Otis L. Pimpleton and Tabitha Pimpleton - Page 8

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         (per petitioner’s Form W-2) from tips derived from petitioner’s              
         sales from the room service function.  Respondent calculated the             
         latter amount by multiplying petitioner’s net sales ($61,427.78)             
         by a tip rate of 15.4 percent and then subtracting an amount                 
         ($147) that appears to reflect “tip-outs”; i.e., the amount paid             
         by petitioner to his bussers.6                                               
                                     Discussion                                       
              We begin with a number of well-established principles.                  
         First, there is no question that tips constitute compensation for            
         services and are includable in gross income under section 61(a).             
         Catalano v. Commissioner, 81 T.C. 8, 13 (1983), affd. without                
         published opinion sub nom. Knoll v. Commissioner, 735 F.2d 1370              
         (9th Cir. 1984); Meneguzzo v. Commissioner, 43 T.C. 824, 831                 
         (1965); Sec. 1.61-2(a)(1), Income Tax Regs.                                  
              Second, all taxpayers are required to maintain records                  
         sufficient to determine their correct tax liability.  Sec. 6001;             
         Meneguzzo v. Commissioner, supra at 831-832.  When a taxpayer                
         receives tips on a daily basis, he or she is required to keep an             
         accurate and contemporaneous record of such income.  Ross v.                 
         Commissioner, T.C. Memo. 1989-682, affd. without published                   


               6  The 15.4-percent tip rate was based both on financial               
          data furnished by the room service department of the Las Vegas              
          Hilton (e.g., sales journals and credit card records) and on                
          interviews of department personnel.  The determined tip rate                
          reflects a “stiff” rate of 15 percent and a 2-percent discount              
          for tips paid in cash (rather than by credit card).                         





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