WPC :r 4 [P[PnLv]tO]C f=MDO-˴|/i[ٛ^7pOO=~SIpoy gq&#m_;ڇF7nD ..ZX$FִMRÆKbǍ树lta@uqO#p^_ pNT;#!:UN[ % 0(UBUBUN[ B^ w@4 0C&i tx mRa|C7Xz 1"LY#%nk& 0e(>)+&L/ 1r0 1u0n1 11 0b 2m2`3  y88 0w8::%3<3<X> 1@B@@ 0BSCD 1FG 1I'IIILDN0P0PTVX[[[w]]]]] ta|a obwbwb  eW"e ye2eeeeeeeeeeeeeeeeeeeeeeeeeee 0leeeeeeeee -f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f-f3f 0Df 0D=g AMg 0Dg D+h 0K=h BBhfhah@"ho ip":vEȰfʰa̰b6αHP OfficeJet R Series0(,,,,0(0(9 Z6Times New Roman RegularX($ `*Times New RomanTT<6X9`(*Courier 12pt10cpi(9 Z 6Times New Roman Regular d,  E P [    Y  Y*׍d($    3|x %Treas. Reg. 31.3121(a)(1)-1(a)(2) and 31.3121(q)-1(d4)U1, 2, 3,Level 1Level 2Level 3Level 4Level 5 + ' Tracy Power 0Tracy Power .    H l$    25    _ThisresultfliesinthefaceofIRSsrepeatedassertionthroughoutitsbrief,G.B.9,25,to  theeffectthataflatrateapproachoraggregateestimateismorelikelytoachieveaccuracythanindividualdeterminationsoftipearnings.ItalsoillustratesthatwhilethesumofindividualauditsmaybenothingmorethanthesumofindividualestimatesthatapproachcouldresultinamateriallyandsignificantlylowerfigurethanthatproposedbyIRSonanaggregatebasis.  r l$    19    _Inthisregard,IRSiswrongwhenitsuggestsanestimatebasedupontheaveragetiprate  andgrosssalesoftherestaurantisfarmorelikelytoachievefactualaccuracythanindividualaudits.Forinstance,ifanemployerhastwoemployees,onewhomade$75,000andtheother$25,000ataxbasedonanestimateofgrosswageearningswouldbeimposedon$100,000.On t  anindividualbasis,withaFICAwagebaseof$55,500,theemployershareofFICAwouldbebasedon$80,500($55,500+25,000). 9 l$    11    _IRSarguesCongressgavetacitapprovaltotheemployeronlyaggregateassessmentsby  virtueofthisamendment.CongressdidnotgiveapprovaltowhatIRShadassuredCongressithaddiscontinuedinpractice. N l$    15    _SeealsoIRSFieldServiceAdviceMemorandum199874(holdingthatanemployeris  prohibitedfromfilinganamendedreturnoranadjustmentonForm941evenforamountsof  unreportedtipswhichtheemployermayhaveareasonablebasisforconcludingtheemployee  ( received(i.e.,asinthecaseofallocatedtipsortipsoncreditcardreceipts),untilsuchtimeasthe d ServicesendsaNoticeandDemand).(CEKQW]cioAutoList1A.A.A.A.A.A.A.A. B l$    21    _Thegovernmentsuggeststhatthefactthatanemployerdoesnotaccountforandisnot   assessedFICAtaxseparatelyforeachemployeeisindicativeofthefactthatthetaxisnotimposeduponindividualemployeeearnings.Thisconclusionisnotwarranted.An assessment  doesnotcreatetheliabilitybutmerelyactsasajudgementfortaxesfounddue.Bullv.United t States,295U.S.247,259(1935).A, B,Level 1Level 2Level 3Level 4Level 5 d l$    1    _XHXXXIn1977,CongressdidchangethelawtorequireemployerstopayFICAtaxesontipsto  theextenttheywereusedtooffsetanemployersminimumwageobligations.SocialSecurityAmendmentsof1977,Pub.L.No.95-216,315(a),91Stat.1509,1536,repealedbyPub.L.No.100-203,TitleIX,9006(b)(2),101Stat.1330-289(1987).H.R.Rep.No.95-702,95thCong.,1stSess.11(1977),reprintedin1977U.S.C.C.A.N.4155,4168.#XHXXXHS#4#0V2Quick A.  .0  x l$    26    _IRSstatesthatin1994total_Foodservice_ԀIndustrytipsreportedwere$8.52billion.  Pet.20.Ifthisamountrepresents50%ofalltipsreceivedasIRSsuggestsbyreferencetotheTip  IncomeStudyId.,totaltipsreceivedwouldbetwicethator$17.04billion.The1999totaltips  reportedfortheindustryof$14.31billion,Pet.20,is84%ofthistotaltipsreceivedof$17.04billion,whichIRSindicateshasremainedconstantsince1994.  l$    24    _IRSarguesthatemployeeshavewaivedtheirentitlementtowageearningscredits.This  argumentignoresthefactthatnotonlyemployeesbutsocietyasawholehasaninterestinitsworkingcitizensreceivingsocialsecurityprotection.Further,itappearsthatemployeesmaybedeniedwageearningscrediteveniftheydoultimatelyreporttoIRSthecorrectamountoftipsreceived.AccordingtoSSAcorrespondencefrom1993,suchcreditswillberecordedonlywheretheemployerfilesthecorrectedamountonaFormW2c,_J.A._Ԁ70,andinthisinstancethatcanonlyoccurwheretheemployerreceivesinformationfromIRSindicatingthecorrectedtipfigurefortheindividualemployee.Seediscussionsuprap.򁁁. $ t   l$    2    _ԀThisdecisionwascoupledwiththeenactmentofapenaltyequalto50%ofthetaxesdue  iftheemployeefailstoreporthistipstotheemployer.See26U.S.C.6652(b).(ڽCEKQW]cioAutoList6A.A.A.A.A.A.A.A.3#37=CIQYag1.a.i.(1)(a)(i)1)a)    }CEKQW]cioAutoList5A.1.A.A.A.A.A.A.(:Hg$25h   .3  0   !  _XyXXX?5@XXyTreas.Reg.31.3121(a)(1)1(a)(2)and31.3121(q)1(d).#?5@@?5+##XyX@?5J#  l$    22    _Thefactthatthestatuteimposestheemployer'sshareofFICAtaxesonanemployee's  tipswhentheemployeefailstoreportthemandthatsuchtaxescanbeassessedseparatefrom,atalaterdatethan,andregardlessofwhethertheemployeeisaudited,assessed,orevenpaysthetax,doesnotsupportaconstructionofthestatuteasimposingthetaxontipsreceivedbyallemployeescollectivelyasIRSargues.G.B.4,8,15,16,17,19,20.   `   ThetimingoftheemployersobligationtopaythetaxunderSection3121(q)(i.e.,whena L  noticeanddemandissues)doesnotrecharacterizeitasoneimposedontipearningsofallemployeescollectively.Tothecontrary,aproperreadingofthestatuteisthatwhenFiorisprovideda"noticeanddemand"forFICAtaxesonadditionaltipearningsofanindividualemployee(eitherasreportedbytheemployeeonForm4137withhisincometaxreturnorasadjustedafteranIRSauditoftheindividualtippedemployee),Fiorowesthetax,andthefactthattheemployeehasnotbeenaudited,assessed,orpaidhissharedoesnotrelieveFiorofitsliabilitytopay.6053  l$    3    _XHXXXSeeStaffofSenateCommitteeonFinance,100thCong.,1stSess.,S.Prt.100-63,  ExplanationofProvisionsApprovedbytheCommitteeonDecember3,1987,forInclusioninLeadershipDeficitReductionAmendment203(Comm.Print1987)#XHXXXHS#(emphasisadded).(OO$0  2}  0  .3  0` (#(# z l$    4    _ԀXHXXXSeeOmnibusBudgetReconciliationActof1987(OBRA),Pub.L.No.100-203,  9006(a),101Stat.1330,1330-288(effectiveJan.1,1988),amending26U.S.C.3121(q)(andrepealing3121(t)).,#XHXXXHT#  l$    27    _XHXXXTheonlyIRSauthorityeverissuedaddressinghowtheemployersshareofadditional  FICAtaxesonunreportedtipsistobeimposedissilentastotheprocedure.Rev.Rul.95719951C.B.185posesthequestion: Howisanoticeanddemandmadeforpurposesofsection3121(q)ofthecode?andanswers: nospecificformorprocedureisprescribed.#XHXXXHT#Ԁ  l$    5    _ԀIRSspositionisthatthestatuteoflimitationsdoesnotbegintorununtilanoticeand  demandisissuedbecausenotuntilthattimeistherealiabilityforthetax.SeePet.App.11a,12a,  42a,Rev.Rul.957,19951C.B.482andIRSFieldServiceAdviceMemorandum1998468. }CEKQW]cioAutoList7A.1.A.A.A.A.A.A. 8 l$    6    _ThisassessmentcouldeasilyamounttoXHXXXԀtwicearestaurantsannualprofits#XHXXXHy#.Industry  profitsareapproximately4%ofsales(SeebriefofAmicusNationalRestaurantAssociation).An  assessmentforestimatedunreportedtipsequalto7%ofsalesforallyearssince1988wouldequal7.5%ofsalesornearlytwiceaverageannualprofits(7%X7.65%FICAX14years).(b$0  0` (#(#2#   .3  0 ` (#` (#  l$    7    _XHXXXSpeechofTonyWorchalak,DirectoroftheOfficeofEmploymentTaxAdministration  andCompliancefortheInternalRevenueService,beforetheAmericanPayrollAssociation's  N HospitalityPayrollsWorkshop,April1416,1994.XXH  l$    8    _XHXXX"TheTaxMan,"byJohnMcLaughlin,RestaurantBusinessMagazine,October10,1994.  ItshouldbenotedthatmanyofthesesuggestionswouldviolatevariousFederalandStateWage&HourLaws.#XHXXXHS#X.XXXHԀ(CEKQW]cioAutoList8A.A.A.A.A.A.A.A.  l$    9    _XHXXXSeeOmnibusBudgetReconciliationActof1993,Pub.L.No.103-66,13443(a),107  Stat.312,568.SeealsoHighlightsandDocuments,March4,1994pg39133920foracomplete  discussionofthepurpose,intent,andhistorysurroundingCongressspassageof45Bcredit.#XHXXXHV#( CEKQW]cioAutoList9A.A.A.A.A.A.A.A.  l$    10    _SeeXHXXXI.R.C.45(b)(1)(A),asamendedbySmallBusinessJobProtectionActof1996,  Pub.L.No.104-188,1112(a),110Stat.1755,1759;seeH.R.Conf.Rep.No.104-737at  186-187,reprintedin1996U.S.C.C.A.N.1677,1678-79;S.Rep.No.104-281at7-8,reprintedin1996U.S.C.C.A.N.1474,1480-83;H.R.Rep.No.104-586at5-6(1996).Ԁ#XHXXXH^#ԀAtthetimeofthis t amendment,theIRSwasnotassessingthetaxinthemannerithasdoneheresotherewouldhavebeennoneedforCongresstodoanymorethanitdid.SeeJ.A.103107.  l$    12    _Annualtaxesatanestimated30%ofannualprofitsof4%equals1.2%ofsales.Itwould  takemorethan6yearsbeforethe45BcreditwouldfullyoffsetapotentialFICAtaxassessmentontipsequalto7.5%ofannualsales.FSeesupra,at__n.6.  l$    13    _Reg.31.3121(q)1(c)providesthatonlytipsretainedbyanemployeearetobereported  byhim .XHXXXԀThemonthlyliabilityreconciliationsonForms941, #XHXXXH#ԀXHXXXHJ.A.8088,correspondwiththebi  weeklypayrollperiods.#XHXXXHN#  l$    14    _ԀContrarytotheGovernment'sassertion(G.B.20),thefilingofForm941doesnot   imposeanytaxes.TheForm941ismerelyanaccountingoftaxdepositsalreadymade.TheinclusionofamountsonForm941isnotcoterminouswithorevenevidenceofaliabilityforataximposed.IncomeandemployeeFICAtaxeswithheld,alongwiththeemployersFICAdeposits,areincludedinthelumpsumtotalfiguresontheform(seelines5,,6a,6b,7and11).Obviously, ` notaxis imposedontheemployerforthoseamounts.Theemployerresponsibilityisonlytocollecttheseamounts.Similarly,thetotalfiguremaybeadjustedbyavarietyofthings,suchasadjustmentsfromotherquartersandemployeeearnedincomecredits.Form941thereforetellsonenothingaboutthetaxesimposed.Itistheactualpaymentofthewagestotheindividual  ` employee,notthesubsequentcomminglingofitwithotherwagepaymentsandaccountingforitonForm941,whichtriggersataxliabilityanduponwhichthetaxisimposed.  l$    16    _XHXXXInaddition,payrollisoftenhandledthroughouttheindustrybyoutsidepayrollservices  whoarenotprivytosalesdata.#XHXXXHT#ԀEvenwhenhandledinternally,payrollprocessingsystemsare  separateanddistinctfromotheraccountingandfinancialsystemsandfunctions.SeeAGAbrief.  l$    17    _IRSconsidersthisissue marginal.G.B.36n.26.IRSfailstorecognizethatthe  restaurantbusinessisaverytransientbusinesswithemployeeturnoverratesashighas200to400%.Forsomejobcategories,suchasbusboysanddishwashers,theturnoverratecouldbeevenhigherwithjobslotsrepeatedlyfilledwiththoseliterally heretoday,gonetomorrow.  l$    18    _Thislanguageprovidesthat"XHXXXUnderIRCsections6051and6071andtheregulations  underthosesections,youarerequiredtofurnishFormW2c(StatementofCorrectedIncomeTaxAmounts).ԀB.Ԁh.toeachofthe򀀀Ԁemployeeswhosewagesareadjustedbythisreport.Alsoyou  arerequiredtofiletheoriginalofthesestatementswithFormW3c[fortransmittaltothe}SSA]#XHXXXHq#."  l$    20    _Inaddition,Fiorchallengedtheassessmentonconstitutionalgrounds:(1)the  constitutionalprovisionsrelatingtouniformityandequalityoftaxationhavebeenviolatedbyIRS'ssinglingoutemployersoftippedemployeesforthedenialofearningscredits;and(2)theapplicationofanestimationmethodagainstonewhohascompliedfullywiththelawraisesdueprocessconcerns.J.A.26. m l$    28    _IntheTableofContentsoftheJointAppendix,GovernmentCounselhaselectedtolist  theselettersundertheheading NonRecordDocument.Thatcharacterizationisincorrect.Thesememorandaareissuedto RegionalChiefComplianceOfficer,byofficialsoftheIRSinWashington.Theywereincorporatedintotherecord,byattachmenttoFiorsbriefintheNinthCircuit,atthefirstopportunityaftertheyweremadepublicpursuanttoaFOIArequest.Theywerethesubjectofdiscussionintheargumentbeforethecourtbelow,andalsoofpostargumentcorrespondencewiththecourt.Therecanbenodoubtthattheyareproperlypartoftherecordbeforethecourtbelow,andthuspartoftherecordbeforethisCourt.SeeS.Ct.Rule26.1.JTreas. Reg. 31.3121(a)(1)-1(a)(2) and 31.3121(q)-1(d4 !  _XyXXX?5@XXyTreas.Reg.31.3121(a)(1)1(a)(2)and31.3121(q)1(d).#?5@@?5+##XyX@?5J#45B  l$    23    _IRSmisunderstandsthedistrictcourtsholdingwithrespecttothe45Bcredit.The1996  amendmentstothe45Bcreditwereenactedforthespecificpurposeofprovidingacreditfortipswhichemployeesfailtoreporttotheemployer.However,theoperativelanguageof45BprovidesacreditforFICAtaxespaidontips receivedbyanemployee.Ifanoticeanddemandisissuedintheaggregate,theFICAtaxesarenotpaid withrespecttotipsreceivedbyanemployee,onceagaindefeatingtheverypurposeofthestatute.OMathews1 M_Mathewsv.deCastro,97S.Ct.431,429U.S.181(1976)Q405(c)2 (_42U.S.C.Section405(c)((3$ !      0  HLevel 1Level 2Level 3Level 4Level 5(3$ !  (3$ !  '+-,A<< c(3$ !  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WP 7 [0]WPC zz"5139l !z DUUUUUUUUUUUUU }?K4"<F2   7C/   7D   "~I    #~C1 $~D" ~B"  ~     ~      ~    ~    ~    ~ ~ )-!~*7 ~R/  ~  R  ~( R ~ S!~K   ~=^4~F$2.~ #                (~~((}~)}? `.@pWP Draw 7 Drawing Embed SourceWPDraw30.Drawing9qC`G W   W    HaC HaHa(aHUUUUUUUUUUUUUBOlePart:OlePres000;WPGExtents{ Cd METAFILEPICT  W   W    HaC HaHa(aHUUUUUUUUUUUUUlTABLE A )(  _ @  TABLEOFAUTHORITIES (Contd)  b    Page  , ('  _Ԁ  x !  _,oXX% u ,o,o#XHX,o+#@%No.01!463  */0ddd Xdd Xdd X(#(#,dd"+  !.   !-#!d   . -@'INTHE*1_OKz| 6` `zq@@@E b` V` ,8^ A4) dE A@TTUnitedStatesofAmerica,  ,    `     h     Petitioner,    @)v.@ _Fior_Ԁ_DItalia_,Inc.,(#(#K(# x     `     h     Respondent. P  A4)2dE2A @JJ OnWritofCertiorari d @ TotheUnitedStatesCourtofAppeals@ZZ FortheNinthCircuit  < A4)}d)E}A @!RESPONDENTSBRIEF   A4)\jdE\jA   `     h   ( S4@(#(#(OfCounsel t DonaldB.AyerElizabethRees  Jones,Day,_Reavis_Ԁ&Pogue   8 51LouisianaAvenue,_N.W._Washington,D.C.20001(202)8793939 "8! TracyJ.Power t! CounselofRecord `" ThomasW.Power, L# ЀPower&Power2300ClarendonBlvd. $ t% Arlington,VA22201(703)841-1330 !L' ( S4@[[(*e56dddd"/0(#(#e,dd +   %. $ ' %  %. $ ' % -#!$%t (  . -  % (  8HXXdXXd8@pp! QUESTIONPRESENTED  P   WhetherCongresshasconferreduponIRStheauthoritytobaseemployerFICAtaxesonaninherentlyinaccurateaggregateestimateoftotaltipsreceivedbyallemployeescollectively,andthusshifttotheemployertheburdenofprovingtheactualtaxabletips,whichithasnowayofascertaining.   t @" TABLEOFCONTENTS  d   Page  b |  QUESTIONPRESENTED #XHXXXHX#XHXXXH (   STATEMENT #XHXXXH #XHXXXH  &  SUMMARYOFTHEARGUMENT #XHXXXHX #XHXXXH    ARGUMENT #XHXXXH #XHXXXH N    0  IRSDOESNOTHAVEAUTHORITYTOBASEEMPLOYERFICATAXESON L  ANAGGREGATEESTIMATEOFTHETIPINCOMEOFALLEMPLOYEESCOLLECTIVELY #XHXXXH1#XHXXXH$ (#(#   A. 0 ` CongressIntendedtheEmployerFICATaxtoBeBasedUpona   DeterminationoftheTipEarningsofIndividualEmployees ` (#` (#  #XHXXXH.#XHXXXH0  0` (#(#1.0 ` (#` (##XHXXXHT#XHXXXHTheStatutoryLanguageImposingtheFICATaxRequiresThatitBe 8  DeterminedBasedupontheTaxableTipsofIndividualEmployees.$ (# (# #XHXXXH#XHXXXH   ` 2.0 ThisConclusionIsConfirmedbyOtherProvisionsofFICA#XHXXXH#XHXXXH" (# (#    ` 3.0 AllowingIRSAuthoritytoProceedbyanAggregateEstimateof  EmployeesTipsWillFrustrateFICAsCorePurposeofSecuringEmployeeBenefits.#XHXXXHn#XHXXXH\ (# (# L 4(3!L#XHXXXH# $Hg   XHXXXH   $Hgq2  B  .3  0 `   Sections6201#XHXXXH#XHXXXHԀand446#XHXXXHS#XHXXXHԀDoNotProvideAuthorityforIRStoDetermine " EmployerFICATaxesBasedOnanAggregateAssessmentofEmployeeTipIncome #XHXXXH#XHXXXH$Hgq݌` (#` (# Ќ    #XHXXXHp#XHXXXH  $Hg   $Hg#2  C  .3  0 `   #XHXXXH#TheLegislativeHistoryoftheFICAStatutoryProvisionsDemonstratesThat \  CongressDidNotAuthorizetheIRStoAssessEmployerFICATaxBasedonanAggregateEstimateoftheTipIncomeofAllEmployeesCollectively $Hg#N݌4 "` (#` (# Ќ  XHXXXH       D.    `  TheGovernmentsArgumentBasedonUrgentNecessityIsUnpersuasive     #XHXXXH#XHXXXH      !2$ L ((4L   $Hg   $Hg2  D  .3  0       TheGovernmentsArgumentBasedonUrgentNecessityIsUnpersuasive         #XHXXXH#E.0 ` NoPresumptionofCorrectnessorOtherDeferenceIsDuetothe "& GovernmentsAssertedAuthoritytoProceedbyAggregateAssessment #'` (#` (# _   XHXXXH      #XHXXXH#   CONCLUSION XHXXXH  _ F%) #XHXXXHB#  XHXXXH#XHXXXHl#   XHXXXH      L ((4L $Hg   $Hgn2  D  .3  0    TheGovernmentsArgumentBasedonUrgentNecessityIsUnpersuasive    $Hgn݌"&(#(# Ќ    #XHXXXH#XHXXXH#XHXXXH#XHXXXH#XHXXXH0 #XHXXXH  *j$1 7  @  TABLEOFAUTHORITIES  d   Page b   Cases  (  #XHXXXHs #   0 `  XHXXXHBowenv.GeorgetownUniversityHospital,488U.S.204(1988#XHXXXH!#XHXXXH)#XHXXXH:"# &` (#` (#   Bullv.UnitedStates,295U.S.247(1935) v    XHXXXHChevronU.S.A.v.NaturalRes.Def.Council,467U.S.837(1984) b  #XHXXXH##  XHXXXH_Flemming_Ԁv.Nestor,363U.S.603(1960)#XHXXXH## N     XHXXXH_Helvering_Ԁv.Davis,301U.S.619(1937)#XHXXXH[$#XHXXXH :    _Helvering_Ԁv.Morgans,Inc.293U.S.121(1934)#XHXXXH$# &    XHXXXH_Helvering_Ԁv.Taylor,293U.S.507(1935)   #XHXXXH%#  InvestmentCompanyInstitutev.Camp,401U.S.617(1971)     XHXXXHLIRManagementCorp.v.UnitedStates,86_F.Supp_.2d340(_S.D.N.Y._Ԁ2000)#XHXXXH&#     XHXXXHMathewsv.deCastro,429U.S.181(1976)#XHXXXH'# r    XHXXXH_McQuatters_Ԁv._Comm'r_,32_T.C.M._Ԁ(_CCH_)1122(1973)#XHXXXH`(# ^    XHXXXHMendelsonv._Comm'r_,305F.2d519(7thCir.1962) p  J   NorfolkYachtandCountryClubv.UnitedStates,75-2_USTC_Ԁ9849(E.D.Va.,1975)#XHXXXHz)#XHXXXH 6   #XHXXXH*#XHXXXHRowanCompaniesv.UnitedStates,452U.S.247(1981)#XHXXXH+# "   XHXXXHSullivanv._Stroop_,496U.S.478(1990)#XHXXXH+# r   XHXXXHUnitedStatesv.ClevelandIndiansBaseballCo.,532U.S.200(2001)#XHXXXHm,# ^   XHXXXHUnitedStatesv.Janis,428U.S.433#XHXXXH-#XHXXXH(1976) J   #XHXXXH-#XHXXXHUnitedStatesv.Mead,533U.S.218(2001)#XHXXXH-# 6 XHXXXH  #XHXXXHv.#XHXXXHWilliamsv.JacksonvilleTerminalCo.,315U.S.386(1942)#XHXXXH.# " StatutesandRegulations:  FederalInsuranceContributionsAct,26U.S.C.3101etseq.:     ` 26U.S.C.3101   ` 26U.S.C.3111   ` 26U.S.C.3121(a)   ` 26U.S.C.3121(a)(1)   ` 26U.S.C.3121(a)(1)(21)   ` 26U.S.C.3121(a)(12)   ` 26U.S.C.3121(b)   ` 26U.S.C.3121(q)   ` 26U.S.C.3121(t)   ` 26U.S.C.3401  FederalOldAgeandSurvivorsInsuranceTrustFund,42_U.S.C_Ԁ401etseq.:   ` XHXXXH42U.S.C.405(c)#XHXXXH2# ("'   InternalRevenueCode:(26U.S.C.):   ` 45B   ` 45B(b)(1)(A)   ` 446   ` 446(b) -.',  _   ` 6001   ` 6011   ` 6041   ` 6041(a)   ` 6041(e)   ` 6051   ` 6053   ` 6053(a)   ` 6053(c)   ` 6071   ` 6201   ` 6652(b)XHXXXH  0 `  InternalRevenueServiceRestructuringandReformActof1998,Pub.L.No.105206, >  3414,112Stat.685,755(July22,1998)#XHXXXH 5#* ` (#` (#   0 `  XHXXXHOmnibusBudgetReconciliationActof1987,(OBRA),Pub.L.No.100-203, ` (#` (#    ` 9006(a),101Stat.1330-288#XHXXXHK6#   ` XHXXXH9006(b)(2),101Stat.1330-289#XHXXXHF7#    TheRevenueActof1978,XHXXXHP.L.95600501(b),92Stat.2763,2878(1978)#XHXXXH7#    0 `  XHXXXHSmallBusinessJobProtectionActof1996,Pub.L.No.104-188,1112(a),110Stat.  1755,1759#XHXXXH8#` (#` (#   TheSocialSecurityAmendmentsof1965,XHXXXHP.L.89-97313(c),79Stat.286(1965)#XHXXXH9# p   0 `  XHXXXHTheSocialSecurityAmendmentsof1977,Pub.L.No.95-216,315(a),91Stat.1509, \ 1536#XHXXXHE:#vH` (#` (#   0 `  XHXXXHTaxEquityandFiscalResponsibilityActof1982 TEFRAP.L.97248b4` (#` (#    ` 314(a)#XHXXXH;;#,96Stat.603 N     ` 314(c),96Stat.605  XHXXXHTaxReformActof1976,P.L.94-455,2111(a),90Stat.1520,1905(1976)#XHXXXHk<# &!   26C.F.R.:   ` Section1.45B1T   ` SectionXHXXXH31.3121(a)(1)-1(a)(2)#XHXXXHp=# #    ` Section31.3121(q)1(c)   ` SectionXHXXXH31.3121(q)-1(d).#XHXXXH,># %    ` XHXXXHSection31.31113.#XHXXXH>#XHXXXH &  #XHXXXH>#   ` XHXXXHSection31.60015(a)(16)#XHXXXHn?# 'l!    ` Section31.6011(a)1   ` SectionXHXXXH31.6011(a)-1(a)#XHXXXH*@# r)D #    ` Section31.6071(a)1   ` Section31.63021  XHXXXH29C.F.R.531.52#XHXXXH@# 6,#&   XHXXXH "-#' #XHXXXHlA#Miscellaneous:  0 `  H.R.Conf.Rep.No.760,97thCong.,2dSess.5568,reprintedin1982U.S.C.C.A.N.   132830. ` (#` (#   0 `  XHXXXHH.R.Conf.Rep.No.104-737at186-187,reprintedin1996U.S.C.C.A.N.1677,   1678-79; ` (#` (#   S.Rep.No.404,89thCong.,1stSess.(1965),1965-2C.B.758#XHXXXHB#XHXXXH    S.Rep.No.104-281at7-8,reprintedin1996U.S.C.C.A.N.1474,1480-83; #XHXXXHC# t XHXXXH  #XHXXXHD#XHXXXHH.R.Rep.No.213,89thCong.,1stSess.(1965),1965-2C.B.749#XHXXXHD#   ` XHXXXH  0 `  H.R.Rep.No.95-702,95thCong.,1stSess.11(1977),reprintedin1977U.S.C.C.A.N. zL  4155,4168.#XHXXXHtE#f8 ` (#` (#   XHXXXHH.R.Rep.No.104-586(1996)#XHXXXH{F# R$    XHXXXHSenateCommitteeReport100-63at203(1987)133Cong.Rec.S34,826(1987)#XHXXXHF# >    0 `  XHXXXHStaffofSenateCommitteeonFinance,100thCong.,1stSess.,S.Prt.100-63,Explanation *  ofProvisionsApprovedbytheCommitteeonDecember3,1987,forInclusioninLeadershipDeficitReductionAmendment203(Comm.Print1987)#XHXXXHG#XHXXXH ` (#` (# #XHXXXHH#  0 `  XHXXXHResearchDivision,InternalRevenueService,Pub.1530TipIncomeStudy:AStudyof  TippingPracticesintheFoodServiceIndustryfor1984,CatalogueNo.12482K#XHXXXHI#` (#` (#   XHXXXH0 `  TestimonyofJ.RogerMentz,AssistantTreasurySecretaryforTaxPolicy,beforethe  HouseWaysandMeansCommitteeonthePresident'sfiscalyear1988revenueinitiatives,#XHXXXHJ#XHXXXHԀNewsRelease,Doc.87598,Feb.4,1987.#XHXXXHK#p` (#` (#   0 `  XHXXXHLettertoSecretaryofTreasuryLloydBentsen#XHXXXH|L#ԀXHXXXHHighlights&Documents,March4,1994at \ 3913#XHXXXHL#vH` (#` (# XHXXXHԀ0  0` (#(#  #XHXXXHM#XHXXXH1997EconomicCensus,U.S.BureauofCensus,Summary,Accommodationsand b4 FoodserviceSubjectSeries,Table1#XHXXXHM#N ` (#` (# XHXXXH  Rev.Rul.59-252,1959-2C.B.215#XHXXXHN# :  XHXXXH  Rev.Rul.75-400,19752C.B.464 &!   Rev.Rul.76-231,19761C.B.378#XHXXXHcO# "   Rev.Rul.95719951C.B.482  IRSFieldServiceAdviseMemorandum1998468.  IRSFieldServiceAdviceMemorandum1998740  I.R.M.Section4.23.7.13%(#(#   I.R.M.Section4.23.9.9.3  I.R.M.Section4.23.9.10  I.R.M.Section4.23.9.11.2XHXXXH  (X"  !7  89  :"@zz& STATEMENT  d   ThiscaseinvolvestheissuanceofaNoticeandDemandbytheInternalRevenueService("IRS")toFiorD'Italia("Fior")forFederalInsuranceContributionAct("FICA")taxesontipincomewhichemployeesallegedlyreceivedbutfailedtoreporttoFior.TheadditionalFICAtaxesintheNoticeandDemandwere#XHXXXHQ#XHXXXHԀbasedonanestimationofgrosstipsreceivedbyallofFior'semployees L  collectively,ratherthanadeterminationofthetipearningsofFior'sindividualemployees.Fiorchallengedtheassessment,contendingCongressdidnotimpose,andIRSisnotauthorizedtoassess,FICAtaxesonemployersbasedonanaggregateestimateofthecollectivetipincomeofallemployees.Instead,Fiorcontendsthetaxmustbebasedonadeterminationofthetipearningsof  individualemployees.Boththedistrictcourtandthecourtofappealsagreed,withtheappellatecourtultimatelyholdingthat thereisnowaytodeterminetheemployersFICAtaxliabilitywithoutmakinganemployee-by-employeedeterminationofthetaxabletipseachhasearned.Pet.App.13a,51a.  Threecircuitcourtswhichhaveconsideredthisissue,aswellasthedissentbelow,haveopinedotherwise.However,theseopinionsarebasedentirelyuponthefaultypremisethatChevron  "  deferenceisowedtoIRSevenintheabsenceofanyarticulationbyIRSofitsinterpretationofthestatutoryprovisions.Pet.App.23a30a.ThiscourtsopinionlastterminUnitedStatesv.Mead, %X$ 533U.S.218(2001),holdsotherwise.#XHXXXHT#XHXXXH  Background.Thecollectionoftaxesontipincomepresentsaseriousadministrativedifficulty X*#* fortheIRS.Formorethan50years,CongressandIRShavebeengrapplingwiththeproblem. 0,%, Understateandfederallaborandcommonlaw,tipsarethesoleandexclusivepropertyoftheemployee.Williamsv.JacksonvilleTerminalCo.,315U.S.386,397(1942).#XHXXXHzY#XHXXXHԀSincetipsarepaidby < customersdirectlytoemployees,andsharedamongemployeesinvaryingunknownamounts,Congresshasrepeatedlyandconsistentlyrefusedtopermittheemployertobecomeinvolvedinthetippingtransactionortoholdtheemployerresponsiblefortheaccountingoftipincome.Instead,Congresshasplacedtheresponsibilityforreportingtipincomesquarelyontippedemployees.Inturn,CongresshasarmedtheIRSwiththepowerandmeanstoinvestigateemployeeunderreportingoftipincomeandtoenforceaccuratereportingbyemployees.  IRSisnothappywiththearrangement,however,andhascontinuallyattemptedtoshiftitsownburdenofdeterminingunreportedtipincometotheemployersoftippedemployeesonthebasisofamisconceptionthattherestaurantis inaninherentlybetterpositionthantheIRStodeterminewhatitsemployeesactuallyearnedintips.(Gov.Br. G.B.38)ThisfundamentaldisagreementbetweenCongressandIRShasledtonumerousclashes,manifestedinthehistoryoftherelevantstatutes.  Althoughtipshavelongbeensubjecttoincometaxes,sincetheywerenotpaidbytheemployer,formanyyears,theywerenotconsidered wagesforFICApurposes.Initiallytheemployerhadnoresponsibilityforthecollectionandwithholdingoftaxesontipsreceived.Congress,Treasury,andtheDepartmentofLaborallrecognizedthat tipsareanextremelyuniquetypeofincome.S.Rep.No.404,89thCong.,1stSess.(1965),1965-2C.B.758.#XHXXXHg[#XHXXXHԀTheyrecognizedthat l)#( tipsareagratuitypaymentmadedirectlytoonewhoserveshim,theamountofwhich,ifany,isdeterminedsolelybythecustomer,andthattipsareoftensplitamongemployeesinvarioustip -&, splittingorpoolingarrangements.SeeRev.Rul.59-252,1959-2C.B.215;#XHXXXHa#XHXXXHԀ29C.F.R.531.52#XHXXXHjc#XHXXXH;H.R. d Rep.No.213,89thCong.,1stSess.(1965),1965-2C.B.749#XHXXXHc#XHXXXH. <   Butin1964,attherequestofrestaurantemployersandemployeeunions,Congress recognize[d]thatmorethanamillionemployeesnowcoveredbythesocialsecurityprogramhaveanimportantpartoftheirincomefromworkexcludedfromcoveragebecauseitisreceivedintheformoftips,andthatasaconsequencesuchemployeesdonothaveadequateprotectionundersocialsecurity.S.Rep.No.404,supra.SeealsoH.R.Rep.No.213,supra#XHXXXHZd#XHXXXH( Coverageoftipswill `  providebetterprotectionunderthesocialsecurityprogramformorethanamillionemployeesandtheirdependents.).Congress concludedthatitwouldbeappropriate...tocounttipstowardbenefitsandthereforesubjectedtipstotheemployeeshareonlyoftheFICAtaxinordertogive  employeessocialsecuritycreditfortheirtipwages.SeeP.L.89-97313(c)(effective1965). \   However,sincetipswerenotapaymentfromtheemployertotheemployeebutapaymentfromanindependentthirdpartytotheemployee,theemployerwasnotchargedanemployershareofFICAtaxonthetipsatthattime.Thisexclusionoftipsfromthedefinitionof wagesforpurposesoftheemployerFICAtaxremainedineffectfornearly25yearsuntiltheamendmentsto26U.S.C.3121(q),hereinissue.    1       #"   AtthetimeCongressmadethedecisiontocounttipincomeforsocialsecuritybenefit &D & purposes,Congressrecognizedthattipspresentedauniqueproblembecausetheywerenotpaidbytheemployer,weretheexclusivepropertyoftheemployee,andwereoftennotreportedbyemployeesforincometaxpurposes.Congressrealizedthat onlyasmallfractionoftipincomewasactuallyreported,andattemptedto deviseafairandpracticalsystemforobtaininginformationonamountsoftipsreceivedbyanindividualwhichcouldserveasabasisforcontributionsandbenefitcredits.H.R.Rep.No.213.Congress decidedthattheonlyequitablewayofcountingtipstowardsbenefitsisonthebasisofactualamountsoftipsreceivedandthattheonlypracticalwaytogetthisinformationistorequireemployeestoreporttheirtipstotheemployer.Id.    2      ׀ L    Accordingly,Congresslimitedtheemployersresponsibilityforandinvolvementwithrespecttotipincometoanobligationtowithholdunder26U.S.C.3101,etseq.,and26U.S.C.3401,etseq.,exclusivelyonthebasisofreportsoftipincomefiledbyemployeeswiththeemployerpursuantto26U.S.C6053(a).Inturn,IRSwaschargedwiththeresponsibilityforenforcingtheaccuracyofsuchreporting.Eversince,IRShasattemptedtoconstruethelawotherwise.  IRSsfirstattempttoshifttoemployersitsresponsibilityformonitoring,verifyingandeffectivelyenforcingthelawwastoreadintotheemployeereportingprovisionsof ' ԀSection6053(a)arequirementthattheemployerauditandverifytheaccuracyoftheamountsreportedbyemployeestoemployersonForm4070.Inresponse,theDistrictCourtinNorfolkYachtandCountryClubv. %X$ UnitedStates,75-2USTC9849(E.D.Va.,1975),held:#XHXXXHf#XHXXXH '0!& bR0  TheUnitedStatesmayfeelthatallemployeesmaynotaccuratelyreporttheirmonthlytip X*#* receiptstoemployers,butitisincorrectinassumingthattheemployerhasanydutytoinsurethattheamountactuallyreportedistrueandaccurate.TheUnitedStateswouldhaveplaintiffbeitswatchdogandthatisnotcontemplatedwithinsection6053.Theemployerisnotultimatelyresponsibleforaccuracy,buttheemployeehimselfis,asisreflectedin26U.S.C.6652(c).IftheUnitedStatesisconcernedwithdishonesttaxpayersithasthemeanstoinvestigatethem;buttheinvestigativeburdenshouldnotbeshiftedtothewithholdingemployerintheabsenceofCongressionalintenttodoso.Thecourtfindsthattheplaintiff's   solemethodofreporting,forFICAandwithholdingtaxpurposes,isbyuseofForm4070andthatsuchmethodisallthatisrequiredofplaintiffasamatteroflaw.#XHXXXHr#XHXXXH `(#(# 93Id.(emphasisadded)#XHXXXHv#XHXXXH. &    Ayearlater,purportingtoactunderSection6041(a),IRSissuedaseriesofRevenueRulingswhichwouldhaveobligatedemployerstoincludeoneachW-2issuedtoanemployeeallchargedtipsturnedovertothatemployee.Rev.Rul.75-400,19752C.B.464and76-231,19761C.B.378.EmployersprotestedthatIRSfailedtoconsiderthefactthatemployeesarerequiredunderthelawtoreportonlywhattheyretainaftertippingoutandthatthechargedtipamountscouldwellbeinexcessofthatamount.SeeReg.31.3121(q)-1(c).Theyalsoarguedthatmanyemployersdonot " trackcreditcardsalesbyemployeeandnoemployerstrackcreditcardtipsaftertipoutsbyemployee.ThisoutcrywasmetwithsympathyfromCongressintheformoflegislationprohibitingenforcementofIRSsproposedrevenuerulings.SeeReg.31.60015(a)(16).  F   CongressprovidedthatSection6041(a) shallbeadministered...withoutregardtoRevenueRulings75-400and76-231,and...inaccordancewiththemannerinwhichsuchlawwasadministeredbeforetheissuanceofsuchrulings.TaxReformActof1976,P.L.94-455,2111(a)(effectiveJan.1,1976).CongresssubsequentlycodifiedSection6041(e)toclarifythatthereportingrequirementsofthatsectionhadnoapplicabilitytotipsandamendedSection6001toclarifythattheonlyrecordsthattheemployerisrequiredtokeepwithrespecttotipsaretotalcreditcardreceipts ,B&, andtheemployees'reportsoftipstotheemployerpursuanttoSection6053.P.L.95600,501(b).  Congress,however,didnotturnadeafeartoIRSsconcerns.In1982,CongressenactedthetipallocationprovisionsofSection6053(c),whichprovidedIRSwithmoreinformationwithrespecttotipincomethanvirtuallyanyotherformofincome.TaxEquityandFiscalResponsibilityAct TEFRAP.L.97248314(a).Specifically,whenallemployeesinarestaurantfailtoreportcollectivelyatleast8%offoodandbeveragesalesastips,Section6053(c)#XHXXXHw#XHXXXHԀrequirestheemployerto $  reporttheaggregateshortfalltoIRSandtoallocatetheshortfallamongthedirectlytippedemployeesintheproportionthateachemployee'ssalesorhoursworkedbearstototalsalesoftheestablishmentortotalhoursworkedbyallsuchemployees.Thisallocationisalsorequiredtobereportedoneachemployee'sW-2form.Theallocatedtipsmustbereportedontheemployee'sincometaxreturn  unlesshehasadailyrecordwhichwillestablishthattheallocatedtipswerenotearned.IRSPublication531.#XHXXXH=#XHXXXHԀ 4   Inaddition,Section6053(c)requiresrestaurantstoannuallyfileForm8027,informingIRSoftherestaurantsgrossreceipts,aggregateamountofchargereceipts,aggregateamountofchargedtipsshownonthereceipts#XHXXXH˂#XHXXXH,andtotaltipsreportedbytheemployees.SeeJ.A.p.3839.#XHXXXH #XHXXXHԀ#XHXXXH#XHXXXHԀOnceagain,  "  however,Congressrefusedtorequiretheemployertobeinvolvedinascertainingtheveracityofemployeetipreporting.Section6053(c)didnotshifttheresponsibilitiesforreportingfromtheemployeetotheemployer;nordiditshifttheresponsibilityformonitoring,auditing,andenforcingemployeecompliancefromtheIRStotheemployer.#XHXXXH؄#XHXXXHԀRather,theprovisionwasenacted inorderto l)#( assistthe[IRS]initsexaminationofreturnsfiledbytippedemployees,andtheemployersresponsibilitywaslimitedtotheprovisionofinformationforpurposesofassistingIRSindoingits -&, :  :x :  job.H.R.Conf.Rep.No.76097thCong.2dsess.5568reprintedin1982U.S.C.C.A.N.132830.#XHXXXH#XHXXXH d   WhenCongressenactedthetipallocationprovisions,italsorequiredtheTreasurytoconductastudyontipcomplianceintheindustry.TEFRAsec.314(c).Whenthestudywasfinallyreleasedinlate1990,theTreasuryrecommendedthat(1)theallocationsthresholdbeincreasedto10%ofgrossreceipts;(2)employersberequiredtoverifythatemployeesreportasincomealltipstheyreceiveoncreditcardcharges;and(3)theallocationprovisionsbeextendedtosmallestablishments.NoneoftheseproposalswasenactedbyCongress.ResearchDivision,InternalRevenueService,Pub.1530TipIncomeStudy:AStudyofTippingPracticesintheFoodServiceIndustryfor1984, 8  CatalogueNo.12482K,StudyConclusionp.i.  In1987#XHXXXH#XHXXXH,inorder toapportionthecostsofSocialSecuritybenefitsmoreaccurately, p CongressamendedSection3121(q)tosubject alltipswhicharecreditedforbenefitspurposes#XHXXXH#XHXXXHԀ#XHXXXH(#XHXXXH H (ratherthanjustthoseusedtosatisfytheemployersminimumwageobligations),(    3      #XHXXXHk#XHXXXHԀtotheemployer   shareofFICA.*T    4      #XHXXXHi#XHXXXHԀIRSsinterpretationofthisprovisionaspermittinganassessmentforanemployers \ shareofFICAtaxesbaseduponadeterminationofthetipincomeofallemployeescollectivelyisattheheartofmuchofthecontroversyinthiscase.  Commencingin1993,sixyearsafterSection3121(q)wasenacted,#XHXXXH1#XHXXXHԀIRSbeganthreateningto $l$ assesstheemployershareofFICAtaxesbasedonthegrossestimatedtipsofallemployees,withoutanydeterminationoftheemployees'individualtipearnings,foreachoftheyearssincetheamendmentofSection3121(q).-    5      ׀Thethreatofsuchanassessmenteffectivelyforcestheemployer#XHXXXHʐ#XHXXXHinto   undertakingobligationsfor,verifying,investigating,monitoring,andpolicingcompliancebyitsemployees--responsibilitieswhichCongressandtheCourtshaveconsidered,evaluated,andsteadfastlyrefusedtotransferfromIRStotheemployer.#XHXXXH#XHXXXHԀ 8    IRSpresentedrestaurateurswithaHobsonschoice:potentialassessmentforemployerFICAtaxesonanaggregateestimateofunreportedtipsofallemployeescollectively,againstwhichemployerswouldhavenodefenseintheabsenceofthenecessaryemployeeinformationastoactualtipsreceived,/T    6      #XHXXXH#XHXXXHԀorparticipationinIRSstipcomplianceprogram.Theheartofthetipcompliance  programistheemployers"voluntary"cooperationineffectivelyforcingemployeestoreporttipsatanaverageaggregatepercentageofsalesthroughaTipRateDeterminationAgreement("TRDA").AlthoughtheTreasuryDepartmenthadfoundthatthenationwideaveragetiprateis11.9%ofgross p  salesandvariesgreatly,seeTipIncomeStudy,p.3,theIRSatarecentindustrypresentation H disclosedthatitisseekingtobringemployeetipreportingupto14%ofanestablishment'sgrosssales.2|    7       "    UnderTRDA,theemployerisresponsibleforenforcingreportingatthesetratebyatleast75%ofitstippedemployees,monitoringcontinuedreportingbyitsemployees,andpolicingthefilingoffederalincometaxreturnsbyitsemployees.IRSagentshavereportedlysuggestedthatemployerswithholdpaychecksofemployeeswhorefusetoparticipate,locktipsinalockboxuntilreported,orrequireserverstosignTRDAasaconditionofemploymentinordertoassuretipreportingattheIRS-determinedrate.3|    8      ׀Inaddition,theemployermustreporttoIRSthenames,socialsecurity 8  numbers,wagespaid,shiftsworked,hoursworked,jobclassifications,andchargedtipspaid,aswellasanyotherinformationdeemednecessarybyIRS.AllthisnotwithstandingthefactthattheemployerisnotlegallyrequiredtomaintainsuchinformationandregardlessofwhethertheemployerhasapayrollinformationsystemforseparatingandidentifyingtheinformationdemandedbyIRS.  SeebriefofAmicusAmericanGamingAssociation( AGA). p #XHXXXH#XHXXXH  WhenthefirstfewaggregateassessmentswereissuedunderTRDA,theindustrydocketed 4 itsfirstcaseincourtandagainturnedtoCongressforrelief.Inresponse,Congress#XHXXXH#XHXXXHԀenactedSection p  45Bin1993.Thisprovisionallowsemployerstotakeadollar-for-dollarincometaxcreditforFICAtaxespaidwithrespecttoemployeetipsinexcessofthosetreatedaswagesfortheminimumwagerequirements.5    9      ׀TheSection45Bcredithadtheeffectofnegatingformanytaxpayersthethreatof "  theassessmentshereinissue. $l"   Noteasilydeterred,lessthan6monthsafterCongressenactedthisstrongrebuketoIRSsTRDAprogram,IRSpromulgatedaregulationlimitingSection45BscredittotaxespaidwithrespecttotipsactuallyreportedbytheemployeetotheemployerasrequiredunderSection6053(a).Treas.Reg.1.45B-1T(26C.F.R.).TheTreasuryreasonedthatthisrestrictiveinterpretationofSection45B provide[d]employerswithastrongincentiveforencouragingemployeestoreporttheirtips.March30,1994LetterfromAssistantTreasurySecretarySamuelstoSenatorLott.:w  CongressonceagainrespondedbycountermandingIRS'saction.Initially,64membersofCongress,inalettertoSecretaryofTreasuryLloydBentsen,madeclearthattheemployerwasnotresponsibleforwhattheemployeereports: TheIRShascited'Congressionalintent'asthereasonforrestrictingtheFICAtaxcredit.Thispositionhasnobasisinthestatuteortheconferencereportlanguage.Highlights&Documents,March4,1994at3913.Congressultimatelyfollowedup,in1996,bycodifyingitsdisapprovaloftheTreasuryslimitationonSection45Bscredit,therebyrefusingtopenalizeemployersiftheiremployeesfailedtoreportalloftheirtips.CongressamendedSection45BtoclarifythatthecreditisavailablewithrespecttoemployerFICAtaxespaidonalltips, withoutregardtowhethersuchtipsarereportedundersection6053.7    10        ! Ѐ#XHXXXH#XHXXXH  Meanwhile,acompromiseagreement#XHXXXH#XHXXXHԀbetweenIRSandrestaurantindustryrepresentatives #" wasnegotiated.Theagreementaffordedsomeprotectiontotheindustrywhileitcontinuedtolitigate %X$ thelegalityofIRSsinterpretationofSection3121(q)andtopursuerelieffromIRSsinterpretationofSection45B.UnderthecompromiseTipReportingAlternativeCommitment("TRAC")programannouncedinJune1995,arestaurantagreestoeducateitsemployeesabouttipreporting,establishprocedurestoensureaccuratetipreporting,andcomplywithallfederaltaxrequirements.Inexchange,IRSagreestobasetherestaurantsFICAtaxliabilitysolelyonadditionaltipsreportedbyemployeesontheirincometaxreturns(Form4137)andonanyunreportedtipsdiscoveredduringanIRSauditofanemployee.WhileTRACmaybeafarmorepalatableprogram,thethreatremainsofadebilitatingassessmentpotentiallyexceedingtwicearestaurantsaverageannualprofits.Seesupra, L  at__n.6.  WhensomeIRSofficesusedthethreatofsuchanassessmenttocoerceparticipationinthevoluntaryagreement,restaurateursonceagainsoughtcongressionalinterventionandIRSadvisedthefieldthatitwasagainstIRSpolicytothreatenemployeronlyaudits.J.A.103107.Thispolicywassubsequentlycodified.(IRSemployees"maynotthreatentoauditanytaxpayerinanattempttocoercethetaxpayerintoenteringa[TRAC]Agreement.").    11      ׀InternalRevenueServiceRestructuring H andReformActof1998,Pub.L.No.105206,3414,112Stat.685,755(July22,1998).#XHXXXH#XHXXXH  !   WiththeprotectionaffordedbytheTRACprogramandtheavailabilityofanoffsettingdollarfordollarcredit,onemayponderFior'smotivationforcontinuedlitigation.Thereareseveralreasons.First,thethreatofanassessmentofanemployershareofFICAtaxesonunreportedtipsforthe14yearssincetheamendmentofSection3121(q)isreal.OnecourthasalreadyheldthatIRShasan l)#( openendedstatuteoflimitations.LIRManagementCorp.v.UnitedStates,86F.Supp.2d340 d (S.D.N.Y.2000).Itwilltakemostindustryemployersmanyyearstoabsorbanassessmentofthatmagnitude,evenwithSection45B'scredit.:    12      ׀Inaddition,ataxcreditisoflittlevaluetothose   employersinaprecariousfinancialsituationorwithlosscarry-forwards.Arestaurantthatbarelybreaksevendoesnotoweenoughintaxesforataxcredittobeofmuchassistance.  Mostimportantly,thegreatestconcernalwayshasbeen,andcontinuestobe,theindustrysemployees.Thesimplestwayforthesmallrestaurantemployer,entitledtoadollar-for-dollarcredit,toprotectitselffromanIRSthreatofafinanciallydevastatingtaxassessmentistofindawaytoforceitsemployeestoreportatthelevelIRSseeks.SatisfyingIRSsstatedgoalsofaverageindustrytipreportingat14%,whenindustrystatisticsindicatetheactualfigureissubstantiallyless,willinevitablymeanthatmanyemployeeswillberequiredtoreportmoreintipsthantheyactuallyearn,makingtheireffectivetaxrateoneofthehighestinthecountry.This,therestaurantemployerwantsnopartof.  Thiscase.Sincetheinceptionofthiscase,IRShasimpliedthatFiorknewthatitsemployees 4  werenotreportingthefullamountoftheirtipsandthatFiorhadanoptiontopayitsemployershareofFICAonanamountgreaterthantheamountsreportedtoitbyitsemployees#XHXXXH #XHXXXH.Seeforexample, #" Gov.Briefbeforethe9thCir.Filed8/26/99pg13,33.#XHXXXH#XHXXXHԀNeitheriscorrect.#XHXXXH<#XHXXXH %X$   Fiorsemployeesreceivetipsonadailybasiseithertable-by-tableasthepatrondepartsor ("( attheendoftheemployeesshiftswhenthey cashout.Tipsaresharedwithindirectlytippedemployees,forexample,hostesses,busboysandbartenders,withthebalance pocketed.J.A.60.SeeAGAbrief.#XHXXXH#XHXXXHFiorsemployeesreporttheirpocketedtipstotheemployerattheendofevery   biweeklypayrollperiodthroughouttheyear,inaccordancewiththerequirementsofSection   6053(a).;    13      #XHXXXH[#XHXXXHԀTheseamountsareprocessedforpayrollpurposesalongwiththeemployeeshourly  ` wages,andtherequiredFICAandwithholdingamountsarewithheldanddepositedbyFior.  FiorsubsequentlyprovidesareconciliationoraccountingofsuchpaymentsandcollectionstoIRSonaquarterlybasisusingForm941.Reg.31.6011(a)1,Reg.31.63021.J.A.80-88.<T    14      ׀In 8  accordancewiththeinstructionsonForm941andthemandatethattheemployersForm941 returnshallincludewagesreceivedbyanemployeeintheformoftipsonlytotheextentofthetipsreported  bytheemployeetotheemployerinawrittenstatementfurnishedtotheemployerpursuanttosection6053(a),Reg.31.6011(a)-1(a)#XHXXXHֻ#XHXXXHԀ(emphasisadded),    15      #XHXXXH#XHXXXHԀFiorincludedonitsForm941forboththe 4 employersandemployeesshareofFICAonlythosetipsreportedtoFiorbytheindividualemployee#XHXXXH)#XHXXXH. d #XHXXXH#XHXXXHԀAsisevidentfromtheinstructionstoForm941andtheFormitselfthereisnopracticalorlegally < authorizedwayforFiortohaveincludedanadditionalamountofestimatedtips(i.e.,thetotalcredit   cardtips)forpurposesoftheemployershareofFICAalone.NosalesinformationisincludedontheForm941andnocomparisontosalesismadeontheForm.>h    16        `   InJanuaryofthesubsequentyear,Fiortransposestheamountsofindividualwageearnings,socialsecurityearnings,andtipsreportedontoindividualemployeeW-2statementsandW3transmittalstotheSocialSecurityAdministration( SSA).TheemployerisrequiredtoreconciletheamountsontheW-2's,W-3's,andthequarterlyForm941filingsthroughouttheyear.#XHXXXHl#XHXXXHSection  12ofIRSPublication15(2000)CircularE.  Twomonthsafterthecloseoftheyear,Fiorcomparesitsannualsalesdatawiththetotal H biweeklypayrolldataandcompletesandfilesForm8027,providingIRSwiththetotalamountofgrossreceipts,chargedreceipts,chargedtips,andtotaltipsreported.ItwasthisformthatrevealedthatFior'semployeeshadcollectivelyreportedlessthanthetotalamountincludedinthetipboxonthecreditcardreceipts.ThedifferenceledtoanIRStipcompliancecheckwherebyIRS#XHXXXH8#XHXXXHusedFiors  "  creditcardchargeslipstodetermineatippercentageforthechargesandthenappliedthattipratetoFiorsgrossreceiptstoestimateanaggregateamountofthetipsreceivedbyallofFior'semployees %X$ collectively.IRSthensentFioraNoticeandDemandfortheemployershareofFICAtaxonthedifferencebetweenthisaggregateamountandtheamountoftipsreportedbyallofitsemployees.  Indoingso,IRSdidnotdeterminehowmuch,ifany,oftheaggregateunreportedtipincomewastipincomereceivedbyanindividualemployeeamountingtolessthan$20.00amonth.?    17      #XHXXXH#XHXXXHԀSee26  t U.S.C.3121(a)(12).NordidIRSdeterminehowmuchoftheaggregateunreportedtipamountwasreceivedbyindividualemployeeswhich,whenaddedtosuchindividualemployeesotherwagespaidbytheemployer,exceededthewagebaseandwasthereforenottaxable.See26U.S.C.3121(a)(1). `  Nordiditdeterminehowmuchoftheaggregateunreportedtipamountwasreceivedbyindividualemployeesinexcessofthefederalminimumwage,forwhichtheemployerisentitledtoaSection45Btaxcredit.See26U.S.C.45B.Moreover,theaggregateamountofallemployeestipscollectively#XHXXXH#XHXXXH  tellsnothingabouttheamountoftipsretainedbyindividualemployeesaftertippingout,apracticewhichtypicallyreducesadirectlytippedemployeesamountoftipsretainedbyupto25%.SeeJ.A.#XHXXXH#XHXXXH 4 at6062.SeealsoAGAbrief. p    IRSalsomadenoattempttoascertainwhetherthegrossreceiptsuponwhichitbaseditscalculationincluded carry-outsalesor employeemeals,whichareoftenincludedinarestaurantsgrossreceiptsbutuponwhichtipsareseldomreceived.NordidIRSattempttodeterminetherestaurantspolicywithrespectto stiffsor walk-outs,whichareoftenincludedingrossreceiptsforfinancialpurposesthenexpensed,butuponwhichtippingisunlikelyasIRSsownstatistical '0!& evaluationshavefound.TipIncomeStudy,4.NordidIRSattempttodeterminewhetherthere d existedanyspecialmethodsofoperation,suchasabuffet,whichwouldresultinadifferenttiprateforcertainsales.  IRSdoesnotevenknowwhethertheamountdesignatedasatiponachargereceiptwasinfactatip.Forexample,IRSdoesnotknowtowhatextentcustomersusethetiplinetoprocurecashtopurchasecigarettesortopayforvaletparkingor,asinsomeestablishments,tofeedvideogames--informationwhichcanobviouslyonlybeprocuredfromtheemployeehimself.IRSdoesnotknowwhetherchargedtipswereturnedovertoemployeesnetofthecreditcardfeesoftenchargedbymanyemployers,orwhethertheaggregatetipsreportedonForm8027includedcreditcardamountswhichwereuncollectibleforwhichtheemployersoughtreimbursementfromtheemployee.  Significantly,thedocumentssupportingtheNoticeandDemandtoFiordidnotfollowtheInternalRevenueManual#XHXXXH#XHXXXHԀdirections,asisrequiredforalltipcomplianceexaminersinmaking   determinationsofadditionaltaxesdue.SeeEmploymentTaxHandbookoftheInternalRevenue \ Manual, I.R.M.,section4.23.7.13(providinguniformemploymenttaxaudits#XHXXXH#XHXXXHԀinstructionstoIRS 4  personnel)#XHXXXH,#XHXXXH.#XHXXXH#XHXXXHԀSpecifically,thedocumentswerenotaccompaniedbydirectiontoFiorthat FormsW-2  "  orW-2cmustbeissuedtotheemployees.Seeid.,section4.23.9.9.3.#XHXXXH#XHXXXHԀThenumberofemployees #" whoseW-2'sshouldbeamendedwasnotnotedontheformasrequired.id.Norwastherequired %X$ reconciliationbetweenFICAwagesonFormW-3orW-3candFICAwagesonForm4468performedbytheauditor.Seeid.,section4.23.9.10.ThestandardlanguageonForm4468required l)#(  byIRSprocedurestobeusedineveryemploymenttaxauditwascuriouslyomittedfromtheform D+$* usedforthisassessment.#XHXXXH#XHXXXH@    18      ׀Accordingly,nowageearningshistoryrecordsforsocialsecuritybenefit d  computationpurposeswere,orevercanbe,creditedforthetipearningstheemployeesallegedlyreceived.  Inshortnoindividualemployeeswereidentified,noindividualtipearningsweredetermined,noW-2'swereaskedtobeamended,andtheSSAreceivednonotificationofanadjustmenttoindividualemployees'wageearningshistoryrecordsdespitethecleardirectionintheInternalRevenueManualthattheseproceduresarerequiredineveryemploymenttaxaudit.Instead,thetaxwasbasedsolelyupontheaggregatetipearningsofallemployeescollectively.@  SUMMARYOFTHEARGUMENT   #XHXXXH6#XHXXXH  Thiscaseispartofalong-runningstrugglebetweentheIRSandtherestaurantindustryover \ theuncertaintyinherentinaccuratelydeterminingemployeetipincome.Formorethan30years,theIRShasattemptedrepeatedlytoimplementprovisionsthatworkinvariouswaystoshifttoemployerstheburdenofaccuratelydeterminingthetipsreceivedbytheiremployees.Everytimeithasdoneso,however,theCongresshasintervenedandclarifiedthatitisthejobofIRS,andnotoftheemployers,topolicetheaccuratereportingofincomebyemployees.  ThiscaseissimplyIRSslatestreinventionofitsefforts.Thistime,IRSassertsanauthoritytoimposeataxuponemployersbaseduponanaggregateestimateoftotaltipincomereceivedbyall '0!( employeeswithouteverinquiringintotheindividualinstancesofparticularemployees,ormakinganyefforttodeterminetheaccuracyoftheirindividualtipreports.IRSclaimsaninherentauthoritytoadvancesuchagrossapproximationoftotaltips,andshifttotheemployertheburdenofprovingbothitsinaccuracy,andthetotalcorrectamount.Ifsuccessfulinthisendeavor,IRSwillhaveaccomplishedwhatCongresshasdenieditfordecades--therighttomakeemployerseithertakeresponsibilityfortrackingthetipsreceivedbyitsemployees,orsufferthepenaltyofaninflatedassessmentadvancedbytheGovernmentfortheirfailuretodoso.  #XHXXXH#XHXXXHSucharesultmustberejectedbecausethelanguage,contextandhistoryofFICAtax 8  provisionsrequirethetaxtobebasedupondeterminationsofindividual#XHXXXH#XHXXXHԀemployeetipearnings.It  issimplyimpossibletoadministertheFICAtaxprovisionsofthecodeotherwise.#XHXXXH#XHXXXHTheFICAtaxis  imposedonemployeesandemployers,bySections3101and3111,basedonthewagesearnedbyindividualemployees.Bothsectionsrefertotheexactsamedefinitionalsectionsfordeterminingwhatconstitutes wagessubjecttothetax.WhenSection3121(q)wasamendedin1987tosubjectalltipsreceivedtotheemployershareofFICAtax,theadditionalemployertaxeswereexpresslyconditioneduponafindingthattheindividualemployeefailedtoreporthistips.Congressalsotiedtheemployersliabilitytoaspecificenforcementproceduretheissuanceofanoticeanddemandwhichasaresultof,byregulationandlongstandingagencycustomandpractice,entailedthedeterminationandadjustmentofindividualwagesearningsandthecreditingofsocialsecurityearningshistoriesforsuchearnings.#XHXXXH#XHXXXH ("& #XHXXXH;#XHXXXHԀ  Further,assessingemployerFICAtaxonthebasisofanaggregateassessmentofthetip D+$* incomeofallemployeeswouldeffectivelynullifyanumberofstatutoryprovisions.Without -&, determinationofthetipearningsofindividualemployees,employerswouldbeunabletotakeadvantageofbothSection3121(a)'sadjustmentswhichmayreducetheamountoftipswhichareactuallyconsidered"wages"subjecttoFICAtaxationandSection45B'screditforFICAtaxespaidbyanemployerfortipsinexcessoftheminimumwage.#XHXXXH#XHXXXH  Perhapsmostimportantly,theclaimedauthoritytoimposeemployerFICAtaxesbymeans L  ofaggregateassessmentswouldfrustratet#XHXXXH#XHXXXHheverypurposeofFICAtaxtoprovideindividualswith $  protectionunderthesocialsecuritysystem.Congressmadewagesearnedthebasisfordeterminingthebenefitsultimatelytobereceived.IfIRSwereauthorizedtoassessanemployer'sFICAtaxwithoutmakingadeterminationoftheincomereceivedbythatemployer'sindividualemployees,itwouldbeimpossibletocreditthoseemployeestogetwageearningscreditforsuchtips.Moreover,assessingemployerFICAtaxesontipincomewhilefailingtocreditemployeesfortipearningsdistortsFICAintoageneralwelfaretaxandprovidesawindfallfortheGovernment.#XHXXXH#XHXXXH  Notwithstandingthisindividualfocus,IRSpurportstohaveauthorityunderSection6201to \ assessemployerFICAtaxesbasedonanaggregateestimateofthetipincomeearnedbyallemployeescollectively.ButSection6201doesnotgiveIRSthepoweritclaims.Unabletociteanyauthorityforthatproposition,theGovernmentinsteadarguesbyanalogytoSection446(b),whichhasbeenconstruedasauthorizingIRS,intheincometaxcontext,toimposetaxassessmentsbasedonestimateswhereindividualtaxpayershavenotkepttheirownappropriaterecordsfromwhichincomecanbedetermined.TheargumentisunpersuasivebecauseFior,unlikethetaxpayersubjectedtoassessmentunderSection446,haskeptallappropriaterecordsandisinnowayatfaultforreportingtheamountsreportedtoitbytheemployee.Indeed,underthelaw,ithadnochoicebuttodoso. -&, Moreover,ifSection6201conferredageneralpowertolevyassessmentsbyestimate,evenabsenttaxpayerfaultorfailing,thenSection446(b)wouldbewhollyredundantandunnecessary.#XHXXXH#XHXXXH <   ThelegislativehistoryoftheFICAprovisionsfurtherdemonstratethatCongressintendedemployerFICAtaxtobebasedupondeterminationsofindividualemployeetipearnings,andnotanaggregateestimatewhichisdemonstrablyinaccurateinmanyways,butwhichtheemployermustlivewithunlesshecancomeforwardwithamoreaccuratenumber.Forthepastthirtyplusyears,IRShasrepeatedlyattempted,invariedandcreativeways,toshifttheburdenofdeterminingtipincometoemployersoftippedemployees.Inresponse,CongresshasrepeatedlyrejectedIRS'sattemptstoplacethisonusonemployers,affirmingthattheadmittedlydifficultjobofdeterminingunreportedtipincomerestsnotwiththeemployer,butwithIRS.  NotonlyisIRS'sclaimedaggregateassessmentauthoritywithoutbasisinthestatuteandcontrarytothelegislativehistory,ithasnobasisinsoundtaxenforcementpolicyeither.IRShasampleavenuesopentoittoaddresstheproblemofunder-reportingoftipsbyemployees.Indeed,itappearsthatbyutilizingthosetools,IRShasalreadymadeanappreciableimpactonthetipunder-reportingproblem.Totheextenttheproblemremainssignificant,theaggregateassessmentmethodishardlyasolution.Itleavesunpaidabout75%ofthetaxesassociatedwithtipunder-reporting--boththeemployee'sshareofFICAandtheemployee'sincometaxes.Indeed,inviewofthetaxcreditprovisionofSection45B,profitablerestaurantemployerswillreceiveaone-for-onecreditfortheFICAtaxespaidfortipsinexcessoftheminimumwage,leavingonlyunprofitablerestaurantssignificantlyimpactedfinanciallybytheaggregateassessmentmethodthattheGovernmentsaysissoimportant.#XHXXXHj#XHXXXH -&,   #XHXXXH#XHXXXHEvenifthelanguage,context,andlegislativehistoryoftheFICAtaxprovisionsdidnotclearly d demonstrateCongress'sintentionthatanemployer'sFICAtaxbebaseduponadeterminationofthetipearningsofindividualemployees,nodeferencewouldbeowedtoIRS'scurrentconstructionoftheFICAprovisions.IRS'sconstructionisnothingmorethanitscurrentlitigatingposition,forwhichithasnolong-standingreasonedexplanationorpromulgationinsupport.Infact,IRSdocumentsdiscussingthepropermethodforassessinganemployer'sFICAtaxunanimouslyagreethatthistaxshouldbebasedupondeterminationsofindividualemployeetipearnings.#XHXXXH #XHXXXHԀ t  #XHXXXH#XHXXXH@&#XHXXXHQ#XHXXXH ARGUMENT #XHXXXH#XHXXXHԈ 8   IRSDOESNOTHAVEAUTHORITYTOBASEEMPLOYERFICATAXESONAN  AGGREGATEESTIMATEOFTHETIPINCOMEOFALLEMPLOYEESCOLLECTIVELY  p -  CongressimposedanemployerFICAtaxonthetipearningsofeachindividualemployee,#XHXXXH#XHXXXH 6 notthegrosstipearningsofallemployeescollectively.#XHXXXH#XHXXXHԀTheemployerFICAtaxisataxontheexact  samethingastheemployeetax:the wageearningsofeachindividualemployee.Inbothinstancesthe wagessubjecttothetaxmustbeestablishedbyadeterminationofindividualemployeeearnings#XHXXXH##XHXXXH. Z #XHXXXH}#XHXXXHItisnotpossibletoadministertheFICAtaxprovisionsoftheCodeconsistentwiththestatutory !2  language,framework,andpurposeotherwise.  Ataximposedontheremunerationofallemployeescollectivelyasopposedtoataxonthetotalwagespaidtoeachindividualemployeeisnotadistinctionwithoutadifference    19      .Ataxon_the  (!( aggregateearningsofallemployeescollectivelyisnotjustamatterofthewrongamountorthewrongmeansofreachingtheamountdueitisataxonthewrong thingaltogether.#XHXXXH#XHXXXHԀSincethe < employerisnotliableforaFICAtaxonanaggregateestimateofthetipsreceivedbyallemployeescollectively,butataxonthetip wagesofindividualemployees,_Fior_Ԁdidnotdisputethefactsordeterminationsusedtotaxtheaggregateunreportedtipincomeforpurposesofsummaryjudgment,butinsteadchallengedtheentireassessment.#XHXXXH#XHXXXHPet.App.39a;_J.A._Ԁ2526.Ah    20      #XHXXXH #XHXXXH 8  #XHXXXHw #L 6 ((L $Hg   XHXXXH ___$Hg9 2   A  .3  0    Congress_ԀIntendedtheEmployerFICATaxtoBeBasedUponaDeterminationofthe `  TipEarningsofIndividualEmployees$Hg9  ݌ (#(# Ќ     ThefactthatCongressintendedthatthe#XHXXXHd #XHXXXHԀemployerFICAtaxbebasedonthewageearnings J ofeachindividualemployeeratherthan#XHXXXHd #XHXXXHԀontheaggregatewageearningsofallemployeescollectively " ismanifestin#XHXXXH#XHXXXHԀthestatutoryprovisions,thestatutoryscheme,andthelegislativehistorybehindthem.#XHXXXH#XHXXXH ^ Ѐ_Helvering_Ԁv.Morgans,Inc.,293U.S.121,126,(1934).#XHXXXH\#XHXXXH(#XHXXXH#XHXXXH Thetruemeaningofasinglesectionof 6 astatuteinsettingsascomplexasthatoftherevenueacts,howeverpreciseitslanguage,cannotbeascertainedifitbeconsideredapartfromrelatedsections,orifthemindbeisolatedfromthehistoryoftheincometaxlegislationofwhichitisanintegralpart.).#XHXXXHX#XHXXXH Z #XHXXXH# )O   XHXXXH)OJ0  2   A  .3  0` (#(#  TheStatutoryLanguageImposingtheFICATaxRequiresThatitBeDetermined "! BasedupontheTaxableTipsofIndividualEmployees.)OJ݌n# "` (#` (# Ќ    InascertainingtheintentofCongressthecourtstartsasitmust,withthelanguageofthe $l$ section.ThelanguageoftheoperativeFICAsectionsisconsistentlyfocusedontheindividual.BothSections3101and3111imposeatax equaltothefollowingpercentagesofwages(asdefinedin < section3121(a))...withrespecttoemployment(asdefinedinsection3121(b))...Emphasisadded.   Section3121(a)providesthat ...theterm wagesmeansallremunerationforemployment...except21enumeratedexceptionswhichmustbedeterminedbasedoneachindividualemployeesspecificcompensationpackage.Section3121(q)provides: tipsreceivedbyanemployeeshallbeconsidered 8  remunerationforsuchemployment.  Whilethetaxontheemployeeisanincometax,thetaxontheemployerisanexcisetaxontheemploymentrelationship._Helvering_Ԁv.Davis,301U.S.619,645(1937).Theemployersshare  oftheFICAtaxistriggerednotmerelybyenteringintoanemploymentrelationship,however,butbythepaymentofwagesinthecontextofthatrelationship.Reg.31.31113.Anemployerdoesnot \ paywagestoallemployeescollectively,butpayswagestoeachemployeeindividually.The 4 employersliabilityforFICAtaxesthereforeattachestoeachoftheseindividualpayments,notwhen p  theyarelatersummedandreported,asthegovernmentargues.GB.1920.    21      ׀Sinceitisthepayment H ofwagestotheindividualemployeewhichtriggersthetax,theFICAstatutedefines wagessubject  ! totheemployerandemployeetaxesidentically.  Sections3101and3111bothimposeataxontheexactsamething: wagesasdefinedin %X$ section3121.Inthiscasethatmeans tipsreceivedbyanemployee,Section3121(q),whether '0!& reportedtotheemployerornot,andasadjustedbySection3121(a),aresubjecttoboththeemployerandemployeeFICAtax.InthecontextoftheemployeeFICAtax,thisprovisionclearlyreferstothe < individualemployee'stips,sincetheemployeecannotbetaxedunderSection3101onanythingbut   hisowntips.SinceSections3101and3111bothrefertothesame_definitional_Ԁsection,theemployerFICAtaxprovisionmustalsorefertothetipsreceivedbythatindividualemployee.SeeSullivanv.  ` _Stroop_,496U.S.478,484(1990)( Identicalwordsusedindifferentpartsofthesameactare 8  intendedtohavethesamemeaning.);#XHXXXHu#XHXXXHRowanCompaniesv.UnitedStates,452U.S.247,(1981)( It t  wouldbeextraordinaryforaCongresstointend,withouteversayingso,foridenticaldefinitionstobeinterpreteddifferently.)#XHXXXH #XHXXXH $   Moreover,aconstructionofSection3111asimposedupon employeesaggregatetipincomecannotbeconsistentlyapplied.Whenanemployeereportshistipsthesectionwouldbeconstruedasapplyingtothetipsofanindividualemployee;whenhefailstoreport,IRSwouldconstruethetaxasapplyingtoalltipsofallemployeescollectively.Section3111cannotbereadasimposingataxontipsofallemployeescollectivelysomeofthetime,andataxonindividualemployeesatothertimes.#XHXXXH3!#XHXXXHThetaxisimposedonthetipsreceivedbyeachindividualemployeeallthe  ! time.#XHXXXH##  Suchaconclusionisreinforcedbyconsiderationofthe1987amendmentstoSection3121(q) %X$ subjectingalltipsreceivedtotheemployersportionofthetax.TheamendmentsXHXXXHԀconditionedthe '0!& employersliabilityforFICAtaxesonunreportedtipsoninaccurateorincompleteemployeetipstatements.Suchstatementsarenotpreparedbyallemployeescollectivelybutbyeachemployeeindividually. -&,   Congresssalsoconditionedthetaxupontheissuanceofa"noticeanddemand"asopposedtosomeotherevent.ThisrequirementisanunequivocalindicationofCongressionalintentthatthetaxbeimposeduponadeterminationofindividualtipearningswithcredittotheSSArecordsofindividualemployeesforsuchtipearnings.A"noticeanddemand"isatermofartwithaclearproceduralpathtobefollowedbeforeitsissuance.Foreveryemploymenttaxauditofanemployer,theInternalRevenueManualdirectstheauditortorequiretheemployertoprepareandissuecorrectedW2csshowingtheexactamountofanyadditional wagesdeterminedoneachindividualemployeesW2c.TheemployerisfurtherdirectedtotransmiteachofthesecorrectedW2cstotheSSAforwagehistorybenefitpurposes.TheauditorisdirectedtoprepareForm4668EmploymentTaxandExaminationChangesReportandto insertthenumberofemployeeswhoseFormsW2shouldbeamendedbyfilingFormsW2conForm4668."TheauditorisinstructedtoreconciletheFICAwagesonthecorrectedW2c'swiththeadjustmentsonhisreport.Ifthecorrectedformscannotbeobtainedfromtheemployer,theauditorisdirectedto attachalistofemployeeswhoshouldreceivewagestatementstoForm4668.See_I.R.M._Ԁ4.23.2.13;4.23.9.910and4.23.2.13. \ Regulation31.60511(c)(1)(ii)requirestheseproceduresandthecorrectionofemployeesW2s.For_unagreed_Ԁcasesthereports(Forms4668alongwithothers)willbesenttotheemployerwithapreliminary(30dayletter)._I.R.M._Ԁ4.23.9.11.2.Ifthematterremains_unagreed_Ԁa"noticeanddemand"willissue.  Thesearetheprocedurestobefollowedinallaudits.WhenCongressamendedSection3121(q)toprovidethatanemployerwouldbeliableforthetaxwhen"noticeanddemand"isissued,CongressintendedtheemployershareofFICAtaxesonunreportedtipsbedeterminedbyapplication 0,%* "  " "  oftheseprocedures&    22      .#XHXXXH%#XHXXXH  #XHXXXH/#XHXXXH  2.ThisConclusionIsConfirmedbyOtherProvisionsofFICA. `   Eveniftheabovestatutoryprovisionsdidnothave a_dispositively_Ԁplainmeaning,United $  Statesv.ClevelandIndiansBaseballCo.,532U.S.200(2001),Congressionalintentisnotmanifest  `  inthewordsofthestatutealone.ThefactthatanassessmentbasedonanaggregateestimateofthetipearningsofallemployeescollectivelyconflictswithotherFICAprovisionsandrendersthemmeaninglessisfurtherevidencethatCongressintendedFICAtaxestobebasedupondeterminationsofindividualwageearnings.  #XHXXXH/#XHXXXHSection3121(a)providesthat21exceptionsmayapplytodeterminewhatamountofan   individualemployees remunerationisactually wagessubjecttoFICAtaxation.SeeSection \ 3121(a)(1)-(21).Thoseadjustmentsinclude,forexample,exclusionfrom"wages"foramountsreceivedbyanemployeeinexcessofthecontributionandbenefitbaseandbelow$20.00permonthintips.Theseadjustments,alongwiththe20others,mustbecomputedonanindividual,employee-by-employeebasisandcannotbecomputedintheaggregate.Theywouldthereforebe X   eliminatedunderadeterminationofwagesintheaggregate.#XHXXXH2#XHXXXHԀSee I Treas.Reg.  31.3121(a)(1)-1(a)(2)and31.3121(q)-1(d).#XHXXXH5#XHXXXHԀSection3121(a)'sadjustmentscannotpossiblybegiven t effectinanycontextbutthedeterminationsofindividualearningsaclearindicationofCongressionalintentthatthetaxbedeterminedonanindividualbasis.  #XHXXXH6#XHXXXHNorcanSection45Bbegiveneffectwithoutdeterminationofthetipearningsofindividual  L  employees.#XHXXXH7#XHXXXHԀSection K  K 45BprovidesacreditforFICAtaxespaidontipsofanemployeeinexcessof $  theminimumwage.Obviously,adeterminationofamountsinexcessoftheminimumwagemustbeonanindividualbasis.L    23      ׀ AnemployercannottakeadvantageofthistaxcreditiftheIRSassesses p  hisFICAtaxesonunreportedemployeetipsintheaggregate.Pet.App.47a.Asthedistrictcourtbelowstated:0  Sections3121(a)and45BthereforeindicatethatCongressintendedthatindividualwageassessmentswouldbemadebeforetheemployersshareofFICAtaxescouldbeassessed....[Otherwise],thosecreditsandexemptionswouldbecomeanullityformanyemployers.Itisabasicruleofstatutoryconstruction thatoneprovisionshouldnotbeinterpretedinaway...thatrendersotherprovisionsofthesamestatuteinconsistentormeaningless.#XHXXXH8#XHXXXH:(#(# Id.48a(citationsomitted). X   0  3.0` (#(#AllowingIRSAuthoritytoProceedbyanAggregateEstimateofEmployeesTips #$ WillFrustrateFICAsCorePurposeofSecuringEmployeeBenefits.$l%` (#` (# }=  Anaggregateassessmentbaseduponthetipearningsofallemployeescollectivelyisalso j%' inconsistentwiththeFICAstatute'scorepurposeofprovidingretirementincomesecuritybecauseanaggregateassessmentdeniesindividualemployeeswageearningshistorycreditsforsuchtips.ۀIfwagedeterminationsforindividualemployeesarenotmadeapartoftheprocessofadjustingtheamountofFICAtaxowedbyanemployer,notificationcannotbesenttotheSSAoftheadditionaltipearningsforpurposesofcreditingthewageearningshistoriesofindividualemployeesforfuturesocialsecuritybenefitpurposes.  Congress'spurposeinsubjectingtipstoFICAinthefirstplacewastoprovide#XHXXXH<#XHXXXH better   protectionunderthesocialsecurityprogramformorethanamillion[tipped]employeesandtheirdependents#XHXXXHA#XHXXXH.#XHXXXHB#XHXXXHԀ#XHXXXHB#XHXXXHԀH.R.Rept.No.213,supra.#XHXXXHC#XHXXXHԀThispurposedidnotchangewhenCongressdecidedthat H "inordertoapportionthecostofsocialsecuritybenefitsmoreaccurately,employersshouldbesubjecttotaxonalltipswhicharecreditedforbenefitpurposes."#XHXXXHuC#XHXXXHԀSenateCommitteeReport100-63 \ at203(1987)133Cong.Rec.S34,826(1987)(emphasissupplied).#XHXXXHD#XHXXXHԀWhileitisnotintendedthat 4 benefitsshouldbemeasuredexactlybytheamountofpayments,theunderlyingschemeisbaseduponthegeneralrelationshipofthebenefitstothewagesearnedandthetaxespaidthereon. N Mathewsv.  deCastro,429U.S.181,186(1976)#XHXXXHgE#XHXXXH;_Flemming_Ԁv.Nestor,363U.S.603,608(1960).#XHXXXHF#XHXXXH X    #XHXXXHG#XHXXXHTheamountofthemonthlybenefittowhichanindividualisentitledisdirectlyrelatedtothe #" "averagemonthlywage"asreflectedinthe"wagesrecords"whichtheTreasurySecretaryisrequiredtomaintain. P 42U.S.C.A.405(c).Ifthewagerecordsoftheindividualfailtoreflectthereceiptofcoveredearningsorwages,noensuingbenefitswillbeaccorded.#XHXXXHG#XHXXXHWhenindividualearningsarenot (#( determinedandindividualwagesearningshistoriesnotcredited,theassessment,asthelowercourtfound amountstoataxontheemployerswithoutacommensuratebenefittotheemployees...and T,&, operatesasageneralrevenuetaxforthegovernmentbeyondthepurposeofFICAtaxes.Pet.App.46a.ButthebasisofanemployerFICAtaxonwagesistopaythecostofthesocialsecuritybenefitsreasonablyanticipatedfortheindividualemployeeofthatemployer.Thepurposesofthee