a-01-1.pdf

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# Part III Administrative, Procedural, and Miscellaneous Voluntary Tip Agreements for Employers of Tipped Employees

Announcement 2001-1

The Internal Revenue Service has finalized pro forma Tip Rate Determination
Agreements (TRDA) and Tip Reporting Alternative Commitment (TRAC) agreements
for use in its Tip Rate Determination/Education Program (TRD/EP). The TRD/EP is
designed to enhance tax compliance among tipped employees through taxpayer
education and voluntary advance agreements instead of traditional audit techniques.

The Service published five voluntary agreements in proposed form on May 8,
2000 (see 2000-19 I.R.B.): (1) a revised TRAC agreement for use in the cosmetology
and barber industry (Announcement 2000-21), (2) a revised TRAC agreement for use in
the food and beverage industry (Announcement 2000-22), (3) a revised TRDA for use
in the food and beverage industry (Announcement 2000-23), (4) a new TRAC
agreement for use in industries other than the food and beverage industry and the
cosmetology and barber industry in which tipped employees receive both cash and
charged tips (Announcement 2000-19), and (5) a new TRDA for use in industries other
than the food and beverage industry and the gaming industry (Announcement 2000-
20).

Final versions of these agreements are available on the IRS website at
http://www.irs.gov/bus_info/msu-info.html.

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They can also be obtained from any IRS office. The substance of the revised
agreements has not changed.

The Service received comments from interested persons and has incorporated
most of the comments in the final versions. Two commentators expressed concern
about the employer that has already entered into an agreement and that may be
interested in replacing its existing agreement with the new updated agreement. One
commentator suggested that the updated provisions of the revised agreements
automatically be extended to employers that have an existing agreement. The Service
wants to offer employers the broadest choice of voluntary compliance agreements and
recognizes that some employers may choose to continue to be bound by their existing
agreements.

Another commentator suggested notifying employers who have existing
agreements of the availability of the new updated agreement. These employers would
be advised that, if they choose to enter into a new agreement, the old agreement will
automatically terminate. In response to this comment, the Service has added a new
Termination of prior agreement section to the termination provisions of the first three
agreements listed above. The new provision states:

Termination of prior agreements. Any prior [TRAC agreement or TRDA] relating
to an Establishment covered by this Agreement shall terminate on the day
preceding the effective date of this Agreement with respect to the Establishment.
Some commentators requested clarification of certain provisions. They
wondered, for example, whether the Service intends to terminate a TRAC agreement if

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only one establishment fails to meet a requirement, or whether the Service will invoke
the termination provision under the administrative or judicial action provision by
instituting an examination of a tax return. These kinds of issues will be addressed in
the IRS manual, Handbook 104.6.7.12.1, entitled TRDA/TRAC Agreements. This
section of the manual is currently being revised to reflect these new provisions and
address these issues. The appropriate manual provision will be available on the IRS
website at http://www.irs.gov/bus_info/tax_pro/irm-part/part04.html. The Service
expects to make these provisions available soon.

Taxpayers interested in learning more about these agreements should contact
their local tip coordinator. A list of tip coordinators is available at
http://www.irs.gov/bus_info/tip-coord.html.

## DRAFTING INFORMATION

The principal author of this announcement is Karin Loverud of the Office of
Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For
further information regarding this announcement or any of the voluntary agreements,
contact Ida Volz of the Office of Compliance Policy on (202) 622-5532.