Mr. Kopsa,
I have attended several of your classes over the years. It has been a while, but in one of the classes I attended you discussed a TRAC sheet which was a form through IRS. I own 2 salons in Kansas. We have began receiving higher tips than we used to even though we state on our menu that "We are professionals and do not expect tips". I want the girls to report their tips but my husband is afraid that to start now will send up a red flag and cause us to be paying taxes on tips from years past. Is the TRAC form an agreement by the IRS to not pursue past taxes if you begin reporting now?
I have attended several of your classes over the years. It has been a while, but in one of the classes I attended you discussed a TRAC sheet which was a form through IRS. I own 2 salons in Kansas. We have began receiving higher tips than we used to even though we state on our menu that "We are professionals and do not expect tips". I want the girls to report their tips but my husband is afraid that to start now will send up a red flag and cause us to be paying taxes on tips from years past. Is the TRAC form an agreement by the IRS to not pursue past taxes if you begin reporting now?
Thank you for your help. Linda
Linda, I hope all is well with you. The TRAC agreement is, as you know, an agreement with the IRS. It states you are going to properly start reporting tips, and in the future, you will make sure you have documentation that you are reporting tips properly. Whether or not this will insulate you from a past audit on tips is a good question.
In talking to the IRS, unofficially they said their objective is just to make sure tips are being reported properly in the future, and, unofficially, anybody entering into a TRAC agreement can anticipate not having an audit. From practical experience, we have worked with numerous clients that have obtained a TRAC agreement, and none of them have had any type of audit. I have had one individual inform me that the IRS did ask them to provide information that they were following the rules in the TRAC agreement, which they did.
I hope this is of some assistance to you. If you need any more information on the TRAC agreement, or where to obtain an agreement from the IRS, please let me know and tell me where you are located and I will direct you to the right person. It is a pleasure serving you.
Larry Kopsa CPA
