EmTRAC Revised 7/20/05
TECH-MIS Number: OGI-114882-00
Part III Administrative, Procedural, and Miscellaneous
Employer-designed Tip Reporting Program for the Food and Beverage Industry
Notice 2001-1
I. BACKGROUND
In 1993, the Internal Revenue Service introduced 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. The TRD/EP was
developed 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 will 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 both the employer and employees who comply with the terms of the
agreement 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.
TRDAs are currently in use in the food and beverage industry and the gaming
industry. TRAC agreements are currently in use in the food and beverage industry and
EmTRAC Revised 7/20/05
-2-
the cosmetology and barber industry. The Service expects to begin making these
agreements available to other industries during 2000.
Taxpayers in the food and beverage industry have expressed interest in
designing their own TRAC programs. Notice 2000-21, 2000-19 I.R.B. 967, set forth
proposed requirements and procedures for obtaining approval of an employer-designed
EmTRAC program. Notice 2000-21 also offered interested persons the opportunity to
comment on the proposed prog