Sep. 25, 2002 - WASHINGTON -- The Internal Revenue Service, and not restaurant operators, would be responsible for determining whether employees are failing to report income from tips, according to legislation introduced Tuesday. 

The bill by Reps. Wally Herger, R-Calif., and John Tanner, D-Tenn., is an effort to counter a Supreme Court ruling in June that allows the IRS to use broad estimates of employee tip income in calculating payroll taxes owed by restaurants. 

"The Tip Tax Fairness Act clarifies congressional intent by shifting the burden of proof in disputes involving tipping from the small business owners to the IRS," Herger said at a Capitol Hill news conference. 

Herger and Tanner sit on the House Ways and Means Committee that would consider the bill. 

In Nevada, the legislation would apply to restaurants that aren't owned by casinos. 

The bill is not expected to impact restaurants in casinos, which operate under a separate tip rate agreement with the IRS. The current agreement expires at the end of this year, and negotiations for a new agreement are ongoing. 

Betty Wilson, vice president of taxes for MGM Mirage in Las Vegas, said Nevada's casino industry will support the Herger-Tanner bill. 

"It would be a benefit to everybody but the IRS. It would force the IRS to do an audit of individual employees before assessing a tax on the company," Wilson said. 

Van Heffner, president of the Nevada Restaurant Association, said his organization strongly supports the Herger-Tanner bill. 

"It would return the burden on tax collection back to the IRS instead of making restaurants the tip police," Heffner said. 

American Gaming Association Vice President Wally Chalmers said his group needs more time to review the bill before taking a position. The American Gaming Association filed a brief supporting restaurants against the IRS in the Supreme Court case. 

Bill Brunson, an IRS spokesman in Phoenix, said the agency doesn't comment on pending legislation. 

The IRS plans to unveil a new tip rate proposal this fall, Wilson said, to replace the current agreement with Nevada casinos. 

"Negotiations have been moving very slowly. Our last meeting with the IRS was in Las Vegas in June," Wilson said. 

On Monday, four casino employees in Las Vegas were sentenced to six months each in prison after conspiring to provide false information to the IRS about their tip income. 

Tuesday's news conference included about 50 members of the National Restaurant Association. 

Xavier Teixido, the association's president, said the IRS should not be allowed to audit and assess taxes on employers because employees allegedly underreported tip income. 

"In other words, the IRS guesses how much was allegedly underreported, and hands the employer a huge tax," said Teixido, who owns a restaurant in Wilmington, Del. 

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(c) 2002, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News. MGG,