United States v. Stock Yards Bank of Louisville

• Decision Date: 02 April 1956
• Docket Number: No. 12505.,12505.
• Parties: UNITED STATES of America, Appellant, v. STOCK YARDS BANK OF LOUISVILLE, KENTUCKY, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

231 F.2d 628 (1956)

UNITED STATES of America, Appellant, v. STOCK YARDS BANK OF LOUISVILLE, KENTUCKY, Appellee.

No. 12505.

United States Court of Appeals Sixth Circuit.

April 2, 1956.

Louise Foster, Washington, D. C. (H. Brian Holland, Ellis N. Slack, A. F. Prescott, Washington, D. C., J. Leonard Walker, Louisville, Ky., on the brief), for appellant.

John P. Sandidge, Louisville, Ky. (Woodward, Hobson & Fulton, Louisville, Ky., on the brief), for appellee.

Before McALLISTER, MILLER and STEWART, Circuit Judges.

STEWART, Circuit Judge.

On August 10, 1950, the Commissioner of Internal Revenue assessed income taxes, penalties, and interest against Clarence J. Theobald in the total amount of $129,960.67 for the years 1943 through 1946. Theobald was a resident of Jefferson County, Kentucky. Notice of the resulting tax lien was filed with the County Clerk of Jefferson County on October 5, 1950. On October 23, 1950, warrants of distraint and a notice of levy were served upon the appellee bank, advising the bank that all property then in its possession belonging to or payable to Clarence J. Theobald was being thereby seized and levied upon for the payment of Theobald's tax liability.

At that time the bank had in its possession one hundred and fifty Series E United States Savings Bonds of a maturity value of $25.00 each, and each registered in the names of "Clarence J. Theobald or Mrs. Theas Theobald." Theas Theobald was Clarence J. Theobald's wife. She was not a delinquent taxpayer. The bonds had been left by Clarence J. Theobald with the president of the bank more than two years earlier, when Theobald received a $2,500 loan from the bank and executed a promissory note for that amount.¹

The bank advised the Collector of its refusal to surrender these bonds to him in response to his demand. This action was then brought by the United States against the bank under Section 3710 of the Internal Revenue Code of 1939 for the value of the bonds, plus interest from the date of the levy.

The district court concluded as a matter of law that the bonds were owned by Clarence J. Theobald and his wife as joint tenants, that Mrs. Theobald had the right at any time to demand delivery of the bonds from the bank and collect what was due on them by simply endorsing them, and that this right could not be taken from her by a levy or distraint based upon an assessment against her husband. Accordingly, the court entered judgment dismissing the complaint, and from that judgment the government has appealed.

The relevant provisions of Section 3710 of the Internal Revenue Code of 1939 are as follows:

"§ 3710. Surrender of property subject to distraint. (a) Requirement. Any person in possession of property, or rights to property, subject to distraint, upon which a levy has been made, shall, upon demand by the collector or deputy collector making such levy, surrender such property or rights to such collector or deputy, unless such property or right is, at the time of such demand, subject to an attachment or execution under any judicial process.

(b) Penalty for Violation. Any person who fails or refuses to so surrender any of such property or rights shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes (including penalties and interest) for the collection of which such levy has been made, together with costs and interest from the date of such levy. * * * (26 U.S.C. 1952 Ed., Sec. 3710)."

As this court has said, "the proceeding authorized is not an action in rem, nor is it a suit for the collection of a tax. It is a suit to enforce personal liability for failure to surrender property belonging to a delinquent taxpayer." Commonwealth Bank v. United States, 6 Cir., 1940, 115 F.2d 327, 330.

That the bank was in possession of the bonds, and that it refused to surrender them upon demand, it conceded in its answer. The bank made no claim that the bonds were subject to an attachment or execution under any judicial process at the time demand was made for their surrender. In order to prevail, therefore, the government contends that it was incumbent upon it to establish only (1) that the bonds were subject to distraint, (2) that a levy had been made upon them, and (3) that they were "property, or rights to property" of Clarence J. Theobald, the delinquent taxpayer. In asking us to reverse the district court's dismissal of the complaint, the government argues that upon the facts above set forth these three elements were all established.

The appellee bank, on the other hand, takes the position that the bonds were not property subject to distraint, and that in any event no levy was made upon them. The bank insists further that the United States had the additional burden of establishing the value of the delinquent taxpayer's "property or rights to property" which the bonds represented, and that it failed to do so.

Whether the bonds were "property subject to distraint" depends upon whether the United States was a judgment creditor within the meaning of the Treasury Regulations under which the bonds were issued. 31 Code Fed.Reg. § 315.13. Whether a levy was made upon the bonds depends upon what technical requirements are necessary to constitute a levy. Section 3692 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 3692, does not set out any method for accomplishing a levy upon property. The bank argues that in addition to issuing warrants of distraint and serving notice of levy, it was incumbent upon the government to serve a notice of lien. Cf. United States v. O'Dell, 6 Cir., 1947, 160 F.2d 304, 307; Commonwealth Bank v. United States, 6 Cir., 1940, 115 F.2d 327, 328. These questions are not reached, however, in the view we take of this case.

We cannot agree with the district court that Clarence J. Theobald and his wife held the bonds in joint tenancy. Under the applicable Treasury Regulations there are only three forms under which Series E Bonds may be registered: in the name of one person, in the names of two persons in "co-ownership form," or in the names of two persons in "beneficiary form." 31 Code Fed. Reg. § 315.4. The bonds in the present case were issued in co-ownership form.

This court has held that co-ownership by husband and wife of Series E Bonds is not the equivalent of tenancy by the entirety under state law, but rather is an estate the limitations and conditions of which are delineated by the terms of the contract and by federal law. Guldager v. United States, 6 Cir., 1953, 204 F.2d 487. See Clearfield Trust Co. v. United States, 1943, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838; Bank of America National Trust & Savings Ass'n v. Rocco, 3 Cir., 1955, 226 F.2d 297, 299. The incidents of the estate of co-ownership are spelled out in some detail in this court's opinion in the Guldager case.

For the same reasons that co-ownership cannot be equated to tenancy by the entirety, it cannot be equated to joint ownership. While co-ownership and joint ownership possess many of the same incidents, notably the right of survivorship, they are not the same. One of the important differences is that a co-owner may alone present the bond for...