Nevada lawmakers challenge IRS on tax increases regarding income from tips

Thursday, Feb. 1, 2001 | 11:27 a.m.

Nevada's congressional delegation is seeking a meeting with the commissioner of the Internal Revenue Service to discuss tax increases affecting Nevada employees who receive tips.

Rep. Jim Gibbons, R-Nev., sent a letter signed by the three other Nevada lawmakers to Commissioner Charles Rossotti seeking explanations on why the IRS is assuming employees are making more money in tips and, as a result, are having more money withheld for federal and Social Security taxes.

The issue was brought to Gibbons' attention by representatives of the Culinary Union and the American Gaming Association.

John Shelk, vice president of the AGA, said problems have been escalating since last fall when IRS field agents in Nevada began contacting individual properties, saying that tipped employees are making more than they reported.

But Shelk said the agency had no justification for the increases, a point made in Gibbons' letter to Rossotti.

"First, the IRS should have solid factual documentation to support the basis for any increases that are sought," the letter says. "Second, even if some increase may be justified, at an absolute minimum, any significant increases should be phased in over several years. There is ample precedent for a multiyear phase-in period since it was done starting in 1996 for food and beverage employees."

The IRS, in 1996, started a program simplifying tip income compliance with industries having employees who receive tips as part of their income. The program, amended last May, allows employers to establish their own estimates of tip income, which is regularly monitored by the IRS.

But in recent months, the IRS has maintained that tipped employees are making much more than they are, Shelk said, and employees have seen their taxes double or triple.

"What we're saying is that they (IRS) should have a strong factual basis for any increases sought," Shelk said. "So far, they haven't produced anything. But if they do, we're also asking that the tax burden be phased in over several years instead of getting hit all at once."