Las Vegas is full of service workers, of course. With many of the world’s largest hotels and casinos in Sin City, there’s an army of workers to man the facilities. Last week, the Tax Court looked at a bartender that the IRS thought had unreported tip income. The bartender contended the IRS was drinking something. Who was right?
The petitioner did a lot of things right. He reported his tips to his employer, and they were included on his W-2. (The petitioner opted out of an automatic tip compliance program.) He kept meticulous records.
Petitioner testified about how his bar was set up and what a shift was like during the years at issue. He stated that his bar had only six stools and that customers would often sit at the stools playing poker for several hours and receive several comped drinks as a result. He testified that the only time his bar would be busy was when there was a big convention and then most of the drink sales tips would be on company credit cards rather than cash. He described the difficult economic times that Las Vegas faced during the years at issue and how his business had decreased as a result.
Petitioner also testified about the typical tipping behavior of his patrons. Most of his drinks served were comps, and he testified that customers rarely tipped on comp drinks and that if they did they might “throw [him] a buck or two” after several hours of sitting at his bar receiving the comped drinks. Petitioner additionally testified that college kids and foreigners rarely tipped.
As I tell my clients, document, document, and document some more and you usually will do well if you’re audited. The bartender wasn’t drinking but the IRS was.
