IRS News Release  
March 11, 1996

IRS Releases Tip Reporting Video

WASHINGTON - To educate restaurant workers about their tax obligations and tip income, the Internal Revenue Service is distributing a 16-minute videotape throughout the food and beverage industry. The videotape was developed in conjunction with the IRS's Tip Reporting Alternative Commitment (TRAC) program. Under the TRAC program, establishments in the food service industry sign an agreement with the IRS committing to:

  • Establish a reasonable procedure for accurate tip reporting by employees;
  • Institute a training program to educate employees of their tax reporting obligations as they relate to tips; and
  • Comply with all federal tax requirements regarding the filing of returns, paying and depositing of taxes and maintaining records.

The unique aspect of the TRAC program is the industry's involvement in the development of the written agreement. Since the program started less than a year ago, the IRS has entered into 550 agreements, representing more than 7,000 establishments.

The IRS initiated its tip reporting program in late 1993, after research showed a very high rate of noncompliance in that area. Developed in June 1995, TRAC is the program's latest initiative. Initial figures from the tip initiative program are encouraging. Compared to baseline figures established from 1990 - 1993, Forms 8027 (Employer's Annual Information Return of Tip Income and Allocated Tips) indicate that the reporting of tip income increased by more than $1.5 billion in 1994.

The IRS generally will not perform a tip audit on establishments that have entered into and are complying with a TRAC agreement. In contrast, an establishment whose employees under-report their tips could be liable for employer FICA taxes back to 1988.

The IRS's new videotape presents the tax information restaurant workers need in an easy-to-understand format and helps TRAC employers with the required quarterly training. Written materials available in English, Spanish and Chinese will be released in late March. Establishments interested in either the videotape or the TRAC program should contact their local IRS office.

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