Notice of Deficiency

[jgeremia]

What is the name of your state? Nevada

My employer doubled my tipped income amount from $7000. to $14,000. I have a current suit on appeal to the 9th Circuit the defendants/appealees are IRS and my employer(Colorado Belle Hotel). I want to take them to District Court for this behavior.
There is no way any reasonable person can believe I doubled my tips in one year. I have been with my employer 23 years and my tips only varied by a few hundred dollars. What is my best next step? I am concerned about res judicata? I believe I have actionable claims in regards to 26 usc 7433 as the behavior is so blatant. This tip accounting and first notification came days after I appealed to the 9th Circuit. I know I must do something in the nest 90 days. Please help, send advice.

 

[roamer5]

More specifics may help those offering advice. Which tax year, and exactly what was in boxes 1, 7, and 8 on your W-2?

 

[jgeremia]

1999 was year for alleged deficiency.
Item 1; 26,344.60
Item 7; 5740.00
Item 8: 16,558.04

1998 Item 1; 24979.43 Item 7: 5648.00 Item 8: 7446.36
I filed a lawsuit against IRS and Employer 12-8-1999 in Federal District Court in Las Vegas. I filed Notice of Appeal Nov. 9, 2001.
Remember in 23 years my allocated tip have not changed but by the most two or three thousand and usually a few hundred dollars. This time its an increase of $9111.68 more than double, yet at same bar and shift as a bartender!

 

[roamer5]

The amount in box 8 (allocated tips) must be added to all other wages on form 1040, line 7; and is also used to calculate
self-employment tax (form 4137 carried to form 1040, line 54). This obviously is the cause of the deficiency.

However, use the amount of tips not reported to your employer instead of the box 8 amount if either of the following exceptions applies:

1. You kept a daily tip record, or other evidence that is as credible and as reliable as a daily tip record.

2. Your tip record is incomplete, but it shows that your actual tips were more than the tips you reported to your employer plus the allocated tips.

For example, if the amount of tips you actually received was $7,540 then add $1,800 (7,540- 5,740) to form 1040 line 7, and use $1,800 for form 4137.

Publication 531 (www.irs.gov) describes the daily tip record requirements.

Did you already file your 1999 return, and if so, exactly what did you report for allocated tips?

 

[jgeremia]

My husband was self employed and we did report his income and paid the tax when we filed in 1999. His net profit was only 6,774.00. Tax was only$886. This doesn't come anywhere near accounting for an increase of $9,111.68 dollars in allocated tip!
I probably will go ahead and pay the Deficiency of $1,371.77. Then I will ask for a refund. The income examination changes Form 4549 list an adjustment of 7,807.00 in tip income.
Keep in mind this was the year we filed suit in federal court against the IRS and my employer. They have a tip reporting agreement in place at casinos that is illegal. This is an attempt to harrass. I will fight back.

 

[jgeremia]

The most puzzling aspect is that on my 1998 w-2 line 1 wages and tips is 24979.43, and my 1999 is 26344,50. This is only a difference of 1365.07. Now if I did make 16,558.04 in allocated tips in 99' then the remainder of #1 $9785.46 would be wages.
I worked the same amount of hours in 98' and 99' but I did not make less in wages. I missed maybe a couple of days. I figure they are claiming I made less than min. wage!

 

[roamer5]

The amount in box 1 does NOT include allocated tips in box 8, and box 1 usually equals box 3 + box 7. Based on that, box 3 probably is 20604.60, which would be your wages, as box 7 is your reported tips.

If your W-2 is incorrect, you can request the employer issue a corrected W-2 to allow you to file an amended return. This must be done by 4/15/2003 for the 1999 tax year.

 

[jgeremia]

Then how do they arrive at the allocated tip figure in Item #8?
What could cause it to more than double from one year to the next?
I have a co-workers(bartender) whom was only allocated $1100.00 in item #8, for 2001 yet I was allocated $12,654.84?
Thank you for your input.

 

[roamer5]

Here's an excerpt from www.irs.gov Pub 531, Allocated Tips:

The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. For information about the exact allocation method used, ask your employer.

Basically it depends upon the amount of tips being reported by everyone, and the calculation method used by your employer.

 

[jgeremia]

Thank you in advance. I have spoken with my uncle a retired CPA.
After so doing I have decided to pay the deficiency and at the same time file a 1040X and request a refund of that amount. I have an accurate daily log of my tips. I don't believe Tax Court to be an advantage to anyone but the IRS. I intend to file a Petition in U.S. District Court if the IRS does not refund my payment within 60 days. (Jury trial requested) I believe do to the circumstances (case on appeal to the 9th Circuit) I will have a claim under 7433.

Do you concur? I have never entered into any agreements with my employer and IRS (tip reporting or good faith). My Uncle states that my daily log will prevail if I recorded everything properly.

 

[roamer5]

Paying the deficiency and then filing the 1040X is the recommended approach. Attach either IRS Form 4070A or your own form to the 1040X, to substantiate your tips.

Here's an excerpt from Pub 531, Keeping A Daily Tip Record:

If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business if it is different from your employer's name. Then, each workday, write the date and the following information.

. Cash tips you get directly from customers or from other employees.

. Tips from credit card charge customers that your employer pays you.

. The value of any noncash tips you get, such as tickets, passes, or other items of value.

. The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips.