SECTION 3. DEFINITIONS

The following definitions apply for purposes of this revenue procedure.

.01 “Annual Report” is the yearly report submitted by a Service Industry Employer to the IRS on behalf of each Covered Establishment participating in the SITCA program.

.02 “Cash Differential” is the fixed percentage point reduction established by the IRS (to be updated annually) and applied to the SITCA Charge Tip Percentage that takes into account the different tipping practices customers utilize when paying tips in cash as compared to when they charge tips.

.03 “Cash Tip Percentage” is the percentage determined by reducing the SITCA Charge Tip Percentage by the Cash Differential. This percentage is then used to calculate Tips in Cash.

.04 “Compliance Review” is a review or other inspection of a Service Industry Employer’s books, records and filed federal tax and information returns related to a Service Industry Employer’s participation in the SITCA program. A Compliance Review is neither an examination nor an inspection of books for purposes of either section 7605(b) or the IRS’s policy and procedures for reopening cases closed after examination. In addition, a Compliance Review is not an audit for purposes of section 530 of the Revenue Act of 1978.

.05 “Covered Establishment” is a business location at which Service Industry Tipped Employees who report tips under section 6053(a) perform services and that operates under the Service Industry Employer or SITCA Applicant’s employer identification number (EIN). If a Service Industry Employer or SITCA Applicant has just a single business location, that Service Industry Employer or SITCA Applicant will be a Covered Establishment for purposes of all the provisions of this revenue procedure.

.06 “Covered Establishment Charge Tip Percentage” is the percentage of Tips by Charge made on Covered Establishment Sales Subject to Charge Tipping. This percentage is calculated for a Covered Establishment by dividing the total

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Tips by Charge by total Covered Establishment Sales Subject to Charge Tipping for a calendar year.

.07 “Covered Establishment Sales Subject to Charge Tipping” are Sales Subject to Tipping for which Tips by Charge are included with the payment, as reflected in a Covered Establishment’s POS System.

.08 The “Employee Tips Report” or “ETR” is a report of the total tips received by a Service Industry Tipped Employee in the course of the employee’s employment by the Service Industry Employer at a Covered Establishment for a time period not greater than one calendar month. The ETR is generated by the Time and Attendance System utilized by the Service Industry Employer at a Covered Establishment and is based on information entered into the Time and Attendance System by the Service Industry Tipped Employee. The ETR must meet the requirements set forth in section 6053(a) and § 31.6053-1 for reporting tips by the employee to the employer, and must include categories for cash tips, credit and debit card tips, and tips paid out, as reported by the Service Industry Employee.

.09 “Large Food or Beverage Establishment” is a trade or business described in section 6053(c)(4) and § 31.6053-3(j) (7).

.10 “Minimum Reported Tips Requirement” is the SITCA program requirement that a Covered Establishment’s Reported Tips for the calendar year meet or exceed the sum of Tips by Charge and Tips in Cash.

.11 A “Point-of-Sale (POS) System” is a technology-based system utilized at a Covered Establishment to process and record the retail transactions taking place between the Service Industry Employer or SITCA Applicant and its customers, at the time that goods and services are purchased.

.12 “Reported Tips” are the total amount of tips reported by Service Industry Tipped Employees for the calendar year pursuant to section 6053(a), determined on a Covered Establishment-by-Covered Establishment basis and as reflected in the Covered Establishment’s Time and Attendance System.

.13 “Requisite Prior Period” is the period of three completed calendar years immediately preceding the date the SIT

CA Applicant applies to participate in the SITCA program (these completed years are referred to as the preceding period), plus the completed calendar quarters between the end of the preceding period and the date of the SITCA Application. For a SITCA Applicant that was operating as an employer in a Service Industry for less than the preceding period of three completed calendar years, the Requisite Prior Period may include a preceding period of less than three completed calendar years upon approval by the IRS, but in no event may the preceding period be less than one completed calendar year.

.14 “Sales Adjustment for Stiffing” is a reduction in the amount of Sales Subject to Cash Tipping reflecting the Stiff Rate. This amount is calculated by multiplying the Sales Subject to Cash tipping by the Stiff Rate.

.15 “Sales Subject to Cash Tipping” is an amount calculated by subtracting the SITCA Sales Subject to Charge Tipping from Sales Subject to Tipping. This amount is used to calculate Tips in Cash.

.16 “Sales Subject to Tipping” are amounts from the sale of products and services for which Service Industry Tipped Employees may receive tips in the course of their employment, as reflected in a Covered Establishment’s POS System. When a tip is provided, Sales Subject to Tipping also include the retail value of complimentary products and services provided at or by a Covered Establishment and the receipts from carry-out or delivery sales. Sales Subject to Tipping do not include state or local taxes, nor do they include investment income, rental income, royalties, service fees, sales subject to service charges when no additional tip is paid, commissions, and income from the sale of products and services to customers that are not related to services provided by the Service Industry Tipped Employee.

.17 A “Service Industry” is an industry (excluding the gaming industry) in which employees are hired to perform services for customers and those services generate Sales Subject to Tipping.

.18 A “Service Industry Employer” is an employer (other than a gaming industry employer) in a Service Industry that is required to report tips under Subtitle F of the Code and has been accepted to participate in the SITCA program. A Service

Industry Employer may comprise a single Covered Establishment or have multiple Covered Establishments that all operate under the same EIN. For purposes of this revenue procedure, the entity for which an employee performs services (that is, the employer that operates the Covered Establishment) is considered the Service Industry Employer.

.19 A “Service Industry Tipped Employee” is an employee who receives tip income of $20 or more in any calendar month in the course of the employee’s employment by the Service Industry Employer or SITCA Applicant at one or more Covered Establishments, including those who receive $20 or more in any calendar month through tip-sharing arrangements.

.20 A “SITCA Applicant” is an employer that submits or has submitted (including through the services of a third party) an application to be a Service Industry Employer in the SITCA program in accordance with this revenue procedure, the instructions in the online application, and any subsequent applicable guidance. A SITCA Applicant remains a SITCA Applicant until the SITCA Applicant either receives a notice of acceptance into the SITCA program described in section 5.11 of this revenue procedure, withdraws its application pursuant to section 5.09 of this revenue procedure, or receives a notice of denial as described in section 5.10 of this revenue procedure. When a SITCA Applicant utilizes the service of a third party to submit the application, the SITCA Applicant must ensure that the third party has a valid Form 2848, Power of Attorney and Declaration of Representative, for the SITCA Applicant on file with the IRS.

.21 A “SITCA Application” is the online application to participate in the SITCA program in accordance with this revenue procedure, the instructions in the online application, and any subsequent applicable guidance.

.22 The “SITCA Charge Tip Percentage” is the greater of the Covered Establishment Charge Tip Percentage or the SITCA Minimum Charge Tip Percentage. It is used to calculate the Cash Tip Percentage.

.23 The “SITCA Minimum Charge Tip Percentage” is a fixed percentage established by the IRS and updated annually. It

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is used as the SITCA Charge Tip Percentage if the Covered Establishment Charge Tip Percentage is lower than the SITCA Minimum Charge Tip Percentage.

.24 The “SITCA Sales Subject to Charge Tipping” is calculated by dividing the Tips by Charge by the SITCA Charge Tip Percentage. This amount will be the same as the Covered Establishment Sales Subject to Charge Tipping unless the Covered Establishment Charge Tip Percentage is below the SITCA Minimum Charge Tip Percentage. The SITCA Sales Subject to Charge Tipping is used to calculate Sales Subject to Cash Tipping.

.25 The “Stiff Rate” is the fixed percentage established by the IRS and updated annually to take into account that sometimes customers do not leave a tip on cash sales.

.26 A “Time and Attendance System” is a technology-based system utilized by an employer in a Service Industry for tipped employees to report all tips received at an establishment in the course of their employment.

.27 “Tips by Charge” are tips paid by credit card, debit card, gift card, or any other form of electronic settlement or mobile payment application (excluding virtual currency) that are reflected in a Covered Establishment’s POS System.

.28 “Tips in Cash” is an estimate of tips received that are not paid by credit card, debit card, gift card, or any form of electronic settlement or digital payment that are included in Tips by Charge. The Tips in Cash amount is an estimate of the total tips paid by coin, paper money cash and other forms of monetary settlement that are not reflected in the Covered Establishment’s POS System. Tips in Cash is calculated by reducing the Sales Subject to Cash Tipping by the Sales Adjustment for Stiffing and then multiplying the result by the Cash Tip Percentage.