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IRS Proposes New Tip-Reporting Program

S.J. Steinhardt
Published Date:
Feb 7, 2023

The IRS has issued a proposed revenue procedure for a voluntary tip-reporting program for employers in the service industry.

The proposed Service Industry Tip Compliance Agreement (SITCA) program “is designed to take advantage of advancements in POS Systems and time and attendance systems, as well as the use of electronic payment settlement methods to improve tip reporting compliance and to decrease taxpayer and IRS administrative burden,” the agency stated in Notice 203-13.

SITCA is intended to replace three existing programs, the Tip Reporting Alternative Commitment (TRAC) the Tip Rate Determination Agreement (TRDA) program, and the Employer-Designed Tip Reporting Program (EmTRAC). As SITCA is to serve as the sole tip reporting compliance program for employers in various service industries, employers with existing tip reporting agreements in those three programs will have a transition period during which their existing agreements remain effective.

By way of background, the IRS explained, "The Tip Reporting Determination/Education Program (TRD/EP) was designed by the IRS to enhance tax compliance through educational programs and the use of voluntary tip reporting agreements instead of traditional audit techniques. Since 1995, TRD/EP has offered employers in the food and beverage industry the opportunity to enter into TRAC agreements. In general, TRAC agreements require employers to establish an educational program for tipped employees and tip reporting procedures for cash and charged tips. In 1996, TRD/EP began offering employers in certain other industries the opportunity to enter into TRAC agreements and introduced the TRDA program, which is available to employers in a variety of tipping industries and requires the determination of minimum tip rates based on occupational categories that employees must use to report tips to the employer. The decision to enter into a TRAC or TRDA agreement has always been voluntary."

The IRS outlined the transition process from the existing programs: "The SITCA program is intended to serve as the sole tip reporting compliance program for employers in all service industries (excluding gaming industry employers). The proposed revenue procedure provides that for employers with existing agreements in the TRAC, TRDA and EmTRAC programs, there will be a transition period during which the existing agreements will remain in effect. The transition period will end upon the earliest of (1) the employer’s acceptance into the SITCA program; (2) an IRS determination the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement; or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin."

As the IRS alluded to, the SITCA program would not affect the existing Gaming Industry Tip Compliance Agreement (GITCA) program.

Public comments on the proposal must be received by May 7, 2023.

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