Under Uniform Commercial Code § 3-104(e), a bill of exchange constitutes “an order to pay money signed by the person giving the order, made payable to an identified person, and payable on demand or at a definite time.” The critical element distinguishing a bill of exchange from a promissory note lies in its tripartite structure: the drawer orders the drawee to pay the payee. Section 3-103(a)(8) defines the drawee as “a person ordered in a draft to make payment,” while the drawer under § 3-103(a)(5) is “a person who signs or is identified in a draft as a person ordering payment.”
When the Internal Revenue Service executes a tax assessment under 26 U.S.C. § 6201(a)(1), which provides that “the Secretary is authorized and required to make…assessments of all taxes,” a precise accounting sequence occurs. The IRS records on its Integrated Data Retrieval System (IDRS):
IRS Master File Entry: DR: IMF/BMF Account Receivable – Taxpayer [SSN/EIN] $X
This receivable, coded as Transaction Code 150 (Return Filed & Tax Assessed) or TC 240 (Miscellaneous Penalty Assessment), creates an asset on the government’s books. Critically, 31 U.S.C. § 3302(b) mandates: “The Secretary of the Treasury shall deposit in the Treasury…money received by the Secretary.” The IRS holds this receivable not for its own benefit but as a collection agent required to transfer all proceeds to the Treasury General Account (TGA) maintained at the Federal Reserve.
The payment coupon issued with Notice CP14 or similar assessment notices documents this receivable’s existence. The coupon specifies: – Amount: The precise receivable value – Payee instruction: “Make your check or money order payable to the United States Treasury” – Statutory authority: References to Title 26 obligations
This creates the following UCC Article 3 structure:
Drawer (§ 3-103(a)(5)): The taxpayer who signs the Bill of Exchange, ordering payment of the assessed amount. The taxpayer derives authority to draw from being the subject of the receivable—the party whose economic activity generated the IRS’s asset.
Drawee (§ 3-103(a)(8)): The IRS, which holds IMF/BMF receivable account #[specific taxpayer number] as a booked asset. Under extreme but consistent logic, this receivable represents value the IRS possesses but must transfer. The IRS qualifies as drawee because it holds specifically identifiable value (the receivable) earmarked for the payee. The receivable exists as an actual entry in the IRS Master File system, viewable through Command Code IMFOL or BMFOL.
Payee (§ 3-103(a)(11)): The United States Treasury, designated by statute as the sole lawful recipient of federal tax collections under 31 U.S.C. § 3302(b) and Treasury Financial Manual Volume I, Part 2, Chapter 5100.
The Bill of Exchange operates through these precise instructions:
“To: Internal Revenue Service (Drawee) RE: IMF Assessment Account [SSN-XXX-XX-XXXX], Notice CP[XXX] Pay to the order of: United States Treasury (Payee) The sum of: $[Amount] from receivable booked under TC 150/240”
This directs the following accounting entries:
Step 1 – IRS Books: DR: Bill of Exchange Receivable (or TC 670 Subsequent Payment) $X CR: IMF/BMF Account Receivable – Taxpayer $X
Step 2 – Treasury Interface: IRS to Treasury: DR: Due to Treasury $X, CR: Bill of Exchange Clearing $X Treasury Books: DR: Due from IRS $X, CR: Tax Revenue $X
The legal sufficiency derives from three interlocking authorities:
1. 26 U.S.C. § 6201(a): Creates IRS’s power to assess, generating the receivable 2. 31 U.S.C. § 3302(b): Mandates deposit of collections to Treasury, establishing Treasury as necessary payee 3. IRM 3.8.45.5.10.1: Prescribes forwarding BOEs to “Department of the Treasury Office of Executive Secretary, 1500 Pennsylvania Avenue, NW, Room 3413, Washington, DC 20220”
The intelligence lies in recognizing that the IRS receivable constitutes “value held” within the meaning of UCC § 3-408, which addresses the drawee’s obligation. While traditionally a drawee holds deposits or owes debts to the drawer, here the IRS holds a receivable that by federal statute must be paid to Treasury. The taxpayer’s BOE simply instructs completion of this statutorily mandated transfer, using the receivable the IRS already booked as the source of value.
The foregoing analysis demonstrates that the traditional UCC requirement that a drawee hold funds for or owe money to the drawer need not be read so narrowly as to exclude holders of receivable assets with statutory transfer obligations. When the Internal Revenue Service creates a tax assessment, it generates a receivable asset on its books—a concrete, identifiable store of value coded within its Master File system. This receivable, while representing the taxpayer’s obligation, simultaneously constitutes an asset under the IRS’s control that carries a mandatory statutory destination: the United States Treasury pursuant to 31 U.S.C. § 3302(b).
By reconceptualizing the IRS not merely as creditor but as custodian of transferable receivable value, we resolve the apparent impediment to drawee status. The taxpayer’s Bill of Exchange does not purport to draw upon non-existent funds or create value ex nihilo; rather, it directs the transfer of specifically identified value—the booked receivable—from its current holder (IRS) to its statutorily mandated recipient (Treasury). This construction preserves the essential tripartite structure of negotiable instruments while acknowledging the unique character of governmental receivables as assets bearing inherent transfer obligations.
The IRS’s own Internal Revenue Manual Section 3.8.45.5.10.1, which prescribes specific procedures for forwarding Bills of Exchange to Treasury, implicitly recognizes this framework’s validity. In final analysis, the transformation of the IRS from mere creditor to holder of directed value represents not a distortion of commercial law principles but their logical extension to accommodate the distinctive attributes of sovereign debt collection within a system premised on ledger-based value transfer.