Rev. Rul. 2012-18 Affecting Restaurant Employees, Waiters and Bartenders

In Rev. Rule. 2012-18, affecting restaurant employees, waiters and bartenders, the IRS has updated guidance on what will be considered tips, to which FICA rules do not apply, and service charges, which are wages subject to the FICA rules, requiring the applicable employee wage withholdings.  In summary, the IRS will look beyond how the payment is characterized by the employer.  The IRS states that mandatory additions to a bill are part of the service charge, and not a tip, even if designated as a tip in the bill. In such instances, the IRS will require the tip to be characterized as a service charge.  This ruling is anticipated to be applied retroactively by the IRS.

See http://www.irs.gov/irb/2012-26_IRB/ar07.html & Rev. Rul. 2012-18
In the First Circuit Court of Appeals, in an appeal of a Tax Court decision, a married couple, with real property held in Trust for their adult sons, was denied an offer in compromise.  Because the couple was seen as having a nominee interest in the real property, the IRS properly included the value of the real property in their net realizable value of the couple’s OIC filing, and as a result, the couple did not qualify for the OIC.

See Case No. 11-2217, United States Court of Appeals

For the First Circuit