The IRS is making it easier for everyone in the beauty industry by simplifying its voluntary tip income compliance agreements. The IRS has simplified and shortened the Tip Reporting Alternative Commitment (TRAC). Under TRAC, the employer agrees to educate employees and establish tip reporting procedures. In return for taking part in TRAC, the IRS agrees not to initiate tax examinations of the employer while the agreement is in effect. “These changes reflect the IRS’s continued effort to use education and outreach to help taxpayers voluntarily comply with the nation’s tax laws rather than soley relying on enforcement actions,” says IRS Commissioner Charles O. Rossotti.

In addition, the IRS also announced that when there are violations of the tip reporting rules, effective October 1, 2000, it will resume tip examinations and assessments for FICA taxes on employers only, without first determining the tip income of individual employees. The IRS will make employer-only FICA tax assessments only in the most extreme cases of noncompliance.

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