- The Washington Times - Saturday, January 12, 2002

The Supreme Court yesterday agreed to decide whether federal tax collectors may estimate waiters' tips and charge restaurant owners for unpaid Social Security taxes of its employees.
The ruling, due by June, will govern how the Internal Revenue Service collects from employers the 7.5 percent tax on an estimated $60 billion a year in meal tips, much of which the government says goes unreported.
The case involves a claimed $23,262 underpayment of tip taxes for 1991 and 1992 by Fior d'Italia, a San Francisco tourist spot founded in 1886 that owner Bob Larive says qualifies it as the oldest Italian restaurant in the country.
The North Beach restaurant won at the U.S. 9th Circuit Court of Appeals, but that decision was appealed by Solicitor General Theodore Olson, who told the justices that the dispute arises often and has sharply divided federal appeals courts.
Mr. Olson's brief said the 9th Circuit ruling "invites employers and employees alike to evade their statutory tax obligations."
"They believe it's worth $7 billion to $10 billion a year in taxes," said Tracy J. Power, a tax-law specialist in Arlington who represents the restaurant. Mr. Larive doesn't believe his staff evades taxes, she said.
Miss Power said yesterday she represented restaurants on the issue in 11 courts, winning five times and losing six. "We think the employees are telling the truth. This will be the ultimate word."
The government says Fior d'Italia knows more than it says, citing reports on its Form 8027s stating that employees reported tips of $247,181 for 1991 and $220,845 for 1992. The same forms showed that tips charged to credit cards alone totaled $364,786 in 1991 and $338,161 in 1992. Government percentage guidelines indicate the total discrepancy was "approximately $156,545 for 1991 and $147,529 for 1992."
Miss Power said such discrepancies result from turnover that can reach 400 percent in a year and other factors peculiar to the industry, adding that Form 8027 reflects what employees report to the boss.
She said the government "simply misunderstands" the process in an industry the National Restaurant Association says employs 11.6 million people.
"Everybody cares about this. Most Americans started out working in a restaurant. Everybody eats in restaurants. I think, for the first time, the IRS will be really forced to look at how unfair their policy is toward the waiters and waitresses in this country," Miss Power said.
The tips case was one of four accepted for decision this term. Among other issues to be decided:
Whether cities have the same immunity as states from paying punitive damages for not accommodating the disabled. The case involves Jeffrey Gorman, who collected $1 million for injuries sustained in a Kansas City, Mo., police van unequipped for his wheelchair and now seeks to collect the $1.2 million awarded in punitive damages.
Whether judges may sentence murderers to death instead of letting juries do it, a case that could affect as many as 795 other death sentences in nine states. The Arizona case involves Timothy S. Ring, who murdered Wells Fargo driver John Magoch in a 1994 Phoenix armored-car robbery that netted $833,798.12.
Whether private individuals can sue under the federal Family Educational Rights and Privacy Act. Gonzaga University in Spokane appealed a $1.15-million award to former student Ru Paster, who claims he was denied a teaching job because the college revealed private information about him. School officials suspected Mr. Paster had assaulted and stalked a female classmate. The student never filed charges.

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