Tax Administration: Tip Income Reporting Can Be Increased
GGD-86-119
Published: Sep 30, 1986. Publicly Released: Oct 14, 1986.
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Highlights
In response to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) efforts to improve tip income reporting and the impact of the Tax Equity and Fiscal Responsibility Act's (TEFRA) tip income reporting requirements on both the food and beverage industry and tip income reporting.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To enhance IRS efforts to improve compliance with the requirements for reporting tip income, the Commissioner of Internal Revenue should formulate and implement an overall strategy for identifying and reducing tip income nonreporting. In formulating this strategy, the Commissioner should, in conjunction with providing TEFRA tip income information to the regional and district offices: (1) identify and evaluate, for IRS-wide applicability, those detection techniques and tools which have been proven effective in conducting tip income reporting projects and communicate this information to all IRS regions and districts; and (2) design and implement an overview and evaluation process to monitor the progress of tip enforcement activities, identify potential problem areas, and devise the actions needed to deal with them. |
Closed – Implemented
The study has been completed and approved by the Treasury. The Commissioner has signed the report. A report outlining IRS strategy was released in December 1990.
|
| Internal Revenue Service | To reduce the inconsistencies in the rate reduction process, the Commissioner of Internal Revenue should: (1) establish uniform criteria and standard procedures for reviewing employers' requests for a reduction from the reporting of 8 percent of gross receipts as tip income; and (2) monitor the implementation of the review process to ensure a reasonably consistent IRS-wide approach. |
Closed – Implemented
IRS implemented this recommendation by: (1) issuing instructions on evaluating information; and (2) requiring regions to more closely monitor the appeals process. An Internal Revenue Manual Transmittal, which provides broad guidelines for district office personnel to follow in evaluating tip rate reduction requests from employees, was issued on February 19, 1987.
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Topics
Food industryGifts or gratuitiesIncome taxesReporting requirementsVoluntary complianceTaxpayersTaxesTax returnsRegulatory noncomplianceData errors