United States v. Fior D'Italia, Inc., 536 U.S. 238 (2002)

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238

OCTOBER TERM, 2001

Syllabus

UNITED STATES v. FIOR D'ITALIA, INC.

certiorari to the united states court of appeals for the ninth circuit

No. 01-463. Argued April 22, 2002—Decided June 17, 2002

Employers must pay Federal Insurance Contributions Act (FICA) taxes, calculated as a percentage of the wages, including tips, that their employees receive. 26 U. S. C. 3101, 3111, 3121(q). An employee reports the tip amount to the employer, who sends copies of the reports to the Internal Revenue Service (IRS). 26 CFR 31.6011(a)-1(a). In 1991 and 1992, respondent Fior D'Italia restaurant paid FICA taxes based on the tip amount its employees reported, but the reports also showed that the tips listed on customers' credit card slips far exceeded the reported amount. The IRS made a compliance check and assessed additional FICA taxes using an "aggregate estimation" method, under which it examined the credit card slips; found the average percentage tip paid by those customers; assumed that cash-paying customers paid at same rate; calculated total tips by multiplying the tip rates by Fior D'Italia's total receipts; subtracted the tips already reported; applied the FICA tax rate to the remainder; and assessed additional taxes owed. After paying a portion of the taxes, Fior D'Italia filed this refund suit, claiming that the tax statutes did not authorize the IRS to use the aggregate estimation method, but required it to first determine the tips that each individual employee received and then use that information to calculate the employer's total FICA tax liability. Fior D'Italia agreed that it would not dispute the accuracy of the particular calculation in this case. The District Court ruled for Fior D'Italia, and the Ninth Circuit affirmed.

Held: The tax law authorizes the IRS to use the aggregate estimation method. Pp. 242-252.

(a) An assessment is entitled to a legal presumption of correctness. By granting the IRS assessment authority, 26 U. S. C. 6201(a) must simultaneously grant it power to decide how to make that assessment within certain limits, which are not exceeded when the IRS estimates tax liability using a reasonable method. Pp. 242-244.

(b) The FICA statute's language, taken as a whole, does not prevent using an aggregate estimation method. Fior D'Italia claims that, because 3121(q) speaks in the singular—"tips received by an employee in the course of his employment"—an employer's liability attaches to each individual payment, not when the payments are later summed and

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