The National Restaurant Association (NRA) is contributing US$100,000 from the Safe American Free Enterprise Fund (SAFE) to help one Californian restaurateur Bob Larive continue his battle against the IRS - this time, before the US Supreme Court.

At stake is whether the IRS has the right to assess employers a tax bill for their share of FICA taxes on tips the IRS says employees earned but failed to report - without ever determining the exact amount or which employees failed to report their tips or without crediting employer FICA tax payments to those employees' Social Security accounts. 

The NRA has long maintained that holding only employers liable when workers fail to report tips pits restaurateurs against their own employees, turning them into "tip police". 

NRA president and CEO Steven C. Anderson said that "NRA is proud to help Bob Larive and his restaurant, Fior d'Italia".

Fior d'Italia Inc. v. US involves a claimed US$23,262 underpayment of tip taxes for 1991 and 1992 by the San Francisco-based Fior d'Italia restaurant. After a subsequent ruling in favor of the industry by both the district court and the court of appeals, the US Department of Justice petitioned the Supreme Court to review the case.

Anderson commented: "For over five years, Fior d'Italia has fought the IRS through the judicial system of the US.

"To have the IRS continue to exert pressure on a single restaurant and casually extract funds without performing a thorough audit of employees' records in order to determine the amount of tips that allegedly were not reported by employees and base the FICA tax assessment on guesswork is unconscionable.

"It is for this reason, and because this case has tremendous ramifications for so many other businesses across the country that [...] we salute Bob for his extraordinary courage in leading the industry on this vital issue."

The NRA argues that the outcome will effect not Larive but also more than 200,000 restaurants with tipped employees and every other business across the US whose employees receive tips.

Peter Kilgore, the NRA's senior VP of Operations and general counsel, commented: "As the Supreme Court takes up this issue, the IRS for the first time will be forced to look at how unfair its policy is toward restaurant operators with tipped employees.

"It is our hope that the high court will agree that the IRS lacks authority to present the employer with one huge tax bill for alleged underreported employee tip estimates rather than making an appropriate determination based on an exact amount."

The recent announcement by the US Supreme Court earlier this month that it will consider the case, follows a restaurant industry victory last year when the US Court of Appeals for the Ninth Circuit determined that the IRS could not target restaurants through "employer-only" audits and assessments as a means of determining whether employees underreport tips. 

The US Supreme Court ruling, due by June, could decide how the IRS collects from employers the 7.65% tax on an estimated US$60bn a year in meal tips, much of which the government alleges goes unreported. 

It also could significantly impact TRAC agreements if it declares "employer-only" assessments illegal.  Under TRAC, an employer agrees to educate employees on proper tip reporting and receives protection against the IRS doing employer-only assessments against the restaurant.