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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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