The IRS has concluded in chief counsel advice (CCA 2018-16-010
) that volunteers who received no compensation from a taxpayer for their services should have been treated as employees and had their tip income subject to FICA taxes.
The taxpayer at issue engaged volunteers to perform services on the taxpayer’s premises. The taxpayer did not pay the volunteers any form of compensation or benefits for the services provided. However, the volunteers received cash contributions from the taxpayer’s customers that were deposited in tip boxes placed by the taxpayer near the vicinity where the volunteers performed the services. Customers were not required to make cash contributions and had the discretion to decide how much, if at all, to contribute to the tip boxes for the benefit of the volunteers. At the end of each volunteer shift, the volunteers performing the services distributed and allocated the cash from the tip boxes among themselves. The taxpayer did not have a system in place for volunteers to report the cash received and thus had no knowledge of the specific amounts of cash received by each volunteer. The taxpayer also did not issue Forms W-2 to the volunteers or include any wages or related FICA taxes in the taxpayer’s federal employment tax return (i.e., Form 941).
The IRS determined that the volunteers should have been treated as employees, and addressed certain administrative aspects of collecting the employer portion of the FICA taxes. For example, the IRS concluded that since the volunteers did not report tips to the taxpayer, the tips did not become subject to the employer portion of FICA taxes until the IRS issued a notice and demand for the taxes. In addition, the taxpayer was not liable to remit the employee portion of FICA taxes because the volunteers never reported their tip income to the taxpayer.
Contact Jeffrey Martin
Partner, Washington National Tax Office
+1 202 521 1526
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