In a recent case, the Tax Court held that the amount of tip income that a bartender's record showed was a better reflection of his income than the amount that the IRS determined by reconstructing his tip income. In this case, the bartender kept a log of all the tips that he received, but rounded to whole dollars. He then deducted 10% of the tips that he received when reporting his tips to his employer. The IRS Auditors said the taxpayer did not meet the requirement to keep accurate and contemporaneous records of his tips. The court believed the taxpayer when he stated that any change he received as part of his tips were left for the cashiers in their tip jar and even though he did not have any records to substantiate the 10% amount that he stated he gave to his helpers, the court found his testimony to be credible as this is the standard practice in his industry. The IRS calculated the tips he received using a percentage of sales method. Courts have previously held that this is a valid method for determining the tips of an employee. Even though the log that the taxpayer kept reported a number that was substantially lower than the IRS calculations, as the taxpayer had this log, it was considered to be more accurate than the IRS's calculations. This case should be a lesson to anyone who works for tips. If you don't keep track of your tips, the IRS will figure them out for you and it will almost always cost you more in taxes than if you had kept track yourself.