IRS Proposes New Service Industry Tip Compliance Agreement (SITCA) Program (Notice 2023-13)

The IRS has issued a guidance which sets forth a proposed revenue procedure that establishes the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program offered to employers in the service industry (excluding gaming industry employers). SITCA is intended to replace the Tip Reporting Alternative Commitment (TRAC) program and the Tip Rate Determination Agreement (TRDA) program, as set forth in Announcement 2001-1, 2001-2 I.R.B. 277, as well as the Employer-Designed Tip Reporting Program (EmTRAC), as set forth in Notice 2001-1, 2001-2 I.R.B. 261.

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 (1) the employer’s acceptance into the SITCA program, (2) an IRS determination that the employer is noncompliant with the terms of the TRAC, TRDA, or EmTRAC agreement, or (3) the end of the first calendar year beginning after the date on which the final revenue procedure is published in the Internal Revenue Bulletin.

New SITCA Program

The SITCA program will be available to employers in all service industries (excluding gaming industry employers) with at least one business location, called a “Covered Establishment,” operating under the Employer Identification Number (EIN) of the employer. Some of the highlights of SITCA include the following:

• The SITCA program is designed to take advantage of advancements in point-of-sale (POS) 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 burden.

• The proposed SITCA program streamlines both compliance with and enforcement of tip reporting requirements by eliminating employee participation and the corresponding employee tip income audit protection, and providing for automatic removal of a Covered Establishment that fails to satisfy SITCA’s minimum reported tip requirement in its annual report.

• After acceptance into the SITCA program, an employer must annually establish that each of its participating Covered Establishments satisfies a minimum reported tips requirement with respect to its tipped employees in order for that Covered Establishment to continue with the program into the next year.

• If the employer cannot establish that a Covered Establishment meets this requirement with respect to a calendar year, the Covered Establishment will be removed from the program retroactively to the beginning of that calendar year and will not be eligible to participate in the SITCA program again for the immediately succeeding three completed calendar years or as otherwise provided by the IRS.

The proposed revenue procedure sets forth requirements for an employer to participate in the SITCA program, and requirements for each Covered Establishment to participate in the SITCA program. A Covered Establishment must have tipped employees who use a technology-based time and attendance system to report tips under Code Sec. 6053(a).

Continued Application of Prior Guidance

Pending publication of the final revenue procedure in the Internal Revenue Bulletin, Announcement 2001-1 and Notice 2001-1 continue to apply with respect to participating employers. However, the IRS will not enter into any new TRAC, TRDA, or EmTRAC agreements with any employers that do not already have an agreement, as of March 8, 2023.

Request for Comments

The IRS has requested comments on all aspects of the proposed revenue procedure. Comments must be received by May 7, 2023 and may be submitted in one of two ways: (1) Mail: Send paper submissions to CC:PA:LPD:PR (Notice 2023-13), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. (2) Electronically: Submit electronic submissions via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and Notice 2023-13) by following the online instructions for submitting comments.