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GrataSoft™ Solutions turn tip compliance into strategic advantage - minimizing tip tracking and IRS tip program administration while minimizing audit downside.

John Marshall
EAT, Inc, PO Box 144
5 Crescent Ave, Bld G
Rocky Hill, NJ 08553
tel: 609.786.1004
fax: 609.921.7067

Patent Pending tools and processes, which increase value through enhanced operational compliance and material reductions in administrative burden.

The Hidden Costs of Take-Out Sales

By John Marshall

When restaurateurs speak of take-out sales, what regularly come to mind are the incremental revenues, which do not take seats away from full-service customers. Often operators offer reduced prices as a further incentive to entice customers to take more meals home more often, recognizing the fact that these meals are not consuming plates, flatware and glasses.

Unfortunately in today’s environment, the cost of attractive disposable packaging is quickly leveling the playing field between disposable packaging and the house china. Lurking even further in the shadows is the effect that take-out sales may be having on an establishment’s tip compliance numbers. Depending on your amount of take-out sales, by not removing these carryout receipts from your tip reporting could actually be understating actual cash tips by 33% or more.


Technically speaking, the IRS specifies that Gross Receipts as reported on the annual IRS 8027 to include only those sales on which tipping is ‘customary’. If it is not customary in your operation to tip on carry out sales, the value of such should not be included in your gross receipts total.

Operators who neglect to remove to-go sales from their Gross Receipts because they do not believe such a small percentage could possibly be negatively impacting their percentage of cash tips declared might be quite surprised by the results.


First, let’s analyze why these “insignificant” sales can have a downside effect to such a significant degree. If you haven’t read the full text on 8027, it’s worth looking at all the nuances relating to the IRS Gross Receipts total. (see demystifying the 8027). The article shows how any sale that is not charged is to be included in cash sales. Take out sales more often than not increase cash sales. This is clear in the case of cash payments, but what may not be so obvious is the case when this purchase is paid by charge, but no charge tip is left. The IRS specifies that this type of receipt must be considered a cash sale for 8027 purposes. This is predicated on the assumption that some charge customers leave cash tips when no charge tip is left on the bill. So essentially, 100% of take-out sales regardless of how they are paid for may be diluting your cash tip percentage by inflating cash sales without an increase in tip.

The Numbers:

Let me show you an example which you can perform yourself on the (Tip Compliance Estimator). Let’s assume an establishment of 2.0mm in revenues with 85% charges sales. Setting total tips at 15% of sales, charged tips come to 15.88%. Cash tips are shown at 10% of cash sales. Let’s say the house carryout sales are just 5%. When we remove these receipts from the tipable sales mix, cash tips jump to 15% - an increase of 50%! It is a generally accepted fact that the IRS accepts cash tip rates 2% below that of the charged tip rate. In this example, the operator went from reporting a substandard cash tip rate to exceeding generally accepted IRS standards simply by removing take-out receipts.

If you are an IRS TRAC tip program participant, your establishment may benefit from audit immunity, but the misrepresentation in cash tip reporting as suggested above could leave your staff vulnerable to employee side-audit through incorrect 8027 reporting. In the case of the newest IRS ATIP program, tips are calculated and attributed to staff directly. Neglecting to deduct these carryout sales from Gross receipts may be adding nearly $12,000 in additional tips to your staff’s declared income and $1200 in additional payroll taxes to your bottom line. If you are like many in the industry fighting for 5% margins, such a correction could increase net income by 24%. Mr. Marshall is the owner of Main Street Gourmet Eatery and Bakery, Main Street Fine Catering, and Main Street Euro-American Bistro and Bar. He is president of GrataSoft Solutions, developer and publisher of Grata Restrateur and Grata Persona; patent pending solutions for implementing, tracking and managing tip policy, including IRS TRAC, TRDA and EmTRAC Tip Program compliance automation for businesses and individuals. For more information, please visit GrataSoft.com.