Ann 2000-19

Part IV. Items of General Interest
Proposed Tip Reporting
Alternative Commitment (TRAC)
Agreement for Use Where
Tipped Employees Receive Both
Cash and Charged Tips (Other
Than in the Food and Beverage
Industry and the Cosmetology
and Barber Industry)
Announcement 2000-19
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 advance agreements
instead of traditional audit techniques.
This announcement solicits comments on
a draft agreement for use in industries
other than the food and beverage industry
and the cosmetology and barber industry.
The agreement is entitled Tip Reporting
Alternative Commitment (For use only
where tipped employees receive both cash
and charged tips, other than in the food
and beverage industry and the cosmetology and barber industry).
OVERVIEW
The Service developed its TRD/EP in
1993 as a means of enhancing tax compliance while reducing taxpayer burden. In
essence, the TRD/EP envisioned that the
Service and taxpayers in industries in
which tipping is common would work together to improve tax compliance. The
TRD/EP currently offers employers the
opportunity of entering into one of two
types of agreements. The Tip Rate Determination Agreement (TRDA) requires the
determination of tip rates; the Tip Reporting Alternative Commitment (TRAC)
agreement emphasizes education and tip
reporting procedures. The agreements
also set forth an understanding that employers that comply with the terms of the
agreement will not be subject to challenge

2000–19 I.R.B.

by the Service. The TRDAs set forth similar understandings with respect to employees who participate in the agreements. Although not set forth in the
TRAC agreements, employees who properly report tips also will not be subject to
challenge by the Service. The decision to
enter into either a TRDA or a TRAC
agreement is entirely voluntary on the
part of the employer.
In 1995, the Service developed the
TRAC agreement for use in the food and
beverage industry. In 1997, the Service
developed a TRAC agreement for employers in the hairstyling industry. The
agreements have been both popular and
effective. Other industries have expressed interest in TRAC agreements tailored to their industries. Because the
number of employees who receive both
cash and charged tips in industries other
than the food and beverage industry and
the cosmetology and barber industry is
relatively small, the Service has designed
a general TRAC agreement for use in
other industries.
To ensure consistency in the agreements offered to taxpayers and to provide
an opportunity for public comment before
making agreements available for use, a
TRAC agreement for use in other industries is attached to this announcement.
The Service requests comments from industries that might use the agreement.
The Service plans to allow electronic
systems (including point-of-sale systems)
to satisfy the TRAC education requirement. The Service requests comments on
what information the system must provide
to employees to satisfy the education requirement.
COMMENTS

ternal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Monday through Friday between the hours of 8
a.m. and 5 p.m. to: Specialty Taxes, c/o
CC:DOM:CORP:R (Ann. 2000-19),
Courier’s desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/regslist
.html.
OTHER TRDA AND TRAC
AGREEMENTS
The Service is simultaneously proposing by announcement in this Internal Revenue Bulletin four other agreements: (1) a
revised TRAC agreement for use in the
food and beverage industry (Announcement 2000-22), (2) a revised TRAC
agreement for use in the cosmetology and
barber industry (Announcement 200021), (3) a revised TRDA for use in the
food and beverage industry (Announcement 2000-23), and (4) a new TRDA for
use in any industry other than the food
and beverage industry and the gaming industry (Announcement 2000-20).
DRAFTING INFORMATION
The principal author of this announcement is Karin Loverud of the Office of the
Associate Chief Counsel (Employee Benefits and Exempt Organizations). For further information regarding this announcement, contact Ida Volz of the Office of
Specialty Taxes on (202) 622-4177 (not a
toll-free call).

Written comments must be received by
July 7, 2000. Send submissions to Office
of Specialty Taxes, c/o CC:DOM:CORP:R
(Announcement 2000-19), room 5226, In-

973

May 8, 2000

Release date: April 24, 2000
TIP REPORTING ALTERNATIVE COMMITMENT
(For use only where tipped employees receive both cash and charged tips, other than in the food and beverage
industry and the cosmetology and barber industry)
between
Department of the Treasury–Internal Revenue Service
and
[Name of Employer]
This Tip Reporting Alternative Commitment (TRAC) agreement is part of the Tip Rate Determination/Education Program that the
Internal Revenue Service implemented in 1993 to promote tip reporting compliance by employees in accordance with the Internal
Revenue Code of 1986.
Section 6053(a) of the Code requires employees to furnish one or more written statements to their employers reporting all tips received in each calendar month. The statements must be furnished to the employer by the 10th day of the following month.
I. DEFINITIONS
A. Service Representative means the Internal Revenue Service employee or delegate authorized to execute or terminate this
TRAC agreement on behalf of the Internal Revenue Service.
B. Employer means

[insert name, address, and EIN].

C. Establishment means each of the establishments or divisions listed by name, address, and identifying number in Attachment
A. [sample attached]
1. One place of business. If the Employer has one place of business, that place of business is an Establishment, and no attachment is necessary.
2. Additional establishment. If the Employer subsequently wishes to include an additional establishment in this TRAC agreement, the Employer must notify the Service Representative in writing. The notification must include the name, address, and identifying number of the additional establishment.
D. Employee means a person employed by the Establishment who directly or indirectly receives tips of at least $20.00 per month
during the course of the employee’s employment.
II. COMMITMENT OF EMPLOYER
A. Education.
1. New Employees. The Employer will establish an educational program that trains newly hired Employees that the law requires them to report all their cash and charged tips to their employer. At a minimum, the program will give each Employee–
a. A short oral explanation of the reporting requirements and the records maintenance requirements. The material in IRS
Publication 1244, Employee’s Daily Record of Tips and Report to Employer, is suitable for this purpose;
b. Written informational materials, which may include any of the following IRS documents: Publication 1244, Employee’s Daily
Record of Tips and Report to Employer, Publication 531, Reporting Tip Income, and Publication 3148, Tips on Tips for employees; and
c. An explanation of the Employer’s tip reporting procedures.
2. Existing Employees. The Employer will establish a quarterly education program for existing Employees.
B. Employee tip-reporting procedures. Each Establishment will establish a procedure or procedures under which a written or
electronic statement is prepared and processed on a regular basis (no less frequently than monthly), reflecting all tips for services attributable to each Employee. These procedures are to enable Employees to meet their reporting requirements under section 6053(a)
of the Code. An Employer may provide different procedures for cash and charged tips, as well as for directly tipped and indirectly
tipped Employees. IRS Publication 3144, Tips on Tips for employers, includes an example of an acceptable TRAC statement that an
employer can use for both directly and indirectly tipped Employees.
C. Returns, taxes, and records.
1. Filing returns and paying and depositing taxes. The Employer (or employing Establishment) will comply with the requirements for filing all required federal tax returns and paying and depositing all federal taxes.
2. Maintaining records. Each Establishment will maintain records of the following:
a. Gross receipts subject to tipping, and
b. Charge receipts showing charged tips.
The Employer will retain these records for at least 4 years after the April 15 following the calendar year to which the records relate.
3. Making records available. Upon the request of the Service Representative, the Employer will make the following quarterly
totals available, by Establishment, for statistical samplings of its Establishments:
a. Gross receipts subject to tipping,
b. Charge receipts showing charged tips,

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2000–19 I.R.B.

c. Total charged tips, and
d. Total tips reported.
III. COMMITMENT OF INTERNAL REVENUE SERVICE
A. Tip examinations. The IRS will not initiate any tip examinations of the Employer (or Establishment) for any period for which
this TRAC agreement is in effect.
B. Section 3121(q) notice and demand. Any section 3121(q) notice and demand issued to the Employer (or Establishment) relating to any period during which this TRAC agreement is in effect will be based solely on amounts reflected on–
1. Form 4137, Social Security and Medicare Tax on Unreported Tip Income, filed by an Employee with his or her Form 1040, or
2. Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to Employer, prepared at the conclusion of an
employee tip examination.
C. Compliance review. The IRS may evaluate the Employer for compliance with the provisions of this TRAC agreement.
D. Assistance. Upon request, the IRS will assist any Employer or Establishment in establishing, maintaining, or improving its educational program or tip reporting procedures.
IV. TERMINATION OF AGREEMENT
A. Termination by Employer. If the Employer no longer wishes this TRAC agreement to apply to one or more Establishments,
the Employer may terminate this TRAC agreement with respect to the Establishment(s) by providing written notification to the Service Representative identifying the Establishments(s). If the termination applies to all the Establishments of the Employer, the
TRAC agreement will be terminated.
B. Termination by Internal Revenue Service. The IRS may terminate this TRAC agreement only if–
1. The Service Representative determines that the Employer (or any Establishment) has failed to substantially comply with section II.A (pertaining to Education for Employees) or II.B (pertaining to Employee tip reporting procedures);
2. The Employer (or any Establishment) fails to meet any of the requirements of section II.C (pertaining to filing returns and
paying and depositing taxes, maintaining records, and making records available); or
3. The IRS pursues an administrative or judicial action relating to the Employer, Establishment, or any other related party to
this TRAC agreement.
C. Effective date of termination. Except for a termination described in section IV.B.1, any termination will be effective the first
day of the first calendar quarter after the terminating party notifies the other party in writing. In the case of a termination under section IV.B.1, the Service Representative may elect an earlier termination date, but no earlier than the first day of the first calendar
quarter of the substantial noncompliance.
D. Renewal after termination. The Employer and the Service Representative may at any time enter into a new TRAC agreement.
V. EFFECTIVE DATE OF AGREEMENT
A. General rule. This TRAC agreement is effective on the first day of the first calendar quarter following the date the Service
Representative signs the TRAC agreement.
B. Additional establishment. This TRAC agreement is effective with respect to an additional establishment on the first day of the
quarter in which notification of the additional establishment is made.
VI. MISCELLANEOUS
A. Examinations and/or inspections of books and records. For purposes of this TRAC agreement–
1. Compliance review. A compliance review is not an examination or an inspection of the taxpayer’s books of account or
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.
2. Examination. The inspection of books of account or records pursuant to a tip examination is not an inspection of books or
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.
B. Notices. The parties will send all correspondence pertaining to this TRAC agreement, including a notice of termination, to the
addresses stated below, unless notified in writing of a change of address. In the event of a change of address, the parties must send
all correspondence to the new address. All notices are deemed to be sent or submitted on the date of the postmark stamped on the envelope or, in the case of a notice sent by certified mail, the sender’s receipt.
C. Authority. The Employer represents that it has the authority to enter into this TRAC agreement on behalf of itself and the Establishment(s) listed in Attachment A.
D. General termination and sunset provision. The Commissioner of Internal Revenue may terminate all TRAC agreements at
any time following a significant statutory change in the FICA taxation of tips. After May 31, 2005, the Commissioner may terminate
prospectively the Tip Rate Determination/Education Program and all TRAC agreements.
VII. PAPERWORK REDUCTION ACT
The collections of information contained in this document will be submitted to the Office of Management and Budget for review

2000–19 I.R.B.

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May 8, 2000

in accordance with the Paperwork Reduction Act (44 U.S.C. 3507).
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 control number. The collections of information in this document are in sections I.C, II.A, II.B, II.C.2
and 3, and IV.A. This information is required to comply with sections 6053(a) and 6001 of the Internal Revenue Code and to assist
the Internal Revenue Service in its compliance efforts. This information will be used to monitor the Employer’s performance under
the TRAC agreement. The collections of information are required to obtain the benefits available under the TRAC agreement. The
likely respondents are business or other for-profit institutions.
The estimated total annual reporting and/or recordkeeping burden is 4,877 hours.
The estimated annual burden per respondent/recordkeeper varies from 13 hours to 30 hours, depending on individual circumstances, with an estimated average of 20 hours. The estimated number of respondents and/or recordkeepers is 300.
The estimated annual frequency of responses (used for reporting requirements only) is on occasion.
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 section
6103 of the Code.
VIII. SIGNATURES
By signing this TRAC agreement, the parties certify that they have read and agreed to the terms of this document, including Attachment A, Establishments.
EMPLOYER:

INTERNAL REVENUE SERVICE:

(Name of Employer)
(Signature)

(Signature)

BY:

BY:
(Service Representative’s Name)

TITLE:

TITLE:

ADDRESS:

ADDRESS:

(Headquarters street address)

(Street address)

(City, state, ZIP code)

(City, state, ZIP code)

DATE:

DATE:

ATTACHMENT A
ESTABLISHMENTS
[format for individual establishments]
Employer
A & B Company
xx-xxxxxxx
Street address
City, state, zip code
[format for chains]
Employer (parent, if applicable)
XYZ Corp.
yy-yyyyyyy
Street address
City, state, zip code
Establishments (if applicable)
AB Enterprises
Street address

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2000–19 I.R.B.

City, state, zip code
CD Enterprises
Street address
City, state, zip code
Related entity (if applicable)
UVW Corp.
zz-zzzzzzz
Street address
City, state, zip code
Establishments (if applicable)
EF Enterprises
Street address
City, state, zip code
GH Enterprises
Street address
City, state, zip code

Proposed Tip Rate
Determination Agreement
(TRDA) for Use by Any Employer
With Tipped Employees (Other
Than in the Food and Beverage
Industry and the Gaming
Industry)
Announcement 2000-20
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 advance agreements
instead of traditional audit techniques.
This announcement solicits comments on
a draft agreement for use in industries
other than the food and beverage industry
and the gaming industry. This agreement
is entitled Tip Rate Determination Agreement (For use by any employer with
tipped employees, other than in the food
and beverage industry and the gaming industry).
OVERVIEW
The Service developed its TRD/EP in
1993 as a means of enhancing tax compliance while reducing taxpayer burden. In
essence, the TRD/EP envisions that the
Service and taxpayers in industries in
which tipping is common would work together to improve tax compliance. The
TRD/EP currently offers employers the
opportunity of entering into one of two
types of agreements. The Tip Rate Deter-

2000–19 I.R.B.

mination Agreement (TRDA) requires the
determination of tip rates; the Tip Reporting Alternative Commitment (TRAC)
agreement emphasizes education and tip
reporting procedures. The agreements
also set forth an understanding that employers that comply with the terms of the
agreement will not be subject to challenge
by the Service. The TRDAs set forth similar understandings with respect to employees who participate in the agreements. Although not set forth in the
TRAC agreements, employees who properly report tips also will not be subject to
challenge by the Service. The decision to
enter into either a TRDA or a TRAC
agreement is entirely voluntary on the
part of the employer.
In 1993, the Service developed the
TRDA for use in the food and beverage
industry. In 1997, the Service developed
a TRDA for use in the gaming industry.
Other industries have expressed interest
in TRDAs tailored to their industries. Because the number of tipped employees in
these other industries is diverse, the Service has designed a TRDA for use in industries other than the food and beverage
industry and the gaming industry.
To ensure consistency in the agreements
offered to taxpayers and to provide an opportunity for public comment before making agreements available for use, a TRDA
for use in industries other than the food and
beverage industry and the gaming industry
is attached to this announcement. The Service requests comments from industries
that might use the agreement.

977

COMMENTS
Written comments must be received by
July 7, 2000. Send submissions to Office
of Specialty Taxes, c/o CC:DOM:CORP:R
(Announcement 2000-20), room 5226, Internal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Monday through Friday between the hours of 8
a.m. and 5 p.m. to: Specialty Taxes, c/o
CC:DOM:CORP:R (Ann. 2000-20),
Courier’s desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit comments electronically via the Internet by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/regslist
.html.
OTHER TRDA AND TRAC
AGREEMENTS
The Service is simultaneously proposing by announcement in this Internal Revenue Bulletin four other agreements: (1) a
revised TRAC agreement for use in the
food and beverage industry (Announcement 2000-22), (2) a revised TRDA for
use in the food and beverage industry
(Announcement 2000-23), (3) a revised
TRAC agreement for use in the cosmetology and barber industry (Announcement
2000-21), and (4) a new TRAC agreement
for use in industries, other than the food
and beverage industry and the cosmetology and barber industry, in which tipped

May 8, 2000