IRS Releases Revised TRDA for Food and Beverage Industry
Announcement 2000-23; 2000-19 IRB 1
- Institutional AuthorsInternal Revenue Service
- Cross-ReferenceNotice 2000-21, 2000-19 IRB 1;
Announcement 2000-19, 2000-19 IRB 1;
Announcement 2000-20, 2000-19 IRB 1;
Announcement 2000-21, 2000-19 IRB 1;
Announcement 2000-22, 2000-19 IRB 1 - Code Sections
- Subject Areas/Tax Topics
- Index Termstips, reportingtips, reporting, failure oftips, FICA tax
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2000-11911 (14 original pages)
- Tax Analysts Electronic Citation2000 TNT 82-7
=============== SUMMARY ===============
The Service has released (Ann. 2000-23) a revised draft of its Tip Rate Determination Agreement (TRDA) for the food and beverage industry. The revised agreement responds to small employers' requests for a simplified TRDA.
Employers interested in commenting on the revised TRDA should submit their comments to Office of Specialty Taxes, c/o CC:DOM:CORP:R (Announcement 2000-23), 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 entitled Tip Rate Determination Agreement (For Use in the Food and Beverage 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 1995, the Service developed the TRAC agreement for use in the food and beverage industry. Small employers often find that the TRDA better meets their needs and have requested that the TRDA be simplified.
[4] To ensure consistency in the agreements offered to taxpayers and to provide an opportunity for public comment before making the agreement available for use, a revised TRDA for use in the food and beverage industry is attached to this announcement. The Service has simplified the TRDA.
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 2000-23), 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. 2000-23), 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 TRAC agreement for use in the cosmetology and barber industry (Announcement 2000-21), (3) 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), and (4) a new TRDA for use in any industry other than the food and beverage industry and the gaming industry (Announcement 2000-20).
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 employers in the food and beverage 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.
1. IN GENERAL. The Employer or employing Establishment will
comply with the requirements for filing all required federal tax
returns and paying and depositing all federal taxes.
2. FORM 8027. For each Establishment that is a "large food or
beverage establishment," the Employer will comply with the
requirements for filing Form 8027, Employer's Annual Information
Return of Tip Income and Allocated Tips, and send an additional copy
of each Form 8027 to the IRS.
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 Service Representative 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 TIP 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 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 Internal Revenue Service 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 1,737 hours.
The estimated annual burden per respondent/recordkeeper varies
from 6 hours to 20 hours, depending on individual circumstances, with
an estimated average of 11 hours. The estimated number of respondents
and/or recordkeepers is 200.
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 Restaurant
Street address
City, state, zip code
CD Restaurant
Street address
City, state, zip code
RELATED ENTITY (if applicable)
UVW Corp.
zz-zzzzzzz
Street address
City, state, zip code
ESTABLISHMENTS (if applicable)
EF Restaurant
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 sales 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 sales)
1. Gross sales subject to tipping
2. minus: stiff factor
charged sales with charged tips
other factors
3. equals: sales subject to cash tipping
4. times cash 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
9. equals: adjusted tips
10. divided by: total hours worked (or total sales)
11. equals:tip rate per hour (or per sales)
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 sales" for
the denominator to figure the charged tip rate.
- Institutional AuthorsInternal Revenue Service
- Cross-ReferenceNotice 2000-21, 2000-19 IRB 1;
Announcement 2000-19, 2000-19 IRB 1;
Announcement 2000-20, 2000-19 IRB 1;
Announcement 2000-21, 2000-19 IRB 1;
Announcement 2000-22, 2000-19 IRB 1 - Code Sections
- Subject Areas/Tax Topics
- Index Termstips, reportingtips, reporting, failure oftips, FICA tax
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2000-11911 (14 original pages)
- Tax Analysts Electronic Citation2000 TNT 82-7
