Keeping with IRS tradition, the government agency is once again targeting the low-income masses, rather than the exceptionally wealthy few.
On Monday, the IRS announced new regulations that will affect service industries including hospitality, entertainment, housekeeping, and other industries. The IRS' latest scheme involves voluntary tip reporting between the government and employees.
According to the IRS notice regarding the new program, "This guidance contains a notice of proposed revenue procedure establishing the Service Industry Tip Compliance Agreement (SITCA)."
The notice goes on to explain, "SITCA is a voluntary tip reporting program between the Internal Revenue Service and employers in the service industry (excluding the gaming industry) that is designed to enhance tax compliance through the use of agreements instead of traditional audit techniques."
The new voluntary program would replace 3 alternative methods for reporting tips, including the Tip Rate Determination Agreement (TRDA), the Tip Reporting Alternative Commitment (TRAC), and the Employer designed TRAC (EmTRAC).
According to the IRS, the program is designed to "improve tip reporting compliance" and reduce administrative burdens and provide more transparency for taxpayers.
Taxpayers have until May 7, 2023, to provide feedback regarding the program and, according to the IRS notice, can be submitted one of two ways:
The IRS has long been accused of targeting the poor while turning a blind eye to the exceptionally wealthy and it appears that little has changed with this new program.
An overview of the IRS Notice regarding the SITCA program is below:
This notice sets forth a proposed revenue procedure that establishes the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program offered by the Internal Revenue Service (IRS) to employers in the service industry (excluding gaming industry employers)1. The SITCA program is intended to replace the Tip Reporting Alternative Commitment (TRAC) program and the Tip Rate Determination Agreement (TRDA) program, as well as the Employer-Designed Tip Reporting Program (EmTRAC). 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 (1) the employer’s acceptance into the SITCA program, (2) an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement, or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin. The IRS is issuing this guidance in proposed form to provide an opportunity for public feedback.
The proposed revenue procedure sets forth requirements for an employer to participate in the SITCA program. An eligible employer, called a “Service Industry Employer,” is generally an employer (excluding gaming industry employers) that (1) is in a service industry where employees perform services for customers and those services generate sales that are subject to tipping by customers, (2) has at least one Covered Establishment, and (3) is compliant with Federal, state, and local tax laws for the three completed calendar years immediately preceding the date the application is filed (the preceding period), plus the calendar quarters following the end of the preceding period through any calendar quarters during which the Service Industry Employer’s application is pending for some or all of the quarter.4 After acceptance, Service Industry Employers must continue to satisfy these requirements to continue participating in the SITCA program.
The proposed revenue procedure also sets forth the requirements for each Covered Establishment to participate in the SITCA program. A Covered Establishment must have tipped employees who utilize a technology-based time and attendance system to report tips under section 6053(a). Each Covered Establishment must also utilize a POS System to record all sales subject to tipping, and that POS System must accept the same forms of electronic payment for tips as it does for sales. The IRS will accept employers and Covered Establishments into the SITCA program that meet the eligibility criteria if the IRS also determines, in its sole discretion, that acceptance is warranted by the facts and circumstances and is in the interest of sound tax administration.
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