IRS Announces it is Going After Waiters Tips

July 7, 2008 - 8:02 PM

( - The Internal Revenue Service (IRS) announced in Washington Friday they will no longer audit restaurateurs as long as they are within compliance of federal tax laws on the reporting of tips even if its waiters and waitresses are suspected of cheating on the reporting of such tips.

IRS officials said they will shift their enforcement focus to the restaurant employees who they believe aren't reporting their tips, which officials said will be far more difficult to track down because of a lack of money and manpower.

Thomas Burger, chief of employment taxes for the IRS said in Washington, "There is something wrong when restaurant owners do everything they can to encourage waiters and waitresses to report tips but are still targeted by audits. If they're doing everything they're supposed to do, we won't focus on the employer. We think it's much more beneficial to us to educate at the beginning. You've got people out there who are trying. Where they are trying, they'll probably get a bye."

IRS officials estimate they are losing billions of dollars a year in payroll and income taxes because of unreported restaurant and bar tips. They say in 1998, just over $7 billion in tips were reported in an industry that does some $250 billion in business a year.

Steven Anderson, president of the National Restaurant Association praised the IRS decision saying it "is a big win for restaurant owners across the country."

The IRS will still closely monitor restaurant tax filings to ensure that tips are being reasonably reported in comparison to the amount of business. The average for credit card tips is about 14.5 percent, 12 percent for cash.

An IRS official cited an example, a restaurant doing $1 million gross business but reporting only two percent in tips will very likely be contacted by the IRS.