Here is a call I get more than you would think. "The IRS took money out of my account, and I don't even owe them anything. My husband does." Or my mother does. Or my business partner does. The name on the levy is not yours, but the money is gone anyway.
That is not a glitch. It is the rule the Supreme Court set in United States v. National Bank of Commerce, and it explains a great deal about how IRS levies actually work.
The Facts
The facts are almost comically small. On December 10, 1979, the IRS assessed income tax, penalties and interest against Roy J. Reeves for 1977. After payments and credits, Roy owed $856.61.
On June 13, 1980, the National Bank of Commerce in Pine Bluff, Arkansas held two accounts: a checking account with $321.66 and a savings account with $1,241.60. Both were titled "Roy Reeves or Ruby Reeves or Neva R. Reeves." The parties told the Court that Neva was Roy's wife and Ruby was his mother. Under the bank contract and Arkansas law, any one of the three could withdraw every dollar.
The IRS served a notice of levy on the bank that same day. The bank refused to pay. Its position was simple: it did not know how much of the money belonged to Roy as opposed to Ruby and Neva. The government sued the bank under the levy enforcement statute for the $856.61.
The District Court dismissed the case, reasoning that due process required notice and a hearing for the co-depositors before the IRS could take anything. The Eighth Circuit affirmed on a different ground. It held the IRS had to prove the actual value of Roy's interest in the joint accounts before levying.
The Issue
Can the IRS levy on a joint bank account to collect the tax of only one of the people whose names are on it, when nobody has yet decided who actually owns the money?
The Holding
Yes. In an opinion by Justice Blackmun, the Supreme Court reversed. Roy had an absolute right under state law and his bank contract to withdraw the full balance. That right to withdraw was "property" or a "right to property" belonging to Roy within the meaning of IRC § 6331(a), and the bank was "obligated with respect to" it under § 6332(a). The bank had no basis to refuse the levy.
The Court put it plainly: "Common sense dictates that a right to withdraw qualifies as a right to property for purposes of §§ 6331 and 6332."
The Reasoning
State law defines the right. Federal law decides what happens to it.
The Court relied on a framework you will see again and again in tax collection cases. State law decides what rights a taxpayer has in a piece of property. Federal law decides whether those rights count as "property" the IRS can reach. Once state law gave Roy the right to empty the accounts, it did not matter that Arkansas garnishment law would have made an ordinary creditor jump through extra hoops. The IRS is not an ordinary creditor.
The Court quoted an older case for how broad the lien and levy language is: "Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes."
A levy is provisional
This is the part most people miss. The Court described the administrative levy as a "provisional remedy." A levy does not decide who owns the money. It freezes the money in the government's hands while ownership gets sorted out. Compare that to a lien foreclosure suit under IRC § 7403, where a federal judge brings in every claimant and decides everyone's rights before anything is sold.
Because a levy is provisional, the Court said, Congress had already built the protection for people like Ruby and Neva. They could ask the IRS to return their money administratively under IRC § 6343(b), or they could sue the United States for wrongful levy under IRC § 7426. The Court read § 7426 as covering deliberate seizures of jointly held property, not just accidental ones.
The bank gets two defenses, and only two
The Court repeated a rule that banks still live by. A bank served with a levy "has only two defenses for a failure to comply with the demand." Either it does not hold property of the taxpayer, or the property is already subject to a prior judicial attachment or execution. "That another party or parties may have competing claims to the accounts is not a legitimate statutory defense."
The practical argument
The Court also made a practical point. If the IRS had to file a lien foreclosure suit every time a delinquent taxpayer's money sat in a joint account, it would never be worth suing over small balances, and anyone could dodge collection by adding a relative's name to an account. The Court closed with a line from 1935 that the IRS still loves to quote: "taxes are the life-blood of government, and their prompt and certain availability an imperious need."
A narrow holding
Do not overread the case. The Court said so itself: "We stress the narrow nature of our holding." The decision covers joint bank accounts where the taxpayer has an unrestricted right to withdraw. The Court expressly expressed no opinion on other forms of joint ownership under state law. Questions about real estate held as tenants by the entirety, for example, came up later in United States v. Craft.
What It Means for Taxpayers Today
If your name is on a joint account with someone who owes the IRS
Your money is exposed. If the person who owes can withdraw everything, the IRS can levy everything, and the bank will freeze it. The IRS does not have to prove first that the money belongs to the debtor. You have to prove it does not.
The good news is that you get that chance. Today the bank must hold levied deposits for 21 days before sending them to the IRS. That rule is in IRC § 6332(c). Those 21 days are your window to act. If the money is yours, gather the deposit records now: paystubs, Social Security deposit statements, transfer records, anything that traces the dollars to you.
Your two roads back
First, you can ask the IRS to return the money under IRC § 6343(b). Second, you can file a wrongful levy suit against the United States under IRC § 7426. The deadline for that suit is now 2 years from the date of the levy under IRC § 6532(c). Congress extended it from 9 months in the Tax Cuts and Jobs Act for levies made after December 22, 2017. Filing an administrative request for return of the property can extend the period further, under the rules in § 6532(c)(2).
Two years sounds like a long time. It is not, when the money you needed to pay rent is sitting in the Treasury.
If you are the one who owes
Adding your spouse or your mother to your account does not protect the money. National Bank of Commerce shut that door forty years ago. Worse, it drags someone you care about into your tax problem. If you owe and a levy is coming, the answer is to deal with the debt directly, through an installment agreement, currently not collectible status, an offer in compromise, or a Collection Due Process hearing if you are still within the deadline. Our article on what to do after an IRS bank levy walks through those first steps.
If you run a business that holds money for others
Banks are not the only ones who receive levies. Anyone "in possession of (or obligated with respect to)" a taxpayer's property can get one. Honor it and you are discharged from liability to the taxpayer under § 6332(e). Ignore it without a valid defense and you become personally liable under § 6332(d)(1), and a 50 percent penalty can apply under § 6332(d)(2) if you refused without reasonable cause.
The Bottom Line
National Bank of Commerce is a case about $856.61 that set the rules for billions. The IRS can grab first and argue later, as long as the taxpayer could have grabbed the money himself. The co-owner's protection is not a hearing before the levy. It is a fast administrative request or a lawsuit after it. Know which one you need, and know your deadline.