I work as a manager in the high-end restaurant business. Every few days I cash a petty cash check (about $1,000) at the restaurant's bank. We need substantial cash at the restaurant because tips are charged, and we have to pay these tips out in cash to the servers every night.

A friend told me I would be in line for an IRS audit because I cash so many checks. I guess the logic is that the IRS may assume I'm self-employed and I'm cashing customer's check for unreportable income.

Regardless, is there any truth to this? Former Governor Spitzer was "caught" by a relatively small wire transfer (under $10k), so it makes sense the IRS is watching.

However, I don't welcome an audit to explain this activity. Am I being paranoid?

As you undoubtedly read in the various media pieces about Mr. Spitzer's tumble from grace, a couple of banks filed reports on what they thought was suspect activity. That's one of the things that financial institutions are required by law to do.

If your bank understands your business transactions, including these petty cash checks, it probably won't view them as suspicious. But if you are concerned, there are a couple of other ways to pay out tips to your servers. You may get some "push-back" from employees, but you should keep these ideas in reserve if you have to use them.

You could issue checks payable to your servers to pay out their tips. You could do that nightly or weekly, I think.

Or, you could add their tips to their regular paychecks.

Your servers' objections to either of those methods may involve taxes or they may involve the added steps they'll need to take to get cash. Of those two, the second is legitimate, I think. You might even be tempted to go ahead and cash these checks for them. But that will put you right back where you are now, in need of cash, and with the added bookkeeping.

Waitstaff have a reputation, perhaps deserved, of trying to hide tip income from the IRS and state tax authorities. That has become harder to do, since you're probably required to withhold taxes on at least a portion of their tips, even if they don't pass through your books. And with all those tips listed on the card slips, there's a record the IRS can subpoena any time they want to audit your books.

If the banks only report "suspicious activity," I should be fine.

We can't issue checks to the servers because of "tip out." A server may get $100 in tip money at the end of the night (or more), but he or she doesn't keep the entire $100. Bartenders, bussers, hostesses and other employees involved in service are "tipped out" by the waiter. Without their support, the waiter couldn't do his job. $100 in total tips may yield only $60 to the server (every restaurant's "traditions" are different).

As an employer, I have no control over this process, but I do have liability. Since they're not wages per se that I pay them, I can't issue the tips as payroll checks (plus I don't know the tip out totals); however, I must pay employer taxes on income that they do report as tips.

I can't force them to report their tips (but I could fire them if I know they're severely under reporting), but if my quarterly IRS tip reporting form falls short, I'll face an automatic audit (as will the employees). Tips are tricky, and the IRS recognizes tip outs when auditing.

In any event, if there's no other bank reporting requirement other than "suspicious," I should be OK because the tellers know me.