Unreported tips and FICA.Food service employees generally rely on tips to earn a reasonable wage; they and their employers have special withholding and reporting requirements. IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 3121(q) requires that "tips received by an employee in the course of his employment shall be considered remuneration" and "deemed to have been paid by the employer" for purposes of FICA FICA
Federal Insurance Contributions Act
Noun 1. FICA - a tax on employees and employers that is used to fund the Social Security system
income tax - a personal tax levied on annual income
withholding and reporting. Under IRC section 6053 each employee is required to report tip income to his or her employer on a monthly basis. Under Treasury relations section 31.3402(h)-1 the employer may withhold with·hold
v. with·held , with·hold·ing, with·holds
1. To keep in check; restrain.
2. To refrain from giving, granting, or permitting. See Synonyms at keep.
3. on the basis of average estimated tips.
In 1991 and 1992, San Francisco's Fior D'Italia restaurant reported tip income of $247,181 and $220,845 respectively. These amounts were supported by reports from the restaurant's employees. However, customer credit card slips listed larger tip totals than the amounts the employees reported. Consequently, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. calculated and assessed additional FICA taxes.
The IRS used an "aggregate estimation method" to calculate the additional taxes. It computed an average of the tips found on the credit card slips: 14.49% for 1991 and 14.29% for 1992. The IRS multiplied the restaurant's total receipts by these percentages and subtracted the amounts already reported. It assessed FICA taxes on the difference between the computed and reported amounts.
Fior D'Italia paid part of the taxes and brought a refund suit, arguing that section 3121(q) required that each employee's tips be determined and individual deficiencies aggregated to determine any underreported amounts. Under that interpretation the IRS would not be allowed to use its aggregate estimation method. The district court ruled for Fior D'Italia, and the Ninth Circuit Court of Appeals affirmed af·firm
v. af·firmed, af·firm·ing, af·firms
1. To declare positively or firmly; maintain to be true.
2. To support or uphold the validity of; confirm.
v.intr. (see "Tax `Tips,'" JofA, Feb. 02, page 68). The IRS petitioned the U.S. Supreme Court for certiorari certiorari
In law, a writ issued by a superior court for the reexamination of an action of a lower court. The writ of certiorari was originally a writ from England's Court of Queen's (King's) Bench to the judges of an inferior court; it was later expanded to include writs . The Court granted it due to differing opinions in the Ninth, Eleventh and federal circuits.
Result. For the IRS. The tax authorities may use aggregate estimation methods to determine the required withholding and reporting amounts. The Supreme Court decided that IRC section 6201, which requires the IRS to make inquiries, determinations and assessments of the tax, allows it to use reasonable methods to estimate taxes due. The Court also ruled the definitional section that used the singular term (Logic) a term which represents or stands for a single individual.
See also: Singular "employee" does not explicitly require the IRS to make the computations on an individual basis. In addition, IRC sections 446(b) and 6205(a)(1) do not imply an aggregate estimation method could not be used, as the lower courts had argued.
The Court went on to discuss the reasonableness of the aggregate method. It suggested that assessing taxes individually would not have resulted in a better tax computation. Fior D'Italia stipulated it would not challenge the particular IRS calculation as inaccurate, preventing it from presenting evidence that any assessment was inaccurate.
Businesses that must comply with the tip withholding and reporting requirements can take steps to minimize any overstatement o·ver·state
tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states
To state in exaggerated terms. See Synonyms at exaggerate.
o of liabilities that might arise from the IRS's aggregate estimation methods. A restaurant should document
* Short-term employees who earn less than $20 in tips.
* Employees whose total earnings, including tips, exceed the wage base.
* Cash given back to patrons paying with a credit card.
* A lower tip percentage paid by cash patrons.
* Credit card fees paid out of tips, resulting in lesser net tips to employees. Although the recordkeeping requirements to support a lower assessment might be substantial, the tax savings could also be quite large.
* United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. v. Fior D'Italia Inc., Sup. Ct., 89 AFTR AFTR American Federal Tax Reports (Prentice-Hall)
AFTR Americans For Tax Reform
AFTR Air Force Training Ribbon
AFTR Air Force Training Record
AFTR atrophy, fasciculation, tremor, rigidity
AFTR Atomic Frequency Time Reference 2d 2002-2883.
Prepared by Sharon Burnett, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , PhD, assistant professor of accounting and Darlene Pulliam Smith, CPA, PhD, professor of accounting, both of the T. Boone Pickens College of Business, West Texas A&M University, Canyon.