ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, October 24, 1996 TAG: 9610240024
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
A federal court has stripped the Internal Revenue Service of a valuable tool it uses to ensure that restaurants, and their employees, pay their full share of federal payroll taxes.
The U.S. Court of Federal Claims ruled Monday that the IRS can no longer use a formula that focuses solely on a restaurant's records to determine if it deducted the correct amount of payroll taxes from the wages of its waiters and waitresses.
The ruling, if it stands, will eliminate a headache for executives at many restaurants.
Currently, IRS auditors don't have to interview employees when they audit a restaurant's FICA tax payments, which support Social Security and other federal programs. Instead, they use the amount of tips that appear on a restaurant's credit card receipts to calculate total tip income, including cash payments, for the staff. If that amount is greater than the restaurant declared, the IRS requires the restaurant, not the employees, to pay taxes on the difference.
The restaurant industry says that's not a fair way to collect the proper taxes.
The federal government should scrutinize waiters and waiters, because they do underreport their income from tips, said Rick Walsh, a senior vice president at Darden Restaurants, which owns the Red Lobster and Olive Garden restaurant chains. It's difficult for managers to keep tabs on how much their staffs collect in cash tips because their employees often do not keep records of the transactions, Walsh said.
LENGTH: Short : 39 linesby CNB