IRS invites tip earners to resolve reporting issues

By Liz Benston

Saturday, Jan. 24, 2009 | 2 a.m.

The IRS is coming to Las Vegas — in peace, without auditors.

Its mission: Resolve tax problems for casino workers.

For the first time, the Internal Revenue Service will host public workshops, on Feb. 3 and Feb. 5, appropriately called “Problem Solving Days,” to assist tip-earning casino workers who have been audited or have other problems or questions about prior-year returns.

IRS staff also will address questions about the agency’s tip agreement with Las Vegas casinos.

Since at least the early 1990s, Vegas casinos and the IRS have agreed on how much tip income workers should declare. The agreements, which have been adjusted over the years to track economic trends, allow individual casinos to negotiate tip rates for specific jobs and shifts.

More than 50,000 casino workers, a majority of Las Vegas’ 100,000-plus tip-earning workforce, participate in the program, which was designed to encourage compliance among workers who weren’t reporting tips as income. In exchange for their participation, workers were exempt from audits.

The program has generally benefited both sides. The IRS collects millions in tip taxes while minimizing resources for investigations. Workers, who have historically earned more in tips than they are required to report to the IRS, are relieved of the need to keep detailed tip records.

The assistance workshops are intended to resolve problems that have surfaced in implementing the tip program and an attempt to make peace with the Culinary Union after last year’s contentious wrangling over tip rates.

Backed by its 55,000-plus membership, the Culinary has long fought for lower tip taxes for members. Before the recession, the IRS pushed for higher tip rates on the premise that the IRS wasn’t getting an appropriate cut of the ballooning tip pool resulting from the tourism and luxury hotel boom here. The Culinary, assisted by the casino industry’s premier lobby, the American Gaming Association, opposed the proposed increases in tip rates.

The Culinary’s resistance gained steam last year amid the economic decline, which has depressed tips. Negotiations between the union, the American Gaming Association and the IRS late last year resulted in across-the-board declines in tip withholding rates of about 20 percent. The Culinary Union is seeking further reductions for its workers.

Officials of the Culinary Union and American Gaming Association couldn’t be reached for comment.

Also last year, the Culinary accused the IRS of fouling up the processing of tip earners’ tax returns.

Over the past few years, thousands of union members participating in the tip plan have received letters from the IRS requesting clarification on their tax returns and seeking back taxes.

The audit letters were more bad publicity for the IRS as hourly workers revealed letters from the agency demanding thousands of dollars in back taxes they couldn’t afford.

The reason for the errors remains murky, as both casinos and the IRS have said they are using the correct information provided to them by workers and their employers.

The program uses formulas based on jobs, shifts and locations to determine the amount of tips workers must report for tax purposes. Cocktail servers at, say, the luxury Bellagio must report more than servers at, say, the low-rent Circus Circus, and servers at a fine restaurant at the Bellagio would report more than those working the Bellagio’s buffet.

Some in the casino industry say the Byzantine system needs to be streamlined.

In the past, to assure that workers weren’t skipping out on tip taxes, the IRS has compared figures from workers’

W-2 forms with detailed work histories for individual employees provided by the hotels at the end of each calendar year. If the numbers didn’t match, the IRS would typically send a letter asking for clarification or a bill for the taxes owed.

Some workers contacted by the IRS had changed jobs midyear — a common occurrence in a business with significant turnover — raising the possibility that their new positions weren’t properly recorded by either their employers or the feds.

These assistance workshops are designed to help people who have received such letters, while putting a friendly face on an agency that sometimes gets a bad rap.

“We realize a number of economic factors have hit the Vegas area especially hard and we needed to reach out to help the tip earning community,” IRS Employment and Tax Chief John Tuzynski said in a statement.

Taxpayers should make appointments with IRS staffers ahead of the workshops so the agency can research taxpayer accounts, aiding resolution of claims, the agency says. Walk-ins will still receive assistance.

The workshops are planned for Feb. 3 at the Culinary Union’s offices, 1630 S. Commerce St., and Feb. 5 at Texas Station in North Las Vegas.