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Ask The California Employment Tax And Payroll Tax Attorney – The IRS’ New Service Industry Tip Compliance Program – One Giant Leap For Transparency

By Robert S. Schriebman
2023

Introduction

Early February 2023, brought the service industry one step closer to total transparency with the publication of IR-2023-19 the IRS’ new service industry tip compliance agreement announcement (SITCA).  This is a voluntary tip reporting program between the IRS and employers in various service industries.  The proposed SITCA program is designed to take advantage of advancements in point-of-sale, time and attendance systems as well as electronic payment settlement methods to improve tip reporting compliance.  The program is designed to decrease taxpayer and IRS administrative burdens and provide more transparency with taxpayers. 

The features of the program are as follows:

  •  The monitoring of employer compliance based on actual annual tip revenue and charge tip data from an employer’s point-of-sale system, and allowance for adjustments in tipping practices from year to year.
  • Participating employers demonstrate compliance with the program requirements by submitting an annual report after the close of the calendar year, which reduces the need for compliance reviews by the IRS.
  • Participating employers receive protection from liability under the rules that define tips as part of an employee’s pay for calendar years in which they remain compliant with the program requirements.
  • Participating employers have flexibility to implement employee tip reporting policies that are best suited for their employees and their business model in accordance with the section of the tax law that requires employees to report tips to their employers.

The intent of the SITCA program is to serve as the sole tip reporting compliance program for employers in service industries and will replace several outdated information-sharing agreements.

The gaming industry is not being asked to enroll in SITCA. 

See IR-2023-19, February 6, 2023

Conclusion

Over the last several years, the IRS has demanded more transparency from the private sector.  It is clear that the IRS examination process has placed a greater emphasis on transparency when conducting audits.  Many practitioners are not comfortable with all of this emphasis on taxpayer transparency, when it appears that transparency is not being observed by the IRS.  The emphasis on transparency at the federal level is having its impact with state taxing agencies such as the EDD.  Auditors are expanding their demands for documentation and obtaining information on the operations of employer businesses.  Transparency will only work when it is a two-way street and a level playing field.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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