The IRS has announced a new compliance initiative to increase IRS Form 8027 filings in the restaurant industry, a reaction to its belief that many table service restaurants don’t file IRS Form 8027, titled the “Employer’s Annual Information Return of Tip Income and Allkocated Tips,” as required.
The form must be filed with the IRS every February by employers who operate large food and beverage establishments where tipping is customary, where food and drink are sold for on-premises consumption, and that employ more than 10 employees or their equivalent (more than 80 employee hours) on a typical day.
According to the National Restaurant Association (NRA), the IRS says its biggest concern is that tip income isn’t being fully reported. Form 8027 provides the agency with data on total tips reported in an establishment and reported tips as a percentage of sales, among other information. The IRS can use Form 8027 to flag establishments where it believes employees fail to report all their tips.
The IRS has begun sending letters to establishments that failed to accurately file Form 8027. It will allow businesses receiving such notice to file the form without penalties. Restaurateurs who believe they aren’t subject to the requirement can explain their reasons for not filing. The IRS says it will follow up with those restaurants to determine whether they are in compliance.
But, therein lies an ongoing problem. The matter of who is liable for tip reporting has long been a point of contention between the IRS and the NRA. The association says it puts the restaurant operator is in a vulnerable spot because, generally, they cannot force employees to report a certain level of tips. Yet, they can ultimately be held liable under Section 3121(q) of the federal tax code for paying the employer share of FICA taxes even on tips that aren’t reported.
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