The IRS has issued a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program. SITCA would be a voluntary tip reporting program between the IRS and service industry employers. (IR 2023-19, Notice 2023-13, 2023-6 IRB 454)
The SITCA program would be available to service industry employers (excluding gaming industry employers) with at least one business location operating a “covered establishment.”
Generally, a covered establishment is an employer’s business location that has tipped employees using a technology-based time and attendance system to report tips. In addition, a covered establishment must use a Point-of-Sale (POS) system that records all sales subject to tipping and accepts the same forms of payment for tips as it does for sales.
Under the proposed procedure, a “service industry employer” is an employer:
- in a service industry (except the gaming industry) where employees generate sales subject to customer tipping,
- with at least one “covered establishment” and
- that is compliant with federal, state, and local tax laws for the three calendar years immediately preceding their application to the program.
After acceptance into the SITCA program, an employer would be required to annually certify that its covered establishments satisfy a minimum reported tips requirement to continue participating in the program. If the employer couldn’t certify that a covered establishment meets the minimum reported tips requirement, that establishment would be removed from the program and would not be eligible to participate in the SITCA program for the three succeeding calendar years.
The SITCA program would replace existing tip reporting compliance programs for employers in service industries, including:
- Tip Rate Determination Agreement (TRDA)
- Tip Reporting Alternative Commitment (TRAC) and
- Employer designed TRAC (EmTRAC)
The proposed revenue procedure provides that the above agreements would remain in effect until the earlier of (1) The employer’s acceptance into the SITCA program, (2) An IRS determination that the employer is noncompliant with the terms of their TRDA, TRAC or EmTRAC agreement; or (3) The end of the first full calendar year after the final revenue procedure is published in the Internal Revenue Bulletin.
Note: SITCA does not impact the existing Gaming Industry Tip Compliance Agreement (GITCA) program.
Anyone interested in providing feedback to the proposed SITCA program should follow the instructions in the notice and reply by May 7, 2023.
For more information about tip reporting compliance agreements, see Checkpoint’s Federal Tax Coordinator ¶H-4344.2.
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