The Internal Revenue Service (IRS) proposed a revenue procedure this week cracking down on service industry's reporting of tips.
The so-called Service Industry Tip Compliance Agreement (SITCA) program would be a voluntary tip reporting system in which the IRS and service industry companies cooperate, according to the announcement Monday. As part of the proposal, the IRS will give the public until early May to provide feedback on the program before implementing it.
"Those 87,000 new IRS agents that you were promised would only target the rich..." Mike Palicz, the federal affairs manager at Americans for Tax Reform, tweeted. "They're coming after waitresses' tips now."
According to the IRS, the program would seek to "improve tip reporting compliance," reduce administrative burdens and provide more transparency and certainty to taxpayers.
Among the program's features, the agency lists "monitoring of employer compliance based on actual annual tip revenue and charge tip data from an employer's point-of-sale system, and allowance for adjustments in tipping practices from year to year."
It also states that participating employers would provide the IRS with annual reports, would receive protection from liability related to "rules that define tips as part of an employee's pay" and would have the flexibility to implant internal tip reporting procedures "in accordance with the section of the tax law that requires employees to report tips to their employers."
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The rule proposal comes years after the Treasury Inspector General for Tax Administration (TIGTA) published a report finding that the IRS often provided tip income audit protection to noncompliant employers and employees. An estimated 30% of employers with tip reporting agreements hadn't reported tips worth almost $1.7 billion, according to the report.
"One of the problems identified by TIGTA is that the IRS rarely revokes tip reporting agreements, resulting in continued tip income audit protection for noncompliant employers, and in some cases, their employees," the IRS said in a notice published Monday.Â
"TIGTA recommended that the IRS train its employees on specific criteria for revoking tip reporting agreements with noncompliant taxpayers."
Meanwhile, Democrats have been hammered for a provision in the Inflation Reduction Act which bolstered the IRS' budget by $80 billion, opening the door for the agency to hire tens of thousands of new agents. The Republican-majority House passed legislation rescinding $70 billion of that funding in early January.
"The last thing the American people need right now are more audits from an out-of-control, bloated IRS," Rep. Adrian Smith, R-Neb., an author of the bill, told Fox News Digital at the time. "The Inflation Act funding for IRS would lead to the hiring of 87,000 new IRS employees tasked with raising enough revenue to pay for Democrats’ Green New Deal priorities."
And an analysis released by House Republicans last year of the tax provisions in the Inflation Reduction Act showed that Americans earning less than $75,000 per year would bear the brunt of 60% of additional tax audits authorized as a result of the bill's new funding for the IRS.
