author: Justice Breyer Justice Kennedy,

text:
    CAREY, WARDEN v. SAFFOLD
    No. 01-301.
    Argued February 27, 2002
    Decided June 17, 2002

      Breyer, J., delivered the opinion of the Court, in which Stevens, O’Connor, Souter, and Ginsburg, JJ., joined. Kennedy, J., filed a dissenting opinion, in whieh Rehnquist, C. J., and Scalia and Thomas, JJ., joined, post, p. 227.

      Stanley A. Cross, Supervising Deputy Attorney General of California, argued the cause for petitioner. With him on the brief were Bill Lockyer, Attorney General, Robert R. Anderson, Chief Assistant Attorney General, and Jo Graves and Arnold 0. Overoye, Senior Assistant Attorneys General.

      David W. Ogden argued the cause for respondent. With him on the brief were Mary Katherine McComb, by appointment of the Court, 534 U. S. 1053, and Seth P. Waxman.

       Briefs of amici curiae urging reversal were filed for the State of North Carolina et al. by Roy A Cooper III, Attorney General of North Carolina, Amy C. Kunstling, Assistant Attorney General, and Dan Schweitzer, and by the Attorneys General for their respective States as follows: Bill Pryor of Alabama, Janet Napolitano of Arizona, Ken Salazar of Colorado, M. Jane Brady of Delaware, Earl I. Anzai of Hawaii, James E. Ryan of Illinois, Carla J. Stovall of Kansas, J. Joseph Curran, Jr., of Maryland, Thomas F. Reilly of Massachusetts, Jeremiah TV (Jay) Nixon of Missouri, Mike McGrath of Montana, Don Stenberg of Nebraska, Frankie Sue Del Papa of Nevada, John J. Farmer, Jr., of New Jersey, Betty D. Montgomery of Ohio, Hardy Myers of Oregon, D. Michael Fisher of Pennsylvania, Charles M. Condon of South Carolina, Mark Barnett of South Dakota, Randolph A Beales of Virginia, Christine 0. Gregoire of Washington, and Hoke MacMillan of Wyoming; and for the Criminal Justice Legal Foundation by Kent S. Scheidegger.

        David M. Porter and Peter Goldberger filed a brief for the National Association of Criminal Defense Lawyers et al. as amici curiae urging affirmance.

   Justice Breyer

delivered the opinion of the Court.

The federal Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA) requires a state prisoner seeking a federal habeas corpus remedy to file his federal petition within one year after his state conviction has become “final.” 28 U. S. C. § 2244(d)(1)(A). The statute adds, however, that the 1-year period does not include the time during which an application for state collateral review is “pending” in the state courts. § 2244(d)(2).

This case raises three questions related to the statutory word “pending”:

(1) Does that word cover the time between a lower state court’s decision and the filing of a notice of appeal to a higher state court?

(2) If so, does it apply similarly to California’s unique state collateral review system — a system that does not involve a notice of appeal, but rather the filing (within a reasonable time) of a further original state habeas petition in a higher court?

(3) If so, was the petition at issue here (filed in the California Supreme Court 4V2 months after the lower state court reached its decision) pending during that period, or was it no longer pending because it failed to comply with state timeliness rules?

We answer the first two questions affirmatively, while remanding the case to the Court of Appeals for its further consideration of the third.

I

In 1990 Tony Saffold, the respondent, was convicted and sentenced in California state court for murder, assault with a firearm, and robbery. His conviction became final on direct review in April 1992. Because Saffold’s conviction became final before AEDPA took effect, the federal limitations period began running on AEDPA’s effective date, April 24, 1996, giving Saffold one year from that date (in the absence of tolling) to file a federal habeas petition.

A week before the federal deadline, Saffold filed a state habeas petition in the state trial court. The state trial court denied the petition. Five days later Saffold filed a further petition in the State Court of Appeal. That court denied his petition. And 4Vz months later Saffold filed a further petition in the California Supreme Court. That court also denied Saffold’s petition, stating in a single sentence that it did so “on the merits and for lack of diligence.” App. G to Pet. for Cert. 1.

Approximately one week later, in early June 1998, Saffold filed a petition for habeas corpus in the Federal District Court. The District Court noted that AEDPA required Saf-fold to have filed his petition by April 24, 1997. It recognized that the statute gave Saffold extra time by tolling its limitations period while Saffold’s application for state collateral review was “pending” in the state courts. But the District Court decided that Saffold’s petition was “pending” only while the state courts were actively considering it, and that period did not include the intervals between the time a lower state court had denied Saffold’s petition and the time he had filed a further petition in a higher state court. In Saffold’s case those intervals amounted to five days (between the trial court and intermediate court) plus 4A months (between the intermediate court and Supreme Court), and those intervals made a critical difference. Without counting the intervals as part of the time Saffold’s application for state collateral review was “pending,” the tolling period was not long enough to make Saffold’s federal habeas petition timely. Hence the District Court dismissed the petition.

The Ninth Circuit reversed. It included in the “pending” period, and hence in the tolling period, the intervals between what was, in effect, consideration of a petition by a lower state court and further consideration by a higher state court — at least assuming a petitioner’s request for that further higher court consideration was timely. Saffold v. Newland, 250 F. 3d 1262, 1266 (2001). It added that Saffold’s petition to the California Supreme Court was timely despite the 4V4 months that had elapsed since the California Court of Appeal decision. That is because the California Supreme Court had denied Saffold’s petition, not only because of “lack of diligence” but also “on the merits,” a circumstance that showed the California Supreme Court had “applied its untimeliness bar only after considering to some degree the underlying federal constitutional questions raised.” Id., at 1267.

We granted certiorari. We now vacate the judgment and remand the case.

II

In most States, relevant state law sets forth some version of the following collateral review procedures. First, the prisoner files a petition in a state court of first instance, typically a trial court. Second, a petitioner seeking to appeal from the trial court’s judgment must file a notice of appeal within, say, 30 or 45 days after entry of the trial court’s judgment. See, e. g., Ala. Rule App. Proc. 4 (2001); Colo. App. Rule 4(b)(1) (2001); Ky. Rule Crim. Proc. 12.04(3) (2002). Third, a petitioner seeking further review of an appellate court’s judgment must file a further notice of appeal to the state supreme court (or seek that court’s discretionary review) within a short period of time, say, 20 or 30 days, after entry of the court of appeals judgment. See, e. g., Ala. Rule App. Proc. 5 (2001); Colo. Rev. Stat. § 13-4-108 (2001); Conn. Rule App. Proc. 80-1 (2002); Ky. Rule Civ. Proc. 76.20(2)(b) (2002). California argues here for a “uniform national rule” to the effect that an application for state collateral review is not “pending” in the state courts during the interval between a lower court’s entry of judgment and the timely filing of a notice of appeal (or petition for review) in the next court. Brief for Petitioner 36. Its rationale is that, during this period of time, the petition is not under court consideration.

California’s reading of the word “pending,” however, is not consistent with that word’s ordinary meaning. The dictionary defines “pending” (when used as an adjective) as “in continuance” or “not yet decided.” Webster’s Third New International Dictionary 1669 (1993). It similarly defines the term (when used as a preposition) as “through the period of continuance . . . of,” “until the . . . completion of.” Ibid. That definition, applied in the present context, means that an application is pending as long as the ordinary state collateral review process is “in continuance” — i. e., “until the completion of” that process. In other words, until the application has achieved final resolution through the State’s post-conviction procedures, by definition it remains “pending.”

California’s reading would also produce a serious statutory anomaly. A federal habeas petitioner must exhaust state remedies before he can obtain federal habeas relief. The statute makes clear that a federal petitioner has not exhausted those remedies as long as he maintains “the right under the law of the State to raise” in that State, “by any available procedure, the question presented.” 28 U. S. C. § 2254(c). We have interpreted this latter provision to require the federal habeas petitioner to “invok[e] one complete round of the State’s established appellate review process.” O’Sullivan v. Boerckel, 526 U. S. 888, 845 (1999). The exhaustion requirement serves AEDPA’s goal of promoting “comity, finality, and federalism,” Williams v. Taylor, 529 U. S. 420, 436 (2000), by giving state courts “the first opportunity to review [the] claim,” and to “correct” any “constitutional violation in the first instance.” Boerckel, supra, at 844-845. And AEDPA’s limitations period — with its accompanying tolling provision — ensures the achievement of this goal because it “promotes the exhaustion of state remedies while respecting the interest in the finality of state court judgments.” Duncan v. Walker, 533 U. S. 167, 178 (2001). California’s interpretation violates these principles by encouraging state prisoners to file federal habeas petitions before the State completes a full round of collateral review. This would lead to great uncertainty in the federal courts, requiring them to contend with habeas petitions that are in one sense unlawful (because the claims have not been exhausted) but in another sense required by law (because they would otherwise be barred by the 1-year statute of limitations).

It is therefore not surprising that no circuit court has interpreted the word “pending” in the manner proposed by California. Every Court of Appeals to consider the argument has rejected it. Melancon v. Kaylo, 259 F. 3d 401, 406 (CA5 2001); Payton v. Brigano, 256 F. 3d 405, 408 (CA6 2001); Hizbullahankhamon v. Walker, 255 F. 3d 65, 72 (CA2 2001); Nyland v. Moore, 216 F. 3d 1264, 1267 (CA11 2000); Swartz v. Meyers, 204 F. 3d 417, 421-422 (CA3 2000); Taylor v. Lee, 186 F. 3d 557, 560-561 (CA4 1999); Nino v. Galaza, 183 F. 3d 1003, 1005 (CA9 1999); Barnett v. LeMaster, 167 F. 3d 1321, 1323 (CA10 1999). Like these courts, we answer the first question in the affirmative.

III

Having answered the necessarily predicate question of how the tolling provision ordinarily treats applications for state collateral review in typical “appeal” States, we turn to the question whether this rule applies in California. California’s collateral review system differs from that of other States in that it does not require, technically speaking, appellate review of a lower court determination. Instead it contemplates that a prisoner will file a new “original” habeas petition. And it determines the timeliness of each filing according to a “reasonableness” standard. These differences, it is argued, require treating California differently from “appeal” States, in particular by not counting a petition as “pending” during the interval between a lower court’s determination and filing of another petition in a higher court. See, e. g., Brief for Criminal Justice Legal Foundation as Amicus Curiae 5-18.

California’s “original writ” system, however, is not as special in practice as its terminology might suggest. As interpreted by the courts, California’s habeas rules lead a prisoner ordinarily to file a petition in a lower court first. In re Ramirez, 89 Cal. App. 4th 1312, 1316, 108 Cal. Rptr. 2d 229, 232 (2001) (appellate court “has discretion to refuse to issue the writ ... on the ground that application has not [first] been made ... in a lower court”); Harris v. Superior Court of Cal, 500 F. 2d 1124, 1126 (CAS 1974) (same); 6 B. Witkin & N. Epstein, California Criminal Law § 20, p. 540 (3d ed. 2000) (describing general policy that reviewing court will require application to have been made first in lower court). And a prisoner who files a subsequent and similar petition in another lower court (say, another trial court) will likely find consideration of that petition barred as successive. See, e. g., In re Clark, 5 Cal. 4th 750, 767-771, 855 P. 2d 729, 740-744 (1993). At the same time, a prisoner who files that same petition in a higher, reviewing court will find that he can obtain the basic appellate review that he seeks, even though it is dubbed an “original” petition. See In re Resendiz, 25 Cal. 4th 230, 250, 19 P. 3d 1171, 1184 (2001) (reviewing court grants substantial deference to lower court’s factual findings). Thus, typically a prisoner will seek habeas review in a lower court and later seek appellate review in a higher court — just as occurred in this case.

The upshot is that California’s collateral review process functions very much like that of other States, but for the fact that its timeliness rule is indeterminate. Other States (with the exception of North Carolina, see Allen v. Mitchell, 276 F. 3d 183, 186 (CA4 2001)), specify precise time limits, such as 30 or 45 days, within which an appeal must be taken, while California applies a general “reasonableness” standard. Still, we do not see how that feature of California law could make a critical difference. As mentioned, AEDPA’s tolling rule is designed to protect the principles of “comity, finality, and federalism,” by promoting “the exhaustion of state remedies while respecting the interest in the finality of state court judgments.” Duncan, supra, at 178 (internal quotation marks omitted). It modifies the 1-year filing rule (a rule that prevents prisoners from delaying their federal filing) in order to give States the opportunity to complete one full round of review, free of federal interference. Inclusion of California’s “reasonableness” periods carries out that purpose in the same way, and to the same degree, as does inelusion of the more specific appellate filing periods prevalent in other States. And exclusion of those periods in California would undermine AEDPA’s statutory goals just as it would in those States. See Part II, supra.

The fact that California’s timeliness standard is general rather than precise may make it more difficult for federal courts to determine just when a review application (i. e., a filing in a higher court) comes too late. But it is the State’s interests that the tolling provision seeks to protect, and the State, through its supreme court decisions or legislation, can explicate timing requirements more precisely should that prove necessary.

Ordinarily, for purposes of applying a federal statute that interacts with state procedural rules, we look to how a state procedure functions, rather than the particular name that it bears. See Richfield Oil Corp. v. State Bd. of Equalization, 329 U. S. 69,72 (1946) (looking to function rather than “designation” that state law gives a state-court judgment for purposes of determining federal jurisdiction); Department of Banking of Neb. v. Pink, 317 U. S. 264, 268 (1942) (per cu-riam) (same). We find that California’s system functions in ways sufficiently like other state systems of collateral review to bring intervals between a lower court decision and a filing of a new petition in a higher court within the scope of the statutory word “pending.”

The dissent contends that this application of the federal tolling provision to California’s “original writ” system “will disrupt the sound operation of the federal limitations period in at least 36 States.” Post, at 227 (opinion of Kennedy, J.). This is so, the dissent believes, because the prisoner is given two choices when his petition has been denied by the intermediate court: He can file a “petition for hearing” in the supreme court within 10 days, or he can file a “new petition” in the supreme court. In re Reed, 33 Cal. 3d 914, 918, and n. 2, 663 P. 2d 216, 217, and n. 2 (1983). Why is California different, the dissent asks, from “appeal” States that also give their supreme courts the power to entertain original habeas petitions? Won’t our interpretation of the federal tolling rule, as it applies to California, apply equally to those other States, meaning that even after the statutory time to appeal to the supreme court has expired, the federal limitations period may still be tolled because a prisoner might, at any time, file an original petition?

The answer to this question is “no.” In “appeal” systems, the original writ plays a different role. As the Supreme Court of Idaho (one of the States cited by the dissent) explains:

“The Supreme Court, having jurisdiction to review on appeal decisions of the district courts in habeas corpus proceedings . . . will not exercise its power ... to grant an original writ of habeas corpus, except in extraordinary cases.” In re Barlow, 48 Idaho 309, 282 P. 380 (1929).

See also, e. g., Commonwealth v. Salzinger, 406 Pa. 268, 269, 177 A. 2d 619, 620 (1962) (“extraordinary circumstances” required for exercise of original jurisdiction); La Belle v. Hancock, 99 N. H. 254, 255, 108 A. 2d 545 (1954) (per curiam) (“original authority” to grant habeas relief “not ordinarily exercised”); Ex parte Lambert, 37 Tex. Crim. 435, 436, 36 S. W. 81, 82 (1896) (“[EJxcept in extraordinary cases, we will not entertain jurisdiction as a court to grant original writs of habeas corpus”).

California, in contrast, has engrained original writs — both at the appellate level and in the supreme court — into its normal collateral review process. As we have explained, and as the dissent recognizes, the only avenue for a prisoner to challenge the denial of his application in the superior court is to file a “new petition” in the appellate court. And to challenge an appellate court denial, “[f]urther review [of a habeas application] may be sought in [the supreme] court either by a new petition for habeas corpus or, preferably, by a petition for hearing.” In re Reed, supra, at 918, n. 2, 663 P. 2d, at 216, n. 2 (emphasis added). Unlike States such as, say, Idaho, see In re Barlow, supra, the original writ in California is not “extraordinary” — it is interchangeable with the petition for hearing, with neither option bringing adverse consequences to the petitioner. Consequently, we treat California both as similar to other States (in that its “original writ” system functions like the “appeal” systems of those other States), and differently from other States (in that the rule we apply to original writs in California does not apply to original writs in other States, precisely because original writs in California function like appeals). And of course, as we have said, California remains free, through legislative or judicial action, to adjust its “original writ” system accordingly.

IV

It remains to ask whether Saffold delayed “unreasonably” in seeking California Supreme Court review. If so, his application would no longer have been “pending” during this period. Saffold filed his petition for review in the California Supreme Court 4'/2 months after the California Court of Appeal issued its decision. The Ninth Circuit held that this filing was nonetheless timely. It based its conclusion primarily upon the fact that the California Supreme Court wrote that it denied the petition “on the merits and for lack of diligence.” These first three words, the Ninth Circuit suggested, showed that the California Supreme Court could not have considered the petition too late, for, if so, why would it have considered the merits? 250 F. 3d, at 1267.

There are many plausible answers to this question. A court will sometimes address the merits of a claim that it believes was presented in an untimely way: for instance, where the merits present no difficult issue; where the court wants to give a reviewing court alternative grounds for decision; or where the court wishes to show a prisoner (who may not have a lawyer) that it was not merely a procedural technicality that precluded him from obtaining relief. Given the variety of reasons why the California Supreme Court may have included the words “on the merits,” those words cannot by themselves indicate that the petition was timely. And the Ninth Circuit’s apparent willingness to take such words as an absolute bellwether risks the tolling of the federal limitations period even when it is highly likely that the prisoner failed to seek timely review in the state appellate courts. See, e. g., Welch v. Newland, 267 F. 3d 1013 (CA9 2001) (finding limitations period tolled during 4-year gap). The Ninth Circuit’s rule consequently threatens to undermine the statutory purpose of encouraging prompt filings in federal court in order to protect the federal system from being forced to hear stale claims. See Duncan, 533 U. S., at 179.

If the California Supreme Court had clearly ruled that Saf-fold’s 41/2-month delay was “unreasonable,” that would be the end of the matter, regardless of whether it also addressed the merits of the claim, or whether its timeliness ruling was “entangled” with the merits. 250 F. 3d, at 1267. We cannot say in this case, however, that the Ninth Circuit was wrong in its ultimate conclusion. Saffold argues that special circumstances were present here: He was not notified of the Court of Appeal’s decision for several months, and he filed within days after receiving notification. And he contends it is more likely that the phrase “lack of diligence” referred to the delay between the date his conviction became final and the date he first sought state postconviction relief — a matter irrelevant to the question whether his application was “pending” during the 4'/2-month interval. We leave it to the Court of Appeals to evaluate these and any other relevant considerations in the first instance. We also leave to the Court of Appeals the decision whether it would be appropriate to certify a question to the California Supreme Court for the purpose of seeking clarification in this area of state law.

* * *

For the foregoing reasons, we answer the first two issues presented in this case in the affirmative, vacate the judgment of the Court of Appeals, and remand the case for further proceedings consistent with this opinion.

It is so ordered.

Justice Kennedy,

with whom The Chief Justice, Justice Scalia, and Justice Thomas join, dissenting.

Respondent is a California prisoner who did not file a notice of appeal. The Court, however, begins by considering a question not presented, whether the statute of limitations would have been tolled for a hypothetical prisoner who filed an appeal somewhere else. This is a strong indication that the Court is off in the wrong direction. After holding that tolling applies for its hypothetical appellant, the Court finally gets to California, where no appeal was filed. On the Court’s view, California’s procedures are “unique,” ante, at 217, so giving them special treatment under the statute will affect only that one State. It is quite wrong about this. In fact, today’s ruling will disrupt the sound operation of the federal limitations period in at least 36 States. This is what happens when the Court departs from the text of a nationwide statute to reach a result in one particular State.

The Court’s conclusion that an application is pending before the filing of an original writ in the California Supreme Court rests on three propositions: First, “application” means “petition, appeal from the denial of a petition, and anything else that functions as an appeal.” Second, California’s procedures are very different from those in other States. Third, a petition for an original writ in the California Supreme Court functions as an appeal. The first is an untenable interpretation of statutory text. The second and third, however, are wrong on both the facts and the law. The remedies available in the California Supreme Court are no different from those available in most other state supreme courts. Like 36 other States, California allows its high court both to reverse the denial of habeas corpus in the lower court and to grant an original petition for habeas outright. In California, as in other States, these procedures differ in more than name. They differ with respect to the question in this case: whether an application was pending in the 4-month period between the denial of respondent’s habeas petition in the California Court of Appeal and his filing of a new petition in the California Supreme Court.

The Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), 28 U.S.C. § 2244(d)(1), provides a 1-year statute of limitations for filing a federal habeas corpus petition, but it tolls the limitations period while a “properly filed application” for collateral review is “pending” in the state courts. The Court now holds that on the day before respondent filed an original petition in the California Supreme Court, his application was “properly filed” and “pending” somewhere. The Court does not say what that application was, nor does it identify the court in which it was filed. This is because nothing had been under consideration or awaiting the result of an appeal for four months, since the California Court of Appeal had denied respondent’s previous application.

Instead of identifying a particular pending application, the Court relies upon an expansive definition of the term. The Court begins by defining “pending,” offering one definition for when the word is used as an adjective and another for when used as a preposition. See ante, at 219. As the statute only uses the word as an adjective (tolling while the application “is pending”), the latter definition is irrelevant and misleading. When used as an adjective, the definition does not help the Court. The Court says “pending” means “ ‘in continuance’ or ‘not yet decided.’ ” Ibid, (quoting Webster’s Third New International Dictionary 1669 (1993)). The real issue though is not what “pending” means, but when is an “application... pending.” The Court asserts that “an application is pending as long as the ordinary state collateral review process is ‘in continuance’ . . . Ante, at 219-220. That is only true, of course, if “application” means the “ordinary state collateral review process,” a proposition that finds no support in Webster’s Third. Indeed, it is inconsistent with-Artuz v. Bennett, 531 U. S. 4 (2000), which recognized that an “application” is a “document” distinct from the legal claims contained within it. Id., at 8,9. The word, “application,” appears in numerous other places in the laws governing federal habeas corpus. E. g., 28 U. S. C. § 2242 (“application for a writ of habeas corpus shall be in writing signed and verified”); §2243 (a “judge entertaining an application for a writ of habeas corpus”). In each place, it is clear that the statute refers to a specific legal document; in none is the word used as a substitute for the ordinary collateral review process. Without discussing Artuz or these many statutory references, the Court gives “application” a new meaning, one that does not even require the existence of any document evidencing the “application,” and one that embraces the multiple petitions, appeals, and other filings that constitute the “ordinary state collateral review process.” Ante, at 219-220.

The Court explains that the original petition in the California Supreme Court is part of the ordinary collateral review process because it fimctions as an appeal under California law. California, the Court says, “does not require, technically speaking, appellate review of a lower court determination. Instead it contemplates that a prisoner will file a new ‘original’ habeas petition.” Ante, at 221. This is an incorrect statement of California law. While California does not permit appeals of the California Superior Court’s denial of habeas corpus, it does provide for “appellate review” of the denial of a petition for habeas corpus by the California Court of Appeal. That appeal is not just available; as the Court concedes, ante, at 224-225, the California Supreme Court has said that it is the preferred practice. See In re Reed, 33 Cal. 3d 914, 918, and n. 2, 663 P. 2d 216, 217, and n. 2 (1983). Section 1506 of the Cal. Penal Code Ann. (West 2000) provides: “[I]n all criminal cases where an application for a writ of habeas corpus has been heard and determined in a court of appeal, either the defendant or the people may apply for a hearing in the Supreme Court.” Respondent had 10 days after the Court of Appeal denied his petition to file a petition for review. Cal. App. Rules of Court 28(b), 50(b) (2002). The Court’s analysis is thus premised on a misinterpretation of California law.

Had respondent filed the appeal provided by Cal. Penal Code Ann. § 1506 (West 2000), his application might have remained pending during the 10 days while he prepared his appeal and while the appeal was under consideration by the California Supreme Court. This is because an appeal is not a new application; rather, it is a request that the appellate court order the lower court to grant the original application. Congress used the word “application” in precisely this way for federal petitions for habeas corpus — distinguishing between “appeals,” see 28 U. S. C. § 2253, and second or successive “applications,” see § 2244. Thus, an application may remain “pending” in the lower court while the prisoner pursues his appeal, because the lower court may grant the original application at some point in the future.

An application does not remain pending, however, once the court that has denied it loses the power to ever grant it. When the Court of Appeal denied respondent’s petition and respondent did not appeal, the petition became final and was no longer pending before that court. See Cal. App. Rule of Court 24 (2002) (“When a decision of a reviewing court is final as to that court, it is not thereafter subject to modification or rehearing by that court . . .”). Respondent could not ask the Court of Appeal to grant the application, and respondent could not request that the California Supreme Court order the Court of Appeal to grant the application.

Instead respondent filed a new application, a petition for a writ of habeas corpus, invoking the original jurisdiction of the California Supreme Court. See Cal. Const., Art. VI, §10 (Supp. 2001). Under California law, the original petition began a new proceeding that had no proximate connection to the proceedings in the California Court of Appeal. See People v. Romero, 8 Cal. 4th 728, 737, 883 P. 2d 388, 391 (1994). The California Supreme Court had no power to grant the previous petition, and it did not even have the power to vacate the judgment of the lower state court. See In re Michael E., 15 Cal. 3d 183, 192-193, n. 15, 538 P. 2d 231, 237, n. 15 (1975). There is no sense in which, before or after the filing of a petition for an original writ, an application remained pending below.

Even if California recognized an original writ as an equivalent procedure to an appeal for purposes of state law, the two procedures would differ with respect to the federal statutory question in this case. When a prisoner files an appeal, the original application remains pending in the lower court, but when a prisoner files an original writ, there is no application pending in any lower court. As it turns out, however, California law does not regard an appeal and an original writ as equivalents. California recognizes that a prisoner may obtain relief through either procedure, but the California Supreme Court has said an appeal is preferred. In re Reed, supra, at 918-919, and n. 2, 663 P. 2d, at 217, n. 2. At the same time, a prisoner may use an original writ in circumstances where an appeal is not available. Although California encourages prisoners to exhaust claims in the lower courts, the claims within an original petition need not be the same as those presented earlier. E. g., In re Black, 66 Cal. 2d 881, 428 P. 2d 293 (1967); Cal. App. Rule of Court 56(a)(1) (2002) (directing prisoners to explain why the exhaustion rule should not apply). Indeed, the California Supreme Court may grant relief even if the prisoner has not filed any petition in the lower courts. E. g., In re Moss, 175 Cal. App. 3d 913, 922, 221 Cal. Rptr. 645, 649 (1985). As the new petition constitutes a new application in form and function, the California Supreme Court has long recognized what our Court today refuses to see. After the denial of a habeas petition, there is no application “pending” in any court:

“Where a petitioner was remanded to custody by a superior court, and the proceeding instituted in that court was thus terminated and was no longer a matter pending therein, he could inaugurate a new proceeding for relief in another court and can still do so, but is now limited in the making of a new application by statutory provision to a higher court, either the district court- of appeal having jurisdiction, or the supreme court.” In re Zany, 164 Cal. 724, 727, 130 P. 710 (1913).

The petition thus is not pending even under state law: Each habeas petition is a “new proceeding for relief,” ibid., and is not the same case, let alone the same application. Each time a California court denies a petition, the application is “no longer a matter pending,” ibid., before any court, because it can no longer be granted by that court or any other court in the future.

The Court’s contrary conclusion does not depend upon any reasonable construction of a “pending application.” It depends entirely upon the proposition that when California says “original writ,” it means “appeal,” and federal courts must not privilege form over substance. But California provides for an appeal, see Cal. Penal Code Ann. § 1506 (West 2000), and none was taken here. It is impossible to understand why the Court has ignored this provision by which California provides for an appeal, just like every other State.

The Court also has ignored the fact that most other States provide for original writs, just like California. As a consequence, the Court’s error is of substantial significance beyond this case; for the California Supreme Court’s original jurisdiction to issue writs of habeas corpus is not some quirk of California law. At least 36 other States grant their supreme courts original jurisdiction over petitions for habeas corpus as well as appellate jurisdiction over a habeas determination in the lower courts. See Appendix, infra. Congress, of course, understands this distinction, since it has provided both procedures for our own Court. A state prisoner seeking to challenge the validity of his sentence may seek review of a lower court’s decision by filing a petition for certiorari, 28 U. S. C. § 1257, or he may file a petition for an original writ of habeas corpus, § 2241. While the prisoner may obtain relief through either procedure, there is a clear distinction between an appeal — which requests that we order the lower court to grant an application pending before it — and a petition for a writ of habeas corpus — which requests that we grant the relief ourselves. Before this ease no one thought that distinction to be merely one of form and not substance.

The Court is thus quite mistaken to conclude that its decision concerns only the procedures within California. The Court distinguishes California from other States because California “has engrained original writs — both at the appellate level and in the supreme court — into its normal collateral review process.” Ante, at 224. This statement is not correct even for California. See supra, at 231-232. It may or may not be true for the four other States the Court cites, but even so the federal courts will have to test that point for dozens more. The Court’s distinction between “appeal States” and “original writ States” is its own creation with no clear meaning under state law, not to mention a tie to the law Congress has enacted. Having departed from the sensible meaning of application, and the well-understood distinction between an appeal and an original writ, the Court now requires federal courts to define the ordinary collateral review procedures in each State. It may not be clear in how many States original writs will fall on the side of the ordinary, but it is clear that the question will be litigated. In many, if not all, of the States mentioned above, a prisoner like respondent, relying upon today’s decision, will be able to extend the federal tolling period, perhaps indefinitely, by filing a petition for an original writ of habeas corpus in a state supreme court many months after his state appeal has been denied. See Welch v. Newland, 267 F. 3d 1013 (CA9 2001) (tolling the federal limitations for a 4-year gap).

In those jurisdictions the Court will create a strange anomaly. Now an application can be both pending and not pending, taking on what the Seventh Circuit has described as a “Cheshire-cat like quality, both there and not there at the same time.” Fernandez v. Sternes, 227 F. 3d 977, 980 (2000). If, for instance, the Court’s hypothetical prisoner declined to file an appeal to the State’s highest court, and he went to federal court more than a year later, his petition would be dismissed as time barred. As no application had been on the docket of any court for a year, and no petition that he had addressed to any state court could ever be granted, no “properly filed application” was “pending” anywhere. Under the Court’s view, however, it would be premature to say that the federal statute of limitations had expired. The prisoner could file a new petition invoking the original jurisdiction of the state high court, and if the court denied it on the merits (or without comment), a subsequent federal application could be timely even though the earlier one was too late.

Under today’s ruling, the federal court would be required to rule that the state petition, which was not pending before, had retroactively become so, and the prisoner’s new federal application was timely. This is not a sensible way of determining when an application is “pending” under the federal tolling provision. Whether an application is pending at any given moment should be susceptible of a yes or no answer. On the Court’s theory the answer will often be “impossible to tell,” because it depends not on whether an application is under submission in a particular court but upon events that may occur at some later time.

The Court’s insistence on treating an original writ as an appeal will create serious confusion in California — and elsewhere — for another reason. Federal courts will have to determine when an original writ is timely under California law because on the Court’s holding only timely petitions cause an application to be (retroactively) pending. The problem, however, is that an original writ in California — like original writs elsewhere and unlike appeals in California and most everywhere else — does not have a strict time limit. Under California law the question is not whether a petition is “timely” but whether the prisoner exercised “due diligence” in filing his petition within a reasonable time after he becomes aware of the grounds for relief. In re Harris, 5 Cal. 4th 813, 828, n. 7, 855 P. 2d 391, 398, n. 7 (1993). This equitable concept is designed to be flexible, and it allows California courts to correct miscarriages of justice, even those which happened long ago. E. g., In re Stankewitz, 40 Cal. 3d 391, 396, n. 1, 708 P. 2d 1260, 1262, n. 1 (1985) (hearing the merits despite an 18-month delay); In re Moss, 175 Cal. App. 3d, at 921, 221 Cal. Rptr., at 648 (hearing the merits despite a 9-month delay). Nothing about AEDPA suggests that Congress wanted to inject this degree of unpredictability into the 1-year statute of limitations, and it is hard to see how federal courts are to approach this state-law inquiry.

While there may be cases, like this one, where the California courts expressly deny a petition for lack of diligence, the California courts routinely deny petitions filed after lengthy delays without making specific findings of undue delay. Brief for Respondent 40-41, n. 27. Under the Court’s rule, federal courts will be required to assess, without clear guidance from state law, whether respondent exercised due diligence. This inquiry will create substantial uncertainty, and resulting federal litigation, over whether a prisoner had filed his habeas petition within a reasonable time. The uncertainty may vex prisoners as well, for they cannot know whether the federal statute of limitations is running while they prepare their state petitions.

The Court’s disposition in this very case proves that the timing question is often unanswerable. Even though this is the rare case where the California Supreme Court made a specific finding of “lack of diligence,” the Court does not hold respondent’s petition untimely. Instead, the Court concludes that the lack of diligence finding is ambiguous, because it might refer, not to respondent’s 4-month delay in filing his final writ, but to his 5-year delay in pursuing any collateral relief at all. Ante, at 226. This ambiguity, however, should not benefit respondent. If the California court held that all of respondent’s state habeas petitions were years overdue, then they were not “properly filed” at all, and there would be no tolling of the federal limitations period. See Artuz v. Bennett, 531 U. S., at 8. Our consideration whether respondent’s petition was “pending” presupposes that it was “properly filed” in the California courts.

The Court takes a different view, but in delivering the case back to the Court of Appeals, it provides no guidance for resolving the ambiguity. As the question has been thoroughly briefed before our Court, it is difficult to see how the lower court would resolve it, if we could not. The Court says that the Court of Appeals might certify a question to the California Supreme Court, but it gives no indication what that court might ask. Presumably, it is not suggesting that in every case where the California Supreme Court issues a summary denial, the Court of Appeals should certify the factbound question of what it really meant to say.

The Court begins in a hypothetical jurisdiction, and it ends without answering the question presented. Both points are telling. By leaving the text of the federal statute behind and calling California’s procedures something they are not, the Court has complicated the disposition of the thousands of petitions filed each year in the federal district courts in California. See U. S. Dept. of Justice, Bureau of Justice Statistics, Prisoner Petitions Filed in U. S. District Courts, 2000, with Trends 1980-2000, p. 3 (Jan. 2002) (California state prisoners filed 4,017 federal petitions in 2000). The Court also raises these questions in the numerous jurisdictions that permit original writs in addition to appeals. Applying the clear words of the statute to the clear law in California would have been much easier.

I would reverse the judgment of the Court of Appeals.

APPENDIX TO OPINION OF KENNEDY, J.

Ala. Code §12-2-7(3) (1995); Ariz. Const., Art. VI, §5(1); Ark. Const., Art. VII, § 4; Colo. Const., Art. VI, § 3; Fla. Rule App. Proc. 9.030(a)(3) (2002); Haw. Rev. Stat. §660-3 (1993); Idaho Code §19-4202(1) (Supp. 2001); Ill. Const., Art. VI, § 4(a); Iowa Const., Art. V, § 4; Kan. Const., Art. Ill, § 3; La. Const., Art. V, §2; Me. Rev. Stat. Ann., Tit. 14, §5301 (1980); Md. Cts. & Jud. Proc. Code Ann. §3-701 (1974-1998); Mich. Comp. Laws Ann. §600.4304(1) (West 2000); Mo. Const., Art. V, § 4(1); Mont. Const., Art. VII, § 2(1); Neb. Rev. Stat. §24-204 (1995); Nev. Const., Art. VI, §4; N. H. Rev. Stat. Ann. §490:4 (1997); N. M. Const., Art. VI, §3; N. C. Gen. Stat. § 7A-32(a) (1999); N. D. Cent. Code §27-02-04 (1991); Ohio Const., Art. IV, §2; Okla. Const., Art. VII, §4; Ore. Const., Art. VII, §2; 42 Pa. Cons. Stat. §721(1) (1981); R. I. Gen. Laws §8-1-2 (1997); S. C. Code Ann. §14-3-310 (1977); S. D. Const., Art. V, §5 (1978); Tex. Const., Art. V, §3 (Supp. 2002); Utah Code Ann. §78-2-2 (2001 Supp.); Vt. Stat. Ann., Tit. 4, §2(b) (1999); Va. Const., Art. VI, § 1; Wash. Rev. Code §2.04.010 (1994); W.Va. Code §51-1-3 (2000); Wyo. Const., Art. V, §3.


source: Caselaw Access Project

author: Justice Breyer Justice Souter,

license: Public Domain

text:
    UNITED STATES v. FIOR D'ITALIA, INC.
    No. 01-463.
    Argued April 22, 2002
    Decided June 17, 2002

      Breyer, J., delivered the opinion of the Court, in which Rehnqxjist, 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.

      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.

      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. Guandal by Lawrence R. Jones, Jr.

   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 efforts 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 customers 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 individual 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 forth additional hospital insurance tax). It specifies that “tips received by an employee in the course of his employment 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’ltalia 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’ltalia 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 employees ($364,786 in 1991 and $338,161 in 1992). Not surprisingly, this discrepancy led the IRS to conduct a compliance check. And that check led the IRS to issue an assessment against Fior D’ltalia 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 restaurant’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 restaurant’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 figures for 1992 showed $368,374 and $147,529. The IRS issued an assessment against Fior D’ltalia for additional FICA taxes owed, amounting to $11,976 for 1991 and $11,286 for 1992.

After paying a portion of the taxes assessed, the restaurant brought this refund suit, while the IRS filed a counterclaim 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 restaurant agreed that “[f]or purposed] 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 estimate tip income in the aggregate — in Fior D’ltalia’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 regulation. 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 Government’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 correctness — 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, 1160 (CA3 1971); United States v. Lease, 346 F. 2d 696, 700 (CA2 1965). We consider here the Government’s authority 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, determinations, and assessments of all taxes . . . which have not been duly paid . . . .” 26 U. S. C. § 6201(a) (emphasis 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 liability — 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); Mendelson v. Commissioner, 305 F. 2d 519, 521-522 (CA7 1962) (upholding estimate of waitress’ tip income based on restaurant’s gross receipts and average tips earned by all waitresses employed by restaurant); McQuatters v. Commissioner, 32 TCM 1122 (1973), ¶ 73,240 P-H Memo TC (same).

Fior D’ltalia 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’ltalia 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’ltalia’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 singular. It says that an employee’s (singular) tips “shall be considered remuneration” for purposes of the latter, tax imposing 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 employment.” §§ 3111(a), (b). The operational sections consequently impose liability for the totality of the “wages” that the employer pays, which totality of “wages,” says the definitional 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 interpreted 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 employers to adjust FICA tax liability. The court felt this provision negatively implies a lack of IRS authority to use an aggregate 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 reflect 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 reflect 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. And there is simply no reason to believe that Congress intended 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 implication, to limit the IRS’ general power to assess tax deficiencies. Indeed, Fior DTtalia has not advanced in this Court either “negative implication” argument relied on by the Ninth Circuit.

C

Fior D’ltalia next points to several features of an “aggregate” 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 include 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 (including 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 reported 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, 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’ltalia points out that an aggregate calculation 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 percentage 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’ltalia 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 restaurant must pay this tax on the basis of amounts that the restaurant itself cannot control, for the restaurant’s customers, not the restaurant itself, determine the level of tips. Fior D’ltalia concludes that the IRS should avoid these problems 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 estimates 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’ltalia stipulated that it would not challenge the particular IRS calculation as inaccurate. Absent such a stipulation, a taxpayer would remain free to present evidence that an assessment is inaccurate in a particular case. And we do 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 unable 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 precision. It need only demonstrate that use of the aggregate method in the particular case has likely produced an inaccurate 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’ltalia convinced us that individualized employee assessments will inevitably lead to a more “reasonable” assessment of employer liability than an aggregate estimate. After all, individual audits will be plagued by some of the same inaccuracies Fior D’ltalia 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 cannot find that the aggregate method is, as a general matter, so unreasonable as to violate the law.

D

Fior D’ltalia also mentions an IRS regulation that it believes creates a special problem of fairness when taken together with the “aggregate” assessment method. That regulation says that an employer, when calculating its FICA 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 §31.601 l(a)-l(a) (2001) (emphasis added). How, then, asks Fior D’ltalia, could the employer have calculated tax on a different amount, namely: (1) the amount of tips “reported”; plus (2) the amount of tips received but not reported? Indeed, Fior D’ltalia 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 figure? “[T]here is no practical or legally authorized way,” Fior D’ltalia complains, for the restaurant to include the additional 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 subsequently 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) contemplates 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 support the argument that aggregate estimation is unlawful.

E

Finally, Fior D’ltalia 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 unreported tip income. It notes that the IRS has agreed to create a special program, called the “Tip Reporting Alternative Commitment,” whereby a restaurant promises to establish accurate tip reporting procedures in return for an IRS promise 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 conflict with the views of Members of Congress and IRS officials, 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 Secretary 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 nonrefundable 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 “ threatening] 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’ltalia says that the IRS’ recent use of an “aggregate 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 employer.” 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’ltalia, 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’ltalia has not demonstrated that the IRS has acted illegally in this case. Instead it has presented a general claim to the effect that the aggregate estimation 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 consequently do not support Fior D’ltalia’s argument that aggregate estimates are statutorily prohibited. For example, the Internal Revenue Service Restructuring and Reform Act prohibits the IRS from “ threatening] to audit” restaurants as a means to “coerce” them into policing employee tip reporting, supra, at 250, but Fior D’ltalia does not claim that the IRS has violated this statute. Nor, for that matter, has Fior D’ltalia presented evidence that this particular litigation would fail to yield revenue to the Government (due to the availability of the FICA tax credit), or convincingly explained, 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 concern regarding a restaurant’s difficulty in trying to supervise its employees’ reporting of their tips, they do not suggest that the aggregate estimate method is an unreasonable way of ascertaining unpaid FICA taxes for which the employer is indisputably liable (particularly when one recalls 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 support the use of aggregate estimates. See supra, at 242-244, 248-249.

We conclude that Fior D’ltalia’s discussion of IRS “abuse” is insufficient to show that the agency’s use of aggregate estimates is prohibited by law. In saying this, we recognize that Fior D’ltalia remains free to make its policy-related arguments to Congress.

Ill

For these reasons, and because Fior D’ltalia 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 Justice Thomas join, dissenting.

The Court holds that the Internal Revenue Service’s statutory 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 employers with a burden unintended by Congress, and I respectfully 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. §401 et seq. (1994 ed. and Supp. V). In the simplest ease, 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 recognized as remuneration paid by the employer, and the corresponding 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^]” must pass on that information 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 employer and the employee, however, taxable tip income is limited 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 provision for assessments of unpaid taxes, § 6201, which benefits the Government with a presumption of correctness. See United States v. Janis, 428 U. S. 433, 440 (1976). The practice of assessing FICA taxes against an employer on estimated aggregate tip income, however, raises anomaly after anomaly, to the point that one has to suspect that the Government’s practice is wrong. An appreciation of these consequences, 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 insurance,” 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 benefit the taxes are purportedly collected. Thus, from the outset, the aggregate assessment fits poorly with the design of the system.

B

As the majority acknowledges, the next problem is that the aggregate estimation necessarily requires the use of generalized 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. The Code imposes a general obligation upon all taxpayers to keep records relevant to their liability according to regulations promulgated 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 estimates; 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. Commissioner, 43 T. C. 824, 831 (1965). 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 receipts, 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 reporting their tips; the Code tells them that they need not keep the information specific to each employee that would be necessary to determine if any tips fell short of the estimates or outside the wage band. Presumably because of this statutory exception, the Secretary’s regulations regarding employer 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 excepted from the general rule that remuneration must be reported 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 possibly 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 employers from recordkeeping with an administrative practice of 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 presumption of correctness that an aggregate assessment carries. Under the general authorization to make assessments, 26 U. S. C. § 6201, on which the Government relies, any assessment is preceded by liability for taxes. § 6201(a) (“The Secretary is authorized ... to make the inquiries, determinations, 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 Government a certain amount of unpaid taxes”). After, but only after, assessment can the IRS take the further step of issuing notice and demand for the unpaid taxes assessed, § 6303, so as to authorize the IRS to levy upon the taxpayer’s property, 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 employee 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 employees’ 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.

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 implication is that employers are meant to pay taxes based on specific information provided by others. As a practical matter, 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. 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 sequence 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 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 collection 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 received, 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 Government’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 unreported by the employee, there would be no liability until notice and demand is made under §3121(q), and it is consequently 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 wage. 26 U. S. C. § 45B. The existence of the credit creates a peculiar scheme, for unless we are to assume that restaurateurs 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). And because, as noted, the aggregate method chosen by the IRS will not affect individual employees’ wage-earning records, the estimates do not even play much of a bookkeeping role. There is something suspect, then, in the IRS’s insistence on conducting audits of employers, without corresponding audits of employees, for the purpose of collecting FICA taxes that will ultimately be refunded, that do not increase the accuracy of individual 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 withholding the employee’s share of the FICA tax, the IRS attempted 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 § 45B to apply only to tips reported by the employee pursuant 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 Commitment (TRAC) program, ante, at 250, Congress forbade the IRS from “threatening] to audit any taxpayer in an attempt to coerce the taxpayer” into participating. Internal Revenue Service Restructuring and Reform Act of 1998, § 3414,112 Stat. 755. 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 aggregation practice as a lever on employers, when it forbade the use of an audit for the same purpose.

H — < HH H — I

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 demand, without which there is no liability on the employer’s part for FICA taxes on unreported tips and thus no possibility of assessment under § 6201. It makes sense, then, to understand 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 attention 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 employer was furnished “no statement including such tips” or was given an “inaccurate or incomplete” one, the remuneration 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 “employees” 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 anomhlies 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 aggregate notice, demand, and assessment; and it turns out that 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 express, 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 employee’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 trigger 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 employee’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 unreported 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.

Finally, of course, the tension with Congress’s admonition that the IRS not “threaten to audit any taxpayer in an attempt 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 calculated, 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 entailed by the aggregate reading, some of which seem unfair to employer taxpayers. Of course, this means that the problem of underreporting tips will be harder to solve, but it seems clear that Congress did not mean to solve it by allowing the IRS to use its assessment power to shift the problem to employers. I would therefore affirm the judgment of the Ninth Circuit.

       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).

       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 legislative choice to tie benefits to earnings history evinces a general intent to create a rough parity between taxes paid and benefits received.

       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 “altering] 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 hire reliable people who they can trust to follow the rules.” The official transcript records “Laughter.” Tr. of Oral Arg. 27.

       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, Evidence § 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)).

       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 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).

       In fact, the obligation to report charged tips was imposed before employers had any FICA tax obligation beyond tips that substituted for minimum 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’ltalia.

       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 running on unpaid FICA taxes. § 6205(a)(1).

       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.

       To some extent, the modification of the §45B credit and TRAC may be taken as congressional awareness of the IRS’s practice of making aggregate assessments. After all, there is no need to clarify that § 45B is available 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 participation 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 employee 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 aggregate assessments. As for TRAC, at the time that Congress prohibited the IRS from coercing participation, the IRS had actually halted the aggregate assessment practice. See Director, Office of Employment Tax Administration and Compliance, Memorandum for Regional Chief Compliance Officers (June 16, 1998), App. 106-107. Moreover, the simple (and realistic) answer is just that Congress did as asked; restaurateurs complained about a specific practice, i. e., threatened audits, and Congress responded with a targeted statute.