Why Enter an IRS Tip Agreement?

By John Marshall

Streamline your restaurant tip policy and procedures, and enroll in an IRS Tip Agreement as soon as possible. Do it now and don't wait. IRS tip programs are like audit insurance policies - priceless.  Take a look through the list of available learning center articles.  Ask questions in the Q&A forum, and once you have made up your mind to start the process, request an IRS agent bring you an agreement (if necessary). Tip TRAC agreements go into effect the calendar quarter after signing, giving you time to tweak needed policies and procedures. ATIP does not require a formal agreement, but enrollment opens just once a year each January 1 and is elected when filing your IRS Form 8027.

The benefits to owner and employee are great. By conforming to program terms, you and your establishment may enjoy immunity from audit liability, effectively resulting in a free insurance policy between yourself and the IRS. The potential downside, of course, is that there can be a significant administrative burden in collecting, preparing and presenting the data as required by the IRS. Throughout these pages you will find a growing collection of valuable information regarding regulations, best practices, tools and other resources to assist you in initiating and maintaining this process. This may include manual methods through fully automated solutions.  A user newsgroup area is provided where the many participating professionals can answer questions and share their experiences beyond article scope. You are encouraged to participate, as well as share your comments and recommendations with us here at Tip Compliance, and please visit our sponsor sites.

-- May 25, 2007 -- IRS Tip Credit is no longer subject to AMT.  Tip reporting and compliance once again provide cash value to the prudent operator in the form of a tax credit.  http://www.irs.gov/newsroom/article/0,,id=173661,00.html

Available IRS Tip Programs

IRS tip programs come in several flavors that vary by business segment application, requirements and cost.  In simple terms, the TRAC and EMTRAC are based on an educational foundation that requires the operator to provide employees with timely feedback showing tips presented separately as a percentage of cash and charge receipts, tips-outs between staff, as well as regular staff training on tip regulations. The TRDA program has preset minimum reporting requirements determined by the IRS.  These can be based on job, shift, hours worked, or other combinations.  Employees enrolled are required to meet these defined minimums, and participation must include at least 75% of the staff. Beginning January of 2007, the newest ATIP program began as an establishment-based minimums program, whereby a set percentage of sales is calculated and then attributed to all employees equitably, similar to that of  TRDA or Tip Pooling methods. This  "target" amount is specified as 2% less than the previous year’s 8027 reported charge tips as a percentage of sales.