Meneguzzo v. Comm'r of Internal Revenue, Docket No. 470-63.
| Decision Date | 18 March 1965 |
| Docket Number | Docket No. 470-63. |
| Citation | 43 T.C. 824 |
| Parties | BARRY MENEGUZZO, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
J. Arthur McNamara, for the petitioners.
Frederic S. Kramer, Kennard L. Mandell, Lee S. Kamp, Michael D. Weinberg, and Marie L. Garibaldi, for the respondent.
1. Petitioner, a waiter, failed to keep adequate records of tip income. Respondent used a formula to ascertain the amounts of tips received by petitioner at Whyte's Restaurant (downtown), and determined deficiencies in income tax based upon such amounts. Held, respondent's formula was reasonable and essentially accurate, although two minor adjustments were required in its application to petitioner. Respondent's determination, as modified, is sustained.
2. Petitioner earned no tips at Recineway Restaurant, a catering house. Held, respondent erred in including in petitioner's income an amount of tips equal to petitioner's wages from Recineway.
3. Held, additions to tax under section 6653(a), I.R.C. 1954, were proper. Carroll F. Schroeder, 40 T.C. 30 (1963), followed.
Respondent has determined deficiencies in petitioner's income tax and additions to tax as follows:
+---------------------------------+
¦ ¦ ¦Additions to tax,¦
+----+----------+-----------------¦
¦Year¦Income tax¦sec. 6653(a), ¦
+----+----------+-----------------¦
¦ ¦ ¦I.R.C. 1954 ¦
+----+----------+-----------------¦
¦1957¦$559.90 ¦$27.99 ¦
+----+----------+-----------------¦
¦1958¦559.28 ¦27.87 ¦
+----+----------+-----------------¦
¦1959¦386.35 ¦19.32 ¦
+---------------------------------+
The primary issue for decision is whether petitioner, a waiter, understated his income from tips. A second issue is whether respondent properly determined additions to tax under section 6653(a).1
We have decided to consider the second issue even though it may not, technically, be presented by the pleadings. Rule 7(c)(4)(B)4 and 5, Tax Court Rules of Practice, requires ‘Clear and concise assignments of each and every error’ alleged to have been committed by respondent as well as ‘Clear and concise lettered statements of the facts upon which the petitioner relies as sustaining the assignments of error.’ Neither the assignments of error nor the statements of facts relied upon in the petition in this case can be construed as putting in issue respondent's assertion of the negligence penalty of section 6653(a) as a matter separate from the existence vel non of a deficiency. Nevertheless, considering that the issue is not a complex one and that respondent was clearly prepared to try the question, we deem it advisable to decide the issue on its merits. See Erwin Gerber, 32 T.C. 1199 (1959).
Some of the facts have been stipulated and are so found.
Petitioner filed his individual Federal income tax returns for the years 1957-59 with the district director of internal revenue for the district of Manhattan, New York City, N.Y. During the taxable years petitioner worked as a waiter at Whyte's Restaurant, 145 Fulton Street, Whyte's Restaurant, 344 West 57th Street, both in New York City, and also at Recineway Restaurant, Bronx, N.Y.
During the years in issue, Whyte's restaurant, 145 Fulton Street, New York City (hereinafter referred to as Whyte's downtown),2 was a good-quality restaurant in the Wall Street area, patronized by business and professional people. It was open Monday through Friday, except holidays, from 11:30 a.m. to 8:30 p.m. The average food and beverage charge at Whyte's downtown was $4-$5 per person.
There are two floors and a basement in Whyte's downtown, containing four rooms for serving patrons. The upstairs dining room, also known as the ladies' dining room, can seat 200 persons. In the evenings it was used only for banquets. The main dining room, near the Fulton Street entrance, and the cafe, located near the Ann Street entrance and adjacent to a standup bar, had a combined seating capacity of 375. The Beefeater's Room, in the basement, could seat 75 persons; this room was used only for parties.
During the years in question Whyte's downtown employed 35 waiters, of whom 14 had stations in the upstairs dining room, 15 in the main dining room, and 6 in the cafe. Most of the waiters had regular stations, which were allotted primarily on the basis of seniority. There was no rotation of stations. In each room there were union delegates who in addition to their waiting duties kept daily and weekly records of the number of customers served by each waiter. The purpose of this practice was to ensure that the headwaiters allotted an equal number of customers to each waiter.
Whyte's was busiest at lunchtime, between the hours of 12 and 2 p.m. For lunch, the waiters arrived at 11 a.m. and worked until about 2:30 p.m. Working hours for dinner were approximately from 5 p.m. to 8:30 p.m. Before serving, the waiters had to clean up and get their stations in order. Besides taking and filling orders for food, the waiters also took and filled orders for liquor served at their tables. This required a trip to the service bar, which was at one end of the standup bar on the main floor. The waiters carried their own trays; however, the tables were cleared and set by busboys, who also served the bread and butter.
The work in the cafe was somewhat different from that in the rest of the restaurant. No women were allowed in the cafe until after 2 p.m. Many luncheon patrons would have a drink or two at the standup bar before sitting down to lunch. Frequently, upon leaving the bar, charge account customers would take a drink to the table or tell the bartender to send another drink to the table. Under these circumstances, the price of the drinks might be added to the food checks even though the sales were not properly attributable to any waiter. The customers would generally disregard the cost of drinks added in this manner when computing the tip for the table waiter, since they normally tipped the bartender for serving those drinks. In the evenings there were relatively few dinners served in the cafe. Many customers came in only for cocktails. Others took advantage of a free buffet that was set up nightly in the cafe for persons buying drinks. The waiters in the cafe pooled their tips in the evening. Monday and Tuesday evenings there were three waiters in the cafe; Wednesday through Friday there were four.
In 1957-59, waiters at Whyte's downtown received wages of approximately $18-$21 per week or $3.60-$4.20 per day for working only lunches, and $33-$37 per week or $6.60-$7.40 per day for working both lunch and dinner. 3 Each waiter was entitled to, and required to take, 2 (or 3) weeks' vacation with pay each year.4 The waiters were required to wear uniforms, consisting of black dinner jacket and accessories, while on duty. They owned and maintained their own uniforms, which were not suitable for street wear. Most, if not all, of the waiters belonged to the union and paid monthly dues of $4.75. Busboys regularly received 15 percent of the waiters' tips, and perhaps a bit more if the waiters' tips were unusually low.
Whyte's downtown handled a large amount of banquet business. Before Christmas, there frequently were banquets in every room in the restaurant 5 nights per week. Luncheon banquets were less frequent. During an average nonsummer month, banquets accounted for a significant percentage of dinner and about 10 percent of luncheon customers. In December the dinner percentage of banquets was high, reaching about 60 percent; during the summer it was lower. Overall, banquet business made up about 20 percent of the dollar volume at Whyte's downtown.
Banquet parties ranged in size from 20 to 200 persons, with the majority exceeding 40 persons. For each banquet, the courses to be served were planned in advance, and a fixed charge per person was set. The amount of such charge was determined by a number of factors, such as the type of food served, whether the charge included tips, and whether the charge included liquor. The banquet charge per person sometimes included tips; when this was done, tips averaged 10 to 15 percent of the base price for the food. At other times, a percentage, usually 10 to 15 percent, was added to the bill for tips. Sometimes the waiters were permitted to take up a collection. The records of Whyte's downtown did not distinguish between banquet and regular sales.
The portion of banquet tips allotted to the waiters for a banquet depended upon the type of banquet and the amounts, if any, given to the chef, bartenders, or captain. The amount of tips actually received by a given waiter also depended upon the number of waiters who worked the banquet, since banquet waiters pool tips. If the banquet charge did not include liquor, customers sometimes tipped the waiters on drinks served at the table. As usual, the busboys received part of the waiters' tips. In addition to tips, banquet waiters were also paid a salary. At some banquets there was a ‘cash bar’ set up in the banquet room for the convenience of those customers who wanted to drink without going to the regular bar. This was more frequent when the banquet was not on the main floor.
During the years in question, there was demolition and construction work being carried on next door to Whyte's downtown. On one occasion a wrecking ball broke open a wall on the main floor. Although this construction, with its noise and dirt and sidewalk obstructions, may have affected the volume of business at Whyte's downtown, it did not affect the tipping habits of those who did patronize the restaurant.
Approximately one-half of the dollar volume of business at Whyte's downtown was accounted for by customers who had charge accounts. Many such customers preferred to add tips to the checks rather than to tip in cash. Tips might be added either as a percentage...
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