Las Vegas Sun

March 28, 2024

Here’s a tip: IRS might not honor deal

The Internal Revenue Service has "double-crossed" thousands of Las Vegas food and beverage workers by auditing them after they signed agreements with federal tax collectors aimed at encouraging casino employees to accurately report tips, Culinary Union leaders charge.

Culinary leaders, who represent many of the workers, accused the IRS this week of reneging on promises not to audit those who agreed three years ago to participate in the tip-reporting program.

Of the thousands of workers audited in the past six months, the majority have demonstrated that they have complied with the reporting requirements, union and gaming officials said.

"The IRS has double-crossed the people who signed up for this," said D. Taylor, secretary-treasurer of the Culinary Union. "They must be on steroids. I think they're out of control."

Both Taylor and Bill Bible, president of the Nevada Resort Association, the political arm of the state's casino industry, said the program could self-destruct if the IRS continued to take away the incentive of avoiding an audit. In addition to food and beverage workers, the program covers parking valets and hotel bellmen.

"The IRS is in jeopardy of losing this program," Bible said. "What's the advantage to an employee to enter into an agreement if they're still going to be audited?"

Raphael Tulino, an IRS spokesman for Nevada, said the agency cannot publicly discuss the reported troubles within the tip-reporting program, which has been around in various forms since the early 1990s.

But he confirmed that top IRS officials are in Las Vegas today to meet with gaming leaders.

Among those attending the meeting, which is being described as a "tip summit," is Wally Chalmers, vice president of the American Gaming Association, the industry's Washington lobbyist.

"This program is unique to Nevada," Chalmers said. "It's been around for some time, and we don't want to see it fall apart. We just want it to be fair."

Under the tip-reporting program, formulas based on workers' jobs, shifts and other factors determine the dollar amount of tips that they must report for federal income purposes. Waiters in gourmet restaurants, for example, are assessed more than food servers at hotel buffets. The program also assumes that cocktail waitresses working weekend night shifts at upscale bars will earn more in tips than their counterparts who work midweek day shifts at modest facilities.

Tulino could not provide any statistics on how many casino workers are participating, but there are estimates within the industry that as many as 50,000 have joined.

The program has been described as a "win-win" for the employees and the IRS, eliminating the need for the employees to keep detailed tip records and allowing the IRS to minimize the resources needed to ensure that tips are reported.

Taylor and several audited workers, however, predicted "massive defections" if the system is not fixed. Because the program is voluntary, dissatisfied workers can withdraw at any time.

The Culinary Union, the state's largest and most politically active labor local, recently distributed fliers at casinos alerting workers to the stepped-up audits and complaining about the unfairness of the compliance program.

"The gaming industry stands with us on this issue," the fliers said. "If you have received an audit letter from the IRS, immediately report it to your payroll department. Don't pay it without first speaking with your payroll department and union representative."

Sheila Hughes, a 50-year-old cocktail waitress at the Las Vegas Club, said she was shocked when she learned that the IRS accused her of owing $2,100.

"No one feels comfortable going into another agreement with the IRS with this happening," she said. "They put you on pins and needles."

Hughes and other casino workers described the stress of wading through the IRS bureaucracy while trying to explain that they have been faithful to the tip-reporting program.

Marvin Naus, a 56-year-old food server at the Excalibur, said he has struggled for months to convince the IRS that he does not owe the agency $1,700 in back taxes from unreported tips.

"A lot of incorrect information is being sent to the IRS," he said. "This hasn't been pleasant."

Robert Martinez, a 30-year-old food server and union shop steward at Caesars Palace, said the IRS has wrongly accused him of owing $4,500.

"They have me working in two places at once," he said. "It's been a nightmare trying to deal with them."

Shawn Sani, an MGM Mirage senior vice president who deals with tax issues, said as many as 1,000 of his company's program participants have received audit notices in the last six months, putting a huge strain on the company as it tries to help the employees deal with the IRS.

"The problem is widespread," he said. "We've spent countless hours assisting those employees.

"It's a situation where you have employees who show up for work every day, clock in and clock out and report on their tax returns what their employer tells them to report. They've done everything in accordance with the tip agreement they've signed, and yet they still end up getting audit notices."

In its desire to maintain the accuracy of the reporting process, Sani said, the IRS has been using a flawed method of matching the wide-ranging tip data supplied by the casinos at the end of the year to what employees report on their tax returns.

"It's difficult, if not close to impossible, for the IRS to do a perfect match that will work," he said. "It needs to be streamlined."

Sani and other casino leaders hope to persuade the IRS to amend the program before the casinos are asked to sign new three-year agreements with the agency.

The current program, he said, places too much burden on the industry and too much hardship on its employees.

"We want to work with the IRS on ways to prevent this from happening again," he said.

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