## Facts

- Frank L. Broday married Billie Shipman on June 7, 1966.
- Before the marriage, Billie Shipman had federal income tax liabilities for 1962 assessed on a joint return with her former husband.
- To collect that unpaid tax, the IRS levied a checking account in Frank Broday’s name.
- The account funds consisted of dividend income generated during the marriage from Frank Broday’s separate property.
- Broday paid the assessed tax after the levy and filed an administrative claim seeking a refund, asserting the levy was wrongful because the funds were his separate property.
- The district court denied the government’s motion to dismiss for lack of jurisdiction and awarded Broday a refund.
- The United States appealed.

## Issues

1. Whether I.R.C. § 7426(a)(1) authorizes a third party to bring a civil action seeking a refund-type remedy after a levy, or is limited to injunctive relief or recovery of property.
2. Whether, under Texas community property law, the wife had “property” or “rights to property” in dividend income from the husband’s separate property such that a federal tax lien could attach to that interest for the wife’s pre-marital tax liabilities.

## Decision

- The Fifth Circuit affirmed the denial of the government’s jurisdictional motion, holding § 7426(a)(1) authorizes a broad “civil action” for wrongful levy and is not restricted to injunction or replevin-style remedies.
- The Fifth Circuit reversed the refund judgment on the merits.
- The court held that, under Texas law, income generated during marriage from a spouse’s separate property is community property, giving the wife a present, vested one-half interest in the dividends.
- Because the wife held a vested property interest, a federal tax lien could attach to that interest for her pre-marital federal income tax liability; the levy was therefore not wrongful to the extent it reached her share.

## Legal Principles

- I.R.C. § 7426(a)(1) permits a non-taxpayer who claims an interest in levied property to bring a civil action challenging a wrongful levy; the statute does not confine relief to injunctions or recovery of specific property.
- Federal tax lien attachment under I.R.C. § 6321 depends on whether the taxpayer has “property” or “rights to property,” a question informed by state law defining the taxpayer’s interest.
- Under Texas community property law, income earned during marriage from one spouse’s separate property is generally community property, and each spouse holds a present, vested one-half interest.
- A federal tax lien may attach to the taxpayer-spouse’s vested community property interest even when the underlying tax liability arose before marriage.

## Conclusion

The Fifth Circuit held that § 7426 provides jurisdiction for a third party’s wrongful-levy civil action seeking a refund-type remedy, but reversed the refund because the wife’s vested Texas community property interest in dividend income was subject to a federal tax lien for her pre-marital tax debt, making the levy not wrongful as to her share.


Broday v. United States, 455 F.2d 1097 (5th Cir. 1972)