Editorial: A tip for the IRS

Friday, Aug. 18, 2006 | 9:09 a.m.

Thousands of the Las Vegas Valley's food and beverage workers are feeling cheated after signing tip-reporting agreements with the Internal Revenue Service, only to be audited anyway.

According to a story in the Las Vegas Sun on Thursday, the program, which is exclusive to Nevada, uses formulas based on workers' jobs, their shifts and other factors to determine the dollar amounts of tips that they must report on their federal income tax returns. It is designed to improve the accuracy of reporting tip income.

Enrollment is voluntary. But Culinary Union officials, speaking on behalf of the estimated 50,000 valley service workers who have signed the agreements, told the Sun that as an incentive to encourage enrollment, the IRS promised not to audit those workers who join.

Still, many of them have been audited.

What's worse is that some of the audits claiming that workers owe thousands of dollars in taxes on unreported tips appear to be basing those calculations on faulty information. One food server told the Sun that the IRS has wrongly accused him of owing $4,500 because it erroneously shows him working in two places at the same time. Another said it took him months to prove that he did not owe $1,700 in back taxes.

Of the thousands of workers audited during the past six months, most have shown they are accurately reporting their tips, the Sun reports. Casino payroll officials say they have spent "countless hours" helping employees unravel the IRS' audit claims.

One casino vice president said the problem is that the IRS is using a flawed formula that does not accurately match the tip data they get from the casinos with what employees report on their returns.

IRS officials were in Las Vegas on Thursday to meet with gaming industry leaders and find a solution.

We hope they are successful. Workers who rightfully owe taxes should not be let off the hook. But the IRS also must abide by the agreements it has signed with these workers and recognize that if the vast majority of these audits are in error, then the agency's calculations - not the casino workers - likely are at fault.