The IRS said the taxpayer understated his tip income, and it used a generic tip model to assess additional tax. The bartender argued that the IRS model didn’t reflect what happened at the casino where he worked, and that he had the records to prove it:
Petitioner testified about how his bar was set up and what a shift was like during the years at issue. He stated that his bar had only six stools and that customers would often sit at the stools playing poker for several hours and receive several comped drinks as a result. He testified that the only time his bar would be busy was when there was a big convention and then most of the drink sales tips would be on company credit cards rather than cash. He described the difficult [*15] economic times that Las Vegas faced during the years at issue and how his business had decreased as a result.
Petitioner also testified about the typical tipping behavior of his patrons. Most of his drinks served were comps, and he testified that customers rarely tipped on comp drinks and that if they did they might “throw [him] a buck or two” after several hours of sitting at his bar receiving the comped drinks. Petitioner additionally testified that college kids and foreigners rarely tipped.
And the records:
Petitioner argues that he has met his burden because he complied with the recordkeeping requirements of section 6001 and section 31.6053-4(a)(1), Employment Tax Regs., having kept detailed, contemporaneous daily logs which are substantially accurate. Petitioner routinely recorded the amounts of his cash and charge tips on slips of paper at the end of each shift. Petitioner kept these logs and produced them to respondent and at trial.
Respondent argues that petitioner was not tipped in exact dollar amounts. Petitioner testified credibly that when he was tipped with change he would put the change in a glass jar to be mixed in with the other tips. When he would periodically cash out the change jar, he would give the change to the cashiers who cashed him out at the end of the shift. He also testified that when he cashed out daily his charged tips receipt, he would give the cashiers any change that was generated by those tips. We find petitioner’s explanation credible and do not find the logs inadequate merely because the amounts are recorded in whole numbers.
I think the important lesson here is that he generated the records every day, and that he was able to produce them to the judge. Contrast that with a recent decision involving a Mrs. Hall, an attorney deducting travel expenses:
Mrs. Hall did not maintain a contemporaneous mileage log. Mr. Katz testified that he based the number of miles driven on discussions with Mrs. Hall. Mr. Katz claimed that he reviewed documentation in order to determine the number of miles driven. The documentation that Mr. Hall and Mrs. Hall offered into evidence to substantiate the number of miles driven consisted of seven parking receipts, an equipment lease, a help wanted advertisement, a phone message slip, and a few other documents. The evidence they submitted does not demonstrate that Mrs. Hall incurred mileage expenses in amounts greater than those respondent allowed in the notice of deficiency.
TaxGrrrl, Opting Out Of The Obamacare Tax: What Happens If You Don’t Pay?. Oddly, the IRS can’t use most of its collection tools to collect the individual mandate. The advance premium clawback is a different story.
Russ Fox, 10 = 2500 ?. “On Monday, I mailed a Tax Organizer to a client here in Las Vegas; she’s about ten miles from where I am. I also mailed a completed tax return to a client in South Carolina. Both will be received today.”
Annette Nellen talks about Taxes Around the World.
Jack Townsend covers Key points of Article on ABA Webcast on Offshore Accounts
But in what was the most disturbing revelation, House Member attendees were told that the IRS had not even asked for the backup tapes when the ‘hard drive crash’ excuse was first used. That contradicted the prior testimony of IRS Commissioner John Koskinen. He had testified to the effect that recovery efforts had been thorough, and that the tapes couldn’t be accessed.
Do you believe the Commissioner when he says he needs more money?
TaxProf, The IRS Scandal, Day 659.
Don Boudreaux links: Dick Carpenter and Larry Salzman, in this new publication from the Institute for Justice, explain how the I.R.S. helps to fuel in the U.S. the uncivilized banana-republic terror that is civil asset forfeiture. (Cafe Hayek)
Jim Maule, Testing Tax Knowledge.
According to a report on a recent NerdWallet survey, “[m]ost American adults get an ‘F’ in understanding income tax basics.”
It would be fun to require members of Congress and candidates for that office to take this survey, or one like it. I cannot imagine the outcome would be any better than that achieved by the 1,015 survey takers.
Nor can I.
Andrew Lundeen, Corporate Tax Cuts Increase Federal Revenue in the Long Run (Tax Policy Blog):
It’s important to note that this increase in revenue would be in the long run, after the economy has fully adjusted (probably about 10 years in the future). In the early years, federal revenue would fall before investment and growth pick up fully as the economy adjusts to a better tax system.
However, tax policy—all public policy, in fact—should be made with a focus on the long-term.
Unfortunately, politicians buy our votes with our money in the short-term.
Joseph Thorndike, Hey, It Could Happen! The Optimist’s Case for Tax Reform (Tax Analysts Blog). ” It will result from a transparent, flexible, and bipartisan bill drafting process; from strategic use of congressional staff to test the waters of controversial proposals; from skillful deployment of transition rules and other minor bill changes to win support from rank-and-file members of Congress; and from streamlined or fast-track debate procedures.”
Renu Zaretsky, The Internet, Drug Profits, and Sacrifice. The TaxVox headline roundup covers the uncertain tax effects of the “net neutrality” power grab.
Kristine Tidgren, Iowa Fuel Excise Tax Set to Increase 10 Cents on Sunday (ISU-CALT)
Matt Gardner, Is the Starz Network Series “Spartacus” a Jobs Creator? (Tax Justice Blog). I’m sure it helped create lots of work for film tax credit middlemen and fixers.
I bet the judge gave him a stern talking-to. Bow Man Sentenced for Fraud, Tax Evasion.(Concord Patch).
Caleb Newquist, Actually, Everyone Knows That Having Two Monitors Is Super Boss. (Going Concern).