IRS proposes a new voluntary tip reporting program


The IRS recently released guidance (Notice 2023-13) proposing a revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program — a voluntary tip reporting program for employers in the service industry, excluding the gaming industry.


The proposed SITCA program is intended to replace the Tip Reporting Alternative Commitment (TRAC) program, the Tip Rate Determination Agreement (TRDA) program, and the Employer-Designed Tip Reporting Program (EmTRAC). It is designed to take advantage of advancements in point-of-sale systems and time and attendance systems, as well as the use of electronic payment settlement methods, to improve tip-reporting compliance and to decrease taxpayer and IRS administrative burdens.


The three existing voluntary programs that would be replaced by the proposed new SITCA program were established as part of the Tip Reporting Determination/Education Program (TRD/EP), which was designed by the IRS to enhance tax compliance through educational programs and the use of voluntary tip reporting agreements instead of traditional audit techniques.


TRAC agreements have required employers to establish an educational program for tipped employees and tip reporting procedures for cash and charged tips. The TRDA program has been available to employers in a variety of tipping industries and requires the determination of minimum tip rates based on occupational categories that employees must use to report tips to the employer. The EmTRAC program is similar to the TRAC program but was created for employers that wish to submit their own educational programs and tip reporting procedures for approval by the IRS.


The proposed revenue procedure provides that upon termination of the TRAC, TRDA and EmTRAC programs, employers with existing tip reporting agreements in those programs will have a transition period during which their existing agreements will remain effective. The transition period will end upon the earliest of: the employer's acceptance into the SITCA program; an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement; or the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin.


Comments on this proposed guidance are due May 7, 2023. 




Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “§,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More tax hot topics