Tax Talk Today(R) February Webcast Explains New Attributed Tip Income Program

February 16, 2007; 03:09 AM

WASHINGTON - On the February 13 Webcast of Tax Talk Today, an expert panel of Internal Revenue Service (IRS) officials and tax practitioners reviewed the details of the new Attributed Tip Income Program (ATIP), the IRS' newest program designed to encourage tip reporting for small- and medium-sized businesses in the food and beverage industry.

The IRS created ATIP because existing tip rate reporting agreements were burdensome for smaller businesses, and because the IRS wants to continue to encourage accurate tip reporting in an effort to reduce the tax gap.

"The tax gap, estimated to be more than $300 billion for tax year 2001, continues to be a major concern," said Kathy Petronchak, commissioner, Small Business/Self Employed Division, IRS.

"We believe this product [ATIP] better meets the needs of smaller food and beverage establishments," said Bill Conlon, director, Specialty Programs, IRS.

ATIP officially began on January 1, 2007, as a pilot program that will last for three years. At the end of the three-year pilot, the IRS will review all feedback received from tax professionals and from the food and beverage industry itself to determine whether the program will continue, and to identify any changes that need to be made. Feedback can be sent to the IRS via email to: tip.program@IRS.gov. Revenue Procedure 2006-30 provides comprehensive details on ATIP, which the IRS hopes will have a positive impact on tip reporting in the food and beverage industry.

"It is simpler to implement than our other products, and follows the methodology established in some of the high-profile court cases that involve tip income," said Daniel R. Lauer, CPA, program manager, National Tip Income Reporting Compliance, IRS.

Participation in ATIP does not require a face-to-face meeting with the IRS like previous tip reporting programs. In order to participate in ATIP, an employer must:

--  Check the appropriate box on Form 8027, Employer Annual Information Return, to sign up for the program (businesses with 10 or fewer employees can file an abbreviated Form 8027 to sign up);
--  Demonstrate 20 percent of gross receipts on credit card charge slips, with tip included;
--  Maintain participation of at least 75 percent of its tipped employees (both directly and indirectly tipped employees qualify); and
--  Report the tips on W-2s, and withhold income and employment tax.

The employer computes the formula tip rate by dividing the charged tips by the charged receipts showing charged tips, and then subtracting two percent. By multiplying the resulting tip rate by the total gross receipts for the total pay period, the employer can calculate the pool of tips for that period and then attribute that pool of tips to employees according to the allocation determined by the business.

"The end game here is, we want more tip income on W-2s for wait staff," said Mary C. Gorman, assistant division counsel, Prefiling, IRS.

ATIP's advantages are clear: tipped employees no longer have to submit monthly tip reports to the employer, who no longer has to deal with those same reports, and participating employees receive automatic audit protection. But, it's up to the employer to convince enough employees to participate in order to qualify for ATIP in the first place.

"You've got to negotiate with your workers and you've got to encourage that 75 percent participation," said Marianna Dyson, Miller & Chevalier. "You've got to be a cheerleader."

"The government is relying on the food and beverage employers and the tax practitioners to make this program work," said Cindy Hockenberry, tax information analyst, National Association of Tax Professionals.

A full transcript of this month's Webcast, "Simplifying Tip Reporting," can be accessed at: http://www.taxtalktoday.tv/index.cfm?page=5.71.

Tax Talk Today is brought to you by the IRS. The next Webcast, "Exempt Organizations: Emerging Issues," will be Tuesday, March 13, from 2 -- 3 p.m. ET.

About Tax Talk Today

Brought to you by the IRS and produced by L&M Production Design Group, based in Alexandria, VA, Tax Talk Today is a free, live, monthly interactive Webcast aimed at educating tax professionals on the most contemporary and complex tax issues. Now in its seventh year with over 500,000 viewings, the award-winning series airs monthly at http://www.TaxTalkToday.tv and programs are archived on the site for one year. The live Webcast enables viewers to ask questions via e-mail to the panelists and receive on-air answers. For additional information, please contact Paul Lamonia at (703) 642-6505 or Lamonia@LMpdg.com or visit http://www.TaxTalkToday.tv.