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IRS Releases Revised TRAC Agreement for Cosmetology and Barber Industry

APR. 26, 2000

Announcement 2000-21; 2000-19 IRB 1

DATED APR. 26, 2000
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Citations: Announcement 2000-21; 2000-19 IRB 1

 

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

 

The Service has released (Ann. 2000-21) a revised draft of its Tip Reporting Alternative Commitment (TRAC) Agreement for the cosmetology and barber industry.

In 1997, the Service released a TRAC agreement for use in the hairstyling industry. Per the industry's request, the revised TRAC agreement will be available to the entire cosmetology and barber industry. It also covers workers who are booth renters, as well as other independent contractors. Comments are invited on the inclusion of those workers in the agreement.

The Service plans to allow electronic systems, including point- of-sale systems, to satisfy the TRAC education requirement. Comments are requested on what information the system must provide to employees to satisfy the education requirement.

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 2000-21), 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 cosmetology and barber 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 1997, the Service developed a TRAC agreement for use in the hairstyling industry. The industry has expressed interest in making the TRAC agreement available to the entire cosmetology and barber industry. The industry has also advised the Service that a substantial portion of the industry includes independent contractors who pay a booth rental for use of space.

[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 revised TRAC agreement is attached to this announcement. The revised agreement addresses workers who are booth renters and other independent contractors and will be available to the entire industry. The Service requests comments from the industry regarding the inclusion of booth renters and other independent contractors.

The Service plans to allow electronic systems (including point- of-sale systems) to satisfy the TRAC education requirement. The Service requests comments on what information the system must provide to employees to satisfy the education requirement.

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 2000-21), 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. 2000-21), 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 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 Don Segal 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 in the cosmetology and barber industry)

 

 

                               between

 

 

         Department of the Treasury-Internal Revenue Service

 

 

                                 and

 

 

             _______________________ [Name of Business]

 

 

     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.

 

 

     For federal income tax purposes, taxpayers are required to

 

report to the IRS all income from all sources, unless the income is

 

expressly excluded. Under section 61(a)(1) of the Code, gross income

 

includes compensation for services, including tips. Under section

 

61(a)(2), gross income includes all income from business.

 

 

     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. BUSINESS 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 Business has one place of

 

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

 

attachment is necessary.

 

 

     2. ADDITIONAL ESTABLISHMENT. If the Business subsequently wishes

 

to include an additional establishment in this TRAC agreement, the

 

Business 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.

 

 

     E. BOOTH RENTER means a person who rents a booth from the

 

Business for a fee, receives and retains all fees from customers,

 

generally selects his or her own customers, and generally sets his or

 

her own work schedule.

 

 

     F. INDEPENDENT CONTRACTOR means a person who is neither an

 

Employee nor a Booth Renter, but who performs services at an

 

Establishment and meets the standards of an independent contractor

 

with respect to that establishment.

 

 

II. COMMITMENT OF BUSINESS

 

 

     A. COMMITMENT WITH RESPECT TO EMPLOYEES.

 

 

     1. EDUCATION.

 

 

     a. NEW EMPLOYEES. The Business will establish and maintain an

 

educational program to train newly hired Employees that the law

 

requires employees to report monthly their cash and charged tips to

 

their employer. At a minimum, the program will give each Employee --

 

 

     i. 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;

 

 

     ii. 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 3148, Tips on Tips for employees; and

 

 

     iii. An explanation of the Business's tip reporting procedures.

 

 

     b. EXISTING EMPLOYEES. The Business will establish and maintain

 

a quarterly education program for existing Employees.

 

 

     2. 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. The Business or Establishment may provide different

 

procedures for cash and charged tips, as well as for directly tipped

 

and indirectly tipped Employees. IRS Publication 3144, Tips on Tips

 

for employers, includes an example of an acceptable TRAC statement

 

that an employer can use for both directly and indirectly tipped

 

Employees.

 

 

     B. EDUCATIONAL COMMITMENT WITH RESPECT TO BOOTH RENTERS AND

 

INDEPENDENT CONTRACTORS.

 

 

     1. NEW BOOTH RENTERS AND INDEPENDENT CONTRACTORS. The Business

 

will give each new Booth Renter or Independent Contractor a copy of

 

Publication 531, Reporting Tip Income, and a copy of Publication

 

3518, Beauty Industry Federal Tax Guidelines.

 

 

     2. EXISTING BOOTH RENTERS AND INDEPENDENT CONTRACTORS. At the

 

end of each calendar year, the Business will provide a copy of

 

Publication 531 and Publication 3518 to each Booth Renter and

 

Independent Contractor who performed services on the Business's

 

premises at any time during the calendar year.

 

 

     C. RETURNS, TAXES, AND RECORDS.

 

 

     1. FILING RETURNS AND PAYING AND DEPOSITING taxes. The Business

 

(or employing Establishment) will comply with the requirements for

 

filing all required federal tax returns and paying and depositing all

 

federal taxes.

 

 

     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 Business 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 Business will make the following quarterly totals

 

available, by Establishment, for statistical samplings of its

 

Establishments:

 

 

     a. Total charged tips,

 

 

     b. Charge receipts showing charged tips,

 

 

     c. Total tips reported, and

 

 

     d. Gross receipts subject to tipping.

 

 

III. COMMITMENT OF INTERNAL REVENUE SERVICE

 

 

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

 

examinations of the Business (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 Business (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 Business for

 

compliance with the provisions of this TRAC agreement.

 

 

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

 

Establishment in establishing, maintaining, or improving its

 

educational program or tip reporting procedures.

 

 

IV. TERMINATION OF AGREEMENT

 

 

     A. TERMINATION BY BUSINESS. If the Business no longer wishes

 

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

 

Business 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 Business, the TRAC agreement

 

will be terminated.

 

 

     B. TERMINATION BY INTERNAL REVENUE SERVICE. The IRS may

 

terminate this TRAC agreement only if --

 

 

     1. The IRS determines that the Business (or any Establishment)

 

has failed to substantially comply with section II.A (pertaining to

 

the Business's commitment with respect to employees);

 

 

     2. The Business (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 II.D (pertaining to Booth Renter and Independent

 

Contractor information); or

 

 

     3. The IRS pursues an administrative or judicial action relating

 

to the Business, 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 Business 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. EMPLOYMENT TAX CLASSIFICATION. Nothing in this TRAC agreement

 

is intended to address the classification, for employment tax

 

purposes, of any person who performs services at or for an

 

Establishment.

 

 

     C. 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.

 

 

     D. 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.

 

 

     E. 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 1545-1529.

 

 

     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.1 and 2, 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 Employees 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 58,267 hours.

 

 

     The estimated annual burden per respondent/recordkeeper varies

 

from 9 hours to 30 hours, depending on individual circumstances, with

 

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

 

and/or recordkeepers is 6,400.

 

 

     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, Names, Addresses, and Employer Identification Numbers

 

by Employer of Establishments Covered Under TRAC Agreements.

 

 

Business:                          INTERNAL REVENUE SERVICE:

 

 

___________________________

 

(Name of Business)

 

 

___________________________        _______________________________

 

(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]

 

 

BUSINESS

 

A & B Hairstylists

 

xx-xxxxxxx

 

Street address

 

City, state, zip code

 

 

                         [format for chains]

 

 

BUSINESS (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
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