2017 Las Vegas Tip Income Audits

The IRS recently began tip income audits of Las Vegas nightclub and entertainment venue employees for the tax year 2017. This comes on the heels of 2016 audits of these same individuals.

2017 audits have started with an initial IRS examination letter from the Cincinnati, Ohio IRS service center. In this exam notice, the IRS multiplies the hours worked by the employee by a tip rate that is then used to calculate the IRS’ estimate of the taxpayer’s unreported tip income, as well as a proposed income tax deficiency. In addition, the IRS calculates additional FICA taxes owed based on its estimate of the employee’s unreported tip income.

Even if an employee has opted in to the TRDA (Tip Rate Determination Agreement) offered by its employer, the IRS may still examine the employee’s tip income. Every year, employers provide IRS with an annual report itemizing all employees who did not participate in the tip agreement, whether it is one day, one week, or the whole year. Employees who opted out of the tip agreement for a short period of time will be audited because their employer has already reported their names to the IRS. And the IRS has the authority to audit these employees’ tip incomes, no matter how long the employee opted in to the agreement. Worse, the IRS will automatically use the higher “opt out” tip rate even if an employee was “tip compliant” for most of the year.

These 2017 exam letters are IRS’ proposed income tax and FICA tax assessments. The IRS will eventually send notices of deficiency to each employee, giving the employee his or her “ticket to United States Tax Court.” Filing a Tax Court petition within 90 days of the notice of deficiency is the only method by which a taxpayer can dispute an IRS tax assessment without paying the assessment first. If the taxpayer does not dispute the proposed tax deficiency, the IRS will assess the tax and then actively pursue collections, whether by wage levy or property lien.

Silver Law PLC operates in Arizona and Nevada and all of its lawyer are former lawyers for the IRS. A Phoenix tax lawyer from our team can help you understand how the complex tax code applies when you are an employee earning tips, and how to respond to an IRS examination notice. We’ll help you ensure that you are meeting your obligations. If you have been audited or are facing collections, we can also help you navigate that process. Call us today to talk with a tax lawyer and learn more.

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Silver Law PLC

Arizona Location
7033 E. Greenway Pkwy, Ste 200
Scottsdale, AZ 85254
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Las Vegas, Nevada 89145
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