It has been pointed out in previous posts that a tip belongs to the employee and a service charge belongs to the employer. If we view tips as a subsidy in a competitive market, then the entity receiving the payment is irrelevant. The distribution of benefits will depend upon the relative elasticity of the supply of labor and the demand for labor. However, the imposition of an income tax might favor one over the other. If it is more likely that service charges will be reported as income to the IRS than tips, then the after-tax income from tips is greater than the after-tax income from service charges. This may partly explain the waiter’s preference for tips. It is more likely that there will be an underreporting of tips than an underreporting of service charges.

Publication 531 (2004), Reporting Tip Income

On the other side of the market, underreporting can create problems for employers. See this discussion of United States v. Fior d’Italia, Inc.

Under federal tax laws, tips received by an employee are considered to have been paid by the employer for purposes of determining the amount of FICA tax owed for each employee...the IRS had assessed a restaurant owner for underpayment of FICA taxes. In order to calculate the amount of tip income, the IRS had reviewed tips reported on credit card receipts and calculated the average tip amount for all credit card sales at the restaurant. Based on that percentage, the IRS estimated the tip income for all non-credit card sales. From this "aggregate estimate,” the IRS determined the amount of the tax owed and assessed the restaurant owner for the deficiency.