Bartender wins fight with IRS over reporting tips She kept journal, got big tax savings

August 16, 1992|By Glenn Burkins | Glenn Burkins,Knight-Ridder News Service

Some people would do anything to avoid a fight with the IRS, but not Judith Krause, a bartender at the Sands Hotel and Casino in Atlantic City, N.J.

She fought the agency and won, saving herself hundreds of dollars in income tax, says J.K. Lasser's Monthly Tax Letter.

The story began in 1980, when the IRS suspected that Atlantic City casino workers were not reporting their tips. So, for the next 10 years, the agency began secretly watching cocktail servers.

In doing so, the agency was able to estimate how much the average worker earned in tips.

On her income tax return one year, Ms. Krause reported tips income of $6,473, but the IRS said she failed to report an additional $5,852, based on the industry average it had calculated.

Ms. Krause won in Tax Court. The judge said IRS statistics are acceptable in cases where a taxpayer fails to keep records. But Ms. Krause kept a daily journal of her tips, and under those circumstances, her records were deemed to be reliable.

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