## Facts

- Davidson-Steele, Inc. withheld federal income and FICA taxes from employee wages but failed to remit all withheld amounts to the United States.
- The IRS assessed 100% responsible-person penalties (trust-fund recovery penalties) against the corporation’s president and secretary in the amount of $5,186.47 each.
- Each assessed officer paid $50 and filed a federal district court refund suit, alleging the penalties were illegally assessed.
- The officers did not pay the full amount of the assessed penalties before filing suit.

## Issues

1. Whether a person assessed a 100% responsible-person penalty for unpaid withheld employment taxes must pay the entire assessment before bringing a refund action under 28 U.S.C. § 1346(a)(1).
2. Whether the responsible-person penalty is divisible into discrete components tied to individual employees and periods, permitting jurisdiction based on payment of a divisible portion.

## Decision

- The court of appeals reversed the district court’s dismissal for lack of jurisdiction and remanded for further proceedings.
- The court accepted that the assessment related to separate underlying employee withholding liabilities and was therefore divisible.
- Applying the refund-suit payment requirement to the divisible nature of the assessment, the court concluded full payment of the entire penalty was not required to maintain the action.

## Legal Principles

- Under 28 U.S.C. § 1346(a)(1), the general full-payment rule for district-court refund actions does not require payment of an entire assessment where the tax or penalty is divisible.
- A § 6672-type responsible-person penalty for failure to pay over withheld employment taxes is divisible into amounts attributable to individual employees and periods.
- Jurisdiction for a refund suit may be established by paying the full amount of at least one divisible component (commonly, the amount attributable to a single employee for a single period) and suing for a refund of that component.

## Conclusion

The Eighth Circuit held that responsible-person penalties for unpaid withheld employment taxes are divisible, so the officers’ failure to pay the entire assessed amounts did not bar their refund suits; the case was reversed and remanded for litigation on the merits.


Steele v. United States, 280 F.2d 89 (8th Cir. 1960)