Steele v. United States

The Internal Revenue Service (IRS) issued administrative penalties of $5,186.47 against each of the president and secretary (plaintiffs) of Davidson-Steele, Inc. The fines related to Davidson-Steele’s alleged willful failure to pay to the IRS money that Davidson-Steele withheld from employee wages for income tax and Social Security purposes. The president and secretary each paid $50 to the IRS and then sued the United States (defendant) for a refund, arguing that the penalties were illegally and improperly assessed against them. The district court granted the United States’ motion to dismiss the complaint on the ground that the president and secretary did not pay the full penalties before suing. The president and secretary appealed. On appeal, the United States conceded that the district court’s decision was incorrect because the withholdings involved separate taxes on each employee, and thus the penalties were divisible assessments that related to individual withholdings. Accordingly, the parties jointly stipulated that pursuant to the United States Supreme Court’s decision in Flora v. United States, the president and the secretary were not required to pay their full penalties before suing the United States for refunds and requested that the court of appeals reverse the judgment and remand the case for further proceedings in the district court.