedures or civil suits Congress provided (§6343(b) and §7426).
Real world impact
The ruling permits the IRS to collect small tax debts more quickly from joint accounts when a delinquent co-owner can lawfully withdraw funds. Banks served with valid levies must usually pay the IRS or risk liability. The Court did not resolve constitutional notice concerns; those issues and third-party claims remain for administrative or judicial follow-up.
Dissents or concurrances
Justice Powell, joined by three colleagues, dissented, arguing the decision undermines third-party property rights, misreads the statute, and departs from earlier precedents requiring proof of the delinquent’s actual ownership share.
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