The IRS recently released guidance (Notice 2023-13) proposing a revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program — a voluntary tip reporting program for employers in the service industry, excluding the gaming industry.
The proposed SITCA program is intended to replace the Tip Reporting Alternative Commitment (TRAC) program, the Tip Rate Determination Agreement (TRDA) program, and the Employer-Designed Tip Reporting Program (EmTRAC). It is designed to take advantage of advancements in point-of-sale systems and time and attendance systems, as well as the use of electronic payment settlement methods, to improve tip-reporting compliance and to decrease taxpayer and IRS administrative burdens.
The three existing voluntary programs that would be replaced by the proposed new SITCA program were established as part of the Tip Reporting Determination/Education Program (TRD/EP), which was designed by the IRS to enhance tax compliance through educational programs and the use of voluntary tip reporting agreements instead of traditional audit techniques.
TRAC agreements have required employers to establish an educational program for tipped employees and tip reporting procedures for cash and charged tips. The TRDA program has been available to employers in a variety of tipping industries and requires the determination of minimum tip rates based on occupational categories that employees must use to report tips to the employer. The EmTRAC program is similar to the TRAC program but was created for employers that wish to submit their own educational programs and tip reporting procedures for approval by the IRS.
The proposed revenue procedure provides that upon termination of the TRAC, TRDA and EmTRAC programs, employers with existing tip reporting agreements in those programs will have a transition period during which their existing agreements will remain effective. The transition period will end upon the earliest of: the employer's acceptance into the SITCA program; an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement; or the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin.
Comments on this proposed guidance are due May 7, 2023.
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