4.70.18. Tip Compliance Agreements

(1) The tip agreement program is designed to promote compliance by industry employers and employees with the provisions of the Internal Revenue Code relating to tip income, and to reduce disputes under IRC 3121(q).

(2) Tip Agreements are designed to enhance administration of the tip program by both the Employer and the IRS. They facilitate and promote the use of current financial information technology in the tip reporting process. IRM 4.23.7.10, Employment Tax on Tip Income, Tip Rate Determination and Education Program (TRD/EP), and IRM 4.23.7.10.1, Tip Compliance Agreements, provide information on the tip program.

(1) TE/GE’s examination authority to resolve issues is derived from its authority to make determinations of tax liability under IRC 6201.

(2) IRC 7602 gives TE/GE examiners the authority to:

1. Examine any books, papers, records or other data necessary to complete an exam.

2. Take testimony under oath to secure additional information needed.

3. Issue summons for information necessary to complete an exam.

4. Inquire into any offense connected with the administration or enforcement of the Internal Revenue laws.

(1) The TE/GE Commissioner, with program managers in TE/GE, coordinates an effective employment tax program, including the tip compliance program.

(2) Under IRM 1.2.1.5.34, Policy Statement 4-117, Examination Authority to Resolve Issues, examiners, and managers:

1. Have been given broad authority to consider and weigh conflicting information, data, and opinions.

2. Will use professional judgment per examining standards to make findings of fact and apply the IRS’s position on issues of law to determine the correct tax liability.

3. Will exercise this authority to obtain the greatest possible number of agreements to tax determinations without sacrificing the quality or integrity of those determinations, and to dispose of tax differences at the lowest level.

(3) TE/GE employees must act according to the Taxpayer Bill of Rights . Every employee must consider these rights in carrying out their duties. See IRC 7803(a)(3).

(4) IRS employees working tax related matters must identify themselves per The Restructuring and Reform Act of 1998 (RRA 98) Section 3705(a). You’re required to:

1. Give your name and unique identification number during taxpayer telephone, face-to-face, and written contact.

2. Put a telephone number on all taxpayer correspondence. This gives taxpayers enough information to identify an employee who has previously assisted with a tax related matter.

(5) Offer Taxpayer Digital Communication Secure Messaging (TDC SM) to taxpayers and representatives as required. All employees with taxpayer contact must:

• Offer TDC SM to all taxpayers and their representatives with the initial contact letter.

• Introduce TDC SM to the taxpayer and their representative during initial contact and invite them to use it during the case.

• Use TDC SM if an eligible taxpayer and their representative accepts the invitation by submitting a completed agreement form (Form 15314).

• Document the invitation to use TDC SM and the taxpayer’s and their representative’s response in the Case Chronology Record (CCR) or Case History Sheet (Form 9984).

• Use TDC SM for interacting with the taxpayer and their representative during the case until closure, as permitted by law.

(6) All examinations are done per IRM 1.2.1.2.36, Policy Statement 1-236, Fairness and Integrity in Enforcement Selection.

(1) See IRM 25.16.1, Disaster Assistance and Emergency Relief, Program Guidelines, for administrative and policy procedures for the Disaster Assistance and Emergency Relief Program.

(2) For ITG specialists: See IRM 25.16.1.4, Tribal Nation Authority Under the Sandy Recovery Improvement Act, which explains legislation authorizing federally recognized Indian tribal governments the option to make their own request, independently of a state, for a federal emergency or major disaster declaration, or to seek assistance under a declaration for a state.

(1) Program Reports: Information on reporting program objectives is included on, but not limited to, the following reports:

• Headquarters Examination Monthly Briefing

• Program Manager Monthly Briefing

• Examination Operational Review

• Business Performance Reviews

(2) Program Effectiveness: Tax Exempt Quality Measurement System (TEQMS) is the quality control system used to oversee the entire examination program.

(1) TE/GE follows the provisions of SB/SE’s National Tip Reporting Compliance (NTRC) Program in IRM 4.23.7, Employment Tax on Tip Income. Be familiar with this section and the various subsections that apply to tip agreements and tip examinations. Where differences occur, you are required to follow the procedures in the Tip Compliance section of the TE/GE Exam IRM.

(2) Examiners should review the following IRM subsections for general information about the tip program:

• IRM 4.23.7.1, Program Scope and Objectives

• IRM 4.23.7.2 through IRM 4.23.7.4, Introduction, Employee Tip Reporting and Form 4137 Requirements

• IRM 4.23.7.6, Other Information Reporting Issues to Review, including all subsections

• IRM Exhibit 4.23.7-3, Letters, publications, and forms.

(3) IRM 4.23.7, Employment Tax on Tip Income, provides information about employment taxes on tip income, tip agreements, employment tax tip examinations, etc. While tip income among exempt organization or federal, state, and local government employees is not common, there are several positions that may receive tip income. TE/GE examiners should consider, as a possible area of non-compliance:

• Tips provided to employees of a food and beverage establishment that is operated by a government, such as a city- operated museum or convention center restaurant.

• Baggage handlers at a city- operated airport.

• Employees at a city-operated golf course, recreation center, or tourist service.

Note: Developing a tip compliance agreement using the parameters outlined in IRM 4.23.7, Employment Tax on Tip Income, may be appropriate.

(1) The table below has a list of acronyms and their meaning: