Columnist Jeff German: IRS gets tough with tip earners

Wednesday, Nov. 13, 2002 | 11:06 a.m.

The IRS is shaking things up on the Strip again.

Casino industry and Culinary Union leaders, who faced off earlier this year in heated contract negotiations, now are battling an IRS campaign to force casino workers to declare larger amounts of tips on their tax returns.

The IRS says it's just doing its job of making sure that thousands of tip earners in the casino industry pay their fair share of taxes.

But casino industry and union leaders say the tax collector's formula for reaching that goal is out of whack.

"When the richest Americans are getting tax cuts, the IRS is making a full-scale effort to take away large amounts of money from tip earners," Culinary Secretary Treasurer D. Taylor said Tuesday. "We think it's very unfair."

Added American Gaming Association President Frank Fahrenkopf: "The IRS needs to be more reasonable, and we hope that we will be able to convince them to be more reasonable."

Since 1991 the casinos have been conducting business under agreements with the IRS requiring employees to report a fixed rate of tips per hour on their tax returns. Among those covered are thousands of food servers, bartenders, cocktail waitresses, bus boys and bellhops.

Each casino and each job classification has its own reporting rate, and the IRS periodically has adjusted those rates over the last decade.

The compliance agreements, which expire on Dec. 31, have made it easier on both the workers and the IRS. The workers don't have to keep cumbersome records and aren't subject to audits, and the IRS doesn't have to waste valuable manpower making sure the workers declare what they receive in tips.

It's an arrangement that has brought in $900 million a year in taxes.

Now the agency is looking to expand the program nationwide to go after all workers who earn tips.

In that push the IRS has been pressuring casinos to raise their reporting rates by a significant margin, which has heightened concerns within the industry and prompted Nevada Sens. Harry Reid and John Ensign to intervene.

The IRS has not publicly disclosed the new rates or how it arrived at its reporting formulas, but Taylor said the agency has proposed in many cases tripling the amount of tips employees declare.

At least one major casino, the MGM Grand, recently agreed to higher rates for its workers, and another, the Bellagio, is gearing up for talks with the IRS.

MGM spokesman Alan Feldman didn't want to discuss the new rates, but he said they weren't triple or even double the previous rates.

While some casinos have entered into serious negotiations with the IRS, many -- including those owned by corporate giants Park Place Entertainment, Mandalay Resort Group and Boyd Gaming -- have tried to buy more time.

Last month, in one of his final acts before retiring, IRS Commissioner Charles Rossotti promised Reid and Ensign a six-month extension of all expiring tip agreements in Las Vegas to give the casinos a chance to make their case for lower rates.

But the senators later learned that IRS agents in Las Vegas had put out the word that only casinos willing to play ball with the agency and consider the proposed higher rates would qualify for the extension.

That looked like a good old fashioned double-cross, and it prompted Reid and Ensign to write a letter Oct. 22 complaining to Rossotti.

"Clearly this would be a serious impediment to the prompt industry-wide resolution of the tip issue that we are all seeking," the senators wrote.

Rossotti left the IRS on Nov. 6 without responding to Reid and Ensign. But in his absence the IRS seems determined to take a tough stand with the industry.

IRS spokesman Bill Brunson, based in Phoenix, said Tuesday the agency does not intend to give the casinos an across-the-board extension of the tip agreements.

"Where we are successfully working with casinos to come up with current tip rates, we will extend the agreement for up to six months to complete the process," Brunson said.

And so the Culinary Union and most of the casino industry appear to have their hands full with the IRS, which has proven to be a tough negotiator in the past.

It's a battle that will be heard all along the Strip.