Treasury (?) catch 22 or bank bovine scatology?

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Fri Dec 05, 2008 6:31 am

The theater of the absurd that seems to play out from time to time has appeared at a colleague's doorstep. Before I throw over forty years of banking and lending experience to the wind, I would ask this body that includes Treasury Department/IRS personnel to see if my colleague is simply being railroaded as I believe they are.

The spouses involved have, for over twenty years, maintained personal bank accounts - at separate banks. They have filed joint returns for at least that long.

A recent tax refund check from the treasury (payable to both joint filers as has been done for more than two decades) was endorsed and presented to one of the spouse's banks among some other items.

The bank refused to accept the deposit because the other party on the endorsed check was not on the account. This escalated to the point where after some rather wandering logic to sustain the theory, the branch manager simply got hung up on his own petard and let the party close the accountS (well into five figures all told) on the basis that it was a Treasury Department dictate and not a bank policy. It took over a half-hour to get the appropriate approvals on the cashier's checks he walked out with. He has not yet selected a new bank and has stashed the endorsed check in a safe at his business.

Two thoughts come to mind other than the abject stupidity of the branch manager - one, as far as I can determine, the Treasury department has NO lawful standing in any form or fashion to direct that a validly-endorsed instrument it has issued be accepted without regard to whether or not a "joint" bank account exists.

The offending bank's history of willingly accepting the same instruments over the years leads me to believe this is a case of an individual manager's ego trying to make a point without any basis in actual law (a policy Nazi in charge), and when it was escalated beyond the teller, the branch manager decided to back the employee and gambled the customer wouldn't go through with the threat of closing the accounts.

Having said all that, the couple is now faced with holding on to an endorsed Treasury check made out to both of them that was refused - they believe they are essentially out a roughly $2,500 refund, and the question to me was whether or not they should simply sue the bank in small claims court and see what happens.

Is there an actual Treasury Department directive that effectively requires joint filers to have a joint checking account? That sounds absurd to me, and I'm presently leaning toward telling the colleague to have some fun in small claims court at the expense of the bank.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

Ragnar

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Ragnar » Fri Dec 05, 2008 1:34 pm

Seems to me that a lot of trouble could be avoided just by opening a joint account.

Of course, that would negate the "fun" of sueing someone and wasting one's time.

fortinbras
Princeps Wooloosia
Posts: 2970
Joined: Sat May 24, 2008 5:50 pm

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby fortinbras » Fri Dec 05, 2008 3:16 pm

I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.

BBFlatt
First Mate
First Mate
Posts: 143
Joined: Thu Jul 12, 2007 1:11 pm
Location: West Margaritaville

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby BBFlatt » Fri Dec 05, 2008 4:18 pm

Well this isn't directly on point but it does appear that the IRS policy is to allow refunds, at least those that are issued via direct deposit, to be deposited to the account of either recipient:

IRS Pub 4541 wrote: The IRS will deposit a refund to any of your customers’ checking or savings accounts. In the case of refunds on jointly filed returns, the IRS will deposit the refund into an account of either or both spouses. For example, the IRS will deposit a joint refund into an individual retirement account of one spouse. If you place restrictions on the types of accounts or ownership for which you accept direct deposits, please inform your customers.


http://www.irs.gov/pub/irs-pdf/p4541.pdf
When the last law was down and the devil turned 'round on you where would you hide, the laws all being flat? ...Yes, I'd give the devil the benefit of the law, for my own safety's sake. -- Robert Bolt; A Man for all Seasons

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Fri Dec 05, 2008 4:52 pm

Ragnar wrote:Seems to me that a lot of trouble could be avoided just by opening a joint account.

Of course, that would negate the "fun" of sueing someone and wasting one's time.


If you knew the couple, you would realize having a joint account is not going to happen.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Fri Dec 05, 2008 4:54 pm

BBFlatt wrote:Well this isn't directly on point but it does appear that the IRS policy is to allow refunds, at least those that are issued via direct deposit, to be deposited to the account of either recipient:

IRS Pub 4541 wrote: The IRS will deposit a refund to any of your customers’ checking or savings accounts. In the case of refunds on jointly filed returns, the IRS will deposit the refund into an account of either or both spouses. For example, the IRS will deposit a joint refund into an individual retirement account of one spouse. If you place restrictions on the types of accounts or ownership for which you accept direct deposits, please inform your customers.


http://www.irs.gov/pub/irs-pdf/p4541.pdf


Thanks....I'll pass that on.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Fri Dec 05, 2008 4:57 pm

fortinbras wrote:I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.


That is my assessment, regardless of the source of the check. He has time on his hands so I expect he'll be filling out the small claims paperwork first thing next week.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

User avatar
Prof
El Pontificator de Porceline Precepts
Posts: 1209
Joined: Thu Mar 06, 2003 10:27 pm
Location: East of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Prof » Fri Dec 05, 2008 5:21 pm

Judge Roy Bean wrote:
fortinbras wrote:I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.


That is my assessment, regardless of the source of the check. He has time on his hands so I expect he'll be filling out the small claims paperwork first thing next week.


To the extent that a Treasury Draft/Check is governed by Art. 3 and Art. 4 of the UCC, a joint check properly endorsed by the two payees converts the check into a instrument payable to the order as indicated on the endorsement or upon demand if not to order. So, IMHO, JRB is absolutely correct -- and the policy of the Treasury of the US, as indicated in BBFlatt's post, appears to be identical to the provisions of the UCC.

As an aside, why didn't they come in together and just cash the T-check, stand in front of the bank official, split the cash in half, and deposit the cash as they wish?

In the alternative, why not be satisfied with "firing" the bank?

Playing "stump the chump" in small claims court might be fun, but why go to all the trouble because "he p@#*d me off?"

(I went back and re-read your rant and would add that it appears that the problem the bank created was due to an endorsement "Pay to Idiot Bank." At their "new" bank, the payees should be able to strike that endorsement, since the payees have never delivered the check to anyone, and substitute a new endorsement payable to the "new" bank. The UCC allows for changes on the endorsement when there has been no delivery by the payee.)
Last edited by Prof on Fri Dec 05, 2008 5:42 pm, edited 1 time in total.
"My Health is Better in November."

LaVidaRoja
Basileus Quatlooseus
Posts: 756
Joined: Mon Sep 01, 2008 1:19 am
Location: The Land of Enchantment

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby LaVidaRoja » Fri Dec 05, 2008 5:22 pm

Many years ago, in a similar situation, the bank required that the non-account holder's signature be notarized. They felt they needed to determine that the signature was genuine.
Little boys who tell lies grow up to be weathermen.

User avatar
webhick
Illuminati Obfuscation: Black Ops Div
Posts: 3868
Joined: Tue Jan 23, 2007 2:41 am

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby webhick » Fri Dec 05, 2008 5:34 pm

I've noticed that a lot of banks up here now have policies with regard to IRS checks because there have been instances when one spouse cashes the check and the other never even knows about it - which causes a huge problem. They don't have to have a joint account to get the funds, but I believe that both parties have to be present with ID in order for the bank to cash/deposit the check.
When chosen for jury duty, tell the judge "fortune cookie says guilty" - A fortune cookie

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Sat Dec 06, 2008 12:20 am

Webhick - I'm trying to discover what legal authority a bank has to make an arbitrary decision about whether or not a spouse may or may not at some unknown future date have a legitimate claim to any allegedly not-received funds. I'm no fan of the abuse banks are famous for and this kind of thing is exemplary of their attitude toward customers - keeping in mind this has not been a problem for years.

The whole argument is specious, IMHO. Let's assume for the sake of discussion that an instrument with both signatures on it is deposited in one of the spouse's accounts. And let's take the bank's assertion that at some future date (the SOL being seven years, I believe) the other spouse somehow wakes up, files for a divorce and raises a claim against the depositor spouse for allegedly not having benefit of the funds from the joint tax refund. Unless there is a divorce in a community property state the issue is moot anyway, so my "so what?" light is on full. The bank has no fiduciary responsibility to a non-customer nor could it be joined as a defendant in any future action against its customer.

Methinks there is more to this than meets the eye.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

BBFlatt
First Mate
First Mate
Posts: 143
Joined: Thu Jul 12, 2007 1:11 pm
Location: West Margaritaville

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby BBFlatt » Sat Dec 06, 2008 12:45 am

Perhaps the bank was looking for an excuse to "fire" this customer?
When the last law was down and the devil turned 'round on you where would you hide, the laws all being flat? ...Yes, I'd give the devil the benefit of the law, for my own safety's sake. -- Robert Bolt; A Man for all Seasons

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Sat Dec 06, 2008 3:24 am

BBFlatt wrote:Perhaps the bank was looking for an excuse to "fire" this customer?


I can't imagine that scenario. The party isn't exactly a candidate for "Mister Personality" but I think this is more a situation of stupid protecting stupider at one branch bank.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three

User avatar
webhick
Illuminati Obfuscation: Black Ops Div
Posts: 3868
Joined: Tue Jan 23, 2007 2:41 am

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby webhick » Sat Dec 06, 2008 4:40 am

Judge Roy Bean wrote:Webhick - I'm trying to discover what legal authority a bank has to make an arbitrary decision about whether or not a spouse may or may not at some unknown future date have a legitimate claim to any allegedly not-received funds. I'm no fan of the abuse banks are famous for and this kind of thing is exemplary of their attitude toward customers - keeping in mind this has not been a problem for years.


Sorry. IIRC, it's the US Patriot Act. When I tried to look it up, I saw a few areas where it could be construed to mean that the banks have to do it this way, but nothing explicit that I saw.
When chosen for jury duty, tell the judge "fortune cookie says guilty" - A fortune cookie

User avatar
Prof
El Pontificator de Porceline Precepts
Posts: 1209
Joined: Thu Mar 06, 2003 10:27 pm
Location: East of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Prof » Sat Dec 06, 2008 4:30 pm

JRB:

As far as I know, a bank is under no legal obligation to accept any deposit, including cash, from a customer.

However, I know of no legal impediment to acceptance of a joint check, endorsed by both payees, even if the check is a T-Check (technically, a draft, since it is not drawn on a bank).

As with any other endorsed item, the Bank receives certain warranties from the depositor -- that the signatures are valid, that he/she/it has received the check by transfer, etc. The depository bank then warrants those same issues to the payor. Under the UCC (which would only apply directly to checks), there is (I recall -- no UCC at the house) a one year limitations period for forged endorsements. Again, as I recall, all of the Art. 4 rules are applied by common law to T-Checks here in the 5th Cir.

However, for a deposit into a 5-figure account a long-time customer, the depository bank runs no risk. If the item is returned, the Bank merely reverses the entry (or offsets, depending on which technical process you want to use to analyze the recoupment).

I think your analysis is correct: Stupid is as stupid does; or, as Coach K or someone said, "You can't coach height."
"My Health is Better in November."

Judge Roy Bean
Judge for the District of Quatloosia
Judge for the District of Quatloosia
Posts: 3529
Joined: Tue May 17, 2005 7:04 pm
Location: West of the Pecos
Contact:

Re: Treasury (?) catch 22 or bank bovine scatology?

Postby Judge Roy Bean » Sun Dec 07, 2008 1:40 am

I think I've managed to convince him to at least try an administrative remedy ( :!: ) first through the OCC's consumer complaint office - only because he hasn't exhausted same and that might be a speed bump in his rush to a small claims coliseum showdown with his new-found arch enemy. :roll: (Patience is not one of his virtues).

I can't wait to see the response.
The Honorable Judge Roy Bean
The world is a car and you're a crash-test dummy.
The Devil Makes Three


Return to “Tax Practice & Policy and Tax Shelters”

Who is online

Users browsing this forum: No registered users and 1 guest