Understanding how much you are required to pay in taxes is usually difficult enough.
Adding tips into the mix only complicates and confuses things further.
However, if you do not remit the correct amount to the IRS, they will eventually call the debt in full.
Such was the case for the Fior D'Italia Restaurant and the resulting legal battle went all the way to the Supreme Court.
In 1886, Angelo Del Monte and "Papa" Marianetti opened the "Ristorante Fior D'Italia" in downtown San Francisco, California.
Surviving a fire during the gold rush and operating out of a tent after the earthquake in 1906, the restaurant has served classic Italian food to a variety of people from all walks of life.
According to their menu, Fior D'Italia is "America's oldest Italian restaurant".
However, in 2002 the restaurant was charged with $23,000 in unpaid taxes from tips that the IRS estimated they earned.
According to CBS, "Determining taxes from tips has long been a troublesome task because often the tips are cash and workers handle their own paperwork.
" By federal law, both staff and employers are required to pay a percentage of tips to Social Security and Medicare.
Although Fior D'Italia reported their tips in 1991 and 1992, the amounts for which they paid taxes were much less than the amounts customers stated on their credit card receipts.
The IRS investigated the discrepancy and "issued an assessment against Fior D'Italia" for the additional taxes.
Fior D'Italia challenged these extra tax charges, claiming that the method the IRS used for estimating the tips was incorrect and forced them to overpay.
After a 9th Circuit court agreed with the restaurant the highly publicized case reached the Supreme Court.
Many eating establishments watched the proceedings with bated breath because the outcome would greatly impact how restaurants reported tips.
The method in debate was "aggregate estimation".
Basically, "the IRS examined the restaurant's credit card slips...
finding that customers had tipped, on average, 14.
49% of their bills...
Assuming that cash-paying customers...
tipped at those rates also, the IRS calculated total tips by multiplying the tip rates by the restaurant's total recipts.
" Then they would subtract the tips that had already been reported and taxed and apply the current tax rate of 7.
65% to the remaining amount.
The Supreme Court ruled in 2002 that this was a legitimate method of taxing restaurants.
This case brought to light the importance of accurate tip reporting and accurate tax information.
Adding tips into the mix only complicates and confuses things further.
However, if you do not remit the correct amount to the IRS, they will eventually call the debt in full.
Such was the case for the Fior D'Italia Restaurant and the resulting legal battle went all the way to the Supreme Court.
In 1886, Angelo Del Monte and "Papa" Marianetti opened the "Ristorante Fior D'Italia" in downtown San Francisco, California.
Surviving a fire during the gold rush and operating out of a tent after the earthquake in 1906, the restaurant has served classic Italian food to a variety of people from all walks of life.
According to their menu, Fior D'Italia is "America's oldest Italian restaurant".
However, in 2002 the restaurant was charged with $23,000 in unpaid taxes from tips that the IRS estimated they earned.
According to CBS, "Determining taxes from tips has long been a troublesome task because often the tips are cash and workers handle their own paperwork.
" By federal law, both staff and employers are required to pay a percentage of tips to Social Security and Medicare.
Although Fior D'Italia reported their tips in 1991 and 1992, the amounts for which they paid taxes were much less than the amounts customers stated on their credit card receipts.
The IRS investigated the discrepancy and "issued an assessment against Fior D'Italia" for the additional taxes.
Fior D'Italia challenged these extra tax charges, claiming that the method the IRS used for estimating the tips was incorrect and forced them to overpay.
After a 9th Circuit court agreed with the restaurant the highly publicized case reached the Supreme Court.
Many eating establishments watched the proceedings with bated breath because the outcome would greatly impact how restaurants reported tips.
The method in debate was "aggregate estimation".
Basically, "the IRS examined the restaurant's credit card slips...
finding that customers had tipped, on average, 14.
49% of their bills...
Assuming that cash-paying customers...
tipped at those rates also, the IRS calculated total tips by multiplying the tip rates by the restaurant's total recipts.
" Then they would subtract the tips that had already been reported and taxed and apply the current tax rate of 7.
65% to the remaining amount.
The Supreme Court ruled in 2002 that this was a legitimate method of taxing restaurants.
This case brought to light the importance of accurate tip reporting and accurate tax information.
Source...