Supreme Court pops 'question' to top IRS lawyer

The Washington Times ^ | April 28, 2002 | Frank J. Murray

[xsysmgr]

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.

[xsysmgr]

Only Chief Justice William H. Rehnquist and Justice John Paul Stevens didn't join the quiz show

Which means that Justice Thomas did. IIRC, he usually just listens.

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.

Not a good idea if she wants to persuade the Court. I really doubt that the Justices appreciate being lectured to.

[Fish out of Water]

index bump and fyi

[Fish out of Water]

index bump

[jocko12]

WHAT DID MISS O'CONNOR EXPECT,LAST WEEK THEY WERE AIRPORT SCREENERS!!!!

[okie01]

This should be worth a few yuks.

[BADROTOFINGER]

I am not really sure what is being discussed in this article, or who (or which side) is apparently winning the arguement. Could someone please simplify this for me? Just spent the last 9 hrs waiting tables and am a little daft...JFK

[July 4th]

This could be a nice victory for a whole lot of small business owners.

[xsysmgr]

...who (or which side) is apparently winning the arguement

When the IRS lawyer has to spend 20 of her alloted 30 minutes trying (and apparently failing) to answer the same question repeated by 7 of the 9 justices, I'd say the IRS case is pretty much down the toilet.

[blackdog]

How would you like to be in the position of being a lawyer for the IRS? Everything being argued is at best constitutionally thin. At worst, it is all supported by a "tax court" which operates outside of the normal court system because if it's illegitimacy. It would be like being a medical doctor and euthanizer at the same time. Talk about your paradox's?

[balrog666]

I can't believe this issue even got to the Supreme Court!

I owned a restaurant some years ago (for a decade or so) and got a nasty-gram from the IRS about under-reporting tip income. They told me if I reported a minimum of X% of the gross as tip income (as I recall), they would not require back taxes or penalties. I complied, people bitched, and the best waitresses just left. I always wondered whether I should have fought it. Now I see people going 16 godd@mn "f"-ing years for justice???? I see that I made the right decision when I sold the godd@mn thing!

Still p!sses me off every time I think about it.

[the bottle let me down]

I am not really sure what is being discussed in this article, or who (or which side) is apparently winning the arguement. Could someone please simplify this for me? Just spent the last 9 hrs waiting tables and am a little daft...

The IRS decided to audit a restaurant to figure out if the restaurant had paid the proper amount of Social security and medicare tax on behalf of its employees. (Tips have to be included in the wages for purposes of this calculation.) Employees are supposed to report tip income to the restaurant so that taxes can be withheld. Here it seems quite likely that the employees underreported tips to the employer:

Fior d’Italia reported that in 1991 its employees made $247,181 in tips, and in 1992 they earned $220,845. The charge slips alone for 1991 showed $364,786 worth of tips given, and in 1992 the forms showed $338,161. This indicated to the IRS that roughly $150,000 worth of tips was not reported for each of these years in charges alone, not to mention any possible cash tips. The IRS figured that the charge slips revealed a 14.49 percent tip rate for 1991 and a 14.29 percent tip rate for 1992.

source

The IRS then applied these tip rates to the restaurants total sales to determine what the total tips should have been. Because this was more than the amount the restaurant had reported, the IRS assessed back taxes.

The lower courts decided that the IRS was not authorized to estimate the taxes owed by the restaurant in this manner. The story talked about the performance of the government attorney who was trying to get the Supreme Court to reverse the Ninth Circuit. Her methods were not very likely to be effective.

[CyberAnt]

Yes, I would agree - the IRS case appears to be down the toilet. There is no way an employer can know what dollar amount of tips his employees might be making (and not reporting). To demand an employer pay taxes on those dollars is insane - because there is no way to calculate it. I believe this is basically what Miss O'Conner has now said - there was no way to calculate the amount; the IRS just charged them based on an arbitrary amount.

The only way around that is to have a "pool". In this pool, all tips are placed for each shift. Then the tips are counted and disbursed in equal shares. What bothers me about this method is it rewards bad waiters - If I got $20 because I took good care of customers, and my neighbor only got $5 because he did a lousy job - then why am I required to share the other $15 with him??

The lawfirm I worked for had a case like this and we won - showing the union cannot demand tips in a pool to be shared equally. However, this was in late 80's so things may have changed by now.

[Billy_bob_bob]

Havn't you figured it out yet? The United States is a gangster country, our government is a gangster government, and if you want to do business in a gangster country then you gotta pay the protection money. Capiche? And if you're stupid enough to work too hard or come up with something that's worth too much, then the boys come around and take it from you, and the courts back them up. That's the way it is here in the Gangster States of America.

Now get back to work, you gotta lotta back taxes to pay. Don't complain too loudly about it, or the boss will send some of the boys around to have a little talk wid ya.

Oh, and to the "Love it or leave it" crowd, I'm already doing the research to leave this country. I'm planning to be gone before the next presidential election. There's no future for honest and productive people in America anymore.

[GnL]

"I forgot to start by saying, 'Mr. Chief Justice and may it please the court,'" she said.

Oops! One of the first things a law student learns to do when making appellate arguments.

[balrog666]

Oh, and to the "Love it or leave it" crowd, I'm already doing the research to leave this country. I'm planning to be gone before the next presidential election. There's no future for honest and productive people in America anymore.

For God's sake, don't keep it a secret!!!!

Where are you going?????

Please?

[Billy_bob_bob]

May I suggest checking out www.escapeartist.com? They have proven to be quite useful. I'm planning on starting to travel to check some options out next year. Sigh, this means flying, which means I had better find a doctor who freely prescribes sedatives, being as I'm going to need them.

[supercat]

Oh, and to the "Love it or leave it" crowd, I'm already doing the research to leave this country. I'm planning to be gone before the next presidential election. There's no future for honest and productive people in America anymore.

So do you plan on never returning, even to visit, or do you intend to pay income taxes on your overseas employment?

[Billy_bob_bob]

That would be "Never returning, not even to visit". As far as employment, I'm already semi-retired, and planning on being fully retired in a couple of more years, provided that I actually get to keep %40 or more of what I earn over the next three years. Don't laugh, have you ever run across the "Alternative minimum tax"?

[tenthirteen]

Hey, Billy-Bob, sorry you gotta go. Just don't be stupid enough to go somewhere that we might bomb in the near future.

[3catsanadog]

The servers get screwed in this tax mess. If there are busboys, a server gives a certain percentage of his or her tips to the busboys (it's not required, but helpful if you don't want to clean up your own tables). Also servers give a percentage of their tips to their bartender if the restaurant sells alchoholic beverages and the server's customers order drinks.

Sure as anything, those busboys aren't reporting their tips - there's no paper trail of receipts and sales slips directly associated with them.