| Understanding how much you are required to pay in | | | | less than the amounts customers stated on their credit |
| taxes is usually difficult enough. Adding tips into the mix | | | | card receipts. The IRS investigated the discrepancy |
| only complicates and confuses things further. | | | | and "issued an assessment against Fior D'Italia" for the |
| However, if you do not remit the correct amount to | | | | additional taxes. Fior D'Italia challenged these extra tax |
| the IRS, they will eventually call the debt in full. Such | | | | charges, claiming that the method the IRS used for |
| was the case for the Fior D'Italia Restaurant and the | | | | estimating the tips was incorrect and forced them to |
| resulting legal battle went all the way to the Supreme | | | | overpay. After a 9th Circuit court agreed with the |
| Court. | | | | restaurant the highly publicized case reached the |
| In 1886, Angelo Del Monte and "Papa" Marianetti | | | | Supreme Court. Many eating establishments watched |
| opened the "Ristorante Fior D'Italia" in downtown San | | | | the proceedings with bated breath because the |
| Francisco, California. Surviving a fire during the gold | | | | outcome would greatly impact how restaurants |
| rush and operating out of a tent after the earthquake | | | | reported tips. |
| in 1906, the restaurant has served classic Italian food to | | | | The method in debate was "aggregate estimation". |
| a variety of people from all walks of life. According to | | | | Basically, "the IRS examined the restaurant's credit |
| their menu, Fior D'Italia is "America's oldest Italian | | | | card slips...finding that customers had tipped, on |
| restaurant". | | | | average, 14.49% of their bills...Assuming that |
| However, in 2002 the restaurant was charged with | | | | cash-paying customers...tipped at those rates also, the |
| $23,000 in unpaid taxes from tips that the IRS | | | | IRS calculated total tips by multiplying the tip rates by |
| estimated they earned. According to CBS, | | | | the restaurant's total recipts." Then they would |
| "Determining taxes from tips has long been a | | | | subtract the tips that had already been reported and |
| troublesome task because often the tips are cash and | | | | taxed and apply the current tax rate of 7.65% to the |
| workers handle their own paperwork." By federal law, | | | | remaining amount. The Supreme Court ruled in 2002 |
| both staff and employers are required to pay a | | | | that this was a legitimate method of taxing restaurants. |
| percentage of tips to Social Security and Medicare. | | | | This case brought to light the importance of accurate |
| Although Fior D'Italia reported their tips in 1991 and 1992, | | | | tip reporting and accurate tax information. |
| the amounts for which they paid taxes were much | | | | |