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IRS Releases Revised TRAC Agreement for Food and Beverage Industry

APR. 26, 2000

Announcement 2000-22; 2000-19 IRB 1

DATED APR. 26, 2000
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Citations: Announcement 2000-22; 2000-19 IRB 1

 

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

 

The Service has released (Ann. 2000-22) a revised draft of its Tip Reporting Alternative Commitment (TRAC) agreement for the food and beverage industry. The revised agreement responds to employers' requests for more flexibility in the education program and tip reporting procedures.

The Service notes that it will treat electronic systems (including point-of-sale systems) that prompt employees to report tips after each sale as meeting the TRAC education requirement. Comments are requested on other electronic tip reporting systems.

Employers interested in commenting on the revised TRAC agreement should submit their comments to Office of Specialty Taxes, c/o CC:DOM:CORP:R (Announcement 2000-22), 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 Reporting Alternative Commitment (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 envisioned 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 1995, the Service developed the TRAC agreement for use in the food and beverage industry. The agreement has been both popular and effective. The industry has expressed interest in making the educational program and tip reporting procedures more flexible. To ensure consistency in the agreements offered to taxpayers and to provide an opportunity for public comment before making agreements available for use, a revised TRAC agreement is attached to this announcement. The revised agreement is more flexible.

[4] The Service also announces that it will treat an electronic system (including point-of-sale systems) that prompts an employee to report tips after each sale as meeting the TRAC requirement that an employer educate its employee at least quarterly. The Service requests comments on other electronic tip reporting system.

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 2000-22), 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. 2000-22), 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 TRDA for use in the food and beverage industry (Announcement 2000-23), (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 REPORTING ALTERNATIVE COMMITMENT

 

          (For use only in the food and beverage industry)

 

 

                               between

 

 

         Department of the Treasury-Internal Revenue Service

 

 

                                 and

 

 

              _____________________ [Name of Employer]

 

 

     This Tip Reporting Alternative Commitment (TRAC) agreement is

 

part of the Tip Rate Determination/Education Program that the

 

Internal Revenue Service implemented 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

 

 

     A. SERVICE REPRESENTATIVE means the Internal Revenue Service

 

employee or delegate authorized to execute or terminate this TRAC

 

agreement on behalf of the Internal Revenue Service.

 

 

     B. EMPLOYER means ________________ [insert name, address, and

 

EIN].

 

 

     C. ESTABLISHMENT means each of the establishments or divisions

 

listed by name, address, and identifying number in Attachment A.

 

[sample attached]

 

 

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

 

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

 

attachment is necessary.

 

 

     2. ADDITIONAL ESTABLISHMENT. If the Employer subsequently wishes

 

to include an additional establishment in this TRAC agreement, the

 

Employer must notify the Service Representative in writing. The

 

notification must include the name, address, and identifying number

 

of the additional establishment.

 

 

     D. EMPLOYEE means a person employed by the Establishment who

 

directly or indirectly receives tips of at least $20.00 per month

 

during the course of the employee's employment.

 

 

II. COMMITMENT OF EMPLOYER

 

 

     A. EDUCATION.

 

 

     1. NEW EMPLOYEES. The Employer will establish an educational

 

program that trains newly hired Employees that the law requires them

 

to report all their cash and charged tips to their employer. At a

 

minimum, the program will give each Employee --

 

 

     a. A short oral explanation of the reporting requirements and

 

the records maintenance requirements. The material in IRS Publication

 

1244, Employee's Daily Record of Tips and Report to Employer, is

 

suitable for this purpose;

 

 

     b. Written informational materials, which may include any of the

 

following IRS documents: Publication 1244, Employee's Daily Record of

 

Tips and Report to Employer, Publication 531, Reporting Tip Income,

 

and Publication 1872, Tips on Tips for employees in the food and

 

beverage industry; and

 

 

     c. An explanation of the Employer's tip reporting procedures.

 

 

     2. EXISTING EMPLOYEES. The Employer will establish a quarterly

 

education program for existing Employees.

 

 

     B. EMPLOYEE TIP-REPORTING PROCEDURES. Each Establishment will

 

establish a procedure or procedures under which a written or

 

electronic statement is prepared and processed on a regular basis (no

 

less frequently than monthly), reflecting all tips for services

 

attributable to each Employee. These procedures are to enable

 

Employees to meet their reporting requirements under section 6053(a)

 

of the Code. An Employer may provide different procedures for cash

 

and charged tips, as well as for directly tipped and indirectly

 

tipped Employees. IRS Publication 1875, Tips on Tips for employers in

 

the food and beverage industry, includes an example of an acceptable

 

TRAC statement that an employer can use for both directly and

 

indirectly tipped Employees.

 

 

     C. RETURNS, TAXES, AND RECORDS.

 

 

     1. FILING RETURNS AND PAYING AND DEPOSITING TAXES.

 

 

     a. 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.

 

 

     b. 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.

 

 

     2. MAINTAINING RECORDS. Each Establishment will maintain records

 

of the following:

 

 

     a. Gross receipts subject to tipping, and

 

 

     b. Charge receipts showing charged tips.

 

 

     The Employer will retain these records for at least 4 years

 

after the April 15 following the calendar year to which the records

 

relate.

 

 

     3. MAKING RECORDS AVAILABLE. Upon the request of the Service

 

Representative, the Employer will make the following quarterly totals

 

available, by Establishment, for statistical samplings of its

 

Establishments:

 

 

     a. Gross receipts subject to tipping,

 

 

     b. Charge receipts showing charged tips,

 

 

     c. Total charged tips, and

 

 

     d. Total tips reported.

 

 

III. COMMITMENT OF INTERNAL REVENUE SERVICE

 

 

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

 

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

 

which this TRAC agreement is in effect.

 

 

     B. 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 TRAC agreement is in effect will be based

 

solely on amounts reflected on --

 

 

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

 

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

 

 

     2. 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 for

 

compliance with the provisions of this TRAC agreement.

 

 

     D. ASSISTANCE. Upon request, the IRS will assist any Employer or

 

Establishment in establishing, maintaining, or improving its

 

educational program or tip reporting procedures.

 

 

IV. TERMINATION OF AGREEMENT

 

 

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

 

this TRAC agreement to apply to one or more Establishments, the

 

Employer may terminate this TRAC agreement 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 TRAC agreement

 

will be terminated.

 

 

     B. TERMINATION BY INTERNAL REVENUE SERVICE. The IRS may

 

terminate this TRAC agreement only if --

 

 

     1. The Service Representative determines that the Employer (or

 

any Establishment) has failed to substantially comply with section

 

II.A (pertaining to Education for Employees) or II.B (pertaining to

 

Employee tip reporting procedures);

 

 

     2. The Employer (or any Establishment) fails to meet any of the

 

requirements of section II.C (pertaining to filing returns and paying

 

and depositing taxes, maintaining records, and making records

 

available); or

 

 

     3. The IRS pursues an administrative or judicial action relating

 

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

 

TRAC agreement.

 

 

     C. EFFECTIVE DATE OF TERMINATION. Except for a termination

 

described in section IV.B.1, any termination will be effective the

 

first day of the first calendar quarter after the terminating party

 

notifies the other party in writing. In the case of a termination

 

under section IV.B.1, the Service Representative may elect an earlier

 

termination date, but no earlier than the first day of the first

 

calendar quarter of the substantial noncompliance.

 

 

     D. RENEWAL AFTER TERMINATION. The Employer and the Service

 

Representative may at any time enter into a new TRAC agreement.

 

 

V. EFFECTIVE DATE OF AGREEMENT

 

 

     A. GENERAL RULE. This TRAC agreement is effective on the first

 

day of the first calendar quarter following the date the Service

 

Representative signs the TRAC agreement.

 

 

     B. ADDITIONAL ESTABLISHMENT. This TRAC agreement is effective

 

with respect to an additional establishment on the first day of the

 

quarter in which notification of the additional establishment is

 

made.

 

 

VI. MISCELLANEOUS

 

 

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

 

purposes of this TRAC agreement --

 

 

     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 TRAC agreement, including a notice of termination, 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 TRAC agreement on behalf of itself and the

 

Establishment(s) listed in Attachment A.

 

 

     D. GENERAL TERMINATION AND SUNSET PROVISION. The Commissioner of

 

Internal Revenue may terminate all TRAC agreements 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

 

TRAC agreements.

 

 

VII. PAPERWORK REDUCTION ACT

 

 

     The collections of information contained in this document have

 

been reviewed and approved by the Office of Management and Budget in

 

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

 

control number 1545-1549.

 

 

     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.C,

 

II.A, II.B, II.C.2 and 3, and IV.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 TRAC agreement. The collections of information are required

 

to obtain the benefits available under the TRAC agreement. The likely

 

respondents are business or other for-profit institutions.

 

 

     The estimated total annual reporting and/or recordkeeping burden

 

is 42,296 hours.

 

 

     The estimated annual burden per respondent/recordkeeper varies

 

from 7 hours to 30 hours, depending on individual circumstances, with

 

an estimated average of 14 hours. The estimated number of respondents

 

and/or recordkeepers is 6,600.

 

 

     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.

 

 

VIII. SIGNATURES

 

 

     By signing this TRAC agreement, the parties certify that they

 

have read and agreed to the terms of this document, including

 

Attachment A, Establishments.

 

 

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

 

 

     GH Restaurant

 

     Street address

 

     City, state, zip code
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