- The Washington Times - Sunday, April 28, 2002

Learned Supreme Court justices last week did no better than taxpayers calling Internal Revenue Service hot lines as they pressed a single question on the government's top tax lawyer for 20 of her allotted 30 minutes without satisfaction.
Justice Sandra Day O'Connor posed it first, and other justices began calling it "the question" as they asked and re-asked how a restaurant owner could ever effectively challenge IRS assessments on tips that employees were not reporting.
"My own conclusion, listening to you, is he can write the check," Justice Stephen G. Breyer told Assistant Attorney General Eileen O'Connor as her 30-minute argument time dwindled.
"I don't mean to be avoiding the question," said Miss O'Connor, who steadfastly quoted definitions and tax-code sections without appearing to respond directly while appearing in place of the solicitor general's Supreme Court specialists.
Only Chief Justice William H. Rehnquist and Justice John Paul Stevens didn't join the quiz show.
At one point, Justice David H. Souter rephrased the puzzle to ask how a taxpayer could anticipate interest charges before the IRS decided tip taxes were underpaid.
Miss O'Connor responded by reading a section that she said defines "what is a tax," assuming a professorial lecture mode honed at Georgetown and George Mason law schools. For more than 15 years she practiced tax law at two accounting firms before President Bush nominated her in April to head the Justice Department's tax division.
In a case closely watched by the restaurant industry, which produces more than $14 billion in tips yearly, the IRS seeks to reverse a 9th Circuit Court of Appeals ruling in which the 115-year-old Fior d'Italia in San Francisco challenged an order to pay $23,000 in additional Social Security taxes for 1991 and 1992 tips.
The method "used by the IRS in this case, is simply not authorized," Circuit Judge Alex Kozinski wrote for the appeals court.
"If the IRS wins, it will try to make employers become tip-police and report a certain percentage of all food and beverage sales as tips. Not everyone makes that amount," restaurant lawyer Tracy J. Power said after the hearing.
The National Restaurant Association says the decision, due by June, will affect 200,000 restaurants and uncounted other businesses where employees are tipped.
"By not determining which employees underreported, the payments assessed on the employer are not credited to the employees' Social Security accounts," association General Counsel Peter Kilgore said in a friend-of-the-court brief.
Miss Power, a specialist on tip-tax law, faced her own toughest moment when she conceded to Justice Anthony M. Kennedy she knew of no precedent for her position that it is not logical to enforce a tax on tips when there is no record the tips were ever given.
"He asked if there is any authority for that, and I had to say no," said Miss Power, who said she also punished herself with 24 hours of grief for breaking protocol.
"I forgot to start by saying, 'Mr. Chief Justice and may it please the court,'" she said.
Miss Power fought the tip-tax issue in federal appeals courts for 16 years before arriving at the Supreme Court to defend this California victory. She said she enjoyed the justices' pressure on her rival who, like Miss Power, was making her first Supreme Court argument.
"I was thinking this was the absolute height of bureaucratic arrogance," Miss Power said in an interview about the hearing.
Miss O'Connor followed the Justice Department policy of not commenting on Supreme Court cases, a spokeswoman said.
Miss Power triggered laughter and a bit of confusion in the courtroom when she compared the government's method of "imputing" tip income to taxing a chicken farmer as if he were raising cows, which presumably produce more income.
"Would you acknowledge at least that it's virtually impossible for [an employer] to get that information?" Justice O'Connor asked Miss O'Connor about the share of earnings that may go unreported by waiters, bartenders and bus-boys.
Justice Kennedy said the IRS seemed to be shifting the burden onto restaurants that are not in as good a position as the employee or the IRS to know the facts. Miss O'Connor responded that restaurants could subpoena workers who do not file required reports.
"You're suggesting he should fire the employee so he can be sued for wrongful discharge, so he can subpoena information and give it to you?" Justice Kennedy asked.

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