A Short Story About Connecticut Unemployment Reporting

I read that the Governor of Connecticut has signed a bill repealing certain additional payroll reporting requirements otherwise slated to start next year.

As background, all state quarterly unemployment returns include certain basic information, including:

·       Name

·       Social security number

·       Wages paid in the quarter

Prior to repeal, Connecticut employers were to report additional information with their quarterly unemployment returns. The reporting was to start in 2024, with the exact phase-in depending on the number of employees:

·       Gender identity

·       Age

·       Race

·       Ethnicity

·       Veteran status

·       Disability status

·       Highest education completed

·       Home address

·       Address of primary work site

·       Occupational code under the standard occupational classification (SOC) system of the federal Bureau of Labor Statistics

·       Hours worked

·       Days worked

·       Salary or hourly wage

·       Employment start date in the current job title

·       Employment end date (if applicable)

Ten of the above 15 data elements are not collected by any other state.

There was concern that the additional elements could negatively impact people filing for benefits – that is, the actual purpose of unemployment taxes.

“The Department of Labor would need to edit incoming reports against certain standards and reject employer wage/tax reports or suspend processing while seeking clarification of elements reported.   

“Rejected or suspended wage reports could make wage information unavailable when unemployment claimants apply for benefits.”

It appears a breath of sanity.

Talking Tax Levies

I don’t see it very often.

I am referring to an IRS bank levy.

However, when it happens it can be disrupting.

Let’s distinguish between a lien and a levy.

A lien is a claim against property you own to secure the payment of tax that you owe. The most common is a real estate lien, and I have one on my desk as I write this.

A lien means that you are fairly deep into the collection process. It does not necessarily mean that you have blown-off the IRS. Owe enough money and the IRS will file a lien as a matter of policy. It does not mean anything is imminent, other than the lien hurting your credit score. When I see one is when someone wants to either sell or refinance a property. In either case the lien has to be addressed, which – if you think about it – is the point of a lien.

A levy is a different matter. A levy takes your stuff.

The threat of a levy is a powerful inducement to come to a collection agreement with the IRS. Perhaps the agreement is to pay-off the liability over time (referred to as an installment agreement). There is a variation where one cannot – realistically – pay-off the full liability over time. The IRS settles for less than the full liability, and this variation is called a partial-pay agreement.  A cousin to the partial-pay is the offer in compromise, that of notorious (“pennies on the dollar”) middle-of-the-night TV fame. If one is in dire enough circumstances, there is also currently-not-collectible status. The IRS will not collect for a period of time (around a year). A code is posted on your account and further collection action will cease (again, for about a year).

What collection agreements do is put a stop to IRS levies – with one exception.

Let’s talk about the three most common levies that the IRS uses.

The first is the tax refund offset.

This happens when you file a tax return showing a refund. The IRS will not send you a refund check; rather they will apply it to tax due for other periods or years. It is a relatively innocuous way of collecting on the debt, and I have seen clients intentionally use the offset as a way of paying down (or off) their back taxes.

The offset, by the way, is the one exception to continued IRS levy action mentioned above.

The second is the garnishment. The most common is the wage garnishment. The IRS sends a letter to your employer, advising them to start withholding. Your employer will, because – if they don’t – they become responsible for any amounts that should have been garnished. I have heard of people who will then keep changing jobs, with the intent of staying one step ahead of the IRS.  

There are other types of garnishments, depending on the income source. An independent contractor can be garnished, for example. Even social security can be garnished.

In general, if you get to this type of levy, you REALLY want to work something out with the IRS. The tax Code addresses what the IRS has to leave for you to live on; it does not address how much it can take.

The third is the bank levy.

The IRS sends a notice to the bank, which then has to freeze your account. The notice can be mailed (probably the most common way) or it can be hand-delivered by a revenue officer. The freeze is for 21 days, after which the bank is (unless you do something) sending your balance (up to the amount due) to the IRS.

That is how it works, folks. It is not pretty, and it is not intended to be.

You may wonder what the 21 days is about. The IRS wants you to contact them and work-out a collection plan. Hit the ground running and you might be able to stop the levy. Delay and all hope is likely gone.

The risk of a bank levy is one reason why some taxpayers are hesitant to provide bank information with their tax returns. Granted, as private information becomes anything but and as tax agencies are mandating electronic bank payments this issue is receding into the distance.

Did you, for example, know that the IRS can ping your bank account, just to find out your balance?

Take a look at this:

         § 6333 Production of books.

If a levy has been made or is about to be made on any property, or right to property, any person having custody or control of any books or records, containing evidence or statements relating to the property or right to property subject to levy, shall, upon demand of the Secretary, exhibit such books or records to the Secretary.

There is something about a bank levy that you may want to know: it is a one-time shot.

An offset or wage levy is self-sustaining. It will continue month after month, payment after payment, until the debt is paid off or the levy expires.

The bank levy is different. It applies to the balance in your bank account when the levy is delivered.  This means that it cannot reach a deposit made to the account the following day, week or month. If the IRS wants to reach those deposits, it has to reissue the levy (the term is “renew”).

What got me thinking about bank levies is a Chief Counsel Advice I was reading recently. A bank received a levy, and, wouldn’t you know, the taxpayer made a deposit to the account the same day – but after the bank’s receipt of the levy. The bank had zero desire to mess with surrogate liability and asked the IRS what it should do with that later deposit.

Remember that a bank levy is a photograph – a frozen moment in time. The IRS said that the later deposit occurred after that moment and was not in the photograph. The bank was not required to withhold and remit that later deposit to the IRS.

Makes sense. What doesn’t make sense is that the IRS would have/should have issued a blizzard of paperwork to the taxpayer, including an ominous “Notice of Intent to Levy” and “Final Notice of Intent to Levy and Notice of Your Rights to a Hearing.” Both those notices give one collection rights. I prefer the rights given under the “Final Notice,” but sometimes it takes a saint’s patience to explain to a client why we are not responding to the “Notice of Intent” and instead waiting on its sibling “Final Notice of Intent.”

Anyway, the taxpayer apparently blew-off these notices and kept depositing to the same bank account as if nothing was amiss in their world. Everything in the CCA made sense to me, with the exception of the taxpayer’s behavior.

This time we talked about Chief Counsel Advice 202118010.

FICA Tax On Nonqualified Deferred Compensation

 

One of the accountants brought me what she considered an unusual W-2.

Using accounting slang, Form W-2 box 1 income is the number you include on your income tax return. Box 3 income is the amount on which you paid social security tax.  There often is a difference. A common reason is a 401(k) deferral – you pay social security tax but not income tax on the 401(k) contribution.

She had seen fact pattern that a thousand times. What caught her eye was that the difference between box 1 and box 3 income was much too large to just be a 401(k). 

Enter the world of nonqualified deferred compensation.

What is it?

Let’s analyze the term backwards:

·      It is compensation, meaning that there is (or was) an employment relationship.

·      There is a lag in the payment. It might be that the employee wants the lag; it might be that the employer wants the lag. A common example of the latter is a handcuff: the employee gets a bonus for remaining with the company a while.

·       The arrangement does not meet the requirements of standardized deferred compensation plans, such as a profit-sharing or 401(k) plan. You have one of those and tax Code requires to you include certain things and exclude others. That standardization is what makes the plan “qualified.”

A common type of nonqual (yep, that is what we call it) is a SERP – supplemental executive retirement plan. Get to be a big cheese at a big company (think Proctor & Gamble or FedEx) and you probably have a SERP as part of your compensation package.

I wish I had those problems. Not a big company. Not a big cheese.

Let’s give our mister big cheese a name: Gouda.

Gouda has a nonqual.

The taxation of a nonqual is a bit nonintuitive: the FICA taxation does not necessarily coincide with its income taxation.

Let’s run through an example. Gouda has a SERP. It vests at one point in time- say 5 years from now. It will not however be paid until Gouda retires or otherwise separates from service.

Unless something goes horribly wrong. Gouda does not have income tax until he receives the money. That might be 5 years from now or it might be 20 years.

Makes sense.

The FICA tax is based on a different trigger: when does Gouda have a right to the money?

Think of it like this: when can Gouda sue if the company fails to pay him? That is the moment Gouda “vests” in the SERP. He has a right to the money and – barring the exceptional – he cannot be stripped of this right.

In our example, Gouda vests in 5 years.

Gouda will pay social security and Medicare (that is, FICA) tax in 5 years.

It is what sets up the weird-looking Form W-2. Let’s say the deferred compensation is $100 grand. The accountant is looking at a W-2 where box 3 income is (at least) $100 grand higher than box 1 income (remember: box 1 is income tax and Gouda will not pay income tax until gets the money).

There is even a name for this accounting: the “Special Timing Rule.”

Why does this rule exist?

You know why: the government wants its money - at least some of it.

But if you think about it, the special timing rule can be beneficial to the employee. Say that Gouda is drawing a nice paycheck: $400 grand. The social security wage base for 2020 is $137,700. Gouda is way past paying the full-boat 7.65% FICA tax. He is paying only the Medicare portion of the FICA - which is 1.45%. If the IRS waited until he retired, odds are the Gouda would not be working and would therefore have to pay the full-boat 7.65% (up to the wage limit, whatever that amount is at the time).

Can Gouda get stiffed by the special timing rule?

Oh yes.

Let’s look at the Koopman v United States case.

Mr Koopman retired from United Airlines in 2001. He paid FICA tax (pursuant to the special timing rule) on approximately $415 grand.

In 2002 United Airlines filed for bankruptcy.

It took a few years to shake out, but Mr Koopman finally received approximately $248 grand of what United had promised him.

This being a tax blog, you know there is a tax hook somewhere in there.

Mr Koopman wanted the excess FICA he had paid. He paid FICA on $415 grand but received only $248 grand.

In 2007 Koopman filed a refund claim for that excess FICA.

Does he have a chance?

Mr Koopman lost, but he did not lose because of the general rule or special rule or any of that. He lost for the most basic of tax reasons: one only has 3 years (usually) to amend a return and request a refund. He filed his refund request in 2007 – much more than 3 years after his withholdings in 2001.

Is there something Koopman could have done?

Yes, but he still could not wait until 2007. He would have had to do it by 2004 – the magic three years.

What could he have done?

File a protective refund claim.

I do not believe we have talked before about protective claims. It is a specialized technique, and an accountant can go a career and never file one.

I believe we have a near-future blog topic here. Let me see if I can find a case involving protective claims that you might want to read and I would want to write.

You Receive A Wage Garnishment

I was minding my own business. My partner sweeps into my office and says we have to take care of something right away – hopefully that very afternoon.

Hey, I am a career CPA. Some level of ADD is almost requisite to longevity in this profession.

He drops an IRS Form 668-W on my desk.

There is something I had not seen in a while.

What is a 668-W?

A wage garnishment. The IRS refers to it as a “levy.” If you get to this point, you have almost gone through the belly of the whale. The IRS has sent notice after notice, giving you a chance to contest, request abatement, defer collection or set up a payment plan. You have ignored them all. They got angry. They are now garnishing your paycheck.

This notice goes to your employer, and your employer is charged with notifying you. Your employer is going to garnish your next paycheck. Your employer does not want to go resistance here, as an employer becomes liable should they just blow it off. And then there is a 50% “hi there” penalty on top of that.

The IRS publishes tables telling you how much you get to keep. Say that the you are married, have one kid and receive a weekly net check of $1,017.65. The table indicates that you can keep $541.35. The employer withholds and remits the $476.30 balance ($1,017.65 – 541.35) to the IRS.

On the upside, the IRS is not touching your health insurance or 401(k) withholding. On the down side, it is jonesing the rest of your paycheck.

Can you live on $541.35?

That is not the point.

The point is that the IRS wants you to reenter the grid and establish a payment plan. Once you do so, the IRS will release the levy. As far as they are concerned, you should have done so already. The levy is to slap you into reality.

And you have forfeited some (at this point) important procedural rights.

Say that there is a question whether you actually owe some or all of the tax. Had you paid attention to the increasingly strident string of IRS notices, you would have noticed one titled “Notice of Intent to Levy.”

That one is serious. Not as serious as the 668-W, of course, but serious.

At that time, you had the right to request an IRS appeals hearing, called a Collection Due Process hearing. That puts you in front of an Appeals officer to plead your case, including whether you actually owe some or all of what the IRS wants.

Say you ignored the Notice of Intent.

It is a year or two later and you receive the 668-W.

You bring it to me. You may note that I am not humored.

Guess what important right you forfeited by ignoring the earlier notice?

That’s right: being able to argue whether you actually owe some or all of the tax.

That is dandy if there is no question whether you owe the money.

Not my situation. The friend has a very good case that he does not owe (at least some) of the tax.

But we are past the point where I can force a collection hearing to talk about the matter.

Is it hopeless?

Nope. A proficient tax practitioner still has tricks.

Like?

Like an offer in compromise. You know, those middle of the night commercials to settle millions of dollars of tax debt for the change in your pocket.

Is the friend broke?

Not the point.

What is the point then?

There is more than one type of offer. The one I am considering has nothing to do with your ability to pay. It instead has to do with whether you actually owe the money. The first addresses doubt as to collectability. The second addresses doubt as to liability.

It is one way to get the IRS to review the file with an eye as to liability.

Is this what we are going to do?

Doubt it.

Why not?

Because an offer will stay that levy only so long. The IRS can still demand a weekly wage levy WHILE they are considering the offer. Will it happen? Maybe yes, maybe no, but why run the risk?

What is an alternative?

File an appeal.

An appeal shuts down all collections action, meaning that I do not have to bank on the IRS’ better nature to stay that levy. Appeals allows me to introduce evidence that the friend does not owe all the assessment. I am also hoping to get penalties abated, at least some, but that would be a bonus.

Should the friend’s situation have gotten to this point?

I am sympathetic. Those who have followed me know that I am generally pro-taxpayer, but that is not what we have here. There were notices, which were ignored. There was a statutory notice of deficiency, which was ignored. After the statutory notice, taxes and penalties were officially assessed, which was also ignored. There was a chance for reconsideration, which was ignored. 

During all this there was ALWAYS a chance for a payment plan.

As I said, you may note that I am not humored.

When The IRS Says Loan Repayments Are Taxable Wages

Here is a common-enough fact pattern:

(1) You have a company.

(2) You loan the company money.

(3) The company has an unprofitable stretch.

(4) Your accountant tells you to reduce or stop your paycheck.

(5) You still have bills to pay. The company pays them for you, reporting them as repayments of your loan.

What could go wrong?

Let’s look at the Singer Installations, Inc v Commissioner case.

Mr. Singer started Singer Installations in 1981. It was primarily involved with servicing, repairing and modifying recreational vehicles, although it also sold cabinets used in the home construction.

After a rough start, the business started to grow. The company was short of working capital, so Mr. Singer borrowed personally and relent the money to the company. All in all, he put in around two-thirds of a million dollars.

PROBLEM: Forget about the formalities of debt: there was no written note, no interest, no repayment schedule, nothing. All that existed was a bookkeeping entry.

The business was growing. Singer had problems, but they were good problems.

Let’s fast-forward to 2008 and the Great Recession. No one was modifying recreational vehicles, and construction was drying up. Business went south. Singer had tapped-out his banks, and he was now borrowing from family.

He lost over $330 grand in 2010 and 2011 alone. The company stopped paying him a salary. The company paid approximately $180,000 in personal expenses, which were reported as loan repayments.

The IRS disagreed. They said the $180 grand was wages. He was drawing money before and after. And – anyway – that note did not walk or quack like a real note, so it could not be a loan repayment. It had to be wages. What else could it be?

Would his failure to observe the niceties of a loan cost him?

Here is the Court:

We recognize that Mr. Singer’s advances have some of the characteristics of equity – the lack of a promissory note, the lack of a definitive maturity date, and the lack of a repayment schedule …”

This is going to end poorly.

 … but we do not believe those factors outweigh the evidence of intent.”

Wait, is he going to pull this out …?

 … because intent of parties to create [a] loan was overwhelming and outweighed other factors.”

He won …!

However, we cannot find that all of the advances were loans.”

Then what would they be?

While we believe that Mr. Singer had a reasonable expectation of repayment for advances made between 2006 and 2008, we do not find that a similarly reasonable expectation of repayment existed for later advances.”

Why not, Sheldon?

 After 2008 the only source of capital was from Mr. Singer’s family and Mr. Singer’s personal credit cards.”

And …?

No reasonable creditor would lend to petitioner.”

Ouch.

The Court decided that advances in 2008 and earlier were bona fide loans. Business fortunes changed drastically, and advances made after 2008 were not loans but instead were capital contributions.

This “no reasonable creditor would lend” can be a difficult standard to work with. I have known multimillionaires who became such because they did not know when to give up. I remember one who became worth over $30 million – on his third try.

Still, the Court is not saying to fold the company. It is just saying that – past a certain point – you have injected capital rather than made a loan. That point is when an independent third party would refuse to lend money, no matter how sweet the deal.

Why would the IRS care?

The real-world difference is that it is more difficult tax-wise to withdraw capital from a business than it is to repay a loan. Repay a loan and you – with the exception of interest – have no tax consequence.

Withdraw capital – assuming state law even allows it – and the weight of the tax Code will grind you to dust trying to make it taxable – as a dividend, as a capital gain, as glitter from the tax fairy.

It was a mixed win for Singer, but at least he did not have to pay taxes on those phantom wages.

What Can The IRS Do To You For Ignoring That Wage Or Levy Request?

What happens if the IRS sends you a levy (say on an employee, but it could also be your account payable to a vendor) and you ignore it?

You can guess that it is not going to be good.

I am looking at U.S. v 911 Management.

Daniel Dent was the sole manager of 911 Management, a limited liability company. The company must have been successful, as it was distributing $5,700 monthly to Kathy Weathers, one of its members. In 2007, the company further entered into an agreement with Kathy to operate two hotels owned by her, from which it would pay her 3% of the monthly gross proceeds.

In 2007, the IRS served levy against the bank accounts of 911 Management. That action wound up in litigation.

In February 2008, the IRS served Notice of Levy on 911 Management. It wanted both the $5,700 and 3%, as the Weathers had fallen behind on taxes for 1996 and from 1998 through 2006. Turns out that Tom and Kathy Weathers were convicted of tax fraud. Tom was serving 60 months at Club Fed, and Kathy received two years of probation.

OBSERVATION: Tom Weathers went to prison in October 2005. Coincidentally, 911 Management was formed the same month. The Company was paying Kathy $5,700 monthly, and that amount increased when she added the management of two hotels into the mix. The IRS was fairly confident that the transaction was a sham and a way to provide monies to her while her husband was in jail.

There were technical issues with the levy notice, and the previous levy effort by the IRS was in litigation. Dent contacted his business advisor as well as an attorney, and he in turn received two separate but not conflicting responses. The business advisor informed him that a bond had been posted, satisfying all the back taxes for the Weathers. It was therefore not necessary to honor the Notice of Levy, as the matter had been resolved.

COMMENT: The Revenue Officer informed Dent otherwise and that monies were still due. This must have alerted Dent that not all the facts were in.

Dent also contacted an attorney, who had reservations about the levy procedure itself. The attorney believed that the levy did not apply, because the levy was for salaries and wages and the payments to Mrs. Weathers were neither.

OBSERVATION: Thus began a high-stakes gambit. There are tax practitioners who play a heavy-procedural game, waiting if not stoking the IRS to make a procedural mistake. For the most part, I have found this to be the arena of the tax attorneys rather than tax CPAs, and I have been on the listening end of some scathing anecdotes by IRS revenue agents over the years. The IRS catches on, of course, and will commonly assign more experienced agents when such a practitioner surfaces. Still sometimes the tactic works, and the tete a tete continues another day.

Dent informed the revenue officer that the levy did not apply. He of course did not remit the $5,700 or the 3%. The revenue officer vociferously disagreed. Dent did not remit anything, relying upon his attorney’s advice that the levy was erroneous.

Remember that I mentioned the IRS had levied in 2007, a year before? That case was decided, and both 911 Management and Dent were held personally liable for the levy request. That is what happens when one ignores a levy: one steps into the shoes of the delinquent taxpayer. It is the levy equivalent of the “responsible person” taxes, which apply when one does not remit withheld payroll taxes.

So Dent was held personally responsible. Can it get worse?

You bet.

There is another penalty: the Section 6632(d)(2) penalty, which is 50% for failure to honor the levy. The IRS wanted this penalty against Dent. Remember, the IRS believed 911 Management to be a sham, so they were going to go the extra mile against Dent for participating in the sham and resisting the levy.

There is a “reasonable cause” exception to the penalty, and the Court decided that Dent had reasonable cause. How? Apparently, there was enough smoke on the water over IRS procedure in pursuing the levy that the Court accepted Dent’s reliance on his attorney as reasonable cause.

Mind you, they accepted his reliance on an attorney as reasonable cause to not levy another 50%. Dent was already personally responsible.

Another “win” like that and Dent might bankrupt himself.

COMMENT: 911 Management came into existence when Mr. Weathers went to jail in 2005 for five years. When did 911 Management cease doing business? Five years later – 2010 – when Mr. Weathers was released from jail. Coincidence? Just saying.

Why Is The IRS Looking At Restaurant Tips (Again)?

I recently visited one of our clients. He owns a restaurant/bar. That is a tough business under the best of circumstances.  It is a business where almost all your profit comes from paying attention to the nickels and dimes.

Is there anything new out there, he asked?

We talked about the IRS’ recent interest in employee tips and gratuities. What is the difference?

• A tip is an amount determined by the patron

• A service charge is an amount agreed upon by the restaurant and patron

The IRS has long defined a tip as:

1. Paid free from compulsion
2. Determinable by the customer
3. Not dictated by the restaurant/employer
4. The recipient of which is identified by the customer

You may know that restaurant employees are paid a lower minimum wage, as a substantial part of their income is expected to come from tips. The employees are supposed to report their tips to the restaurant, which in turn withholds the employee’s share of the taxes. The restaurant also pays employer FICA on the base wages and tips.

The IRS has long believed that there exists substantial noncompliance with tip reporting by restaurant employees, and it has rolled out a number of “programs” over the years with the intent of increasing compliance. I have been through several of these, and my conclusion is that the IRS just wants money, even if it takes a work of fiction to get there. For example, if the IRS feels that the cash tip rate is too low, they will simply propose a higher rate, and call upon the restaurant (which then means me) to prove otherwise. Failure to do so means the restaurant is writing a tidy check for those actual taxes on proposed tips.

It is unfortunately too common that a server will be under-tipped if he/she is serving a large party. As a defense mechanism, many restaurants have imposed a service charge policy (also known as an auto gratuity or “auto-grat”) on that table or tables. The policy has worked fine for years.

But not for the IRS. They have recently clarified that they don’t believe auto-grats count as a tips, as the customer does not have the option of changing the amount or directing who is to receive it. I have to admit, the IRS has a point. However, are they making things worse by pressing the point? Let’s go through a few issues:

• The auto-grat will be on the server’s paycheck, rather than cashed out at the end of the shift. This is not a big deal in the scheme of things – except perhaps to the server.

• Restaurants are allowed to claim a tax credit for employer FICA paid on tips in excess of the amount necessary to get a server to minimum wage.

a.     Reduce the amount considered to be tips and you reduce the credit available to the restaurant.

b.     Meaning more tax to the restaurant.

• An auto-grat is considered revenue to the restaurant. Tips are not. States with a gross revenue tax – such as Ohio with its CAT – will now tax those auto-grats.

a.     Meaning more tax to the restaurant.

• Following on the same vein as (3), the customer will pay more sales tax, as the auto-grat is included in sales.

a.     Meaning more tax to the customer.

• How does one (I don’t know: say my accounting firm) figure out what rate of pay to use if the employee works overtime?

a.     Remember, service charges are resetting the base rate of pay.

b.     What if they server works tips and auto-grat tables over the course of one shift? Do they have one rate of pay or two? How would you even calculate this?

• Let’s throw a little SALT (State And Local Tax) into the mix: some states do not follow the federal definitions. For example, New York will consider auto-grats to be considered tips if they are separately stated on the receipt or invoice. New Jersey and Connecticut follow this line also.

a.     The good thing is that auto-grats will not be subject to New York sales tax.

b.     The bad thing is the accounting required to figure this out.

How long do you think it will be before the attorneys eviscerate some restaurant chain for violations of FLSA and overtime regulations? Remember, a service charge can change a server’s base pay, something a tip cannot do. On the other hand, the odds of overtime under the current economy are pretty low.

What about discrimination? How long before someone sues for being scheduled insufficient/excessive service -charge/non-service-charge shifts?

You know what I would do? I would do away with service charges altogether. I am not bringing that tiger to the party. Tips only at my restaurant.

Is it good for the servers? Since when does any of this care whether it is good for the employee?

It is about one thing: more money to the IRS. There may have been a time when I would have been sympathetic to the government’s position, but in this day of credit and debit cards, I am cynical about how much “unreported” income there is left to squeeze out of this turnip. I am also concerned that some restaurants may impose a service charge and then keep a portion of it for themselves rather than pass it along in full to the servers and others.  I am unhumored by the IRS, but I would be beyond unhumored by a restaurant that did that to its employees.