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IRS' tip deal riles Culinary

1 December 2008

Las Vegas Sun

LAS VEGAS, Nevada -- Just 20 months ago, Uncle Sam wanted a bigger piece of the action from casino workers in Las Vegas — perhaps the largest concentration of big-tip earners in the country.

Despite labor and management protests, the Internal Revenue Service demanded employers start withholding more from the paychecks of workers who chose to participate in the program rather than face possible audit.

Then the economy turned. Tipping fell across the board — and the issue of IRS withholding is flaring up.

The IRS has agreed with the gaming industry to reduce by 20 percent the amount casino workers must declare as tip income.

The Culinary Union, which represents 60,000 service workers, says tips are down by 50 percent.

The disagreement sets up a showdown between the union and the gaming industry, which union officials say acted alone, without rank-and-file input.

A spokesman for MGM Mirage, the largest player on the Strip and the largest private employer in the state, disagreed with that assessment and heralded the agreement. "It's not often that the letters 'IRS' spell relief, but if you're a tip-earning employee in this economy, that's what they spell," company spokesman Gordon Absher said. "It's our hope that this move will help tip-earning employees to better deal with the adverse economy we're all suffering through."

The Culinary and MGM Mirage requested meetings with the IRS, independent of each other.

Absher noted that the new agreement postpones the second of a three-tier increase and immediately reduces by 20 percent the amount of tip income employees have to declare.

Labor leaders say many members intend to drop out of the IRS' voluntary program to withhold taxes from tip earners, risking the possibility of an audit each year.

"What the IRS has not done is fully understand the economy that's going on here," Culinary Secretary-Treasurer D. Taylor said. "The volume is not the same, the spending level is not the same, and how people are spending their money is different too. Our tip earners are getting whacked in a number of ways, and we don't feel the tax rates reflect that."

He added: "There's a correlation between the number of coolers going to hotel rooms and gratuities on the floor."

According to the Las Vegas Convention and Visitors Authority, visitor volume was down 10 percent in September, the most recent month of available data, and the average daily room rate was down 21 percent from the same month last year.

Taylor said tip earners are also being hurt by an influx of European tourists unaccustomed to the country's tipping culture.

With the threat that large numbers of workers will pull out of the tip-compliance program, IRS representatives are to participate in a seminar at the Culinary's union hall Tuesday to teach members how to keep their own books.

A mass exodus of casino workers from the program would be a big blow to the IRS, which has always worried about getting shortchanged by tip earners. In fact, it instituted the program to capture more of the billions of dollars in tips it says go unreported each year nationwide.

Under the program, the paperwork burden is eased for workers and the IRS. Employers withhold taxes on the estimated tips and the IRS promises not to audit those who participate.

On the other hand, the IRS requires those who don't participate in the program to track daily tips and report the aggregate on their tax returns. The agency offers a worksheet with spaces for tips earned each day, a separate column for tips shared with others and spaces for co-workers' names.

According to the IRS, nearly 90 percent of Nevada's tip-earning workers participate in the program. Taylor said he expects that number to drop significantly under the new agreement. That, in turn, could affect casinos because participation in the program reduces the likelihood that a company — and its employees — will be audited.

The current dispute is playing out against a backdrop of hard feelings between the Culinary and the IRS in recent years.

Thousands of the union's members who participated in the tip compliance program were audited in 2006 despite assurances from the IRS. The Culinary protested the most recent round of rate increases last year when the casino companies negotiated a new three-year tip agreement with the IRS. The union signaled its unhappiness with the program in its contract talks by asking for — and winning — employer contributions to an IRS "defense fund" to assist employees who choose not to participate in the program and therefore might be audited.

"I don't think it's going to get better before it gets worse," Taylor said. "It is complicated to keep your own books, but we want to give all the tools to our members so they can make their own decisions."

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