Document: 536 U.S. 238 UNITED STATESv.FIOR D'ITALIA, INC. No. 01-463. Supreme Court of the United States. Argued April 22, 2002. Decided June 17, CERTIORARI TO THE STATES COURT OF APPEALS FOR NINTH CIRCUIT Employers must pay Federal Insurance Contributions Act (FICA) taxes, calculated as a percentage wages, including tips, that their employees receive. 26 U. S. C. §§ 3101, 3111, 3121(q). An employee reports tip amount to employer, who sends copies Internal Revenue Service (IRS). CFR § 31.6011(a)-1(a). In 1991 and 1992, respondent Fior D'Italia restaurant paid FICA taxes based on its reported, but also showed tips listed customers' credit card slips far exceeded reported amount. The IRS made compliance check assessed additional using an "aggregate estimation" method, under which it examined slips; found average by those customers; assumed cash-paying customers at same rate; total multiplying rates D'Italia's receipts; subtracted already reported; applied tax rate remainder; owed. After paying portion filed this refund suit, claiming statutes did not authorize use aggregate estimation required first determine each individual received then information calculate employer's liability. agreed would dispute accuracy particular calculation in case. District ruled for D'Italia, Ninth Circuit affirmed. Held: law authorizes method. Pp. 242-252. (a) assessment is entitled legal presumption correctness. By granting authority, 6201(a) simultaneously grant power decide how make within certain limits, are when estimates liability reasonable 242-244. (b) statute's language, taken whole, does prevent claims that, because 3121(q) speaks singular — "tips course his employment" attaches payment, payments later summed reported. However, definitional section. Sections 3111(a) (b), impose tax, speak plural "wages" "individuals" employer "with respect thus totality paid, totality, says section, includes employee's tips. 244-245. (c) Contrary Circuit's view, there no reason read 446(b) methods determining income or 6205(a)(1) Secretary adopt regulations prescribing mechanisms employers adjust limiting IRS' authority method compute computing 245-246. (d) Certain features estimate should count calculating e. g., amounting less than $20 per month; can overstate because, tend leave lower do show so unreasonable violate law. Absent stipulation challenge calculation's accuracy, taxpayer be free able present evidence inaccurate 246-248. (e) fact placed awkward position requirement only employees, even knows inaccurate, unlawful. Section makes clear penalties will attach interest accrue unless actually demands money refuses demanded timely fashion. 248-249. (f) Finally, assuming improper motive part could render unlawful statutorily permissible enforcement circumstances, has shown acted illegally It presented general claim lends itself abusive agency action. But action cannot all cases simply possibility abuse, exists many discretionary powers. 250-252. 242 F. 3d 844, reversed. BREYER, J., delivered opinion Court, REHNQUIST, STEVENS, O'CONNOR, KENNEDY, GINSBURG, JJ., joined. SOUTER, dissenting opinion, SCALIA THOMAS, joined, post, p. 252. Assistant Attorney General O'Connor argued cause With her briefs were Solicitor Olson, Deputy Wallace, Kent L. Jones, Bruce R. Ellisen, Jeffrey Meyer. Tracy J. Power respondent. brief Thomas W. Power, Donald B. Ayer, Elizabeth Rees.* JUSTICE BREYER Court. 1 (popularly known Social Security taxes), wages This case focuses upon Government's efforts assess may have report. We whether (IRS) base restaurant's requires instead estimating separately, adding together create total. our 2 * imposes, "on every employer," "excise tax," i. e., equal "of ... him with employment." (setting forth basic tax); 3111(b) (using identical language set hospital insurance tax). specifies employment shall considered remuneration" "deemed been employer" purposes sections. receives form report send IRS. 31.6011(a)-1(a) (2001). 3 1992 provided San Francisco's (and ultimately IRS) amounted $247,181 $220,845, year respectively. And these amounts. reports, however, had more ($364,786 $338,161 1992). Not surprisingly, discrepancy led conduct check. issue against tax. 4 To added owing, used what calls That was very simple one. years question, finding tipped, average, 14.49% bills 14.29% 1992. Assuming tipped also, receipts. remainder. results $403,726 unreported $156,545. figures $368,374 $147,529. issued owed, $11,976 $11,286 5 assessed, brought while counterclaim method; rather, they Simplifying case, "[f]or purpose[s] litigation," "not facts, and/or determinations" "used basis calculation" employees' income." App. 35. decided sole remaining question statutory favor. 6 Appeals affirmed vote 1, majority concluding legally authorized least without adopting own authorizing regulation. light differences among Circuits, compare 844 (CA9 2001) (case below) 330 West Hubbard Restaurant Corp. v. States, 203 990, 997 (CA7 2000), Bubble Room, Inc. 159 553, 568 (CA Fed. 1998), Morrison Restaurants, 118 1526, 1530 (CA11 1997), we granted petition certiorari. now reverse. II 7 "assessment" amounts determination owes Government unpaid taxes. well established correctness help prove court. See, States Janis, 428 433, 440 (1976); Palmer IRS, 116 1309, 1312 1997); Psaty 442 2d 1154, 1160 (CA3 1971); Lease, 346 696, 700 (CA2 1965). consider here way, namely, directly rather summing) employee. 8 Code delegate Treasury, 9 "is inquiries, determinations, assessments duly ...." (emphasis added). 10 provision, limits. courts consistently held limits individual's long "reasonable" Erickson Commissioner, 937 1548, 1551 (CA10 1991) (estimate reference taxpayer's purchasing record "presumptively correct" "reasonable foundation"). See supra, 437 (upholding over 77-day period extrapolating gross proceeds from 5-day period); Dodge 981 350, 353-354 (CA8 1992) bank deposits taxpayer); Pollard 786 1063, 1066 1986) statistical tables reflecting cost living where lived); Gerardo 552 549, 551-552 1977) extrapolation 1-year receipts two days); Mendelson 305 519, 521-522 1962) waitress' earned waitresses employed restaurant); McQuatters 32 TCM 1122 (1973), ¶ 73,240 P-H Memo TC (same). 11 principle Rather, seeks explain why apply here, outcome 12 primary argument rests statute imposes points out "imposed tax" "wages him" defined in" 3121. 3111(a), (b). adds subsection 3121 (subsection q) refers "tips" "received employment," individually. (Emphasis added.) emphasizes 3121(q)'s conclude "employer's therefore payments, reported." Brief Respondent 28 original). 13 view linguistic too much little. finds key, words employee," contained definitional" 3121(q), sections section singular. (singular) "shall latter, imposing latter operational plural. They (plural) consequently pays, "wages," include earns. if imposed "all dishes," specifying "dishes" "include customer's silverware." see kind argues B 14 relied other provisions. first, 446(b), interpreted Mendelson, (authorizing receipts). court felt provision negatively implies lack such applies. 3d, 849. second, 6205(a)(1), prescribe absence 851. 15 examining statutes, find any negative implication. "a accounting" "does clearly reflect income," "no all, "the computation taxable as, Secretary, 446(b). applies one corner law, nothing about calculation. significantly limit both outside field believe Congress intended limitation. 16 initially pays "less correct "proper adjustments made, interest," accordance "regulations." "adjustments," say, underreported liability, before underpayment. generally 31.6205-1 Again, Congress, writing applicable small intended, through implication, deficiencies. Indeed, advanced either "negative implication" Circuit. C 17 next several "aggregate" "unreasonable" contrary law) First, notes sometimes owes. excludes insofar month. 3121(a)(12)(B). (including fixed salary) rises above annual level $53,400 $55,500 3121(a)(1); 846, n. 4. These ceilings mean waiter earns, $36,000 salary, $20,000 fails $10,000 owe waiter's ($56,000) exceeds ceiling. earns another amount, $46,000 falls below 18 Second, account possibilities that: (1) cash bill tip; (2) some "stiff" waiter, leaving all; (3) write high slip, ask back, net amount; (4) restaurants deduct company fee tip, 19 potential errors enormous difference restaurant, profits often low, high. 9-10, (asserting since enacted years' profits). control, customers, itself, concludes avoid problems resting calculations earnings, failure always result overstatement rendering delegated authority. 20 considerations bounds reasonable. bears repeating litigation, stipulated inaccurate. stipulation, remain accept unable "simply dispute" assessment. Tr. Oral Arg. 36. Why owner know, out: busboys personnel work day thereby likely earning tips; $55,000 1992; waiters refund; deducts charge of, say 3%, tips? need matters precision. demonstrate produced result. doing so, convince judge insist accurate formula. Erickson, 2d, ("Some foundation necessary preserve correctness" original)). 21 Nor convinced us individualized inevitably lead estimate. audits plagued inaccuracies attributes are, course, themselves. 521-522; TC. Consequently, is, matter, D 22 mentions regulation believes creates special problem fairness extent employer." (2001) How, then, asks different namely: "reported"; plus reported? initially, presumably said so. 16-17. And, seriously unfair deficiency figure? "[T]here practical way," complains, might seek payment. Id., 16. 23 responds concern. remuneration (i. tips) deemed until date notice demand Secretary." illegal subsequently Rev. Rul. 95-7, 1995-4 I. 44. accompanying Ruling) contemplates police reporting most, reserve Although scheme place position, Tax seems contemplate position; bookkeeping awkwardness support E 24 suggests putting estimate" use. traces lengthy history disagreement workers, owners, best enforce restaurants' obligation income. program, called "Tip Reporting Alternative Commitment," whereby promises establish procedures return promise alone. coercion force enter program (often unpopular employees) conflict views Members officials, responsible Letter Treasury Lloyd Bentsen, Analysts' Daily Highlights & Documents 3913 (Mar. 4, 1994); 106, 107. into laws: gives nonrefundable permits offset dollar 45B; second prohibits "threaten[ing] audit" order "coerce" entering tip-reporting program. Restructuring Reform 1998, 112 Stat. 755. 25 recent approach runs understanding underlies statute, "effectively forces verifying, investigating, monitoring, policing responsibilities Courts considered, evaluated, steadfastly refused transfer 9. intends victory "threat," reopen back years, require owners "to force" "employees report" 14. else, bring case? given FICA/income setoff, produce revenue Government. "abuse power" argument, constitute ground holding estimates. Even assume, argument's sake, cf. Powell, 379 48, 58 (1964), note demonstrated Instead effect abuse Cf. Heckler Chaney, 470 821, 831 (1985). 27 congressional documents protect onerous monitoring requirements prohibited. For example, means them reporting, 250, violated statute. Nor, litigation fail yield (due availability credit), convincingly explained, fact, making unremunerative, automatically improper. expressed concern regarding difficulty trying supervise suggest way ascertaining indisputably liable (particularly recalls remains issue, though waived right so). shown, relevant provisions 242-244, discussion "abuse" insufficient agency's prohibited saying this, recognize policy-related arguments Congress. III 29 reasons, judgment 30 Reversed. Notes: Briefs ofamici curiae urging affirmance American Gaming Association Robert H. Kapp, John G. Roberts, Jr., Frank Fahrenkopf, Jr.; National Peter Kilgore; Patricia Guancial Lawrence Jr. 31 whom THOMAS join, dissenting. holds Service's authorization reasonably cover restaurateur's I reading broadly saddles burden unintended respectfully dissent. 33 Taxes benefits Act, 49 622, amended, 42 401 et seq. (1994 ed. Supp. V). simplest taxed he receives, pays. 3111. time, recognized corresponding Amendments 1965, 313(c), 79 382. 1987, amended treat too, taxed, 34 simple. includible wages. employer. 6053(a). "[L]arge food beverage establishment[s]" pass Service, 6053(c)(1), slips, ibid. subject turn employee, limited "wage band"; month, excess wage ($53,400 $55,500, respectively, case). 35 Because receive, employers' matching world complete reporting. chosen counter dishonesty moving them, going aggregated together. 6201, (1976).1 practice assessing estimated income, raises anomaly after anomaly, point suspect wrong. appreciation consequences, crucial straightforward bars anomalies go them. 36 funding characterized "social insurance," Flemming Nestor, 363 603, 609 (1960), contribute Compare 3101 beneficiaries receive determined records earned. 608. 37 Notwithstanding structure, IRS's disjunction between presumptively owed comparable disproportion ultimate benefits, revise earnings whose benefit purportedly collected.2 Thus, outset, fits poorly design system. 38 As acknowledges, necessarily generalized assumptions estimates, inflate place, assumption underreporting sound, patron tipping, tipping probably not. Those percentages further assumptions: patrons cards cash, line slip obtain cash. most significant ignores band entirely, although true certainly fact. 39 tendency aggregation overestimate fair expect keep carry refute contested fair. 40 Obviously, probable inflation track ante, 248, blush, seem unusual expecting this.3 taxpayers according promulgated 6001, and, part, viewed maintain hence, justification requiring disprove estimates; attend 6001 himself blame. Kikalos 190 791, 792, 1999); Cracchiola 643 1383, 1385 1981); Meneguzzo 43 T. 824, (1965).4 blush feature here. states single, glaring exception: "in connection charged tips" "charge receipts, comply 6053(c), statements furnished 6053(a)." Ibid. expressly excused effort properly tells specific fell short band.5 Presumably exception, Secretary's recordkeeping obligations beyond mentioned 6001. 31.6001-5 (describing records). absolution mirrored uniquely excepted rule W-2 statements. 6041(e). upshot exception duty allow ready determinations checks virtually reads Code. 41 doubts possibly similar Ante, 248. tailored, taking account. occur consequence audit incentive divulge contest possible, generate paper trail availing strangeness combining excusing administrative inflated stands starkly eccentric route follow like carries. Under assessments, relies, preceded ("The ..."); ("An `assessment' taxes"). After, after, take step issuing 6303, levy property, liens, 6321, 6331. sequence followed report, receipt know egregiously (wage band), still declares. 6053(c) severe, give summary Nonetheless, solely tips.6 44 seeing disparity, extra payment treated overpayment. 8; Jones Liberty Glass Co., 332 524, 531 (1947) (overpayment "any due"). overall implication meant others. themselves liability; instead, obligation. 45 Some event trigger assessment, turns case.7 Only proceed 6201. Whereas usual demand, 46 this. concedes rely 6201 notice, Reply 15-16, performs "preassessment" (for which, incidentally, exists). Then issues (liability having attached) uses official 47 tempting events unusual, employer-taxpayer ends up failed differences. delinquent third-party (the report) invests correctness, possible liens levies. exposure collection mechanisms, important safeguard Whatever do, received, exposing (and, employer) taxation. entirely lost fault own, assessments. innocent few protection derived interest. Yet theory, immediately consequences instant arises. 48 goes implicit 243. occurs being assessed. required. claimed it, applicable. assess, previously Reasoning circular warrant suspicion. There source 1993, minimum wage. 45B. existence peculiar scheme, assume restaurateurs constantly operating knife-edge solvency, never (even 20-year carryforward, 39), little gain employer-taxpayer; (except, perhaps, interest-free loan).8 noted, affect wage-earning records, play role. something suspect, insistence conducting employers, purpose collecting refunded, increase earnings. 50 real advantage threat audit, immediate job ensure explanation sense flips frying pan fire. stymied attempt employers. days withholding share attempted forms; blocked modified 6041 exclude requirements. 1978, 501(b), 92 2878. When available 45B pursuant 6053(a), overruled clarified satisfy obligations. Small Business Job Protection 1996, Pub. 104-188, 1112(a), 110 1759. developed Tip Commitment (TRAC) forbade coerce taxpayer" participating. 3414, 755.9 threatened (after audit) induce technically run afoul difficult imagine lever purpose. 51 Consider alternative. noted tacitly acknowledges role sense, understand scope likewise close attention text authorization. 52 statement "inaccurate incomplete" one, "such "[S]uch described terms, provides "an "employees" employees" end 53 Dictionary context. "[A]n employee" during "their "unless context indicates otherwise," indicate otherwise. pointed "employee" plural, allowing assessment; refer accordingly, abridge catalog oddities come position. 54 sticking pay; sued respective liabilities restored parity. keying near certainty overassessment replaced likelihood consideration taxability FICA. 55 exercised express, option decline longer disadvantage. relatively easy discover instance. 56 Third, indeed establishes serve face obvious purpose, provide reliable information, similarly keeping time formally think would. limitations (because attaches, issuance triggers liability). employees. 6501. Conditioning parallel limitation exposure. 57 tension Congress's admonition "threaten participating TRAC, eliminated. If delinquency calculated, mass self-defense, institute TRAC vanish. eliminating eccentricities entailed reading, taxpayers. Of harder solve, solve shift affirm altered burdens proof cases, changes implicate 7491(a) vested seeFlemming 608-611 legislative choice tie evinces intent rough parity received. explained precise manner expected records. Before Appeals, pool 848, 2001). rejected contention "alter[ing] business .... akin service lieu tips."Ibid. "every hire people trust rules." transcript "Laughter." 27. Such knowledge factsCampbell 365 85, 96 (1961) ("[T]he ordinary litigant establishing facts peculiarly adversary"); Communications Assn. AT&T Corp., 124, 130 ("[A]ll else equal, better party easier access information"); Wigmore, Evidence 2486, 290 (J. Chadbourn rev. 1981) proving put knowledge" deleted)). specifically 6053, Moreover, irrational detailed while, relieved space allocated amongst via process "tipping out" (sharing supporting waitstaff bartenders hosts) substituted wage, devised assist collections despite auditing takes significance arises), runAnte, 249. interpret preventing running avoids prevents 6205(a)(1). At oral contended coupled credit, benefited accounting permitting appropriately fund revenue. 20-21 extent, modification awareness clarify depends "carrot" offered encourage participation refrain 45B, prior modifications, Reg. 68033 (1993) (temporary 1.45B-1T). clarification depend coercing participation, halted practice. Director, Office Employment Administration Compliance, Memorandum Regional Chief Compliance Officers (June 16, 106-107. realistic) answer just asked; complained practice, audits, responded targeted

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