Rp 2006-30

for an amount equal to or less than the
previously substantiated amount. If there
is an increase to the previously substantiated amount or a change in the dependent
care provider, the employee must submit
a statement or receipt from the dependent care provider substantiating the new
claimed expense before amounts relating
to the increased amount or new provider
may be added to the card.
Example. Employer Z sponsors a dependent care
FSA that is offered through its cafeteria plan. Salary
reduction amounts for participating employees are
made on a weekly payroll basis, which are available
for dependent care coverage on a weekly basis. As
a result, the amount of available dependent care coverage equals the employee’s salary reduction amount
minus claims previously paid from the plan. Z has
adopted a payment card program for its dependent
care FSA. Employee F is a participant in the dependent care FSA and has elected $5,000 of dependent
care coverage. Z reduces F’s salary by $96.15 on a
weekly basis to pay for coverage under the dependent
care FSA.
At the beginning of the plan year, F is issued
a debit card with a balance of zero. F’s childcare
provider, ABC Daycare Center, requires a $250 advance payment at the beginning of the week for dependent care services that will be provided during the

week. The dependent care services provided for F by
ABC qualify for reimbursement under § 129. However, because the services have not yet been provided
as of the beginning of the plan year, F cannot be reimbursed for any of the amounts until the end of the first
week after the services have been provided. F submits a claim for reimbursement that includes a statement from ABC with a description of the services,
the amount of the services, and the dates of the services. Z increases the balance of F’s payment card
to $96.15 after the services have been provided (i.e.,
the lesser of F’s salary reduction to date or the incurred dependent care expenses). F uses the card to
pay ABC $96.15 on the first day of the next week and
pays ABC the remaining balance due for the week
($153.85) by check.
To the extent that this card transaction and each
subsequent transaction is with ABC and is for an
amount equal to or less than the previously substantiated amount, the charges are fully substantiated without the need for the submission by F of a statement
from the provider or further review by the employer.
However, the subsequent amount may not be made
available on the card until the end of the week when
the services have been provided.

tion III B of this notice, the requirement
that an employer that uses this system is
responsible for ensuring that the system
complies with the recordkeeping requirements of this notice (including Rev. Proc.
98–25) is effective for plan years beginning after December 31, 2006.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2003–43, 2003–1 C.B. 935,
is amplified.
DRAFTING INFORMATION
The principal author of this notice is
Barbara Pie of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). For
further information regarding this notice, contact Mireille T. Khoury at (202)
622–6080 (not a toll-free call).

EFFECTIVE DATE
With respect to the Inventory Information Approval System, as described in sec-

26 CFR 31.6053–1: Report of tips by employee to employer.

Rev. Proc. 2006–30
TABLE OF CONTENTS
SECTION 1. PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 2. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 3. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 4. EMPLOYER PARTICIPATION IN ATIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 5. EMPLOYEE PARTICIPATION IN ATIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 6. BENEFITS OF PARTICIPATION IN ATIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 7. LOSS OF PROGRAM BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 8. REVOCATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 9. COMPLIANCE REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 10. EFFECT ON OTHER TIP COMPLIANCE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 11. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 12. PAPERWORK REDUCTION ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 13. ADDRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
SECTION 14. CONTACT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
APPENDIX MODEL EMPLOYEE PARTICIPATION AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

2006–31 I.R.B.

110

July 31, 2006

SECTION 1. PURPOSE
This revenue procedure sets forth the
requirements for participating in the Attributed Tip Income Program (ATIP).
ATIP provides benefits to employers and
employees similar to those offered under
previous tip reporting agreements without
requiring one-on-one meetings with the
Service to determine tip rates or eligibility.
SECTION 2. BACKGROUND
.01 The Internal Revenue Service is expanding its Tip Rate Determination/Education Program (TRD/EP), which is designed to enhance tax compliance among
tipped employees through taxpayer education and voluntary agreements instead of
traditional audit techniques.
.02 The Service developed the TRD/EP
in 1993 as a means of enhancing tax
compliance while reducing taxpayer burden and in 2004, the Service extended the
TRD/EP program indefinitely. In TRD/EP,
the Service works with taxpayers in industries in which tipping is customary to
improve tax compliance. The TRD/EP
currently offers employers operating food
and beverage establishments two types of
agreements. The Tip Rate Determination
Agreement (TRDA) requires that tips be
reported at or above a specific rate negotiated between the employer and the Service
in return for certain benefits. The Tip Reporting Alternative Commitment (TRAC)
agreement requires that the employer provide ongoing education to tipped employees on tip reporting procedures in return
for certain benefits. A variation on TRAC,
the Employer-designed Tip Reporting
Alternative Commitment (EmTRAC), allows the employer considerable latitude
in designing its educational program and
tip reporting procedures. Employers who
enter into these agreements and comply
with their terms are not subject to challenge on audit with respect to the amount
of tips they are reporting as wages. TRDA
provides similar benefits to employees.
Although not set forth in the TRAC agreements, if employees follow the procedures
their employer describes in the required
educational sessions, the Service will not
challenge the amount of tips they report
to their employers as wages. The Service
also offers the Gaming Industry Tip Compliance Agreement (GITCA) which is an

July 31, 2006

agreement designed to meet the needs of
establishments in the gaming industry.
The decision to enter into TRDA, TRAC,
or GITCA is entirely voluntary on the part
of the employer.
.03 ATIP is a new reporting alternative
for employers in the food and beverage industry designed to promote compliance by
employers and employees with the provisions of the Internal Revenue Code (the
Code) governing tip income, to reduce disputes on audit, and to reduce filing and
recordkeeping burdens. ATIP is being offered in addition to the existing TRD/EP
programs described in section 2.02 of this
revenue procedure. ATIP differs from the
existing programs in that it does not require an employer to enter into an individual agreement with the Service. ATIP does
not alter any of the existing TRD/EP programs. Employers currently participating
in an existing TRD/EP program may elect
to switch to ATIP. See Section 10 for additional information.
.04 The requirements for participation
in ATIP for employers and employees are
set forth in this revenue procedure. The
benefits of participation for both employers and employees are also set forth. Participation by employers and employees is
entirely voluntary. An employee cannot
participate in ATIP unless he or she is employed by a participating employer.
.05 Pilot Program. The ATIP is a pilot
program. Employers may elect to participate in ATIP on a calendar year basis for
each of the three calendar years beginning
on or after January 1, 2007.
SECTION 3. DEFINITIONS
.01 For purposes of this revenue procedure, the following definitions apply.
.02 Attribution date. The term “attribution date” means the date on which tips
attributed to participating employees are
treated as wages for federal employment
tax purposes.
.03 Charge receipts. Charge receipts
shall include credit card charges and
charges under any other credit arrangement (e.g., house charges, city ledgers
and charge arrangements to country club
member.) Debit card sales are included in
charge receipts.
.04 Charged tips. A tip included on a
charge receipt is a charged tip.

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.05 Charged tip rate. For each calendar year, the “charged tip rate” for a participating establishment equals (i) the total
charged tips reported (or to be reported) on
the establishment’s Form 8027 for the calendar year immediately preceding the calendar year of participation in ATIP divided
by (ii) the total charge receipts reported (or
to be reported) on the Form 8027 (sales
from charge receipts showing charged tips)
for the calendar year immediately preceding the calendar year of participation in
ATIP.
Example: Total charged tips reported on the
establishment’s Form 8027 for the preceding calendar year equal $170,000 and total charge receipts
reported on the Form 8027 for the preceding calendar
year equal $1,000,000; the charged tip rate for the
establishment for the calendar year would be 17 percent, or 170,000 divided by 1,000,000.

.06 Directly tipped employee. The
term “directly tipped employee” means
any tipped employee who receives tips
directly from customers, including an employee who after receiving tips directly
from customers turns all the tips over to
a tip pool. Examples of directly tipped
employees are waiters, waitresses, and
bartenders.
.07 Eligible establishment. The term
“eligible establishment” means an establishment where at least 20 percent of the
establishment’s gross receipts from the
sale of food or beverages for the calendar
year immediately preceding the calendar
year of participation in ATIP are charge
receipts showing charged tips.
.08 Employee participation agreement.
The term “employee participation agreement” means a document signed by the
tipped employee which includes a description of the requirements and benefits
of employee participation in the ATIP
(specifically including the employee’s
agreement to report on his or her federal
income tax return at least the amount of
tip income attributed to him or her under ATIP and reported on the employee’s
Form W–2 as tips), a description of the
attribution method used by the establishment, and a provision for revocation.
An employer may also use the employee
participation agreement to provide an
estimate of the tip amount that will be attributed. A document which conforms to
the model employee participation agreement provided in Appendix of this revenue
procedure satisfies this definition.

2006–31 I.R.B.

.09 Food or beverage employee. The
term “food or beverage employee” means
an employee who provides services in connection with the provision of food or beverages. Such employees include, but are
not limited to, waiters, waitresses, busboys, bartenders, persons in charge of seating (such as a hostess, maitre d’ or dining room captain), wine stewards, cooks,
and kitchen help. Examples of employees
who are not food or beverage employees
include, but are not limited to, coat check
persons, bellhops and doormen.
.10 Food or beverage establishment.
The term “food or beverage establishment” means an establishment that provides food or beverages in which the
tipping by customers of employees serving food or beverages is customary.
.11 Formula tip rate. The term “formula
tip rate” equals the charged tip rate minus
two percentage points.
Example. The charged tip rate for the establishment, based on data from Form 8027, is 17 percent.
The formula tip rate is thus 15 percent (the charged
tip rate minus two percentage points, .17 – .02 = .15).

.12 Indirectly tipped employee. The
term “indirectly tipped employee” means
a tipped employee who does not normally
receive tips directly from customers. Examples of indirectly tipped employees are
busboys, service bartenders and cooks. An
employee, such as a maitre d’, who receives tips both directly from customers
and indirectly through tip splitting or tip
pooling shall be treated as a directly tipped
employee.
.13 Nonparticipating Employee. The
term “nonparticipating employee” means
any tipped employee who is not a participating employee.
.14 Participating Employee. The term
“participating employee” means any
tipped employee who has a signed employee participation agreement in effect.
.15 Payroll period. The term “payroll
period” means the period of service for
which a payment of wages is ordinarily
made to the employee by his or her employer.
.16 Tip compliance agreement. The
term “tip compliance agreement” means
any of the following —
(1) A Tip Rate Determination Agreement (TRDA) for use by employers in
the food and beverage industry, Ann.
2000–23, 2000–1 C.B. 992;

2006–31 I.R.B.

(2) A Tip Reporting Alternative
Commitment (TRAC) Agreement, Ann.
2000–22, 2000–1 C.B. 987;
(3) An approval letter received pursuant
to the Employer-Designed Tip Reporting
Alternative Commitment (EmTRAC), Notice 2000–21, 2000–1 C.B. 967; or
(4) A Gaming Industry Tip Compliance
Agreement (GITCA) for a food or beverage establishment, Rev. Proc. 2003–35,
2003–1 C.B. 919.
.17 Tipped employee. The term “tipped
employee” of a food or beverage establishment means an employee who is a food
or beverage employee who customarily receives tip income from employment at that
establishment. An employee who occasionally receives small amounts of tip income is not a tipped employee. Generally, an employee who receives less than
$20 per month in tip income would not be
considered as customarily receiving tip income. For purposes of this revenue procedure the term tipped employee includes
a directly tipped employee and an indirectly tipped employee, as defined in sections 3.06 and 3.12 of this revenue procedure.
SECTION 4. EMPLOYER
PARTICIPATION IN ATIP
.01 Employers participate in ATIP
establishment by establishment. An employer may participate in ATIP with respect to an establishment only if it is an
eligible establishment as defined in section
3.07 of this revenue procedure. In order
to participate with respect to an establishment, an employer must satisfy all of the
requirements in this section for that establishment. If an employer has more than
one eligible establishment, the employer
must satisfy the requirements for each
establishment that is going to participate.
An employer may have both participating
and nonparticipating establishments.
.02 Employee participation.
(1) General rule. At least 75 percent
of the establishment’s tipped employees
must have agreed to participate and signed
an employee participation agreement as of
the last day of the first payroll period ending on or after January 1 of the calendar
year. In addition, the employer must make
a good faith effort to maintain the participation rate throughout the year. For purposes of this rule, an employer may treat

112

an employee who signs an employee participation agreement as a participating employee until the first day of the first payroll
period for which the employee submits a
tip report for less than the attributed tips or
which follows the date on which the employee gives the employer a signed notice
revoking participation in ATIP.
(2) Good faith effort. A good faith
effort means periodic review of the level
of participation, steps taken to encourage more tipped employees to participate
whenever the rate falls below the required
75 percent, and steps taken to offer participation to all new tipped employees. An
employer that manipulates the participation rate so as to qualify at the beginning
of the year even though there is a significant and sustained decline in participation
for other parts of the year will not be considered to have made a good faith effort.
(3) Annual qualification. An establishment that participated in ATIP in a prior
year but does not satisfy the 75 percent employee participation requirement as of the
last day of the first payroll period ending
on or after January 1 of the applicable year
is not eligible to participate in that year.
Example. Establishment satisfies the 75 percent
participation requirement for Year 1, determined as
of the last day of the first payroll period ending on or
after January 1 of Year 1. Notwithstanding the good
faith efforts of the employer, the participation rate
drops over the course of the year and on December
31 of Year 1, only 65 percent of tipped employees
remain as participants. Also, as of the last day of the
first payroll period ending on or after January 1 of
Year 2, only 65 percent of tipped employees remain
as participants. While the establishment retains the
benefits of the ATIP for Year 1, it is not eligible to
participate in the program for Year 2.

.03 Notification of Service. An employer must notify the Service of its participation in ATIP. Notification must be
provided for each year in which the employer participates. If an employer has
more than one food or beverage establishment, the employer must provide separate notification for each establishment for
each year. An employer shall use a copy of
a timely filed Form 8027 for the prior year
for purposes of notifying the Service of its
participation in ATIP for the current year
for an establishment regardless of whether
the employer is otherwise required to file
Form 8027 for that establishment. The employer’s participation with respect to an establishment is effective as of January 1 of
the year in which the Form 8027 is filed.
For example, to elect participation in ATIP

July 31, 2006

for 2007, the employer files a Form 8027
for 2006. If the employer is required to file
Form 8027 for an establishment, the employer notifies the Service of its intent to
participate with respect to a particular establishment by timely filing Form 8027 for
that establishment and sending a copy of
the completed form, with the box checked
“ATIP” to the address in section 13 of this
revenue procedure by the due date for filing the Form 8027 (paper returns are due
February 28, or February 29 for calendar
year 2008, and electronic returns are due
March 31). If an employer is not required
to file the Form 8027 for an establishment
(for example, an establishment with less
than 10 employees), the employer completes lines 1 – 5 of a Form 8027 for the
calendar year preceding the year for which
the establishment is electing to participate
in ATIP for that establishment, signs the
form, and sends the form, with the box
checked “ATIP” to the address in section
13 by February 28.
.04 Tip attribution. The employer must
select a period for computing the total tip
amount and attributing tips to all tipped
employees. The period may be no longer
than a month and may be shorter if the
employer so chooses. The employer must
also select an attribution date on which to
attribute the total tip amount to all tipped
employees. The attribution date may be
no later than the tenth day following the
last day of the period for which the total
tip amount is computed, and it may not be
earlier than the last date on which an employee may submit to the employer a report of actual tips received for the period
for which the total tip amount was computed. The employer must compute the total tip amount for the establishment and attribute tips as follows.
(1) As of the last day of the period determined by the employer to compute the
total tip amount, the employer computes
the total tip amount for the establishment
by multiplying the total gross receipts from
food and beverage sales of the establishment for the period by the formula tip rate.
(a) Except as provided in paragraph (b)
below, for each year the employer com-

July 31, 2006

putes the formula tip rate using the charged
tip rate calculated based upon the information reported (or to be reported) on the establishment’s Form 8027 for the preceding
calendar year. For example, for employers
participating in 2007, the formula tip rate is
computed by reference to data on the 2006
Form 8027.
(b) For periods ending on or after January 1 and before March 1 of any year,
the employer may compute the total tip
amount using the formula tip rate used by
the establishment in December of the prior
year. For example, for periods ending on
or after January 1 and before February 28,
2007, the employer may compute the total
tip amount using a formula tip rate computed by reference to data on the establishment’s 2005 Form 8027.
(2) The employer attributes the total tip
amount computed in section 4.04(1) of this
revenue procedure to all tipped employees without regard to whether the tipped
employee is a participating or nonparticipating employee. The employer attributes
tips to all tipped employees using any reasonable attribution method. The method
used must be the method described in the
employee participation agreement(s) used
by the employer. If, during the calendar
year, the employer modifies the attribution
method, the employer must provide written notice to the participating employees
at least seven days prior to the first day of
the payroll period for which the employees will be subject to the new attribution
method.
(a) An attribution method is reasonable
if it is applied consistently to similarly situated tipped employees and approximates
the relative amounts of tips received by
different categories of similarly situated
tipped employees. An attribution method
that approximates the actual distribution of
tips, rather than tracking the amount actually distributed, can be reasonable. For
example, attributing the total tip amount
based on hours worked by each tipped
employee as a percentage of total hours
worked by all tipped employees is a reasonable method if it reasonably approximates the actual distribution of tips, even

113

if the practice of employees retaining tips
is based on percentage of receipts, rather
than hours worked.
(b) An attribution method will not be
considered reasonable if the employer
computes the total amount of attributed
tips, subtracts tips reported by nonparticipating employees, and attributes the
difference to all tipped employees.
(c) Following is an example of a reasonable attribution method:
Establishment R serves lunch five days a week
and dinner six days a week. R employs eight directly
tipped employees, A, B, C, D, E, F, G, and H. Employee A works 20 hours and employee B works 25
hours per week during the lunch shift. Employees C,
D, E, F, and G work various hours per week during the
dinner shift. Employee H is the bartender and works
40 hours per week spread between the lunch and dinner shifts. Establishment R notified the Service that
it would participate in ATIP in 2007. Employees A,
B, C, D, E, and F are participating employees while
employees G and H are nonparticipating employees.
Using the data from its 2006 Form 8027, Establishment R calculated its formula tip rate to be 13%. Establishment R computes the total tip amount weekly
and uses a two step attribution method. First, Establishment R allocates a portion of the total tip amount
to different groups of similarly situated employees
based upon the average percentage of gross receipts
attributable to lunch, dinner and the bar. Establishment R then further attributes tips to each employee
in its three categories: lunch, dinner and the bar.
10% of the total tip amount is allocated to the
lunch shift and attributed to employees A and B;
60% of the total tip amount is allocated to the
dinner shift and attributed to employees C, D, E,
F, and G; and
30% of the total tip amount is allocated to the bar
and attributed to employee H.
Tips for the lunch shift employees are allocated
among the employees based on the employee’s percentage of total hours worked for the shift. Tips for
the dinner shift employees are allocated among the
employees based on the percentage of total dinner
receipts from customers served by that employee.
In a typical week, Establishment R has $20,000
in gross receipts. R’s total tip amount is $2,600
($20,000 x 13% = $2,600).
The total tip amount is allocated to similarly situated
employees as follows:

2006–31 I.R.B.

$2600 x 10% = $260 allocated to the lunch shift
$2600 x 60% = $1560 allocated to the dinner shift
$2600 x 30% = $780 allocated to the bar
The amounts are attributed to all tipped employees, participating and or nonparticipating.
Lunch shift employees (based upon hours worked)
A

$260 x 20/45 = $115.56

B

$260 x 25/45 = $144.44

Dinner shift employees (based upon percentage of dinner receipts)
C

$1560 x 27% = $421.20

D

$1560 x 20% = $312.00

E

$1560 x 20% = $312.00

F

$1560 x 18% = $280.80

G

$1560 x 15% = $234.00

Bartender (based upon percentage of gross receipts)
H

$780.00

The amounts attributed to the participating employees A, B, C, D, E, and F are treated as if the employees reported those amounts to the employer, and
the employer treats these amounts as wages for purposes of Federal Insurance Contributions Act (FICA),
Federal Unemployment Tax Act (FUTA), and income
tax withholding (ITW). Employee G reported tips of
$275.00 to the employer and employee H reported
tips of $697.00 to the employer. Since G and H are not
participating employees in ATIP, the amounts they reported to the employer, and not any tips attributed to
them under the attribution method, will be treated as
wages for purposes of FICA, FUTA and ITW.

.05 Treatment of attributed tips as
wages for purposes of withholding, reporting, and payment of employment
taxes.
(1) Participating employees. On the
attribution date, the employer must treat
tips attributed to the participating employees as if each participating employee had
reported such attributed tips on a written
statement furnished to the employer as tips
received by the employee, as required by
section 6053(a) of the Code. Thus, the employer must comply with the requirements
to withhold, pay, and report FICA, FUTA,
and ITW on a timely basis as applicable to
the attributed tips.
(2) Nonparticipating employees. Tips
attributed to nonparticipating employees
are not treated as reported on a written
statement furnished to the employer as tips
received by the employee. Thus, tips attributed to nonparticipating employees are
not treated as wages for FICA, FUTA, and
ITW purposes. As under existing law, each
nonparticipating employee must report the
amount of tips actually received to the employer, and the employer must treat the reported amount of tips as wages.

2006–31 I.R.B.

(3) Tip allocations. If an employer is
required to allocate tips pursuant to section 6053(c), the employer shall allocate
tips only to nonparticipating employees,
and then only in such amount as is allocable to them pursuant to Treas. Reg.
§ 31.6053–3(d), (e), and (f). No tips may
be allocated to participating employees.
.06 Reconciling with reports of actual
tips received. A participating employee
retains the right to report tips actually received for a given period to the employer.
See Section 5.07 of this revenue procedure. If a participating employee reports
actual tips received for a given period to
the employer in an amount that exceeds
the tips that otherwise would have been attributed to the employee for that period, the
excess must also be included in the participating employee’s wages for purposes of
withholding, reporting and paying FICA,
FUTA, and ITW, as applicable. If a participating employee reports actual tips received for a given period to the employer
in an amount that is less than the tips that
otherwise would have been attributed to
the employee for that period, the employer
shall treat only the reported amount (and
no part of the attributed tips) as wages
for purposes of withholding, reporting and
paying FICA, FUTA, and ITW for that period.
.07 Notification of participating employees as to amount of attributed tips. If
in any calendar year, an employer reports
on the participating employee’s Form
W–2 an amount of tips that includes both
attributed tips and tips actually reported to
the employer pursuant to section 6053(a)

114

of the Code, the employer shall provide the
participating employee with an additional
written statement showing the amount of
the tips reported on the Form W–2 that are
attributed tips.
.08 Employer recordkeeping. For each
year the employer participates in ATIP,
the employer shall maintain the following
records for each establishment to be made
available to the Service upon request.
(1) Copies of employee participation
agreements signed by employees.
(2) Employee records. For each tipped
employee, the employee’s name, address,
social security number, date hired, status
as directly or indirectly tipped employee,
reported tips, the amount of tips attributed,
and any other wages paid.
(3) Tip records.
(a) All records of information used to
compute the total tip amount for the establishment, to determine the attribution
method used, and to apply the attribution
method to the total tip amount for each period, including records sufficient to support the amount of tips attributed to each
tipped employee, both participating and
nonparticipating, and any records of distributions of aggregate or pooled tips.
(b) Gross food or beverage receipts subject to tipping.
(c) All charge receipts showing charged
tips.
(d) All tip reports submitted by tipped
employees.
(e) All charge receipts or electronic
charge records.
(4) A copy of the Form 8027 used to
notify the Service of participation in ATIP.

July 31, 2006

(5) A copy of any letter sent to notify the
Service of an establishment’s termination
of participation in ATIP.
The employer must retain the records described in this section for at least 4 years
dating from April 15 of the calendar year
following the calendar year to which the
records relate. An employer that participates in ATIP is not relieved of the obligation to maintain records related to tipped
employees required under statutes, regulations or other rules administered by other
governmental agencies.
.09 Records to be furnished to the Service. With respect to each participating
establishment, for each calendar year of
participation in ATIP, the employer shall
furnish the following records on or before
March 31 of the succeeding calendar year
to the address in section 13 of this revenue
procedure.
(1) Description of the attribution
method as provided in the employee participation agreement(s).
(2) An annual report providing each
tipped employee’s name, address, and social security number, status as a participating or nonparticipating employee, and
the amount attributed to each tipped employee.
(3) Amount reported to each tipped
employee as Social Security tips on
Form W–2.
.10 Filing returns and paying and depositing taxes. The employer must comply with all applicable requirements for filing federal tax returns and depositing and
paying all federal taxes. If an employer
is required to file a Form 8027 with respect to a participating establishment, the
employer must comply with the requirements for filing Form 8027. On the Form
8027 filed for calendar years in which an
establishment participates in ATIP, the employer shall treat as reported tips on line
4c an amount equal to the sum of the tips
attributed under ATIP to participating employees, the amount of reported tips in excess of the attributed tips reported by participating employees (if any), and the tips
reported by nonparticipating employees.
.11 Fulfilling requirements on annual
basis. Participation in ATIP is on a calendar year basis. Employers must attribute
tips and otherwise comply with the requirements of ATIP beginning with the
first period ending on or after January 1

July 31, 2006

of the year for which the employer notifies
the Service of its intent to participate.
.12 Accuracy requirement. The information reported on the Form 8027 must be
accurate.
.13 General compliance. Except as otherwise provided under this revenue procedure, the employer shall comply with all
rules under the Code and Treasury regulations applicable to employers with respect
to a participating establishment.
SECTION 5. EMPLOYEE
PARTICIPATION IN ATIP
.01 In order to participate and receive
the benefits set forth in section 6 of this
revenue procedure, an employee must satisfy all of the requirements in this section.
.02 The employee must be a tipped employee.
.03 The employee must sign an employee participation agreement with
the employer. If an employee works at
more than one participating establishment
owned or operated by the employer, the
employee must sign a separate employee
participation agreement for each establishment.
.04 The employee must report on his or
her federal income tax return at least the
amount of tip income attributed to him or
her under ATIP and reported on the employee’s Form W–2 as tips. A participating employee may report tips on his or her
federal income tax return below or above
the amount of tip income attributed to him
or her under ATIP and reported on the employee’s Form W–2 as tips. However, any
participating employee who fails to report
on his or her federal tax return all of the
tips reported by the employer on the employee’s Form W–2 for that year will not
receive the benefits provided by section
6.02 of this revenue procedure. An employee who reports less than the amount
of tips reported by the employer on Form
W–2 must be able to substantiate, with adequate books and records, that the tip income earned was less than the amount reported on the Form W–2.
.05 Period of participation.
(1) General rule. Except as provided in
section 5.04 of this revenue procedure, a
participating employee receives the benefits of ATIP for periods beginning after the
later of (1) the effective date of the employer’s participation (see section 4.03) or

115

(2) the first payroll period in which the employee’s participation agreement is in effect.
(2) Special rule for new hires. An employee hired after the first pay period of the
year is treated as a participating employee
as of the date of hire if the employee provides the employer with a signed employee
participation agreement within 30 days of
the date of hire.
.06 A participating employee is not
required to report tips to his or her employer for any payroll period beginning
with the first payroll period in which the
employee’s participation agreement is in
effect and continuing with every payroll
period thereafter until the employee revokes his or her employee participation
agreement, or the employer notifies the
employee that the employer is no longer
participating in ATIP.
.07 Consequences of reporting tips to
the participating employer. A participating employee retains the right to report tips
to his or her employer. If the participating employee reports an amount of tips
for a given period that exceeds the amount
the employer has attributed to that employee for that period, the excess shall be
treated as wages for purposes of withholding, paying and reporting FICA, FUTA,
and ITW, as applicable. See section 4.06
of this revenue procedure. Making such a
report does not affect the employee’s status as a participating employee. If the participating employee reports an amount of
tips for a given period that is less than the
amount the employer will attribute to that
employee for that period, the participating employee revokes his or her employee
participation agreement, effective the first
day of the payroll period for which the employee reports an amount of tips less than
the amount the employer would have attributed to the employee.
SECTION 6. BENEFITS OF
PARTICIPATION IN ATIP
.01 Benefits to the employer. The Service will act as follows with respect to an
employer that satisfies all the requirements
of section 4 of this revenue procedure with
respect to one or more establishment:
(1) The Service will not initiate any tip
examinations of a participating establishment with respect to any period during

2006–31 I.R.B.

which the establishment is participating in
ATIP.
(2) Code section 3121(q) notice and demand. Any section 3121(q) notice and
demand issued to the employer with respect to a participating establishment relating to any period during which the establishment is participating in ATIP will be
based solely on amounts reflected on:
(a) Form 4137, Social Security and
Medicare Tax on Unreported Tip Income,
filed by an employee with Form 1040; or
(b) Form 885–T, Adjustment of Social
Security Tax on Tip Income Not Reported
to Employer, prepared at the conclusion of
an employee tip examination; or
(c) The reporting of additional tip income by a participating employee.
At the Service’s discretion, the Service
may continue any ongoing examination of
the employer or establishment begun by
the Service for a taxable period before the
employer notifies the Service of its intent
to participate in ATIP.
(3) A participating establishment will
be considered in compliance with the reporting requirements of section 6053(c)(2)
and (3) of the Code regarding allocation of
tips to participating employees for the taxable periods during which the employer’s
participation in ATIP remains in effect.
.02 Benefits to participating employees. The Service will act as follows with
respect to a participating employee who
meets all the requirements of section 5 of
this revenue procedure.
(1) The Service will not examine a
participating employee’s tip income with
respect to the participating establishment
for any period during which the employee
is a participating employee, provided the
employee reported as wages on his or
her federal income tax return at least the
amount of attributed tips reported to the
employee in connection with employment
at the participating establishment on Form
W–2. The Service may examine a participating employee’s tip income with respect
to the participating establishment for any
period if the employee reports on his or
her federal income tax return less than the
amount of tip income attributed to him or
her under ATIP and reported in connection
with employment at the participating establishment on the employee’s Form W–2
as tips.

2006–31 I.R.B.

(2) If an employee becomes a participating employee more than 30 days after
becoming employed as a tipped employee,
the Service may examine the participating employee’s tip income received in
connection with employment at the participating establishment before the employee
becomes a participating employee. At
the Service’s discretion, the Service may
continue any ongoing examination of any
tipped employee of the employer started
by the Service before the effective date of
the employer’s participation in this program.
.03 Status of nonparticipating employee. A nonparticipating employee is
subject to the full range of compliance
and enforcement procedures available to
the Service including examination of tip
income for any time period. The Service has authority, including the issuance
and enforcement of summonses pursuant
to sections 7602, 7604, and 7609 of the
Code, to secure the information necessary
for the Service to develop the tip rates
of nonparticipating employees including
information in possession of the participating employer.
SECTION 7. LOSS OF PROGRAM
BENEFITS
.01 Employer. An employer will lose
the protections provided in section 6.01 of
this revenue procedure with respect to an
establishment if the employer fails to comply with any of the requirements of section
4 with respect to that establishment. If the
failure to comply with one or more requirements occurs during the calendar year, the
employer will not be permitted to attribute
tips to participating employees for any remaining portion of the calendar year, and
all tipped employees must report tips in accordance with the Code and regulations.
An employer that loses the ability to participate in ATIP during the calendar year
must notify the employees of that establishment that as of the start of the next payroll period, it will no longer attribute tip
amounts to employees as provided in section 4 and that employees must begin reporting tips to the employer as required by
section 6053(a) of the Code. Such notice
must be provided immediately after receipt
of written notice from the Service that the
establishment has lost ATIP program benefits and in no event later than the last day

116

of the payroll period in which written notice from the Service is received. If an
employer fails to notify employees that it
will no longer attribute tip income, the employer (but not the participating employees) will lose the protections provided in
section 6 of this revenue procedure for the
entire calendar year, regardless of when
the employer stopped attributing tip income.
.02 Employee. If the participating employee reports an amount of tips for a given
period that is less than the amount the employer would have attributed to that employee for that period, the participating
employee revokes his or her employee participation agreement, effective the first day
of the payroll period for which the employee reports an amount of tips less than
the amount the employer would have attributed to the employee. On that date the
employee loses the benefits of section 6.02
of this revenue procedure.
SECTION 8. REVOCATION
.01 Employer revocation. For an employer to terminate participation in ATIP
for an establishment prior to the end of the
calendar year, the employer must notify
the Service in writing by sending a letter
to the address in section 13 of this revenue
procedure in advance of the first day of the
first payroll period for which the establishment will not participate in ATIP. An employer must also notify employees of the
establishment that it will no longer participate in ATIP and that employees must begin reporting their tips as required by section 6053(a) of the Code. An employer
may satisfy the employee notification requirement by providing each tipped employee with a copy of the letter sent to the
address in section 13 of this revenue procedure at least seven days prior to the first
day of the payroll period for which the employees will be required to report tips.
.02 Employee revocation. An employee who signs an employee participation agreement remains a participating
employee until the employee revokes the
employee participation agreement. An
employee revokes participation in ATIP
by providing the employer a signed notice
revoking the prior agreement or by reporting tips in an amount less than the amount
attributed to the employee. See section
5.07 of this revenue procedure.

July 31, 2006

(1) An employee who revokes participation may not participate in the establishment’s ATIP again during the year and
must begin reporting tips to the employer
effective the first day of the next payroll
period as provided under section 6053 of
the Code.
(2) An employee who revokes participation stops receiving the benefits provided under ATIP. The revocation is effective the earlier of the date the employee
provides the employer a signed notice revoking the employee’s participation agreement or the first day of the payroll period for which the employee reports an
amount of tips less than the amount the
employer would have attributed to the employee. However, the employee receives
the benefits provided under ATIP for the
payroll periods during which the employee
was a participating employee, provided the
employee satisfies the requirements of section 5.04 of this revenue procedure with respect to attributed tips reported on the employee’s Form W–2.
.03 Revocation by Service. The Service
may revoke an employer’s participation in
ATIP at any time provided that it gives the
employer notice in writing.
SECTION 9. COMPLIANCE REVIEW
.01 Compliance review. The Service
may evaluate the employer and its participating employees for compliance with the
provisions of ATIP.
.02 Examinations and/or inspection of
books and records. A compliance review
or other inspection of books and records as
required for compliance with ATIP will not
be considered an inspection of books and
records for purposes of section 7605(b) of
the Code and is not a prior audit for purposes of section 530 of the Revenue Act
of 1978.

July 31, 2006

SECTION 10. EFFECT ON OTHER TIP
COMPLIANCE AGREEMENTS
The employer’s election to participate
in ATIP supersedes and revokes all existing tip compliance agreements between
the employer and the Service with respect
to the establishment.
SECTION 11. EFFECTIVE DATE
.01 Effective date. This revenue procedure is effective January 1, 2007. However, employers who elect to participate
in ATIP for 2007 must attribute tips and
otherwise comply with the requirements of
ATIP beginning with the first payroll period ending on or after January 1, 2007.
See section 4.11 of this revenue procedure.
.02 General termination and sunset provision. The ATIP established by this Revenue Procedure is a pilot program available for the three calendar years beginning
on or after January 1, 2007. The ATIP
terminates on December 31, 2009, unless
the Service issues guidance extending the
term. Notwithstanding the foregoing, the
Commissioner of Internal Revenue may
terminate ATIP at any time.
SECTION 12. PAPERWORK
REDUCTION ACT
The collection of information contained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. § 3507) under control number
1545–2005. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information displays
a valid OMB control number.

117

The collection of information in this
revenue procedure is in section 4, titled
Employer Participation in ATIP. This information is required to evaluate the suitability of the Reporting Program for the
particular taxpayer. The collection of information is required to obtain the benefits
described in this revenue procedure. The
likely respondents are businesses or other
for-profit institutions.
The estimated total annual reporting
burden is 6100 hours.
The estimated annual burden per respondent is an average of 10 hours, depending on individual circumstances. The
estimated number of respondents is 610.
The estimated frequency of responses is
1 time per year per respondent.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. § 6103.
SECTION 13. ADDRESS
Internal Revenue Service, 201 West
River Center Blvd., Stop 5701 G, ATTN:
Employment Tax/ATIP Coordinator, Covington, KY 41011.
SECTION 14. CONTACT
INFORMATION
The principal author of this revenue
procedure is Stephen Suetterlein of the
Office of Associate Chief Counsel (Tax
Exempt & Government Entities). For further information regarding this revenue
procedure, contact the IRS Business and
Specialty Tax Line at (800) 829–4933 or
by e-mail at [email protected].

2006–31 I.R.B.

Appendix
Attributed Tip Income Program (ATIP)
Model Employee Participation Agreement
I am a tipped employee of
(Employer), I work at
(Establishment), and by signing this agreement I am choosing
to participate in the Attributed Tip Income Program (ATIP) established by the Internal Revenue Service (IRS) in Revenue
Procedure 2006–30.
I understand that the benefits and requirements of ATIP are as follows:
1.

Tip reporting not required. As a participating employee in ATIP, I am not required to report tips to Employer for
any payroll period beginning with the first payroll period in which this agreement is in effect and continuing with
every payroll period thereafter until I revoke this agreement or Employer notifies me that Employer is no longer
participating in ATIP.

2.

Attributed tips treated as wages. Under ATIP Employer will calculate a total tip amount for all tipped employees in the
establishment. A portion of the attributed tips will be treated as if I had reported that amount as tips to Employer and
will be treated as my tip income. This amount will be reported on my Form W–2 as tip income in addition to other
wages paid to me by Employer.

3.

Total tip amount calculation. Employer will calculate the total tip amount for the Establishment by multiplying the
gross receipts from food and beverage sales of Establishment by the charged tip rate (based on Establishment’s
Form 8027 for the prior year) minus two percentage points and attributing the total to all directly and indirectly
tipped employees using a reasonable attribution method.

4.

Attribution method. The method Employer will use to attribute tips to tipped employees is
[Employers may also use the agreement to provide an estimate of the tip amount that will be attributed.]

5.

Attributed tips reported on Form W–2. Tips that are attributed to me under ATIP will be reported in Box 1 of my
Form W–2 as tips.

6.

Federal income tax returns. To receive the audit protection provided by ATIP I agree to report on my federal income
tax return at least the amount of tips Employer reports on my Form W–2. If I report tips below the amount on my Form
W–2, I will lose the audit protections offered by ATIP, and will need to have adequate records, such as a daily tip log to
substantiate that the amount of tip income I received was less than the amount reported on my Form W–2.

7.

Audit protection. If I report on my federal income tax return the tip amount reported on the Form W–2 that I receive
from Employer in connection with my employment at [establishment], the IRS will not audit my tip income received
in connection with my employment at [establishment] for the period beginning with the date of this agreement and
continuing until the earlier of termination of my employment at [establishment] or termination of Employer’s
participation in ATIP.

8.

Effective date of audit protection. Provided I sign this Employee Participation Agreement within 30 days after I
became employed with Employer at Establishment, I will be protected from an IRS audit of my tip income received at
Establishment beginning on the date I became employed. If I sign this Employee Participation Agreement more than
30 days after I became employed with Employer at Establishment, I will be protected from an IRS audit of my tip
income received at Establishment after the date of this agreement unless I revoke my participation or my employer
revokes its participation.

9.

Revocation by participating employee. I understand that I may revoke this Employee Participation Agreement in two
ways. If I decide to report actual tips for any payroll period to Employer in an amount that is less than the amount that
will be attributed, the Employer will no longer attribute tips to me. I may also revoke this Employee Participation
Agreement by providing Employer with a signed written notice stating my intent to revoke participation. If my
participation in ATIP is revoked for any reason I may not participate in ATIP for the remainder of the calendar year and
I must report tips to Employer as required by the Internal Revenue Code. If my participation in ATIP is revoked for any
reason I will retain audit protection for tip income for those payroll periods prior to the effective date of the revocation.

2006–31 I.R.B.

118

July 31, 2006

10. Revocation by employer. I understand that the Employer may decide to cease participation in ATIP and if so will
provide written notification that it is no longer participating in ATIP. If Employer ceases participation in ATIP for
any reason, I may not participate in ATIP for the remainder of the calendar year and I must report tips to Employer as
required by the Internal Revenue Code. If my employer ceases participation in ATIP for any reason, I will retain audit
protection for tip income for those payroll periods prior to the effective date of the revocation.
11. General compliance. I agree to file my federal income tax return on a timely basis and report those tips and the rest of
my earnings from my job as shown on the IRS Form W–2 that Employer gives me as well as any other income I receive
from any other source. Failure to file timely and report my tip income as described in the preceding sentence will result
in loss of the audit protection described in paragraph 7.
By signing below, I agree to fulfill my responsibilities under this agreement and to participate in ATIP in accordance with
the terms of this Agreement.
Signature and Employee’s name printed, address, Social Security Number, and date.
Revenue Procedure 2006–30 may be viewed or printed at http://www.irs.gov/businesses/small/article/0,,id=98944,00.html
Revocation Notice
By signing below, I revoke my participation in ATIP.
Signature and Employee’s name printed, address, Social Security Number, and date.

July 31, 2006

119

2006–31 I.R.B.