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IRS SURVEY OF SAN FRANCISCO RESTAURANT WORKERS

 IRS SURVEY OF SAN FRANCISCO RESTAURANT WORKERS
 SAN FRANCISCO, Aug. 13 /PRNewswire/ -- An IRS survey of 28 top


San Francisco restaurants found that although employees earned close to 15 percent of the restaurants' gross sales in tips, they reported just an 8 percent tip rate to the IRS for income tax purposes. This failure to report and pay taxes on gratuities has resulted in thousands of dollars in lost taxes unpaid over a three year period.
 With more than 3,300 restaurants in the Bay Area, the IRS believes tip underreporting is a significant problem. Hundreds of employees at these restaurants are apparently failing to comply with the law. In 1982 the law changed. The change required restaurants to report to the IRS the exact amount of tips reported by each employee, if the aggregate group of employees reported less than 8 percent of the gross sales of the restaurant in tips.
 Since 1982, instead of reporting the total amount of tips they received, many waiters, waitresses, bartenders and restaurant workers have reported only an amount equal to 8 percent of the gross receipts they take in. The balance of the tip income they earned was pocketed and was not reported to the employer or to the IRS.
 "Some waiters and waitresses we've interviewed told us they mistakenly thought they were only required to report tips at a rate of 8 percent," said Larry Wright, the spokesperson for the IRS in Northern California. "They were wrong. All tip income is taxable and should be reported to the restaurant and to the IRS on the individual tax returns filed by these employees," he said.
 In addition to the failure by these waiters and waitresses to report income, several of the restaurants have also failed to file Form 8027 as required by law. Form 8027 must be filed by restaurants each year showing the aggregate tip rate reported by employees and the gross sales of the restaurant. In addition, the form requires the restaurant to report the credit card receipts and tip rate on those receipts.
 "We will be pursuing penalties for those restaurants that have failed to file the required information returns with the IRS. These returns are a critical link used by the IRS to identify establishments where the employee population is not reporting the full amount of tip income received," he explained.
 For years following the 1982 tax reform IRS had abandoned conducting audits of restaurant workers on tips. "The IRS is disappointed at having to revisit auditing restaurant workers. Unfortunately, the amount of tax money being lost in the restaurant industry in the Bay Area demands we invest out examination resources to bring rampant cheating to an end," Wright said.
 -0- 8/13/92
 /CONTACT: Larry Wright or Pam MacLean, of the IRS, 415-556-0551/ CO: Internal Revenue Service ST: California IN: FIN SU:


RM -- SF002 -- 9556 08/13/92 11:00 EDT
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Publication:PR Newswire
Date:Aug 13, 1992
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