Waiter, There's an IRS Agent in My Soup

Abstract:     
In the late 1960's, the IRS achieved an auditing breakthrough in discovering unreported tip income, using a method first developed at the Seattle Space Needle Restaurant. This technique was applied and expanded cross-country, notably at the Resorts International Hotel in Atlantic City, NJ. Later, in 1982, Congress entered the fray, mandating that aggregate tips of at least 8% of gross sales had to be reported, by someone, in those establishments at which tipping was customary. The promulgation of proposed regulations ignited angry protests from restaurant employees all across the country. As a result, many restaurants attempted to abolish tipping, substituting a mandatory "service charge" instead.

This article tells the political story of the IRS, Congressional, and Treasury campaigns, and the protests that followed.

Keywords: taxation, tipping, restaurants, casinos

JEL Classifications: H20, H26

Accepted Paper Series