United States v. Fior D'Italia, Inc., 536 U.S. 238, 12 (2002)

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Cite as: 536 U. S. 238 (2002)

Opinion of the Court

tax, must "include wages received by an employee in the form of tips only to the extent of the tips reported . . . to the employer." 26 CFR 31.6011(a)-1(a) (2001) (emphasis added). How, then, asks Fior D'Italia, could the employer have calculated tax on a different amount, namely: (1) the amount of tips "reported"; plus (2) the amount of tips received but not reported? Indeed, Fior D'Italia itself did not do so initially, presumably because this regulation said it should not do so. See Brief for Respondent 16-17. And, if it should not do so, is it not seriously unfair for the IRS later to assess against it a tax deficiency based on this latter figure? "[T]here is no practical or legally authorized way," Fior D'Italia complains, for the restaurant to include the additional amount of tips for which the IRS might later seek tax payment. Id., at 16.

The statute itself, however, responds to this concern. It says that, insofar as tips were received but not reported to the employer, that remuneration (i. e., the unreported tips) shall not be deemed to have been paid by the employer until "the date on which notice and demand for such taxes is made to the employer by the Secretary." 26 U. S. C. 3121(q). This provision makes clear that it is not unfair or illegal to assess a tax deficiency on the unreported tips, for penalties will not attach and interest will not accrue unless the IRS actually demands the money and the restaurant refuses subsequently to pay the amount demanded in a timely fashion. See generally Rev. Rul. 95-7, 1995-4 I. R. B. 44. Indeed, the statute (and its accompanying Revenue Ruling) contemplates both a restaurant that does not police employee tip reporting and a later assessment based on unreported tips. It makes clear that, at most, such a restaurant would have to create a reserve for potential later tax liability. Although the reporting scheme may place restaurants in an awkward position, the Tax Code seems to contemplate that position; and its bookkeeping awkwardness consequently fails to support the argument that aggregate estimation is unlawful.

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