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IRS Releases Proposed TRDA for Other Industries With Tipped Employees

APR. 26, 2000

Announcement 2000-20; 2000-19 IRB 1

DATED APR. 26, 2000
DOCUMENT ATTRIBUTES
Citations: Announcement 2000-20; 2000-19 IRB 1

 

=============== SUMMARY ===============

 

The Service has released (Ann. 2000-20) a draft of its proposed Tip Rate Determination Agreement (TRDA) for industries with tipped employees (besides the food/beverage industry and the gaming industry).

In 1993, the Service developed a TRDA for use in the food and beverage industry. A TRDA for the gaming industry followed in 1997. Subsequently, other industries with tipped employees began expressing interest in TRDAs tailored to their situations. Because the number of tipped employees in those industries is diverse, the Service designed a general TRDA for those industries to use.

Employers interested in commenting on the proposed TRDA should submit their comments to Office of Specialty Taxes, c/o CC:DOM:CORP:R (Announcement 2000-20), room 5226, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Comments are due by July 7, 2000.

 

=============== FULL TEXT ===============

 

Part IV -- Items of General Interest

[1] The Internal Revenue Service is expanding its Tip Rate Determination/Education Program (TRD/EP), which is designed to enhance tax compliance among tipped employees through taxpayer education and voluntary advance agreements instead of traditional audit techniques. This announcement solicits comments on a draft agreement for use in industries other than the food and beverage industry and the gaming industry. This agreement is entitled Tip Rate Determination Agreement (For use by any employer with tipped employees, other than in the food and beverage industry and the gaming industry).

OVERVIEW

[2] The Service developed its TRD/EP in 1993 as a means of enhancing tax compliance while reducing taxpayer burden. In essence, the TRD/EP envisions that the Service and taxpayers in industries in which tipping is common would work together to improve tax compliance. The TRD/EP currently offers employers the opportunity of entering into one of two types of agreements. The Tip Rate Determination Agreement (TRDA) requires the determination of tip rates; the Tip Reporting Alternative Commitment (TRAC) agreement emphasizes education and tip reporting procedures. The agreements also set forth an understanding that employers that comply with the terms of the agreement will not be subject to challenge by the Service. The TRDAs set forth similar understandings with respect to employees who participate in the agreements. Although not set forth in the TRAC agreements, employees who properly report tips also will not be subject to challenge by the Service. The decision to enter into either a TRDA or a TRAC agreement is entirely voluntary on the part of the employer.

[3] In 1993, the Service developed the TRDA for use in the food and beverage industry. In 1997, the Service developed a TRDA for use in the gaming industry. Other industries have expressed interest in TRDAs tailored to their industries. Because the number of tipped employees in these other industries is diverse, the Service has designed a TRDA for use in industries other than the food and beverage industry and the gaming industry.

[4] To ensure consistency in the agreements offered to taxpayers and to provide an opportunity for public comment before making agreements available for use, a TRDA for use in industries other than the food and beverage industry and the gaming industry is attached to this announcement. The Service requests comments from industries that might use the agreement.

COMMENTS

[5] Written comments must be received by July 7, 2000. Send submissions to Office of Specialty Taxes, c/o CC:DOM:CORP:R (Announcement 2000-20), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: Specialty Taxes, c/o CC:DOM:CORP:R (Ann. 2000-20), Courier's desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet by selecting the "Tax Regs" option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at http://www.irs.ustreas.gov/tax_regs/regslist.html.

OTHER TRDA AND TRAC AGREEMENTS

[6] The Service is simultaneously proposing by announcement in the same Internal Revenue Bulletin four other agreements: (1) a revised TRAC agreement for use in the food and beverage industry (Announcement 2000-22), (2) a revised TRDA for use in the food and beverage industry (Announcement 2000-23), (3) a revised TRAC agreement for use in the cosmetology and barber industry (Announcement 2000-21), and (4) a new TRAC agreement for use in industries, other than the food and beverage industry and the cosmetology and barber industry, in which tipped employees receive both cash and charged tips (Announcement 2000-19).

DRAFTING INFORMATION

[7] The principal author of this announcement is Karin Loverud of the Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations). For further information regarding this announcement, contact Ida Volz of the Office of Specialty Taxes, on (202) 622-4177 (not a toll-free call).

Release date: April 24, 2000

 

 

                  TIP RATE DETERMINATION AGREEMENT

 

  (For use by any employer with tipped employees, other than in the

 

         food and beverage industry and the gaming industry)

 

 

                               between

 

 

         Department of the Treasury-Internal Revenue Service

 

 

                                 and

 

 

               ___________________ [Name of Employer]

 

 

     This Tip Rate Determination Agreement (TRDA) is part of the Tip

 

Rate Determination/Education Program implemented by the Internal

 

Revenue Service in 1993 to promote tip reporting compliance by

 

employees in accordance with the Internal Revenue Code of 1986.

 

 

     Section 6053(a) of the Code requires employees to furnish one or

 

more written statements to their employers reporting all tips

 

received in each calendar month. The statements must be furnished to

 

the employer by the 10th day of the following month.

 

 

I. DEFINITIONS AND ATTACHMENTS

 

 

     A. DEFINITIONS.

 

 

     1. SERVICE REPRESENTATIVE means the Internal Revenue Service

 

employee or delegate authorized to execute or terminate this TRDA on

 

behalf of the Internal Revenue Service.

 

 

     2. EMPLOYER means _____________________ [insert name, address,

 

and EIN].

 

 

     3. ESTABLISHMENT means each of the establishments or divisions

 

listed by name, address, and EIN in Attachment A [sample attached].

 

 

     a. ONE PLACE OF BUSINESS. If the Employer has one place of

 

business, that place of business is an Establishment, and no

 

attachment is necessary.

 

 

     b. ADDITIONAL ESTABLISHMENT. If the Employer subsequently wishes

 

to include an additional establishment in this TRDA, the Employer

 

must notify the Service Representative in writing. The notification

 

must include the name, address, and identifying number of the

 

additional establishment.

 

 

     4. EMPLOYEE means a person whose Occupational Category is listed

 

in Attachment B [sample attached], and who is employed by an

 

Establishment, and who directly or indirectly receives tips of at

 

least $20.00 per month during the course of the employee's

 

employment.

 

 

     5. OCCUPATIONAL CATEGORY describes a group of employees

 

performing a particular type of service to which a stated tip rate is

 

assigned. Employees performing the same service at different

 

locations or during different shifts may be assigned different

 

Occupational Categories.

 

 

     6. PARTICIPATING EMPLOYEE means an Employee who gives to the

 

Employer a signed Tipped Employee Participation Agreement (TEPA),

 

which includes the language set forth in Attachment C, indicating

 

participation in the tip reporting program.

 

 

     7. TIP RATE means the applicable rate described in Section III.

 

 

     B. ATTACHMENTS

 

 

     1. ATTACHMENT A, Establishments, lists the Employer's

 

establishments participating in this TRDA.

 

 

     2. ATTACHMENT B, Occupational Categories and Initial Tip Rates,

 

lists the Employee occupational categories and tip rates subject to

 

this TRDA.

 

 

     3. ATTACHMENT C, Tipped Employee Participation Agreement, is the

 

document signed by an Employee agreeing to report tips at or above

 

the rate established for the Employee's Occupational Category.

 

 

     4. ATTACHMENT D, Formula for Tip Rate Calculation, is the

 

calculation described in section III.A.1 for determining tip rates.

 

 

II. COMMITMENT OF EMPLOYER

 

 

     A. MAINTAINING RECORDS. While this TRDA is in effect, and in

 

addition to records otherwise required to be maintained, the Employer

 

will maintain the following records:

 

 

     1. EMPLOYEE RECORDS. For each Employee, the Employee's name,

 

address, social security number, reported tips, and shift(s) and

 

hours.

 

 

     2. TIP RATES RECORDS. All records of data used to determine the

 

tip rates.

 

 

     The Employer will retain the records listed in this section

 

II.A. for at least 4 years after the April 15 following the calendar

 

year to which the records relate.

 

 

     B. FURNISHING INFORMATION. The Employer will furnish to the

 

Service Representative the following documents:

 

 

     1. QUARTERLY REPORT OF EMPLOYEES. A quarterly report showing, as

 

of the last day of each quarter, (1) the total number of Employees,

 

and (2) the total number of Participating Employees. The report is

 

due on the last day of the month following each calendar quarter.

 

 

     2. ANNUAL REPORT OF NONPARTICIPATING EMPLOYEES.

 

 

     a. GENERAL RULE. For each Employee who is a nonparticipating

 

Employee on the last day of the calendar year, an annual report

 

showing the Employee's name, address, social security number,

 

shift(s), and hours. The report may list all Employees, indicating

 

those Employees who are nonparticipating Employees, as long as the

 

required information is included for all nonparticipating Employees.

 

The report is due on March 31 following each calendar year.

 

 

     b. EXCEPTION. No report is required for an Occupational Category

 

for any calendar year for which all the Employees in the Occupational

 

Category reported tips at a rate equal to or greater than the rates

 

established under section III of this TRDA.

 

 

     C. MAKING RECORDS AVAILABLE. At the request of the Service

 

Representative, the Employer will furnish any of the records

 

identified in section II.A.

 

 

     D. FILING RETURNS AND PAYING AND DEPOSITING TAXES. The Employer

 

or employing Establishment will comply with the requirements for

 

filing all required federal tax returns and paying and depositing all

 

federal taxes.

 

 

III. TIP RATES

 

 

     A. TIP RATES.

 

 

     1. DETERMINING TIP RATES. The Employer will determine tip rates

 

based on the formula set forth in Attachment D, Formula for Tip Rate

 

Calculation. If information necessary for the formula is unavailable

 

or insufficient, the Employer will determine tip rates based on

 

information available to the Employer, historical information

 

provided by the Service Representative, and generally accepted

 

accounting principles. The rates will generally be based on a dollar

 

amount per hour, but a different measure may be used.

 

 

     2. INITIAL TIP RATES. The initial tip rates are identified in

 

Attachment B, Occupational Categories and Initial Tip Rates. They

 

will remain in effect through December 31 of the calendar year

 

following the year in which this TRDA takes effect.

 

 

     B. DETERMINING SUBSEQUENT TIP RATES AND OCCUPATIONAL CATEGORIES.

 

 

     1. ANNUAL REVIEW. The Employer will review annually, on a

 

calendar year basis, its Occupational Categories and the tip rates

 

assigned to its Occupational Categories.

 

 

     2. PROCEDURES.

 

 

     a. EMPLOYER SUBMISSION. If the Employer believes that a change

 

in Occupational Categories or a revision of one or more rates is

 

appropriate, the Employer will submit proposed revisions to the

 

Service Representative by September 30. If the Employer fails to

 

submit a proposed rate revision by September 30, the Employer will be

 

treated as having submitted the rate in effect for the current year.

 

 

     b. INTERNAL REVENUE SERVICE REVIEW. The Service Representative

 

will review the proposed rates and notify the Employer in writing of

 

the IRS's approval or disapproval by November 30. If the IRS does not

 

approve one or more proposed rates, the existing rate or rates will

 

be continued until no later than the last day of the following

 

February. If the Employer and the IRS are unable to agree upon a rate

 

or rates by the last day of the following February, this TRDA will

 

terminate pursuant to section V.C.

 

 

     3. EFFECTIVE DATE OF REVISED RATES AND OCCUPATIONAL CATEGORIES.

 

Approved revised rates for a calendar year will become effective on

 

the later of (1) January 1 of the calendar year, or (2) the first day

 

of the month following the date the Employer and the Service

 

Representative agree upon a revised rate.

 

 

IV. COMMITMENT OF INTERNAL REVENUE SERVICE

 

 

     A. PARTICIPATING EMPLOYEE. The IRS will not examine a

 

Participating Employee's tip income for any period for which a TEPA

 

is in effect, if the Employee reports tips to the Employer at or

 

above the tip rate established for the Employee.

 

 

     B. EMPLOYER.

 

 

     1. TIP EXAMINATIONS. The IRS will not initiate any tip

 

examinations of the Employer (or Establishment) for any period for

 

which this TRDA is in effect.

 

 

     2. SECTION 3121(q) NOTICE AND DEMAND. Any section 3121(q) notice

 

and demand issued to the Employer (or Establishment) relating to any

 

period during which this TRDA is in effect will be based solely on

 

amounts reflected on --

 

 

     a. Form 4137, Social Security and Medicare Tax on Unreported Tip

 

Income, filed by an Employee with his or her Form 1040, or

 

 

     b. Form 885-T, Adjustment of Social Security Tax on Tip Income

 

Not Reported to Employer, prepared at the conclusion of an employee

 

tip examination.

 

 

     C. COMPLIANCE REVIEW. The IRS may evaluate the Employer and its

 

Participating Employees for compliance with the provisions of this

 

TRDA.

 

 

V. TERMINATION OF AGREEMENT

 

 

     A. TERMINATION BY EMPLOYER. If the Employer no longer wishes

 

this TRDA to apply to one or more Establishments, the Employer may

 

terminate this TRDA with respect to the Establishment(s), by

 

providing written notification to the Service Representative

 

identifying the Establishments(s). If the termination applies to all

 

the Establishments of the Employer, the TRDA will be terminated.

 

 

     B. TERMINATION BY INTERNAL REVENUE SERVICE. The IRS may

 

terminate this TRDA only if --

 

 

     1. As of any December 31, less than 75 percent of the Employees

 

are Participating Employees,

 

 

     2. The Employer fails to meet any of the requirements of section

 

II, Commitment of Employer, or

 

 

     3. The IRS pursues an administrative or judicial action relating

 

to the Employer, Establishment, or any other related party to this

 

TRDA.

 

 

     C. TERMINATION UPON FAILURE OF PARTIES TO AGREE TO REVISION OF

 

TIP RATES. This TRDA will terminate if the Employer and the Service

 

Representative fail to agree to a revision of the tip rates under the

 

procedures set forth in section III.B.2.

 

 

     D. NOTICE OF TERMINATION AND EFFECTIVE DATE. Any termination

 

will be effective the first day of the first calendar quarter after

 

the terminating party notifies the other party in writing.

 

 

     E. RENEWAL AFTER TERMINATION. The Employer and the Service

 

Representative may at any time enter into a new TRDA.

 

 

VI. EFFECTIVE DATE OF AGREEMENT

 

 

     A. GENERAL RULE. This TRDA is effective on the first day of the

 

first calendar quarter following the date the Service Representative

 

signs the TRDA.

 

 

     B. ADDITIONAL ESTABLISHMENT. This TRDA is effective with respect

 

to an additional establishment on the first day of the quarter in

 

which notification of the additional establishment is made.

 

 

VII. MISCELLANEOUS

 

 

     A. EXAMINATIONS AND/OR INSPECTIONS OF BOOKS AND RECORDS. For

 

purposes of this TRDA --

 

 

     1. COMPLIANCE REVIEW. A compliance review is not an examination

 

or an inspection of the taxpayer's books of account or records for

 

purposes of section 7605(b) of the Code, and is not a prior audit for

 

purposes of section 530 of the Revenue Act of 1978.

 

 

     2. EXAMINATION. The inspection of books of account or records

 

pursuant to a tip examination is not an inspection of books or

 

records for purposes of section 7605(b) of the Code, and is not a

 

prior audit for purposes of section 530 of the Revenue Act of 1978.

 

 

     B. NOTICES. The parties will send all correspondence pertaining

 

to this TRDA to the addresses stated below, unless notified in

 

writing of a change of address. In the event of a change of address,

 

the parties must send all correspondence to the new address. All

 

notices are deemed to be sent or submitted on the date of the

 

postmark stamped on the envelope or, in the case of a notice sent by

 

certified mail, the sender's receipt.

 

 

     C. AUTHORITY. The Employer represents that it has the authority

 

to enter into this TRDA.

 

 

     D. GENERAL TERMINATION AND SUNSET PROVISION. The Commissioner of

 

Internal Revenue may terminate all TRDAs at any time following a

 

significant statutory change in the FICA taxation of tips. After May

 

31, 2005, the Commissioner may terminate prospectively the Tip Rate

 

Determination/Education Program and all TRDAs.

 

 

VIII. PAPERWORK REDUCTION ACT

 

 

     The collections of information contained in this document will

 

be submitted to the Office of Management and Budget for review in

 

accordance with the Paperwork Reduction Act (44 U.S.C. 3507).

 

 

     An agency may not conduct or sponsor, and a person is not

 

required to respond to, a collection of information unless the

 

collection of information displays a valid control number. The

 

collections of information in this document are in sections I.A.3, 4,

 

and 5, II.A, II.B, II.C, III, and V.A. This information is required

 

to comply with sections 6053(a) and 6001 of the Internal Revenue Code

 

and to assist the IRS in its compliance efforts. This information

 

will be used to monitor the Employer's performance under the TRDA.

 

The collections of information are required to obtain the benefits

 

available under the TRDA. The likely respondents are business or

 

other for-profit institutions.

 

 

     The estimated total annual reporting and/or recordkeeping burden

 

is 1,897 hours.

 

 

     The estimated annual burden per respondent/recordkeeper varies

 

from 6 hours to 21 hours, depending on individual circumstances, with

 

an estimated average of 11 hours. The estimated number of respondents

 

and/or recordkeepers is 100.

 

 

     The estimated annual frequency of responses (used for reporting

 

requirements only) is on occasion.

 

 

     Books or records relating to a collection of information must be

 

retained as long as their contents may become material in the

 

administration of any internal revenue law. Generally, tax returns

 

and tax return information are confidential, as required by section

 

6103 of the Code.

 

 

IX. SIGNATURES

 

 

     By signing this TRDA, the parties certify that they have read

 

and agreed to the terms of this document, including Attachments A, B,

 

and C.

 

 

EMPLOYER:                          INTERNAL REVENUE SERVICE:

 

 

(Name of Employer)

 

 

(Signature)                        (Signature)

 

 

BY:                                BY:

 

                                   (Service Representative's Name)

 

 

TITLE:                             TITLE: __________________________

 

 

ADDRESS:                           ADDRESS:

 

 

(Headquarters street address)      (Street address)

 

 

(City, state, ZIP code)            (City, state, ZIP code)

 

 

DATE:                              DATE:

 

 

                              * * * * *

 

 

                            ATTACHMENT A

 

 

                           ESTABLISHMENTS

 

 

               [format for individual establishments]

 

 

EMPLOYER

 

A & B Company

 

xx-xxxxxxx

 

Street address

 

City, state, zip code

 

 

                         [format for chains]

 

 

EMPLOYER (parent, if applicable)

 

XYZ Corp.

 

yy-yyyyyyy

 

Street address

 

City, state, zip code

 

 

     ESTABLISHMENTS (if applicable)

 

     AB Enterprises

 

     Street address

 

     City, state, zip code

 

 

     CD Enterprises

 

     Street address

 

     City, state, zip code

 

 

RELATED ENTITY (if applicable)

 

UVW Corp.

 

zz-zzzzzzz

 

Street address

 

City, state, zip code

 

 

     ESTABLISHMENTS (if applicable)

 

     EF Enterprises

 

     Street address

 

     City, state, zip code

 

 

                              * * * * *

 

 

                            ATTACHMENT B

 

 

            OCCUPATIONAL CATEGORIES AND INITIAL TIP RATES

 

 

                           [sample format]

 

 

OCCUPATIONAL CATEGORIES            INITIAL TIP RATES

 

 

Category A actual tips

 

Category B -- 1st shift            ___ % of sales

 

Category B -- 2nd shift            ___ % of sales

 

Category B -- 3rd shift            ___ % of sales

 

Category C -- location 1           $     /

 

Category C -- location 2           $     /

 

 

                              * * * * *

 

 

                            ATTACHMENT C

 

 

               TIPPED EMPLOYEE PARTICIPATION AGREEMENT

 

 

     I am an employee of ______________________ and wish to

 

participate in my employer's tip reporting program.

 

 

     In accordance with a Tip Rate Determination Agreement between my

 

employer and the Internal Revenue Service, I agree to report my tips

 

to my employer, as required by law, at or above the tip rate

 

established by my employer and approved by the IRS for my

 

Occupational Category.

 

 

     I also acknowledge that, to continue participation in my

 

employer's tip reporting program, I must file all federal tax returns

 

required by law and pay all federal taxes for which I am liable.

 

 

EMPLOYEE

 

 

     Name (printed): _______________________________________________

 

     Signature: ____________________________________________________

 

     Home address: _________________________________________________

 

     _______________________________________________________________

 

     Social Security Number: _______________

 

 

DATE: ______________________

 

 

Attachments:

 

 

     Copy of TRDA and Attachment B (Occupational Categories and Tip

 

       Rates)

 

     Copy of TRDA Information for Employees

 

 

                              * * * * *

 

 

                            ATTACHMENT D

 

 

                  FORMULA FOR TIP RATE CALCULATION

 

 

Directly tipped employees

 

 

Step 1: Determine charged and cash tip rates.

 

 

                                     Total charged tips

 

     Charged tip rate =  ____________________________________________

 

                         Total charged receipts with charged tips /*/

 

 

     Cash tip rate  = Charged tip rate

 

                      less: difference between charged and cash tips

 

 

Step 2: Calculate tip rate per hour (or per receipts)

 

 

     1. Gross receipts subject to tipping

 

 

     2. minus: stiff factor

 

               charged receipts with charged tips

 

               other factors

 

     3. equals: receipts subject to cash tipping

 

 

     4. timescash tip rate

 

 

     5. equals: cash tips received

 

 

     6. plus: charged tips

 

              tips received from other employees

 

 

     7. equals: total tips received

 

 

     8. minus: tip outs (if applicable)

 

 

     9. equals: adjusted tips

 

 

     10. divided by: total hours worked (or total receipts)

 

 

     11. equals:tip rate per hour (or per receipts)

 

 

Indirectly tipped employees

 

 

     Calculate tip rate per hour:

 

 

                           Tips received from other workers

 

     Tip rate per hour =  ________________________________

 

                                  Total hours worked

 

 

     /*/ If this figure is unavailable, use "total charged receipts"

 

     for the denominator to figure the charged tip rate.
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