The IRS expanded its voluntary tip compliance programs from the food and beverage, gaming and hairstyling industries to all those in which tipping is customary (announcements 2000-19 and 2000-23; notice 2000-21). In exchange for an employer’s or employee’s participation, the IRS agrees to refrain from tip examination.
Employers may participate in either the Tip Rate Determination Agreement (TRDA) or the Tip Reporting Alternative Commitment (TRAC). Under a TRDA, the IRS and the employer determine the amount of tips that employees receive and the amount they should report to the IRS. Under a TRAC, the employer agrees to educate employees about tip income requirements and to establish tip reporting procedures.