Business Services Industry
IRS shortcut audits for unreported tips.
Kiplinger Tax Letter, The, November, 1996
IRS use of shortcut audits for unreported tips comes up short. Recently, IRS has tried a new tack to collect social security taxes on unreported tips. Instead of going after the individual employees, IRS has been assessing taxes only against the employers for their halves of the taxes due on unreported tips, but not for the employees' portion.
Employer-only assessments are illegal, a court says. The Service must identify which employees had unreported tips so that they get credit for social security benefit purposes (Bubble Room, Ct. of Fed. Claims).
IRS will appeal because result jeopardizes its tip-audit program. If decision stands, any restaurant in the country with a bill from the IRS for employer-only tip taxes can pay the bill, send a refund...
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