Aug. 7, 2006 -- Still concerned that tipped employees may not be fully reporting and paying taxes on all the tip income they receive, the Internal Revenue Service continues to look for ways to increase employee tip-income reports without having to resort to time-consuming IRS audits of employer or employee records.

The IRS's focus on tip reporting dates back to at least the early 1990s, when the agency first began encouraging restaurateurs to sign voluntary agreements with the IRS aimed at boosting the total amount of reported tips.

The agency currently offers restaurateurs a few types of tip agreements: The Tip Rate Determination Agreement (TRDA), which requires that tips be reported at or above a specific rate negotiated between the employer and the IRS, and the Tip Reporting Alternative Commitment (TRAC), which requires that employers provide ongoing education to tipped employees on tip-reporting procedures.[The IRS also offers another version of the TRAC called the EmTRAC, which allows employers to design their own tip-reporting education program and get it approved by the IRS, without having to sign a formal agreement with the IRS.]

Last week the IRS published Revenue Procedure 2006-30 to provide guidance on a new tip-reporting program that the agency will open up to restaurateurs next year. The IRS’s Attributed Tip Income Program, or ATIP, will be available as a three-year pilot program beginning in January 2007. Employers who participate are not required to sign any agreement with the IRS but would be required to report tip income using an IRS-prescribed methodology and get at least 75 percent of their employees to agree to participate in the program.

National Restaurant Association legal counsel is now analyzing the new ATIP program.