President Biden’s IRS Plans to Crack Down on Waiters’ Tips

This week the Internal Revenue Service (IRS) proposed a revenue procedure that will crack down on the reporting of tips by the service industry. 

The service industry Tip Compliance Agreement (SITCA) program would be a tip reporting system where the service industry and IRS cooperate voluntarily, according to a recent announcement. 

The IRS will give the public until the beginning of May to give feedback on the program before implementing it as part of the new proposal. 

“Those 87,000 new IRS agents that you were promised would only target the rich,” tweeted the federal affairs manager at Americans for Tax Reform, Mike Palicz. “They’re coming after waitresses’ tips now.”

The program would seek to “improve tip reporting compliance,” according to the IRS, along with providing more certainty and transparency to taxpayers and reducing administrative burdens. 

“This is not a proposal for the auditing of servers,” said an official with the IRS. “Yesterday’s action was a proposal for comment — not a rule — based on over a decade of feedback from restaurants and other businesses seeking the increased flexibility for their overall tax compliance on tips.”

The official added, “This proposal is not in effect and is intended to welcome further conversation from all interested parties before any rule is put into place.”

Among the program’s features, the IRS 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 practice from year to year.”

The program also states that employers who are participating would provide the IRS with reports annually, would have the flexibility to implant internal procedures for tip reporting “in accordance with the section of the tax law that requires employees to report tips to their employers,” and would receive protection from liability related to “rules that define tips as part of an employee’s pay.”

“There’s no reason they’d be issuing guidance on how to crack down on this if it was only going to end up being voluntary,” said Palicz in an interview. “Ultimately, the goal is to go and grab as much revenue as possible and from whoever they can.”

Palicz continued, “All of this in the backdrop of — they told us they’re not going to be coming after people earning $400,000 or less,” he continued. “Well, here’s a new IRS rule that’s focusing on bringing in tips from waitresses. That’s what they’re focused on doing; that’s what they’re putting new rules on.”

A provision in the Inflation Reduction Act bolsters the IRS budget by $80 billion

Democrats have been blasted for a provision in the Inflation Reduction Act that added to the IRS’ budget by $80 billion, a move that opened the doors for the agency to hire thousands of new agents. In early January, the GOP-majority House passed legislation to revoke $70 billion of that funding. 

“The last thing the American people need right now are more audits from an out-of-control, bloated IRS,” said Republican Representative Adrian Smith of Nebraska, one of the bill’s authors. “The Inflation Reduction 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.”

An analysis the House Republicans released last year of the tax provisions included in the Inflation Reduction Act revealed that Americans making less than $75,000 per year would be forced to carry the brunt of 60% of additional tax audits allowed as a result of the new funding for the IRS provided by the bill.