UNITED STATES v. FIOR D’ITALIA, INC.

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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 em-
ployees receive. 26 U. S. C. §§ 3101, 3111, 3121(q). An employee re-
ports 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 ag-
gregate 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, be-
cause § 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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Syllabus
reported. However, § 3121(q) is a definitional section. Sections 3111(a)
and (b), which impose the tax, speak in the plural—“wages” paid to
“individuals” by the employer “with respect to employment”—and thus
impose liability for the totality of the “wages” paid, which totality,
says the definitional section, includes each individual employee’s tips.
Pp. 244–245.
(c) Contrary to the Ninth Circuit’s view, there is no reason to read
§ 446(b)—which authorizes the IRS to use estimation methods for de-
termining income tax liability—or § 6205(a)(1)—which authorizes the
Secretary to adopt regulations prescribing mechanisms for employers
to adjust FICA tax liability—as limiting the IRS’ authority to use an
aggregate estimation method to compute in computing FICA tax liabil-
ity. Pp. 245–246.
(d) Certain features of an aggregate estimate—that it includes tips
that should not count in calculating FICA tax, e. g., tips amounting to
less than $20 per month; and that a calculation based on credit card slips
can overstate the aggregate amount because, e. g., cash-paying custom-
ers tend to leave a lower percentage tip—do not show that the method
is so unreasonable as to violate the law. Absent Fior D’Italia’s stipula-
tion that it would not challenge the IRS calculation’s accuracy, a tax-
payer would be free and able to present evidence that the assessment
is inaccurate in a particular case. Pp. 246–248.
(e) The fact that the employer is placed in an awkward position by
the requirement that it pay taxes only on tips reported by its employees,
even when it knows those reports are inaccurate, does not make aggre-
gate estimation unlawful. Section 3121(q) makes clear that penalties
will not attach and interest will not accrue unless the IRS actually
demands the money and the restaurant refuses to pay the amount de-
manded in a timely fashion. Pp. 248–249.
(f) Finally, even assuming that an improper motive on the IRS’ part
could render unlawful its use of a statutorily permissible enforcement
method in certain circumstances, Fior D’Italia has not shown that the
IRS has acted illegally in this case. It has presented a general claim
that the aggregate estimation method lends itself to abusive agency ac-
tion. But agency action cannot be found unreasonable in all cases sim-
ply because of a general possibility of abuse, which exists in respect to
many discretionary enforcement powers. Pp. 250–252.
242 F. 3d 844, reversed.
Breyer, J., delivered the opinion of the Court, in which Rehnquist,
C. J., and Stevens, O’Connor, Kennedy, and Ginsburg, JJ., joined.
Souter, J., filed a dissenting opinion, in which Scalia and Thomas, JJ.,
joined, post, p. 252.

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240 UNITED STATES v. FIOR D’ITALIA, INC.
Opinion of the Court
Assistant Attorney General O’Connor argued the cause
for the United States. With her on the briefs were Solicitor
General Olson, Deputy Solicitor General Wallace, Kent L.
Jones, Bruce R. Ellisen, and Jeffrey R. Meyer.
Tracy J. Power argued the cause for respondent. With
her on the brief were Thomas W. Power, Donald B. Ayer,
and Elizabeth Rees.*
Justice Breyer delivered the opinion of the Court.
Employers must pay Federal Insurance Contributions Act
taxes (popularly known as Social Security taxes or FICA
taxes), calculated as a percentage of the wages—including
the tips—that their employees receive. 26 U. S. C. §§ 3101,
3111, 3121(q). This case focuses upon the Government’s ef-
forts to assess a restaurant for FICA taxes based upon tips
that its employees may have received but did not report.
We must decide whether the law authorizes the Internal
Revenue Service (IRS) to base that assessment upon its
aggregate estimate of all the tips that the restaurant’s cus-
tomers paid its employees, or whether the law requires the
IRS instead to determine total tip income by estimating each
individual employee’s tip income separately, then adding in-
dividual estimates together to create a total. In our view,
the law authorizes the IRS to use the aggregate estimation
method.
I
The tax law imposes, not only on employees, but also “on
every employer,” an “excise tax,” i. e., a FICA tax, in an
amount equal to a percentage “of the wages . . . paid by him
with respect to employment.” § 3111(a) (setting forth basic
Social Security tax); § 3111(b) (using identical language to set
*Briefs of amici curiae urging affirmance were filed for the American
Gaming Association by Robert H. Kapp, John G. Roberts, Jr., and Frank
J. Fahrenkopf, Jr.; for the National Restaurant Association by Peter G.
Kilgore; and for Patricia R. Guancial by Lawrence R. Jones, Jr.

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Opinion of the Court
forth additional hospital insurance tax). It specifies that
“tips received by an employee in the course of his employ-
ment shall be considered remuneration” and “deemed to
have been paid by the employer” for purposes of the FICA
tax sections. § 3121(q). It also requires an employee who
receives wages in the form of tips to report the amount of
those tips to the employer, who must send copies of those
reports to the IRS. 26 CFR § 31.6011(a)–1(a) (2001).
In 1991 and 1992 the reports provided to San Francisco’s
Fior D’Italia restaurant (and ultimately to the IRS) by the
restaurant’s employees showed that total tip income
amounted to $247,181 and $220,845, in each year respectively.
And Fior D’Italia calculated and paid its FICA tax based on
these amounts. The same reports, however, also showed
that customers had listed tips on their credit card slips
amounting to far more than the amount reported by the em-
ployees ($364,786 in 1991 and $338,161 in 1992). Not sur-
prisingly, this discrepancy led the IRS to conduct a com-
pliance check. And that check led the IRS to issue an
assessment against Fior D’Italia for additional FICA tax.
To calculate the added tax it found owing, the IRS used
what it calls an “aggregate estimation” method. That
method was a very simple one. The IRS examined the res-
taurant’s credit card slips for the years in question, finding
that customers had tipped, on average, 14.49% of their bills
in 1991 and 14.29% in 1992. Assuming that cash-paying
customers on average tipped at those rates also, the IRS
calculated total tips by multiplying the tip rates by the res-
taurant’s total receipts. It then subtracted tips already
reported and applied the FICA tax rate to the remainder.
The results for 1991 showed total tips amounting to $403,726
and unreported tips amounting to $156,545. The same fig-
ures for 1992 showed $368,374 and $147,529. The IRS is-
sued an assessment against Fior D’Italia for additional FICA
taxes owed, amounting to $11,976 for 1991 and $11,286 for
1992.

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242 UNITED STATES v. FIOR D’ITALIA, INC.
Opinion of the Court
After paying a portion of the taxes assessed, the restau-
rant brought this refund suit, while the IRS filed a counter-
claim for the remainder. The restaurant argued that the
tax statutes did not authorize the IRS to use its “aggregate
estimation” method; rather, they required the IRS first to
determine the tips that each individual employee received
and then to use that information to calculate the employer’s
total FICA tax liability. Simplifying the case, the restau-
rant agreed that “[f]or purpose[s] of this litigation,” it would
“not dispute the facts, estimates and/or determinations” that
the IRS had “used . . . as a basis for its calculation” of the
employees’ “aggregate unreported tip income.” App. 35.
And the District Court decided the sole remaining legal
question—the question of the statutory authority to esti-
mate tip income in the aggregate—in Fior D’Italia’s favor.
The Court of Appeals affirmed the District Court by a
vote of 2 to 1, the majority concluding that the IRS is not
legally authorized to use its aggregate estimation method, at
least not without first adopting its own authorizing regula-
tion. In light of differences among the Circuits, compare
242 F. 3d 844 (CA9 2001) (case below) with 330 West Hubbard
Restaurant Corp. v. United States, 203 F. 3d 990, 997 (CA7
2000), Bubble Room, Inc. v. United States, 159 F. 3d 553, 568
(CA Fed. 1998), and Morrison Restaurants, Inc. v. United
States, 118 F. 3d 1526, 1530 (CA11 1997), we granted the Gov-
ernment’s petition for certiorari. We now reverse.
II
An “assessment” amounts to an IRS determination that a
taxpayer owes the Federal Government a certain amount of
unpaid taxes. It is well established in the tax law that an
assessment is entitled to a legal presumption of correct-
ness—a presumption that can help the Government prove its
case against a taxpayer in court. See, e. g., United States v.
Janis, 428 U. S. 433, 440 (1976); Palmer v. IRS, 116 F. 3d
1309, 1312 (CA9 1997); Psaty v. United States, 442 F. 2d 1154,

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1160 (CA3 1971); United States v. Lease, 346 F. 2d 696, 700
(CA2 1965). We consider here the Government’s author-
ity to make an assessment in a particular way, namely, by
directly estimating the aggregate tips that a restaurant’s
employees have received rather than estimating (and then
summing) the tips received by each individual employee.
The Internal Revenue Code says that the IRS, as delegate
of the Secretary of Treasury,
“is authorized and required to make the inquiries, deter-
minations, and assessments of all taxes . . . which have
not been duly paid . . . .” 26 U. S. C. § 6201(a) (empha-
sis added).
This provision, by granting the IRS assessment authority,
must simultaneously grant the IRS power to decide how to
make that assessment—at least within certain limits. And
the courts have consistently held that those limits are not
exceeded when the IRS estimates an individual’s tax liabil-
ity—as long as the method used to make the estimate is a
“reasonable” one. See, e. g., Erickson v. Commissioner, 937
F. 2d 1548, 1551 (CA10 1991) (estimate made with reference
to taxpayer’s purchasing record was “presumptively correct”
when based on “reasonable foundation”). See also Janis,
supra, at 437 (upholding estimate of tax liability over 77-day
period made by extrapolating information based on gross
proceeds from 5-day period); Dodge v. Commissioner,
981 F. 2d 350, 353–354 (CA8 1992) (upholding estimate using
bank deposits by taxpayer); Pollard v. Commissioner,
786 F. 2d 1063, 1066 (CA11 1986) (upholding estimate using
statistical tables reflecting cost of living where taxpayer
lived); Gerardo v. Commissioner, 552 F. 2d 549, 551–552 (CA3
1977) (upholding estimate using extrapolation of income over
1-year period based on gross receipts from two days); Men-
delson v. Commissioner, 305 F. 2d 519, 521–522 (CA7 1962)
(upholding estimate of waitress’ tip income based on restau-
rant’s gross receipts and average tips earned by all wait-

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Opinion of the Court
resses employed by restaurant); McQuatters v. Commis-
sioner, 32 TCM 1122 (1973), ¶ 73,240 P–H Memo TC (same).
Fior D’Italia does not challenge this basic principle of law.
Rather, it seeks to explain why this principle should not
apply here, or why it should not determine the outcome of
this case in the Government’s favor.
A
Fior D’Italia’s primary argument rests upon the statute
that imposes the FICA tax. It points out that the tax law
says there is “imposed on every employer” an “excise tax”
calculated on the basis of “wages . . . paid by him” as those
“wages” are “defined in” § 3121. §§ 3111(a), (b). It adds
that the subsection of § 3121 which specifies that “wages”
includes tips (subsection q) refers to “tips” as those “received
by an employee in the course of his employment,” i. e., to
tips received by each employee individually. (Emphasis
added.) Fior D’Italia emphasizes § 3121(q)’s reference to the
employee in the singular to conclude that the “employer’s
liability for FICA taxes therefore attaches to each of these
individual payments, not when they are later summed and
reported.” Brief for Respondent 28 (emphasis in original).
In our view Fior D’Italia’s linguistic argument makes too
much out of too little. The language it finds key, the words
“tips received by an employee,” is contained in a definitional
section, § 3121(q), not in the sections that impose the tax,
§§ 3111(a), (b). The definitional section speaks in the singu-
lar. It says that an employee’s (singular) tips “shall be con-
sidered remuneration” for purposes of the latter, tax impos-
ing sections. § 3121(q). But the latter operational sections
speak in the plural. They impose on employers a FICA tax
calculated as a percentage of the “wages” (plural) paid to
“individuals” (plural) by the employer “with respect to em-
ployment.” §§ 3111(a), (b). The operational sections conse-
quently impose liability for the totality of the “wages” that
the employer pays, which totality of “wages,” says the defi-

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Opinion of the Court
nitional section, shall include the tips that each individual
employee earns. It is as if a tax were imposed on “all of a
restaurant’s dishes,” with a definitional section specifying
that “dishes” shall “include each customer’s silverware.”
We simply do not see how this kind of language, taken as
a whole, argues against use of an aggregate estimation
method that seeks to determine the restaurant’s total FICA
tax liability.
B
The Ninth Circuit relied in part upon two other statutory
provisions. The first, 26 U. S. C. § 446(b), has been inter-
preted to authorize the IRS to use methods of estimation
for determining income tax liability. See, e. g., Mendelson,
supra, at 521–522 (authorizing estimate of waitress’ gross
receipts). The court felt this provision negatively implies
a lack of IRS authority to use the aggregate estimation
method in respect to other taxes, such as employer FICA
taxes, where no such provision applies. 242 F. 3d, at 849.
The second, 26 U. S. C. § 6205(a)(1), authorizes the Secretary
to adopt regulations that prescribe mechanisms for employ-
ers to adjust FICA tax liability. The court felt this provi-
sion negatively implies a lack of IRS authority to use an ag-
gregate estimation method in the absence of a regulation.
242 F. 3d, at 851.
After examining the statutes, however, we cannot find any
negative implication. The first says that, where a taxpayer
has used “a method of accounting” that “does not clearly re-
flect income,” or has used “no method of accounting” at all,
“the computation of taxable income shall be made under such
method as, in the opinion of the Secretary, does clearly re-
flect income.” § 446(b). This provision applies to only one
corner of income tax law, and even within that corner it says
nothing about any particular method of calculation. To read
it negatively would significantly limit IRS authority in that
respect both within and outside the field of income tax law.

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Opinion of the Court
And there is simply no reason to believe that Congress in-
tended any such limitation.
Section 6205(a)(1) refers to certain employment taxes,
including FICA taxes, and says that when an employer
initially pays “less than the correct amount of tax,” then
“proper adjustments . . . shall be made, without interest,” in
accordance with “regulations.” The IRS has made clear
that this provision refers to an employer’s “adjustments,”
say, in an initially underreported tax liability, made before
the IRS has assessed an underpayment. See generally 26
CFR § 31.6205–1 (2001). Again, there is simply no reason to
believe that Congress, in writing this provision applicable to
a small corner of tax law, intended, through negative implica-
tion, to limit the IRS’ general power to assess tax deficien-
cies. Indeed, Fior D’Italia has not advanced in this Court
either “negative implication” argument relied on by the
Ninth Circuit.
C
Fior D’Italia next points to several features of an “aggre-
gate” estimate that, in its view, make it “unreasonable” (and
therefore contrary to law) for the IRS to use that method.
First, it notes that an aggregate estimate will sometimes in-
clude tips that should not count in calculating the FICA tax
the employer owes. The law excludes an employee’s tips
from the FICA wages base insofar as those tips amount to
less than $20 in a month. 26 U. S. C. § 3121(a)(12)(B). It
also excludes the portion of tips and other wages (includ-
ing fixed salary) an employee receives that rises above a
certain annual level—$53,400 in 1991 and $55,500 in 1992.
§ 3121(a)(1); 242 F. 3d, at 846, n. 4. These ceilings mean that
if a waiter earns, say, $36,000 in fixed salary, reports $20,000
in tips, and fails to report $10,000 in tips, the restaurant
would not owe additional taxes, because the waiter’s re-
ported income ($56,000) already exceeds the FICA ceiling.
But if that waiter earns $36,000 in fixed salary, reports
$10,000 in tips, and fails to report another $10,000 in tips,

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the restaurant would owe additional taxes on the unreported
amount, because the waiter’s reported income of $46,000 falls
below the FICA ceiling.
Second, Fior D’Italia points out that an aggregate calcula-
tion based on credit card slips can overstate the aggregate
amount of tips because it fails to account for the possibilities
that: (1) customers who pay cash tend to leave a lower per-
centage of the bill as a tip; (2) some customers “stiff ” the
waiter, leaving no tip at all; (3) some customers write a high
tip on the credit card slip, but ask for some cash back, leaving
a net lower amount; and (4) some restaurants deduct the
credit card company fee from the tip, leaving the employees
with a lower net amount.
Fior D’Italia adds that these potential errors can make an
enormous difference to a restaurant, for restaurant profits
are often low, while the tax is high. Brief for Respondent
9–10, n. 6 (asserting that an assessment for unreported tips
for all years since employer FICA tax provision was enacted
would amount to two years’ total profits). Indeed, the res-
taurant must pay this tax on the basis of amounts that the
restaurant itself cannot control, for the restaurant’s custom-
ers, not the restaurant itself, determine the level of tips.
Fior D’Italia concludes that the IRS should avoid these prob-
lems by resting its assessment upon individual calculations
of employee tip earnings, and argues that the IRS’ failure to
do so will always result in an overstatement of tax liability,
rendering any assessment that results from aggregate esti-
mates unreasonable and outside the limits of any delegated
IRS authority.
In our view, these considerations do not show that the IRS’
aggregate estimating method falls outside the bounds of
what is reasonable. It bears repeating that in this litigation,
Fior D’Italia stipulated that it would not challenge the par-
ticular IRS calculation as inaccurate. Absent such a stipula-
tion, a taxpayer would remain free to present evidence that
an assessment is inaccurate in a particular case. And we do

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not accept Fior D’Italia’s claim that restaurants are unable
to do so—that they “simply do not have the information to
dispute” the IRS assessment. Tr. of Oral Arg. 36. Why
does a restaurant owner not know, or why is that owner un-
able to find out: how many busboys or other personnel work
for only a day or two—thereby likely earning less than $20
in tips; how many employees were likely to have earned
more than $55,000 or so in 1992; how much less cash-paying
customers tip; how often they “stiff ” waiters or ask for a
cash refund; and whether the restaurant owner deducts a
credit card charge of, say 3%, from employee tips? After
all, the restaurant need not prove these matters with preci-
sion. It need only demonstrate that use of the aggregate
method in the particular case has likely produced an inaccu-
rate result. And in doing so, it may well be able to convince
a judge to insist upon a more accurate formula. See, e. g.,
Erickson, 937 F. 2d, at 1551 (“Some reasonable foundation
for the assessment is necessary to preserve the presumption
of correctness” (emphasis in original)).
Nor has Fior D’Italia convinced us that individualized em-
ployee assessments will inevitably lead to a more “reason-
able” assessment of employer liability than an aggregate es-
timate. After all, individual audits will be plagued by some
of the same inaccuracies Fior D’Italia attributes to the
aggregate estimation method, because they are, of course,
based on estimates themselves. See, e. g., Mendelson, 305
F. 2d, at 521–522; McQuatters v. Commissioner, 32 TCM
1122 (1973), ¶ 73,240 P–H Memo TC. Consequently, we can-
not find that the aggregate method is, as a general matter,
so unreasonable as to violate the law.
D
Fior D’Italia also mentions an IRS regulation that it be-
lieves creates a special problem of fairness when taken
together with the “aggregate” assessment method. That
regulation says that an employer, when calculating its FICA

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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 re-
ceived 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 fig-
ure? “[T]here is no practical or legally authorized way,”
Fior D’Italia complains, for the restaurant to include the ad-
ditional 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 sub-
sequently 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) contem-
plates 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 sup-
port the argument that aggregate estimation is unlawful.

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E
Finally, Fior D’Italia suggests that the IRS is putting its
“aggregate estimate” method to improper use. It traces a
lengthy history of disagreement among restaurant workers,
restaurant owners, and the IRS as to how best to enforce
the restaurants’ legal obligation to pay FICA taxes on unre-
ported tip income. It notes that the IRS has agreed to cre-
ate a special program, called the “Tip Reporting Alternative
Commitment,” whereby a restaurant promises to establish
accurate tip reporting procedures in return for an IRS prom-
ise to base FICA tax liability on reported tips alone. It
adds that any coercion used to force a restaurant to enter
such a program (often unpopular with employees) would con-
flict with the views of Members of Congress and IRS offi-
cials, who have said that a restaurant should not be held
responsible for its employees’ failure to report all their tips
as income. See, e. g., Letter of Members of Congress to Sec-
retary of Treasury Lloyd Bentsen, 32 Tax Analysts’ Daily
Tax Highlights & Documents 3913 (Mar. 4, 1994); App. 106,
107. It adds that Congress has enacted this view into two
special laws: the first of which gives restaurants a nonrefund-
able tax credit on FICA taxes paid, i. e., permits restaurants
to offset any FICA it pays on employee tips on a dollar for
dollar basis against its own income tax liability, 26 U. S. C.
§ 45B; and the second of which prohibits the IRS from
“threaten[ing] to audit” a restaurant in order to “coerce” it
into entering the special tip-reporting program. Internal
Revenue Service Restructuring and Reform Act of 1998,
112 Stat. 755.
Fior D’Italia says that the IRS’ recent use of an “aggre-
gate estimate” approach runs contrary to the understanding
that underlies this second statute, for it “effectively forces
the employer into . . . verifying, investigating, monitoring,
and policing compliance by its employees—responsibilities
which Congress and the Courts have considered, evaluated,
and steadfastly refused to transfer from IRS to the em-

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ployer.” Brief for Respondent 9. And it suggests that the
IRS intends to use a legal victory here as a “threat,” say, to
reopen back tax years, in order to require restaurant owners
“to force” their “employees to report” all tips. Id., at 14.
Why else, asks Fior D’Italia, would the IRS bring this case?
After all, given the dollar for dollar FICA/income tax setoff,
this case may not even produce revenue for the Government.
Fior D’Italia’s “abuse of power” argument, however, does
not constitute a ground for holding unlawful the IRS’ use of
aggregate estimates. Even if we assume, for argument’s
sake, that an improper motive could render unlawful the use
of a statutorily permissible enforcement method in certain
circumstances, cf. United States v. Powell, 379 U. S. 48, 58
(1964), we note that Fior D’Italia has not demonstrated that
the IRS has acted illegally in this case. Instead it has pre-
sented a general claim to the effect that the aggregate esti-
mation method lends itself to abusive agency action. But
we cannot find agency action unreasonable in all cases simply
because of a general possibility of abuse—a possibility that
exists in respect to many discretionary enforcement powers.
Cf. Heckler v. Chaney, 470 U. S. 821, 831 (1985).
The statutes and congressional documents that protect
restaurants from onerous monitoring requirements conse-
quently do not support Fior D’Italia’s argument that aggre-
gate estimates are statutorily prohibited. For example, the
Internal Revenue Service Restructuring and Reform Act
prohibits the IRS from “threaten[ing] to audit” restaurants
as a means to “coerce” them into policing employee tip re-
porting, supra, at 250, but Fior D’Italia does not claim that
the IRS has violated this statute. Nor, for that matter, has
Fior D’Italia presented evidence that this particular litiga-
tion would fail to yield revenue to the Government (due to
the availability of the FICA tax credit), or convincingly ex-
plained, even if so, why that fact, while making the case un-
remunerative, would automatically make it improper. And
while other documents show that Congress has expressed

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252 UNITED STATES v. FIOR D’ITALIA, INC.
Souter, J., dissenting
concern regarding a restaurant’s difficulty in trying to su-
pervise its employees’ reporting of their tips, they do not
suggest that the aggregate estimate method is an unreason-
able way of ascertaining unpaid FICA taxes for which the
employer is indisputably liable (particularly when one re-
calls that the taxpayer generally remains free to challenge
the accuracy of the calculation at issue, even though this
taxpayer has waived its right to do so). Rather, as we have
shown, the relevant Code provisions and case law sup-
port the use of aggregate estimates. See supra, at 242–
244, 248–249.
We conclude that Fior D’Italia’s discussion of IRS “abuse”
is insufficient to show that the agency’s use of aggregate esti-
mates is prohibited by law. In saying this, we recognize
that Fior D’Italia remains free to make its policy-related
arguments to Congress.
III
For these reasons, and because Fior D’Italia has stipulated
that it does not challenge the accuracy of the IRS assessment
in this case, the judgment of the Court of Appeals is
Reversed.
Justice Souter, with whom Justice Scalia and Jus-
tice Thomas join, dissenting.
The Court holds that the Internal Revenue Service’s statu-
tory authorization to make assessments for unpaid taxes is
reasonably read to cover a restaurateur’s FICA taxes based
on an aggregate estimate of all unreported employee tips.
I believe that reading the statute so broadly saddles employ-
ers with a burden unintended by Congress, and I respect-
fully dissent.
I
Taxes on earned income imposed by the Federal Insurance
Contributions Act (FICA) pay for employees’ benefits under
the Social Security Act, 49 Stat. 622, as amended, 42 U. S. C.

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253 Cite as: 536 U. S. 238 (2002)
Souter, J., dissenting
§ 401 et seq. (1994 ed. and Supp. V). In the simplest case,
the employee is taxed on what he receives, and the employer
is taxed on what he pays. See 26 U. S. C. §§ 3101, 3111.
For a long time, an employee’s income from tips was not rec-
ognized as remuneration paid by the employer, and the cor-
responding FICA tax was imposed only on the employee.
See Social Security Amendments of 1965, § 313(c), 79 Stat.
382. In 1987, however, the Internal Revenue Code was
amended to treat tip income within the remuneration on
which the employer, too, is taxed, 26 U. S. C. § 3121(q), and
that is the present law.
The scheme is simple. The tips are includible in the
employee’s wages. The employee must report the amount
of taxable tip income to the employer. § 6053(a). “[L]arge
food or beverage establishment[s]” must pass on that in-
formation to the Internal Revenue Service, § 6053(c)(1), and
must also report the total amount of tips shown on credit
card slips, ibid. The employer is subject to tax on the same
amount of tip income listed on an employee’s report to him
and in turn reported by him to the IRS. For both the em-
ployer and the employee, however, taxable tip income is lim-
ited to income within what is known as the “wage band”;
there is no tax on tips that amount to less than $20 in a
given month, or on total remuneration in excess of the Social
Security wage base ($53,400 and $55,500, respectively, in the
years relevant to this case).
Because many employees report less tip income than they
receive, their FICA taxes and their employers’ matching
amounts are less than they would be in a world of complete
reporting. The IRS has chosen to counter dishonesty on the
part of restaurant employees not by moving directly against
them, but by going against their employers with assessments
of unpaid FICA taxes based on an estimate of all tip income
paid to all employees aggregated together. The Court finds
these aggregated assessments authorized by the general pro-
vision for assessments of unpaid taxes, § 6201, which benefits

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254 UNITED STATES v. FIOR D’ITALIA, INC.
Souter, J., dissenting
the Government with a presumption of correctness. See
United States v. Janis, 428 U. S. 433, 440 (1976).1 The prac-
tice of assessing FICA taxes against an employer on esti-
mated aggregate tip income, however, raises anomaly after
anomaly, to the point that one has to suspect that the Gov-
ernment’s practice is wrong. An appreciation of these con-
sequences, in fact, calls for a reading of the crucial provision,
26 U. S. C. § 3121(q), in a straightforward way, which bars
aggregate assessments and the anomalies that go with them.
II
A
The Social Security scheme of benefits and the FICA tax
funding it have been characterized as a kind of “social insur-
ance,” Flemming v. Nestor, 363 U. S. 603, 609 (1960), in which
employers and employees contribute matching amounts.
Compare 26 U. S. C. § 3101 with § 3111. The payments that
beneficiaries are entitled to receive are determined by the
records of their wages earned. Nestor, supra, at 608.
Notwithstanding this basic structure, the IRS’s aggregate
estimation method creates a disjunction between amounts
presumptively owed by an employer and those owed by an
employee. It creates a comparable disproportion between
the employer’s tax and the employee’s ultimate benefits,
since an aggregate assessment does nothing to revise the
earnings records of the individual employees for whose bene-
fit the taxes are purportedly collected.2 Thus, from the out-
set, the aggregate assessment fits poorly with the design of
the system.
1 In 1998, Congress altered the burdens of proof for tax cases, but the
changes do not implicate FICA. See 26 U. S. C. § 7491(a).
2 Although the scheme does not create a vested right to benefits in any
employee, see Flemming v. Nestor, 363 U. S. 603, 608–611 (1960), the legis-
lative choice to tie benefits to earnings history evinces a general intent to
create a rough parity between taxes paid and benefits received.

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B
As the majority acknowledges, the next problem is that
the aggregate estimation necessarily requires the use of gen-
eralized assumptions for calculating such estimates, and the
assumptions actually used tend to inflate liability. In the
first place, while the IRS’s assumption that many employees
are underreporting is indisputably sound, the assumption
that every patron is not only tipping, but tipping 14.49% in
1991 and 14.29% in 1992, is probably not. Those percentages
are based on two further assumptions: that patrons who pay
with credit cards tip at the same rate as patrons who pay in
cash, and that all patrons use the tip line of the credit card
slip for tips, rather than to obtain cash. But what is most
significant is that the IRS’s method of aggregate estimation
ignores the wage band entirely, assuming that all tips are
subject to FICA tax, although this is not true in law, and
certainly not always the case in fact.
C
The tendency of the Government’s aggregation method to
overestimate liability might not count much against it if it
were fair to expect employers to keep the reports that would
carry their burden to refute any contested assessment based
on an aggregate estimate. But it is not fair.
Obviously, the only way an employer can refute probable
inflation by estimate is to keep track of every employee’s
tips, ante, at 248, and at first blush, there might seem nothing
unusual about expecting employers to do this.3 The Code
3 Of course, even the IRS has not explained the precise manner in which
the employer is expected to generate such records. Before the Court of
Appeals, the IRS argued that the employer could require employees to
pool all tips, and thereby keep track of them. See 242 F. 3d 844, 848, n. 6
(CA9 2001). The court properly rejected this contention as “alter[ing]
the way a restaurant does business . . . . It would be akin to saying that
a restaurant must charge a fixed service charge in lieu of tips.” Ibid.
Before this Court, the IRS instead argued that “every employer should

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256 UNITED STATES v. FIOR D’ITALIA, INC.
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imposes a general obligation upon all taxpayers to keep rec-
ords relevant to their liability according to regulations pro-
mulgated by the Secretary, 26 U. S. C. § 6001, and, for the
most part, the courts have viewed the burden on taxpayers
to maintain such records as reasonable and, hence, as the
justification for requiring taxpayers to disprove IRS esti-
mates; the taxpayer who fails to attend to § 6001 has only
himself to blame. See, e. g., Kikalos v. Commissioner, 190
F. 3d 791, 792, n. 1 (CA7 1999); Cracchiola v. Commissioner,
643 F. 2d 1383, 1385 (CA9 1981); Meneguzzo v. Commis-
sioner, 43 T. C. 824, 831 (1965). 4 But the first blush ignores
the one feature of § 6001 relevant here. The provision states
a single, glaring exception: employers need not keep records
“in connection with charged tips” other than “charge re-
ceipts, records necessary to comply with section 6053(c), and
copies of statements furnished by employees under section
6053(a).” Ibid. Employers are expressly excused from any
effort to determine whether employees are properly report-
ing their tips; the Code tells them that they need not keep
the information specific to each employee that would be nec-
essary to determine if any tips fell short of the estimates or
outside the wage band.5 Presumably because of this statu-
hire reliable people who they can trust to follow the rules.” The official
transcript records “Laughter.” Tr. of Oral Arg. 27.
4 Such is in keeping with the general rule that burdens shift to those
with peculiar knowledge of the relevant facts. Campbell v. United States,
365 U. S. 85, 96 (1961) (“[T]he ordinary rule . . . does not place the burden
upon a litigant of establishing facts peculiarly within the knowledge of his
adversary”); National Communications Assn. v. AT&T Corp., 238 F. 3d
124, 130 (CA2 2001) (“[A]ll else being equal, the burden is better placed on
the party with easier access to relevant information”); 9 J. Wigmore, Evi-
dence § 2486, p. 290 (J. Chadbourn rev. ed. 1981) (“[T]he burden of proving
a fact is said to be put on the party who presumably has peculiar means
of knowledge” (emphasis deleted)).
5 The statute refers only to charged tips, rather than cash tips, but the
IRS does not dispute that the employer has no obligation to keep any
records beyond those specifically required under 26 U. S. C. § 6053, and the
IRS’s regulations on the subject do not impose any requirements with

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257 Cite as: 536 U. S. 238 (2002)
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tory exception, the Secretary’s regulations regarding em-
ployer recordkeeping do not impose any obligations beyond
those mentioned in § 6001. See 26 CFR § 31.6001–5 (2001)
(describing required records). This absolution from record-
keeping is mirrored by the fact that tips are uniquely ex-
cepted from the general rule that remuneration must be re-
ported in W–2 statements. See 26 U. S. C. § 6041(e). The
upshot is that Congress has enacted a singular exception to
the duty to keep records that would allow any ready wage
band determinations or other checks on estimates, while the
aggregate assessment practice of the IRS virtually reads the
exception out of the Code.
The majority doubts that there is any practical difference
between determining the liability of one employee, very pos-
sibly with an estimation similar to the one used here, and
estimating the aggregate amount for an employer. Ante, at
248. But determinations limited to an individual employee
will necessarily be more tailored, if only by taking the wage
band into account. In fact, any such determination would
occur in consequence of some audit of the employee, who
would have an incentive to divulge information to contest
the IRS’s figures where possible, and generate the very
paper trail an employer would need to contest liability while
availing himself of the exception in § 6001.
D
The strangeness of combining a statute excusing employ-
ers from recordkeeping with an administrative practice of
respect to cash tips. See 26 CFR § 31.6001–5 (2001). Moreover, it would
be irrational to read 26 U. S. C. § 6001 to require an employer to keep
detailed records only of cash tips, while, for example, being relieved of the
burden to record which employees received which charged tips, or
whether the tip space was used for something other than tips, or how
employees allocated charged tips amongst themselves via the process of
“tipping out” (sharing tips with supporting waitstaff who do not receive
their own tips, such as bartenders and hosts).

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258 UNITED STATES v. FIOR D’ITALIA, INC.
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making probably inflated assessments stands out even more
starkly in light of the eccentric route the Government has to
follow in a case like this in order to benefit from the pre-
sumption of correctness that an aggregate assessment car-
ries. Under the general authorization to make assessments,
26 U. S. C. § 6201, on which the Government relies, any as-
sessment is preceded by liability for taxes. § 6201(a) (“The
Secretary is authorized . . . to make the inquiries, determina-
tions, and assessments of all taxes . . . which have not been
duly paid . . .”); ante, at 242 (“An ‘assessment’ amounts to an
IRS determination that a taxpayer owes the Federal Gov-
ernment a certain amount of unpaid taxes”). After, but only
after, assessment can the IRS take the further step of issu-
ing notice and demand for the unpaid taxes assessed, § 6303,
so as to authorize the IRS to levy upon the taxpayer’s prop-
erty, or impose liens, §§ 6321, 6331.
In the case of an employer’s liability for FICA taxes on
tips, however, this sequence cannot be followed if the em-
ployee does not report the tips to the employer in the first
place, for it is the report, not the employee’s receipt of the
tips, that raises the employer’s liability to pay the FICA tax.
The employer may know from the credit slips that the em-
ployees’ reports are egregiously inaccurate (wage band or no
wage band), but the employer is still liable only on what the
employee declares. In fact, the effect of § 6053(c) is such
that employers cannot help but know when underreporting
is severe, since they are required to give the IRS a summary
of the amount of reported tips and the amount of charged
tips. Nonetheless, the employer remains liable solely for
taxes on the reported tips.6
6 In fact, the obligation to report charged tips was imposed before em-
ployers had any FICA tax obligation beyond tips that substituted for mini-
mum wage, and the reporting obligations of § 6053(c) were devised to assist
the IRS in its collections efforts against employees, despite the IRS’s use
of it here as a basis for auditing Fior D’Italia.

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259 Cite as: 536 U. S. 238 (2002)
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Indeed, even if the employer, seeing a disparity, paid extra
FICA taxes on the assumption that the employees had un-
derreported tips, the extra payment would be treated as an
overpayment. See Tr. of Oral Arg. 8; Jones v. Liberty Glass
Co., 332 U. S. 524, 531 (1947) (overpayment is “any payment
in excess of that which is properly due”). The overall impli-
cation is that employers are meant to pay taxes based on
specific information provided by others. As a practical mat-
ter, the tips themselves are not the true basis for liability;
instead, it is an employee report that creates the obligation.
Some event must therefore trigger liability for taxes on
unreported tips before the IRS can make the assessment,
and this event turns out to be the notice and demand for
which § 3121(q) makes special provision in such a case.7
Only after notice and demand can the Government proceed
to assessment under § 6201. Whereas the usual sequence is
assessment, then notice and demand, see § 6303, here it is
notice and demand, then assessment.
The IRS does not dispute this. It concedes that it does
not rely upon § 6201 before issuing the notice, see Reply
Brief for United States 15–16, but instead performs a “pre-
assessment” estimate (for which, incidentally, no statutory
authorization exists). Then it issues notice and (liability
having now attached) uses the same estimate for the official
assessment under § 6201.
Again, at first blush, it is tempting to say that the se-
quence of events may be unusual, but under the aggregate
assessment practice the employer-taxpayer ends up in the
same position he would have been in if he failed to pay FICA
taxes on reported tips. But there are two very significant
7 The majority takes note of this unusual scheme, but finds significance
only in the fact that until notice issues (and liability arises), interest does
not run. Ante, at 249. But to interpret the statute as nothing more
than a method of preventing the running of interest avoids the significance
of § 3121(q), because there is already a statute that prevents interest run-
ning on unpaid FICA taxes. § 6205(a)(1).

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260 UNITED STATES v. FIOR D’ITALIA, INC.
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differences. It is true that the employer who is delinquent
as to reported tips ends up subject to liability on the basis of
third-party action (the employee’s report) which assessment
invests with a presumption of correctness, and which notice
and demand then make a basis for possible liens and levies.
But in that case the employer’s liability, and exposure to col-
lection mechanisms, is subject to the important safeguard of
the employee’s report. Whatever the employee may do, it
will not be in his interest to report more tips than he re-
ceived, exposing himself (and, incidentally, his employer) to
extra taxation. But this safeguard is entirely lost to the
employer, through no fault of his own, if the Government can
make aggregate assessments. The innocent employer has
few records and no protection derived from the employee’s
interest. Yet without any such protection he is, on the Gov-
ernment’s theory, immediately liable for the consequences of
notice and demand at the very instant liability arises.
The second difference goes to the authority for estimating
liability. The IRS finds this authority implicit in § 6201,
which authorizes assessments. Ante, at 243. In the usual
case, the estimate is thus made in calculating the assessment,
which occurs after the event that creates the liability being
estimated and assessed. But in the case of the tips un-
reported by the employee, there would be no liability until
notice and demand is made under § 3121(q), and it is con-
sequently at this point that the estimate is required. The
upshot is that the estimate has to occur before the statute
claimed to authorize it, § 6201, is even applicable. That is,
the IRS says it can estimate because it can assess, and it can
assess because it can previously estimate. Reasoning this
circular may warrant suspicion.
E
There is one more source of suspicion. In 1993, Congress
enacted an income tax credit for certain employers in the
amount of FICA taxes paid on tips in excess of the minimum

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261 Cite as: 536 U. S. 238 (2002)
Souter, J., dissenting
wage. 26 U. S. C. § 45B. The existence of the credit creates
a peculiar scheme, for unless we are to assume that restaura-
teurs are constantly operating on the knife-edge of solvency,
never able to use the credit (even with its 20-year carryfor-
ward, see § 39), the IRS has little reason to expect to gain
much from the employer-taxpayer; the collection effort will
probably result in no net benefit to the Government (except,
perhaps, as an interest-free loan).8 And because, as noted,
the aggregate method chosen by the IRS will not affect indi-
vidual employees’ wage-earning records, the estimates do
not even play much of a bookkeeping role. There is some-
thing suspect, then, in the IRS’s insistence on conducting
audits of employers, without corresponding audits of employ-
ees, for the purpose of collecting FICA taxes that will ulti-
mately be refunded, that do not increase the accuracy of indi-
vidual earnings records, and probably overestimate the true
amount of taxable earnings.
In fact, the only real advantage to the IRS seems to be
that the threat of audit, litigation, and immediate liability
may well force employers to assume the job of monitoring
their employees’ tips to ensure accurate reporting. But if
that explanation for the Government’s practice makes sense
of it, it also flips the Government from the frying pan into
the fire. Congress has previously stymied every attempt
the IRS has made to impose such a burden on employers.
In the days when employers were responsible only for with-
holding the employee’s share of the FICA tax, the IRS at-
tempted to force employers to include tip income on W–2
forms; this effort was blocked when Congress modified 26
U. S. C. § 6041 to exclude tip income expressly from the W–2
requirements. See Revenue Act of 1978, § 501(b), 92 Stat.
2878. When the IRS interpreted the credit available under
8 At oral argument, the Government contended that the payment of
the FICA tax, coupled with the § 45B credit, benefited its accounting by
permitting payments to be appropriately allocated between the Social
Security trust fund and general revenue. See Tr. of Oral Arg. 20–21.

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262 UNITED STATES v. FIOR D’ITALIA, INC.
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§ 45B to apply only to tips reported by the employee pursu-
ant to 26 U. S. C. § 6053(a), Congress overruled the IRS and
clarified that the credit would apply to all FICA taxes paid
on tips above those used to satisfy the employer’s minimum
wage obligations. See Small Business Job Protection Act
of 1996, Pub. L. 104–188, § 1112(a), 110 Stat. 1759. Finally,
when the IRS developed its Tip Reporting Alternative Com-
mitment (TRAC) program, ante, at 250, Congress forbade
the IRS from “threaten[ing] to audit any taxpayer in an at-
tempt to coerce the taxpayer” into participating. Internal
Revenue Service Restructuring and Reform Act of 1998,
§ 3414, 112 Stat. 755.9 And although the use of a threatened
aggregate estimate (after an audit) to induce monitoring of
employee tips may not technically run afoul of that statute,
it is difficult to imagine that Congress would allow the aggre-
gation practice as a lever on employers, when it forbade the
use of an audit for the same purpose.
9 To some extent, the modification of the § 45B credit and TRAC may be
taken as congressional awareness of the IRS’s practice of making aggre-
gate assessments. After all, there is no need to clarify that § 45B is avail-
able for taxes on unreported tips unless such taxes are, in fact, being
paid, and the TRAC program itself depends on the existence of aggregate
assessments, because the “carrot” offered to employers to encourage par-
ticipation is the IRS’s promise to refrain from such assessments.
With respect to § 45B, however, prior to Congress’s modifications, the
IRS regulations did not allow for the credit even when an individual em-
ployee was assessed and corresponding notice and demand issued to the
employer. See 58 Fed. Reg. 68033 (1993) (temporary regulation § 1.45B–
1T). Thus, Congress’s clarification did not depend on the existence of ag-
gregate assessments. As for TRAC, at the time that Congress prohibited
the IRS from coercing participation, the IRS had actually halted the ag-
gregate assessment practice. See Director, Office of Employment Tax
Administration and Compliance, Memorandum for Regional Chief Compli-
ance Officers (June 16, 1998), App. 106–107. Moreover, the simple (and
realistic) answer is just that Congress did as asked; restaurateurs com-
plained about a specific practice, i. e., threatened audits, and Congress
responded with a targeted statute.

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263 Cite as: 536 U. S. 238 (2002)
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III
Consider an alternative. I have noted already that even
the Government tacitly acknowledges the crucial role of
§ 3121(q), the source of its authority to issue notice and de-
mand, without which there is no liability on the employer’s
part for FICA taxes on unreported tips and thus no possibil-
ity of assessment under § 6201. It makes sense, then, to un-
derstand the scope of authority to make the assessment as
being limited by the scope of the authority to issue notice
and demand, and it likewise makes sense to pay close atten-
tion to the text of that authorization.
The special provision in § 3121(q) for notice and demand
against an employer says nothing and suggests nothing
about aggregate assessments. It reads that when an em-
ployer was furnished “no statement including such tips” or
was given an “inaccurate or incomplete” one, the remunera-
tion in the form of “such tips” shall be treated as if paid on
the date notice and demand is made to the employer.
“[S]uch tips” are described as “tips received by an employee
in the course of his employment.” Ibid. Thus, by its
terms, the statute provides for notice and demand for the
tax on the tips of “an employee,” not on the tips of “em-
ployees” or “all employees” aggregated together. And, of
course, if notice and demand is limited to taxes on tips of “an
employee,” that is the end of aggregate estimates.
It is true that under the Dictionary Act, 1 U. S. C. § 1, a
statutory provision in the singular may include the plural
where that would work in the context. “[A]n employee”
could cover “employees” and the notice and demand could
cover tips received during “their employment,” “unless the
context indicates otherwise,” ibid. But here the context
does indicate otherwise. The anomalies I have pointed out
occur when the singular “employee” in § 3121(q) is read to
include the plural, which in turn is crucial to allowing aggre-
gate notice, demand, and assessment; and it turns out that

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264 UNITED STATES v. FIOR D’ITALIA, INC.
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reading the statute to refer only to a particular employee’s
tips and limiting notice, demand, and assessment accordingly,
goes far to abridge the catalog of oddities that come with the
Government’s position.
First, sticking to the singular means that the employer
will not be assessed more tax than the employee himself
should pay; whether or not the employee is sued for a like
amount, the respective liabilities of employer and employee
will be restored to parity. And by keying the employer’s
liability to a particular employee, the near certainty of over-
assessment will be replaced with a likelihood of an accurate
assessment taking into consideration the wage band of tax-
ability under FICA.
Second, the fact that the employer has exercised his ex-
press, statutory option to decline to keep tipping records on
his work force will no longer place him at such an immediate
disadvantage. It will be relatively easy to discover the
basis for the tax calculation in a particular instance.
Third, if indeed the Government first establishes the em-
ployee’s liability for unreported tips, notice and demand
under § 3121(q) will then serve what on its face seems to be
its obvious purpose, to provide the employer with reliable
information, like the employee tip reports that similarly trig-
ger liability, so that the employer will have no further need
for keeping track of employee tips. Although this is not the
time to decide whether the IRS must formally audit the em-
ployee’s own tax liability first, there is at least one reason to
think Congress assumed that it would. There is no statute
of limitations on an employer’s FICA tax liability for un-
reported tips (because the statute does not run until after
liability attaches, and no time limits are imposed upon the
issuance of the notice that triggers liability). But there is
a statute of limitations for assessments against employees.
26 U. S. C. § 6501. Conditioning the employer’s liability on
a parallel obligation of the employee would in effect place a
limitation period on the employer’s exposure.

536US1 Unit: $U67 [01-14-04 18:30:02] PAGES PGT: OPIN
265 Cite as: 536 U. S. 238 (2002)
Souter, J., dissenting
Finally, of course, the tension with Congress’s admonition
that the IRS not “threaten to audit any taxpayer in an at-
tempt to coerce the taxpayer” into participating in TRAC,
112 Stat. 755, will be eliminated. If the employer is liable
only after an individual employee’s delinquency has been cal-
culated, the use of mass assessments to force an employer,
in self-defense, to institute TRAC will simply vanish.
Thus, the context establishes that a singular reading is the
one that makes sense by eliminating the eccentricities en-
tailed by the aggregate reading, some of which seem unfair
to employer taxpayers. Of course, this means that the prob-
lem of underreporting tips will be harder to solve, but it
seems clear that Congress did not mean to solve it by allow-
ing the IRS to use its assessment power to shift the problem
to employers. I would therefore affirm the judgment of the
Ninth Circuit.