- 4.88.1 Examination Issues Pertaining to ITG Cases
- 220.127.116.11 Overview
- 18.104.22.168 ITG Employment Tax Related Issues
- 22.214.171.124.1 Resources and Issues
- 126.96.36.199.2 Federal Unemployment Tax Act (FUTA)
- 188.8.131.52.3 Wages
- 184.108.40.206.4 Exceptions
- 220.127.116.11 Information Reporting
- 18.104.22.168.1 Non-employees
- 22.214.171.124.2 Backup Withholding
- 126.96.36.199.3 Reporting and Deposit Requirements
- 188.8.131.52.4 Abatement Procedures
- 184.108.40.206 Federal Tax Status of Indian Tribal Governments
- 220.127.116.11 Indian Gaming
- 18.104.22.168.1 Background
- 22.214.171.124.2 Tribal Gaming Operational Responsibilities
- 126.96.36.199.2.1 Recordkeeping
- 188.8.131.52.3 Filing Requirements
- 184.108.40.206 Bank Secrecy Act (BSA), Title 31
- 220.127.116.11.1 Authorities
- 18.104.22.168.2 Reporting
- 22.214.171.124.3 Recordkeeping
- 126.96.36.199.4 Compliance Programs
- 188.8.131.52.5 Suspicious Transactions
- 184.108.40.206.6 Other Requirements
- 220.127.116.11 Tax Status of Indian Tribal Members
- 18.104.22.168.1 Distributions of Gaming Revenue
- 22.214.171.124.2 Guidelines on Review and Approval of Per Capita Distribution Plans
- 126.96.36.199.3 General Welfare Benefits IRC 139E
- 188.8.131.52.4 Reporting Requirements of Distributions
- 184.108.40.206.5 Distributions to Tribal Members
- 220.127.116.11.6 Withholding from the Distributions of Net Gaming Revenue
- 18.104.22.168.7 Reporting Requirements and Abatement Procedures
- 22.214.171.124 Tip Agreements
- 126.96.36.199.1 Tip Agreement Benefits
- 188.8.131.52.2 Tip Rate Determination Agreements (TRDA) Requirements
- 184.108.40.206.2.1 TRDA Required Employer Recordkeeping
- 220.127.116.11.2.2 TRDA Annual Reporting and Tax Compliance Requirements
- 18.104.22.168.2.3 TRDA Internal Revenue Service Commitments
- 22.214.171.124.3 TRDA Tip Rates
- 126.96.36.199.4 Termination of TRDA Agreement
- 188.8.131.52.5 Gaming Industry Tip Compliance Agreement Program (GITCA)
- 184.108.40.206.6 GITCA Employee Participation
- 220.127.116.11.7 GITCA Employer Requirements
- 18.104.22.168.8 GITCA Required Employer Annual Reports
- 22.214.171.124.9 GITCA Employer-Computed Tip Reporting Process (ECTRP)
- 126.96.36.199.10 GITCA Tip Examinations of Employees
- 188.8.131.52.11 GITCA Tip Examinations of Employer
- 184.108.40.206.12 Establishing GITCA Tip Rates
- 220.127.116.11.13 Term of the GITCA
- 18.104.22.168.14 Termination of GITCA Agreement
- 22.214.171.124.15 Authority to Sign Tip Agreements
- 126.96.36.199.16 Tip Rate Reviews for Tip Agreements
- 188.8.131.52.17 Tip Case File Closing Procedures for ITG Specialists
- 184.108.40.206.17.1 Closing Procedures for Managers
- 220.127.116.11.18 Role of ITG Tip Analyst
- 18.104.22.168.19 Introduction of the ITG Tip Analyst to the Tribes
- 22.214.171.124.20 ITG Tip Analyst Monitoring of Tip Agreements
- 126.96.36.199 Excise Taxes
- 188.8.131.52 Nontaxable Income of Tribal Members
- 184.108.40.206.1 Income Derived From Land
- 220.127.116.11.2 Income Derived From Fishing Rights
- 18.104.22.168.3 Fishing Rights-Related Activity
- 22.214.171.124.4 Fishing Claims
- 126.96.36.199 Fraud
- 188.8.131.52.1 Fraud Development
- 184.108.40.206.2 Civil Fraud
- 220.127.116.11.3 Criminal Fraud
- 18.104.22.168.4 Grand Jury Cases
- 22.214.171.124 Collection Issues
- 126.96.36.199.1 Penalty Abatement
- 188.8.131.52.2 Interest Abatement and Adjustments
- 184.108.40.206.2.1 Criteria for Relief
- 220.127.116.11.2.2 Delegation and Interest Calculation
- 18.104.22.168.2.3 Advising Taxpayer and Processing
- 22.214.171.124.2.4 Appeal Rights and Dispute Process
- 126.96.36.199.2.5 Processing Adjustments
- 188.8.131.52.3 Offers-in-Compromise
- 184.108.40.206.3.1 Coordination with SB/SE
- 220.127.116.11.4 Trust Fund Recovery
- 18.104.22.168.4.1 Responsibility and Willfulness
- 22.214.171.124.4.2 Investigation and Recommendation
- 126.96.36.199.4.3 Considering Installment Agreements, Collectibility and Alternatives
- 188.8.131.52.4.4 Coordination with SB/SE Collection
- 184.108.40.206.4.5 Other Compliance Procedures
- 220.127.116.11 Account Resolution
- 18.104.22.168.1 Submission Processing Campus
- 22.214.171.124.2 Payment Tracers and Credit Transfers
- 126.96.36.199.3 Taxpayer Advocate Service and Form 911
- 188.8.131.52 Private Letter Rulings and Technical Advice Requests
- 184.108.40.206 Coordination with Office of Professional Responsibility
- Exhibit 4.88.1-1 Gaming Withholding and Reporting Thresholds Forms Needed
- Exhibit 4.88.1-2 General Guidelines - When to Withhold and Report Gaming Wins
- Exhibit 4.88.1-3 General Welfare Exception Summary of Authority
- Exhibit 4.88.1-4 Comparison of TRDA and GITCA
- Exhibit 4.88.1-5 Tip Rate Determination Agreement
- Exhibit 4.88.1-6 Tax Audit Guidelines for Internal Revenue Examiners
- Exhibit 4.88.1-7 Gaming Industry Tip Compliance Agreement (GITCA)
Part 4. Examining Process
Chapter 88. Indian Tribal Governments Examination Issues and Procedures
Section 1. Examination Issues Pertaining to ITG Cases
October 05, 2015
(1) This transmits revised IRM 4.88.1, Indian Tribal Governments Examination Issues and Procedures, Examination Issues Pertaining to ITG Cases.
The IRS office of Indian Tribal Governments (ITG) was established in 2000 to serve as the primary contact in the IRS for federally recognized Indian tribes.
(1) Incorporated new text, reissues existing information, and reflects editorial changes. Reviewed and updated the website addresses, IRM and legal references, where necessary.
(2) IRM 220.127.116.11, Overview. Reference to Large and Midsized Business (LMSB) changed to Large Business & International (LB&I).
(3) IRM 18.104.22.168, ITG Employment Tax Related Issues. Revised text for clarity.
(4) IRM 22.214.171.124.1, Resources and Issues. Removed obsoleted Form 941-M, Employer’s Monthly Federal Tax Return, from the table. Updated paragraph (6) to reflect the latest versions of revenue procedures containing the processing procedures to request private letter rulings and technical advice memorandums. Rev. Proc. 2009-4 has been updated to Rev. Proc. 2015-1 for procedures to request a private letter ruling. Rev. Proc. 2009-5 has been updated to Rev. Proc. 2015-2 for procedures to request technical advice. Removed paragraphs (8) and (9) because classification and workpapers discussions have been moved to IRM 4.86.2, Classification, Case Selection and Referral Procedures, and IRM 4.86.5, Conducting the Examination, respectively. Updated legal references and revised text throughout for clarity.
(5) IRM 126.96.36.199.2.2, Federal Unemployment Tax Act (FUTA). Updated text and the address where the State can notify the IRS ITG if a tribe fails to make payments required within 90 days of final notice of delinquency.
(6) IRM 188.8.131.52, Information Reporting. Revised text throughout for clarity.
(7) IRM 184.108.40.206.1, Non-employees. Revised text throughout for clarity.
(8) IRM 220.127.116.11.2, Backup Withholding. Revised text throughout for clarity.
(9) IRM 18.104.22.168.3, Reporting and Deposit Requirements. Revised text throughout for clarity.
(10) IRM 22.214.171.124.4, Abatement Procedures. Revised text throughout for clarity.
(11) IRM 126.96.36.199, Federal Tax Status of Indian Tribal Governments. Revised text throughout for clarity.
(12) IRM 188.8.131.52.1, Background. Revised paragraph (3) descriptions in the chart for Class I - removed the phrase "Gaming is defined as consisting of" , Class II - removed the phrases "Gaming primarily includes:" and "(whether or not it is electronically enhanced)," and adding the text "including the electronic versions of these games." Removed the word "primarily" in the Class III gaming description. Removed IRM 184.108.40.206.1 paragraph (5).
(13) IRM 220.127.116.11.2, Tribal Gaming Operational Responsibilities. Removed paragraph (4) and Note, then renumbered subsequent paragraphs. Previous paragraph (5) was renumbered to paragraph (4) and the text "by NIGC" was added to the end of last sentence.
(14) IRM 18.104.22.168.2.1, Record Keeping. Changed title from "Record Keeping" to "Recordkeeping." Clarified content throughout.
(15) IRM 22.214.171.124.3, Filing Requirements. Removed obsolete Form 8109, Federal Tax Deposit Coupon Book, from the table and added Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Changed the title of FinCEN Form 102, Suspicious Activity Report by Casinos and Card Clubs, to FinCEN SAR. Changed the title of FinCEN Form 103, Currency Transaction Report by Casinos, to FinCEN CTR.
(16) IRM 126.96.36.199.3.1, Forms for Reporting Gaming Winnings. Removed sentence in paragraph 1(a) "Form W-9, Request for Taxpayer Identification Number and Certification, may be used to record the information" because the Form W-2G records the same information and contains perjury statement.
(17) IRM 188.8.131.52.3.1, Paragraph (1)(c). Removed all references to "magnetic media."
(18) IRM 184.108.40.206.3.1, Paragraph (1)(d). Removed all references to "magnetic media."
(19) IRM 220.127.116.11.3.1, Paragraph (2)(a). Changed "must" to "may" because not all Form W-2Gs will have withholding.
(20) IRM 18.104.22.168.3.1, Paragraph (2)(c). Revised text for clarity.
(21) IRM 22.214.171.124.3.1, Paragraph (2)(e). Updated Headings in chart from "Regular Gambling Withholding Required on Prizes" to "Regular gambling withholding winnings more than" , and from "Backup Withholding Applies on Prizes Equal to or Exceeding" to "Backup withholding winnings equal to or more than (when no TIN is furnished)" .
(22) IRM 126.96.36.199.3.1, Paragraph (3)(a). Revised text for clarity.
(23) IRM 188.8.131.52.3.1, Paragraph (3)(b). Changed the address to submit Form 1042 and any paper Forms 1042-S from the Philadelphia Campus to the Ogden Campus.
(24) IRM 184.108.40.206.3.1, Paragraph (3)(c). Changed the address to submit Form W-7 documentation from Philadelphia Submission Processing to ITIN Operations at the Austin Campus. Changed the term “Acceptance Agent” to “Certifying Acceptance Agent.” Added a note referring to IRM 3.21.264 for International Returns Documents Analysis, IRS Individual Taxpayer Identification Number (ITIN) Acceptance Agent Program.
(25) IRM 220.127.116.11.3.1, Paragraph (3)(e). Changed "Blackjack" to "Traditional Blackjack."
(26) IRM 18.104.22.168.3.1, Paragraph (4)(a). Changed "merchandise won" to "non-cash prizes."
(27) IRM 22.214.171.124.3.1, Paragraphs (4)(c) and (4)(d). New text added.
(28) IRM 126.96.36.199.3.2, Cautions. Revised text for clarity.
(29) IRM 188.8.131.52, Bank Secrecy Act (BSA) Title 31. Revised and added information concerning ITG involvement with Bank Secrecy Act, Title 31 U.S.C and IRC 6050I.
(30) IRM 184.108.40.206.1, Authorities. Revised text for clarity; deleted a substantive portion of paragraph (1).
(31) IRM 220.127.116.11.2, Reporting. Paragraph (1) revised to change obsolete FinCEN Form 103 to FinCEN CTR. Added instruction to file electronically. Revised paragraph (5), Identification Requirements significantly by adding substantial information. Clarified the balance of this section’s content.
(32) IRM 18.104.22.168.3, Recordkeeping. Paragraph (1) citations updated.
(33) IRM 22.214.171.124.4, Compliance Programs. Revised text to clarify.
(34) IRM 126.96.36.199.5, Suspicious Transactions. Revised paragraph (3) to change obsoleted FinCEN Form 102 to FinCEN SAR. Added instruction to file electronically.
(35) IRM 188.8.131.52.6, Other Requirements. Clarified text in revised paragraph (1) (b) with information that Form 8300 can be electronically filed or submitted as a paper file.
(36) Added new section, IRM 184.108.40.206, Tax Status of Indian Tribal Members.
(37) Renumbered IRM 220.127.116.11, Distributions of Gaming Revenue, to IRM 18.104.22.168.1.
(38) Renumbered IRM 22.214.171.124.1, Guidelines on Review and Approval of Per Capita Distribution Plans, to IRM 126.96.36.199.2. Removed paragraphs (4), (5) and (6).
(39) Renumbered IRM 188.8.131.52.2, Reporting Requirements of Distributions, to IRM 184.108.40.206.4.
(40) Renumbered IRM 220.127.116.11.3, Distributions to Tribal Members, to IRM 18.104.22.168.5.
(41) Added new section, IRM 22.214.171.124.3, General Welfare Benefits IRC 139E.
(42) Renumbered IRM 126.96.36.199.3.1, Nontaxable Distributions and Benefits, to IRM 188.8.131.52.5.1. Clarified text throughout.
(43) Renumbered IRM 184.108.40.206.3.2, Minor Trusts, to IRM 220.127.116.11.5.2. Removed paragraphs (3) and (4). Renumbered Paragraph (5) to Paragraph (3).
(44) Renumbered IRM 18.104.22.168.3.3, Withholding from the Distribution of Net Gaming Revenue, to IRM 22.214.171.124.6.
(45) Renumbered IRM 126.96.36.199.3.4, Reporting Requirements and Abatement Procedures, to IRM 188.8.131.52.7. Updated link to the "Form 3870 ITG Specialists’ Adjustments Desk Guide" located on the TE/GE Intranet.
(46) IRM 184.108.40.206, Tip Agreements. Revised text throughout entire section to clarify current ITG practices. Changed "ITG Tip Coordinator" to "ITG Tip Analyst" throughout the entire section. Removed paragraph (2) because it is discussed in paragraph (4). Removed paragraph (9), and renumbered remaining paragraphs.
(47) IRM 220.127.116.11.2.1, TRDA Required Employer Recordkeeping. Paragraph 4, changed "IRS" to "ITG Tip Analyst" .
(48) IRM 18.104.22.168.5, Gaming Industry Tip Compliance Agreement Program (GITCA). Added references to Publication 4936, Your Guide to Maintaining and Complying with the GITCA, Publication 4932, Gaming Industry Tip Compliance Agreement GITCA, Publication 4985, Gaming Industry Tip Compliance Agreement (GITCA) for Tipped Employees.
(49) IRM 22.214.171.124.7, GITCA Employer Requirements. Updated link to Rev. Proc. 2007-32.
(50) IRM 126.96.36.199.10, GITCA Tip Examination of Employees. Paragraph (1)(b) removed words "set for" in the sentence.
(51) IRM 188.8.131.52.15, Authority to Sign Tip Agreements. Revised text and procedures.
(52) IRM 184.108.40.206.16, Tip Rate Reviews for Tip Agreements. Added new paragraph (11) on "Tips vs. Service Charges" and renumbered subsequent paragraphs.
(53) IRM 220.127.116.11.17, Tip Case File Closing Procedures for ITG Specialists. Deleted Paragraph (1) and inserted new text with procedures for ITG specialists closing tip agreement cases.
(54) IRM 18.104.22.168.17.1, Closing Procedures for Managers. Added new section with procedures for ITG group managers closing tip agreement cases.
(55) IRM 22.214.171.124.18, Role of ITG Tip Analyst. Clarified text and inserted paragraph (7) new text.
(56) IRM 126.96.36.199.20, ITG Tip Analyst Monitoring of Tip Agreements. Clarified text and added new material to paragraph (2).
(57) IRM 188.8.131.52, Excise Taxes. Removed all references to IRM 4.24, Excise Tax. ITG’s responsibility with Office of Speciality Programs (formerly known as the Office of Excise Taxes or OET) is covered in the discussion about the Memorandum of Understanding contained in next section. Changed name to "Office of Specialty Programs" from "Office of Excise Taxes (OET)." Removed paragraph (2) regarding classification.
(58) IRM 184.108.40.206.1, Responsibilities and Procedures. Added material in paragraph (4) regarding Coordinated Industry Case Program (CIC).
(59) IRM 220.127.116.11, Nontaxable Income of Tribal Members. Removed bullets in paragraph (1). Remove the link to Private Letter Ruling 2004200028 because it was not a working link and could not verify or locate valid link. Added text in paragraph (3)(b), "Per capita distributions made from funds held in trust by the Secretary of Interior pursuant to Notice 2015-67" , and changed (e) from "25 U.S.C. 1407" to "25 U.S.C 1401" .
(60) IRM 18.104.22.168.1, Income Derived from Land. Updated link to the position paper "Income Derived from Allotted Land" .
(61) IRM 22.214.171.124.3, Fishing Rights-Related Activity. Updated link to "Frequently Asked Questions regarding Fishing Rights-Related Activities" .
(62) Moved the following sections from IRM 126.96.36.199 to new IRM 4.86.5, Indian Tribal Governments (ITG) Procedures, Conducting the Examination:
188.8.131.52, Miscellaneous Examination Procedures
184.108.40.206.1, Authority to Request Books, Records, and Accountant’s Workpapers
220.127.116.11.2.1, Provisions of Law
18.104.22.168.2.2, Delegation Orders
22.214.171.124.2.3, Coordination with Other Divisions
126.96.36.199.3, Power of Attorney (POA)
188.8.131.52.4, Third Party Contacts
184.108.40.206.4.1, Third Party Contact Defined
(63) Renumbered IRM 220.127.116.11.5, Fraud Procedures, to IRM 18.104.22.168, and revised text.
(64) Renumbered IRM 22.214.171.124.5.1, Fraud Development, to IRM 126.96.36.199.1, and revised text.
(65) Renumbered IRM 188.8.131.52.5.2, Civil Fraud, to IRM 184.108.40.206.2, and revised text.
(66) Renumbered IRM 220.127.116.11.5.3, Criminal Fraud, to IRM 18.104.22.168.3, and revised text.
(67) IRM 22.214.171.124.4, Grand Jury Cases, Moved and expanded text previously contained in IRM 126.96.36.199, Indian Tribal Governments, Compliance and Program Management Responsibilities, Processing Cases with Special Features.
(68) IRM 188.8.131.52, Collection Issues. Added "Notice of Levy" in Paragraph (3) bullet list.
(69) IRM 184.108.40.206.1.2, Requesting Penalty Relief and Processing. Added a link to the "Form 3870 ITG Specialists’ Adjustments Desk Guide" located on the TE/GE Intranet.
(70) IRM 220.127.116.11.2.3, Advising Taxpayer and Processing. Updated citation for procedures for processing requests.
(71) IRM 18.104.22.168.2.4, Appeal Rights and Dispute Process. Removed paragraphs (2) and (3). Updated reference in Paragraph (1) cite explaining appeal rights.
(72) IRM 22.214.171.124.2.5, Processing Adjustments. Revised text for clarity.
(73) IRM 126.96.36.199.4, Trust Fund Recovery Penalty. Deleted reference to LEM 5.7, Trust Fund Compliance.
(74) IRM 188.8.131.52.3, Taxpayer Advocate Service and Form 911, Revised text for clarity.
(75) IRM 184.108.40.206, Private Letter Rulings and Technical Advice Requests. Updated paragraph (1) to reflect the latest versions of revenue procedures containing the processing procedures to request private letter rulings and technical advice memorandums. Rev. Proc. 2009-4 has been updated to Rev. Proc. 2015-1 for procedures to request a private letter ruling. Rev. Proc. 2009-5 has been updated to Rev. Proc. 2015-2 for procedures to request technical advice.
(76) IRM 220.127.116.11.2, Technical Advice Memorandums (TAM). Updated citations. Revised paragraph (1) "Rev. Proc. 2005-02" to "Rev. Proc. 2015-2" and updated the date from “01/03/05” to “January 2, 2015”. Updated reference in paragraph (3) from "Rev. Proc. 2005-2" to "Rev. Proc. 2015-2."
(77) Exhibit 4.88.1-1, Gaming Withholding and Reporting Thresholds. Updated chart and notes.
(78) Exhibit 4.88.1-2, General Guidelines - When to Withhold and Report Gaming Wins. Updated flow chart.
(79) Exhibit 4.88.1-3, General Welfare Exception Summary of Authority. Added text for Notice 2013-1; Notice 2013-55; Notice 2014-17; Rev. Proc. 2014-35, 2014-26 IRB 1110; and Notice 2015-34.
(80) Exhibit 4.88.1-4, Comparison of TRDA and GITCA. Added Note: for Threshold to Maintain Agreement under GITCA column that states, "If participation falls below 75% the casino must work with the IRS to increase participation to at least 75%. If participation falls below 50% the IRS may terminate the agreement."
(81) Made plain language edits to comply with the Plain Writing Act. For additional information on the Plain Writing Act, see http://www.plainlanguage.gov.
Indian Tribal Governments
Christie J. Jacobs
Director, Indian Tribal Governments
Tax Exempt and Government Entities
Many of the basic techniques for examining returns of Indian tribal entities are similar to those required of revenue agents (examiners) under the Small Business/Self Employed (SB/SE) and Large Business & International (LB&I) Divisions when examining individual, partnership, and corporate returns. Find these procedures in IRM Part 4, Examining Process.
See IRM 25, Special Topics, for procedures that apply to more than one IRS process, including the exam process.
Indian tribal governments are treated as states for certain Internal Revenue Code (IRC) purposes IRC 7871; however, they aren’t for employment taxes. Therefore, services taxpayers perform for a tribal government are subject to employment taxes the same as other services performed for other taxpayers.
This section gives a brief overview of employment taxes for specialists to handle employment taxes of Indian tribal governments. Find general employment tax procedures in IRM 4.23, Employment Tax. See also Publication 4268, ITG Employment Tax Guide.
To determine an employment tax liability, first determine if there is an employer, an employee, and payment of wages or compensation. Federal Employment Taxes consist of five separate taxes, items (a) through (e), and an income tax on self-employment income, item (f):
Federal Insurance Contributions Act (FICA) — IRC 3101 through IRC 3128
Railroad Retirement Tax Act (RRTA) — IRC 3201 through IRC 3241
Federal Unemployment Tax Act (FUTA) — IRC 3301 through IRC 3311
Railroad Unemployment Repayment Tax Act — IRC 3321 through IRC 3222
Collection of Income Tax at the Source on Wages (ITW) — IRC 3401 through IRC 3406
Self-Employment Contributions Act (SECA) — IRC 1401 through IRC 1403
The FICA, RRTA, FUTA and withholding taxes are imposed by Chapters 21, 22, 23 and 24, respectively, of Subtitle C - Employment Taxes and Collection of Income Tax of the Internal Revenue Code. Not a true employment tax, SECA tax is imposed by Chapter 2 of the Code, Subtitle A - Income Taxes.
When processing these cases, follow guidelines for forms and procedures relating to TE/GE exams under IRM Part 4, Examining Process.
IRM 4.5, TE/GE AIMS Manual, for procedures specific to TE/GE exam cases.
IRM 4.4, Audit Information Management System (AIMS) and Processing Instructions, for general AIMS procedures.
IRM 4.4.10, Employment/Excise Tax Adjustments, for detailed procedures on AIMS processing procedures.
Ask questions to Compliance and Program Management (CPM) or the ITG Knowledge Sharing Group (KSG) on Employment Taxes.
IRM 4.23, Employment Tax, serves as the foundation for addressing consistent administration of employment taxes by various IRS functions for these taxes:
Description of Taxes Forms Reported On Withholding of income tax on wages of employees (W/T) Form 941, Employer's Quarterly Federal Tax Return
Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund
Form 943, Employer's Annual Tax Return for Agricultural Employees
Form 944, Employer's ANNUAL Federal Tax Return
Employer and employee taxes (Medicare and Federal Insurance Contributions (FICA)) Form 941, Employer's Quarterly Federal Tax Return
Form 943, Employer's Annual Federal Tax Return for Agricultural Employees
Form 944, Employer's ANNUAL Federal Tax Return
Unemployment Insurance, Federal Unemployment Tax Act (FUTA) Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return Employer tax and employee tax for retirement purposes imposed on employers of individuals performing railroad services, and the railroad employee representative's tax under the Railroad Retirement Tax Act Form CT-1, Employer's Annual Railroad Retirement Tax Return
Form CT-2, Employee Representative's Quarterly Railroad Tax Return
Withholding of tax on all non-payroll payments, e.g. gambling winnings, per capita payments, pensions, etc. Form 945, Annual Return of Withheld Federal Income Tax Backup withholding requirements under IRC 3406. Form 945, Annual Return of Withheld Federal Income Tax Withholding of tax under IRC 1441 and IRC 1442 Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons
Review the IRS Policy Statements that govern the Employment Tax Program in IRM 1.2.1, Policies of the Internal Revenue Service, and become familiar with them.
The IRS administers the employment taxes imposed by IRC Chapters 21 through 24. An important phase of employment tax administration is interpreting the IRC sections that apply to these taxes, that is, issuing rulings and technical advice that clarify the intent of these sections. The IRS refers all questions relating to:
Eligibility for and computation of social security benefits to the Social Security Administration, Baltimore, Maryland, or to their nearest local field office.
Unemployment benefits are referred to the appropriate State Unemployment Compensation Board.
Railroad employee retirement benefits are sent to the Railroad Retirement Board, Chicago, Illinois.
Refer technical questions in employment tax cases that involve interpreting and applying tax laws, regulations, or other IRS published precedents to a specific set of facts to ITG Headquarters.
Requests for technical advice must include the:
Issues for which technical advice is requested
The Service’s position
See Rev. Proc. 2015-1 and Rev. Proc. 2015-2, (revised annually) for procedures to request private letter rulings and technical advice, etc. See IRM 18.104.22.168, Private Letter Rulings and Technical Advice Requests.
The Classification Settlement Program (CSP) establishes procedures under an optional classification settlement program that allows Indian tribal governments and specialists to resolve worker classification cases early in the administrative process. See IRM 4.23.6, Classification Settlement Program (CSP).
Specialists determine FICA tax liability. These three factors must be present for a FICA tax liability:
Employer paid remuneration must constitute "wages" for purposes of the tax.
Employee must perform services that constitute "covered employment" (as opposed to "excepted employment" ), for purposes of the tax.
An employer who makes or has made an under-collection or an underpayment of employee taxes (FICA/RRTA) or income tax (withholding), may make interest-free payments of the tax due when certain conditions are met (IRC 6205). These provisions apply to per capita withholding assessments made under IRC 3402(r) and certain back-up withholding assessments under IRC 3406.
Under IRC 3509, if an employer doesn’t deduct and withhold income tax or the employee's share of FICA tax because they treat employees as independent contractors, the employer may be entitled to reduced rates to determine its employment tax liability. See IRM 22.214.171.124, IRC Section 3509.
When you discover that an employer hasn’t filed required federal tax returns:
Determine the taxable periods for which the employer was required to file returns.
Find out the reasons the employer didn’t file the required returns.
Determine whether any indications of fraud exist.
Secure the non-filed return if the employer is under exam. If you’re conducting a compliance check, include a statement on the closing letter that the employer will prepare and file the non-filed return(s) as soon as possible.
After IRS assesses employment tax in an exam action, the employer will generally be required to pay the assessment and file a claim for refund before we further consider the case (Policy Statement 4-103). However, there may be other circumstances to consider for a claim for abatement on its merits.
Section 166 of the Community Renewal Tax Relief Act of 2000 (Public Law 106-554, codified as IRC 3306(c)(7)) changed how FUTA applies to Indian tribal governments. Announcement 2001-16 provides guidance to federally recognized Indian tribal governments about their FUTA obligations for 2000.
For services rendered after December 20, 2000, federally recognized Indian tribal governments are exempt from FUTA. This includes any:
Wholly owned business enterprise of the tribal government
Instead, an Indian tribal government may elect to either:
Make contributions to the State unemployment fund as if its employees’ services were employment under FUTA.
Make payments instead of contributions in amounts equal to the State’s unemployment benefits attributable to this service.
To make sure that FUTA liability is properly determined, the State must advise IRS ITG and the Department of Labor of any determination it has made concerning a tribe's failure to make required payments or post a required bond and whether the tribe has subsequently satisfied these liabilities.
If a tribe fails to make payments required (including assessments of interest and penalty) within 90 days of final notice of delinquency, the State immediately notifies both:
United States Department of Labor
Internal Revenue Service
Indian Tribal Governments SE:T:GE:ITG
1111 Constitution Avenue, N.W.
Washington, DC 20224-0002
Generally, service performed by employees of tribal governments or tribal business enterprises constitutes employment and their wages are subject to federal employment taxes. Payments to tribal and non-tribal employees are to be reported on Form W-2, Wage and Tax Statement.
The IRC states that for purposes of FICA, FUTA, and federal income tax withholding, the term "wages" means all payments received for "employment" with certain specified exceptions. Therefore, unless payments to employees are excepted from the term "wages" or the services performed by the employee are excepted from the term "employment" , these payments are subject to FICA, FUTA, and federal income tax withholding.
Questions often come up on services performed for the tribe on tribal land by a tribal member who lives on the reservation. Individual tribal members are citizens of the United States and are subject to federal income tax, unless specifically exempted by a treaty or statute (Rev. Rul. 67-284, 1967-2 C.B. 55).
A limited exception from employment tax is found in IRC 7873.IRC 7873 provides that no employment tax shall be imposed on remuneration paid for services performed in a fishing rights-related activity of an Indian tribe by a member of such tribe for another member of such tribe or for a qualified Indian entity.
There is a narrow exception for salaries paid to tribal council members for services performed by them as council members. Rev. Rul. 59-354,1959-2 C.B. 24, holds that while these amounts are includible in the council members' gross income, they do not constitute wages for purposes of FICA, FUTA, and income tax withholding.
Rev. Rul. 59-354 further states that although amounts paid to tribal council members are not subject to employment taxes, services performed by other salaried employees of Indian tribal councils and by the employees of tribal business enterprises constitute employment and their wages are subject to federal employment taxes.
Indian tribes are required to file information returns for payments to various recipients. They must furnish the forms to the recipient and file them with the IRS. See IRM 126.96.36.199.3, Reporting and Deposit Requirements, for a discussion of reporting requirements.
Be familiar with Form 1099 issuance and withholding requirements when conducting outreach, compliance checks, and exams of Indian tribes in the following two areas:
Distribution of net gaming revenue to tribal members. See IRM 188.8.131.52.1, Distributions of Gaming Revenue.
Payments to non-employees other than net gaming revenue.
This section also discusses Form 945, Annual Return of Withheld Federal Income Tax filing, deposit requirements, and abatement of withholding assessments.
Tribes may make payments to multiple non-employees (e.g., service providers, rents, etc.) during the year. When their payments to a non-employee of fixed or determinable gains, profits and income aggregate to $600 or more, they must file a Form 1099-MISC, Miscellaneous Income, (IRC 6041).
See IRM 4.10.5, Required Filing Checks, for reportable payments to be included on the Form 1099. See IRM 184.108.40.206, Information Returns.
Backup withholding provisions apply to Indian tribal governments (IRC 3406). See relevant sections of IRM 220.127.116.11, IRC 3406 - Backup Withholding, and IRM 18.104.22.168.2.6, Exceptions and Limitations. These sections describe the tribe’s backup withholding requirements when the payee doesn’t supply its Taxpayer Identification Number (TIN) prior to the payment and lists requirements when the IRS notifies the tribal government that a payee is subject to backup withholding.
You may use Form W-9, Request for Taxpayer Identification Number and Certification, to secure the TIN.
The backup withholding rate is 28 percent of the applicable payments.
To determine when backup withholding applies, see 26 CFR 31.3406. See 26 CFR 301.6721 and 26 CFR 301.6722 for applicable penalties under IRC 6721, failure to file correct information returns, and IRC 6722, failure to furnish correct payee statements.
See IRM 22.214.171.124, Employment Tax (Forms 941, 943, 944, 945, and CT-1), for information on Form 945, Annual Return of Withheld Federal Income Tax, including deposit requirements. Form 945 is used to report required payments for backup withholding. Form 945 deposit requirements and federal tax deposit penalty provisions parallel the provisions for the Form 941, Employer's Quarterly Federal Tax Return.
See Pub 15, Circular E, provides a good reference for the tribes on deposit requirements.
Qualifying employers with net FUTA tax liability less than $2,500 may qualify for annual filing and payment rather than making quarterly deposits. See IRM 126.96.36.199, Form 944 Examinations and Filing Requirements, and the instructions for Form 944, Employer's ANNUAL Employment Tax Return.
Under IRC 3402(d), IRS may abate the income tax portion of:
Employment tax assessments
Back-up withholding assessments under IRC 3406, and
Withholding assessments under IRC 3402(q) and IRC 3402(r)
Procedures to use in the abatement process, Form 4669, Statement of Payments Received, and Form 4670, Request for Relief of Payment of Certain Withholding Taxes, are included in IRM 188.8.131.52.2, Forms 4669/4670,IRM 184.108.40.206.3, Procedures for Granting Relief Under IRC 3402(d) and/or IRC 3102(f)(3), and IRM 220.127.116.11, IRC 3406 - Backup Withholding. This involves the payee attesting to having filed the return and paying the resulting liability.
When you secure Form 4669, Statement of Payments Received, and Form 4670, Request for Relief of Payment of Certain Withholding Taxes, prior to closing the exam, use these procedures.
The IRS is responsible for federal taxation issues involving Indian tribal governments. Specialists interpret federal tax laws as they relate to tribal entities and enterprises, and work with Indian tribes on a government-to-government basis to administer federal tax laws related to tribal entities and enterprises. Indian gaming may be subject to state oversight or other regulations because of a negotiated gaming compact with the state. However, you are responsible only for federal tax issues related to a tribal entity.
Indian tribes aren’t entities subject to federal income tax because they aren’t included in IRC 1 (individuals, trusts and estates) or IRC 11 (corporations). Rev. Rul. 67-284 also states that an Indian tribe is not subject to income taxes. A tribe must be recognized by the Department of the Interior to be treated as such for federal income tax purposes. See Rev. Proc. 2008-55. Tribal governments provide certain services to their members. In certain specific areas, IRC 7871 places tribal governments on the same footing as state and local governments that provide similar services to their citizens, but IRC 7871 has no impact on whether or not the tribe is federally recognized. Consequently, an Indian tribe doesn’t need to meet the requirements of IRC 7871 in order to be treated as an Indian tribe for federal income tax purposes.
A tribe may operate businesses either on or off its reservation. The tribe, and any unincorporated business it owns, isn’t subject to federal income tax, regardless of where the business is located. However, a corporation formed by a tribe may be subject to federal income tax. See Rev. Rul. 94-16, 1994-1 C.B.19, as amplified in Rev. Rul. 94-65, 1994-2 C.B.14.
A tribe may choose to form a corporation in different ways, including:
Indian Reorganization Act of 1934: The tribe may incorporate under section 17 of the Indian Reorganization Act of 1934 (IRA) 25 U.S.C. section 477 (section 17 corporation). This type of corporation isn’t recognized as separate from the Indian tribe for federal tax purposes. See Treasury Regulations Section 301.7701-1(a)(3). The section 17 incorporation rules are governed by the Department of the Interior.
Oklahoma Indian Welfare Act: Tribes located in Oklahoma aren’t eligible to incorporate under section 17 of the IRA. Instead, Oklahoma tribes may incorporate under section 3 of the Oklahoma Indian Welfare Act, 25 U.S.C. section 503 (section 3 corporation). This type of corporation isn’t recognized as separate from the Indian tribe for federal tax purposes. See Treasury Regulations Section 301.7701-1(a)(3). The section 3 incorporation rules are governed by the Department of the Interior.
State Chartered Corporation: The tribe may form a corporation under state law. This type of corporation is ordinarily subject to federal tax on income earned on or after October 1, 1994, regardless of where the business is located. A state chartered corporation formed by a tribe is taxed just like any other corporation because the state charter creates a separate entity from the tribe. A Certificate of Incorporation issued by the state is evidence of incorporation under state law.
In addition, a tribe or a corporation formed by a tribe may be a partner in a partnership:
A tribe that is a partner in a partnership isn’t subject to federal income tax. However, a tribally owned state chartered corporation that is a partner is subject to federal income tax on its distributive share of partnership income.
In addition, many tribes form corporations using their own corporate code or resolution process. The tax status of wholly-owned corporations chartered under tribal law is unclear. Guidance is anticipated to address this issue. In the meantime, it’s recommended that tribal governments adopt one of the incorporation methods having clear tax consequences. See Rev. Rul. 94-65 and Rev. Rul. 94-16.
Rev. Rul. 2004-50 provides information that a federally recognized Indian tribal government is not an eligible S corporation shareholder for purposes of the IRC.
Tribes may wholly own a limited liability company. These entities are disregarded as separate entity from the tribe for income tax purposes, unless otherwise elected. See Treasury Regulations Section 301.7701-2(a); 301.7701-3(b)(ii).
In 1988 Congress enacted the Indian Gaming Regulatory Act (IGRA), 25 U.S.C. Sections 2701-2721.
The intent of Indian Gaming Regulatory Act (IGRA) is to:
Provide a statutory basis for Indian tribes operating gaming to promote tribal economic development, self-sufficiency, and strong tribal governments.
Provide a statutory basis to regulate Indian gaming to ensure the tribes are the primary beneficiaries.
Establish an independent federal regulatory authority for Indian gaming, federal standards for Indian gaming, and the National Indian Gaming Commission (NIGC), to meet congressional concerns regarding Indian gaming and protect such gaming as a means of generating tribal revenue.
Shield gaming from organized crime and other corrupting influences.
Ensure that both the operators and the players conduct gaming fairly and honestly.
Since IGRA's passage in 1988, the tribes and states have successfully negotiated hundreds of tribal-state gaming compacts. Gaming provides significant revenues for many Indian tribes.
The term "gaming" has been divided by IGRA into three classes:
Class Description Class I Social games that have prizes of minimal value, and traditional tribal games played in connection with tribal ceremonies or celebrations. Class II Bingo, pull-tabs, lotto, punch boards, tip jars, instant bingo, any games similar to bingo, and any non-banking card games allowed by state law including the electronic versions of these games. Class III All gaming that is not Class I or Class II gaming, which includes slot machines, casino games, banking card games, dog racing, horse racing and lotteries.
All Indian tribal governments conducting or sponsoring gaming activities need to be aware of the federal requirements for income tax, employment tax and excise tax. See Pub 3908, Gaming Tax Law and Bank Secrecy Act Issues for Indian Tribal Governments.
Tribal gaming operations have recordkeeping responsibilities for gaming income, payouts, and expenses.
Tribal governments conducting gaming operations generate a substantial amount of income, primarily in the form of cash. The cash passes through many hands, which could result in numerous abuses. One of Congress's concerns was the potential for criminal abuse. As a result, IGRA provides the framework to handle the necessary recordkeeping when a tribe is involved in either Class II or Class III gaming.
Whether the tribe has hired an operator to run its gaming operation, or it is handling the gaming operation itself, it must follow the regulations issued by the NIGC that cover the Minimum Internal Control Standards (MICS) for Indian gaming. These standards apply if they are more stringent than the standards included in a tribal-state compact. However, if the tribal-state compact is more stringent, then the compact standards apply.
Gaming operations are required to be in compliance at the time operations begin. The tribal entity must also have an independent Certified Public Accountant verify that the internal control systems that are in place comply with the MICS of the NIGC's regulation, or with the tribal-state compact (25 CFR 542.3). Failure to meet these standards may result in temporary closure and/or civil fines by NIGC.
Obtain the NIGC Regulations from the NIGC, or at the NIGC website at www.nigc.gov/.
Find the memorandum of understanding between ITG and NIGC at: www.irs.gov/Government-Entities/Indian-Tribal-Governments/ITG-Memorandum-of-Understanding/.
Whether the tribe has hired an operator to run the gaming operation, or it is running the operation itself, it is required to maintain all books and records used to determine gross and net income, and to determine federal information reporting responsibilities. Recordkeeping retention requirements are codified in IRC 4403 and IRC 6001 and the related Treasury regulations, 26 CFR 44.4403-1, and 26 CFR 44.6001-1.
The NIGC regulations require that a tribe retain its Class II or Class III books and records of an operation for at least 5 years. They must retain records as long as the contents may be material in administration of any Internal Revenue law (25 CFR 571.7). This usually means as long as the period of limitation hasn’t expired on the applicable tax year (generally three years from the later of the date filed or the due date of the return). In addition, Employment Tax regulations specify that records must be preserved for at least four years after the due date of employment tax returns, or four years from the date the tax was paid, whichever is later. Refer to 26 CFR 31.6001-1.
Individual tribal-state compacts may contain additional recordkeeping and reporting requirements for tribal gaming operation. NIGC and IRS hold gaming facility to the higher MICS.
This subsection describes the common filing requirements for tribal entity gaming activities. Tribal entities conducting gaming activities generally handle and prepare the following forms:
Form Title Due Form 11-C Occupational Tax and Registration Return for Wagering To Register Annually, by July 1, and Upon Certain Changes in Ownership or Control Form 730 Monthly Tax Return for Wagers Monthly Form 941 Employer's Quarterly Federal Tax Return Quarterly Form 944 Employers' ANNUAL Federal Tax Return (if informed to do so by the IRS) Annual Form 945 Annual Return of Withheld Federal Income Tax Annual Form 1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons Annual Form 1042-S Foreign Person's U.S. Source Income Subject to Withholding Annual Form 1042-T Annual Summary and Transmittal of Forms 1042-S Annual Form 1096 Annual Summary and Transmittal of U.S. Information Returns Annual Form 1099-MISC Miscellaneous Income Annual Form 5754 Statements by Person(s) Receiving Gambling Winnings None Form 8027 Employer's Annual Information Return of Tip Income and Allocated Tips Annual Form W-2 Wage and Tax Statement Annual Form W-2 G Certain Gambling Winnings Annual Form W-3 Transmittal of Wage and Tax Statements Annual FinCEN SAR Suspicious Activity Report No later than 30 days after the date of initial detection FinCEN CTR Currency Transaction Report 15th day after transaction
Using a promoter or contractor to operate gaming for a tribal government doesn’t relieve the tribe of its responsibility to file the appropriate forms.
Form W-2 G, Certain Gambling Winnings:
Filed for: Certain wagering transactions require Form W-2G, Certain Gambling Winnings, and Form 1096, Annual Summary and Transmittal of U.S. Information Returns. It’s filed when an individual(s) wins a prize with a minimum specific dollar amount at a gaming event. The winner must give the game operator proper identification including his/her name, permanent address and social security number (SSN).
Filed by: The tribal gaming operator. Completes the Form W-2G upon paying the prize to the winner and provides it no later than January 31 of the following year. Gives Copies B, C, and 2 of this form to the prize winner at the time they complete it. Submit Copy A of Form W-2G and Form 1096 to the IRS by February 28 of the year following the year the gaming winnings were paid. Electronic Form W-2G filers have until March 31 to file. Submit Form W-2G Copy 1 to the State, and the payer retains Copy D.
The tribal gaming operation may be required to file the Forms W-2G, and Forms 1099 electronically. Generally, if you are required to prepare and file 250 or more information returns, you must file electronically. The 250 or more requirement applies separately to each type of form.
To receive a waiver from the required filing of information returns electronically, submit Form 8508, Request for Waiver From Filing Information Returns Electronically, at least 45 days before the due date of the returns.
Form 945, Annual Return of Withheld Federal Income Tax — Withholding and Backup Withholding:
Filed for: Withholding -- Tribal gaming operations making payment of certain gaming winnings may be subject to withhold a tax of 25% of the payment from these payments. The tribal gaming operation reports the amount of gambling withholding for federal purposes on Form 945, Annual Return of Withheld Federal Income Tax.
Report any tribal-state compact requirements for state withholding on the applicable state forms.
Backup Withholding -- Backup withholding is withholding tax on reportable prizes when the recipient fails to provide a TIN. Payors who pay non-employee compensation have several resources to ensure that the TIN is correct. The Campus reconciles this information; specialists don’t have to. Backup withholding occurs if the entity hasn’t secured the recipient’s TIN. The backup withholding rate is 28%.
Filed for: Reporting the Withholding -- The tribal gaming operation reports regular withholding from gaming winnings on Form 945, line 1. They report backup withholding on Form 945, line 2. File Form 945 annually by January 31st of the year following the year of the winnings.
The following table explains when withholding and backup withholding is required:
GAME Regular gambling withholding winnings more than Backup withholding winnings equal to or more than (when no TIN is furnished) Bingo N/A $1,200 Slot Machines N/A $1,200 Keno N/A $1,500 Any wagering transaction ($5,000 or less) N/A $ 600 Lotteries, Sweepstakes, and wagering pools Over $5,000 $ 600 Horse Races, Dog Races, Instant Bingo Game Prizes/Pull-Tabs, and Jai Alai Over $5,000 $ 600 Other wagering transactions (when winnings are at least 300 times the amount wagered) Over $5,000 $ 600
Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
Payments for gambling winnings made to a nonresident alien are reported on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Since there are no reporting thresholds for foreign individuals, the first dollar won is reportable. The withholding rate on nonresident aliens is 30%, unless the foreign country has a treaty with the United States for a lower rate. For treaty benefits to apply, Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), must include an Individual Taxpayer Identification Number (ITIN), provide information as to whether an individual is a nonresident alien individual not subject to withholding. An ITIN must be provided on Form W-8BEN to qualify for a lower rate or exempt status. Beginning January 1, 2014, tribal casinos must electronically file Form 1042-S (regardless of the number of forms to file).
Report the withholding to the IRS on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. File the Form 1042 with any paper Forms 1042-S with the Ogden Campus by March 15 of the year following the year of payment.
Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN), is used to apply for ITINs for certain nonresident and resident aliens, their spouses and dependents that don’t qualify for or can’t get a SSN. Form W-7 requires documentation substantiating foreign/alien status and true identity for each individual. Submit documentation and Form W-7 to: the ITIN Operation at the Austin Campus, IRS walk-in offices, or through an Acceptance Agent or a Certifying Acceptance Agent authorized by the IRS.
ITINs are required of certain resident or nonresident aliens who wish to file a tax return to claim tax treaty benefits and/or claim a refund of withholding.
No tax is imposed on, and no reporting is required for, gambling income of a nonresident alien playing the following games in the United States:
Forms 1099, Information Returns:
Prizes and awards of $600.00 or more (aggregated for the entire year) are reported on Form 1099-MISC. Include the fair market value of non-cash prizes. If a wager is made, report the winnings on Form W-2G.
There are different types of information returns for reporting nonemployee payments and for reporting other types of miscellaneous payments. Tribal gaming establishments are required to file the appropriate information returns, just as any other trade or business is required to do.
The tribal gaming operation may be required to file the Forms 1099 electronically. Generally, if you are required to prepare and file 250 or more information returns, you must file electronically. The 250 or more requirement applies separately to each type of form.
To receive a waiver from the required filing of information returns electronically, submit Form 8508, Request for Waiver From Filing Information Returns Electronically, at least 45 days before the due date of the returns.
A tribal gaming operation will be responsible for paying regular gambling withholding or backup withholding, whether or not it collects the withholding from the prize recipient. The best time to collect withholding or backup withholding is before the payment is made to the recipient.
If the casino pays the withholding rather than deducting it from the payment, then the payment is deemed to include the amount of federal income tax paid by the casino.
Form W-2G: show the amount of tax paid by the tribal casino in the federal income tax withheld box. Add it to the amount of the prize if the tax isn’t deducted from the prize. See Notice 93-7, 1993-1 C.B. 297, for additional information. See Exhibit 4.88.1-2, General Guidelines - When to Withhold and Report Gaming Wins.
ITG is responsible for the identifying, notifying, educating and issuing assistance on Title 31.
ITG must record outreach events conducted with each gaming entity on Bank Secrecy Act outreach activities relating to Title 31 and IRC 6050I.
ITG is responsible for identifying entities subject to the Bank Secrecy Act (BSA) and IRC 6050I that are owned by Indian tribal governments.
ITG is responsible for providing an annual risk assessment of tribal entities subject to BSA.
ITG provides notification (1052L) and education activities with the BSA Program.
The Memorandum of Understanding (MOU) with SB/SE BSA addresses the shared responsibilities for Bank Secrecy Act (BSA) and IRC 6050I notification and education activities relating to entities that are owned by Indian tribal governments. The MOU between ITG and SB/SE BSA can be found at: www.irs.gov/Government-Entities/Indian-Tribal-Governments/ITG-Memorandum-of-Understanding/.
ITG employees are responsible for providing assistance with technical inquiries from our tribal entities regarding Title 31 CFR Chapter X (Effective March 1, 2011), also see IRM 4.26, Bank Secrecy Act.
ITG can’t make any oral or written statements on the quality or accuracy of a tribe's BSA program. This applies to any informal discussions, BSA outreach events, or BSA compliance checks. ITG's role is simply to provide BSA information to the tribal entity, and recommend possible improvements in their BSA program. ITG communications, including the closing letter for a BSA Compliance Check, can’t be conveyed to indicate ITG found no problems with the tribe's BSA compliance program. Only the SB/SE BSA exam can make that finding.
In 1970, Congress enacted the Bank Secrecy Act. As of August 1996, Indian tribal casinos were subject to the regulations of 31 CFR Chapter X (revision March 1, 2011).
Due to the cash intensive nature of gaming activity and the huge volume of wagering throughout the United States, casinos find themselves dealing with large numbers of individuals and massive amounts of currency. The information in this section intends to offer a basic understanding of the BSA and how to comply with its provisions.
Casinos and card rooms are designated as financial institutions subject to the requirements of the BSA if the property:
Is licensed as a casino by state, local, or tribal governments, and
Has gross annual gaming revenues in excess of $1,000,000.
As of April 1, 2013, financial institutions must use new FinCEN reports, available only electronically through the BSA E-Filing System. FinCEN no longer accepts legacy reports. Use the Currency Transaction Report (CTR) to report cash transactions greater than $10,000. This form must be filed electronically by the fifteenth calendar day after the day of the transaction.
File the CTR for a single or multiple transactions over $10,000.
Single transaction - a transaction of more than $10,000 in currency occurring one time.
Multiple transactions - a series of transactions each less than $10,000, which, when aggregated, exceed $10,000 during the gaming day.
The casino must have knowledge that multiple transactions exceeded $10,000 in a gaming day and are by, or on behalf of, one individual. The casino is deemed to have knowledge if any employee, proprietor, officer, director or partner knows the transactions occurred. One doesn’t need to have personally observed the transactions; it can be acquired from examining books, records, logs, computer files, etc.
To properly file a CTR, the casino must secure identification information from the customer (including foreign nationals) BEFORE concluding the transaction. The information includes:
Name and current address
Date of Birth
Account number (with the casino, if applicable)
Social Security number, IF they have one.
Identification requirements. All individuals (except employees conducting transactions on behalf of armored car services) who conduct a reportable transaction(s) for themselves or for another person must be identified by means of an official or otherwise reliable record.
Acceptable forms of identification: driver's license, military or military dependent identification card, passport, alien registration card, state issued identification card, foreign national identity card (cedular card), or a combination of other unexpired documents that contain an individual's name and address and preferably a photograph and are normally accepted by financial institutions for identification when cashing checks for persons other than established customers.
For casino customers granted accounts for credit, deposit, or check cashing, or on whom a FinCEN CTR containing verified identity has been filed, use acceptable identification information obtained previously and maintained in the casino's internal records as long as the ID meets the following conditions:
The customer's identity is reverified periodically, any out-of-date identifying information is updated in the internal records, and the date of each re-verification is noted on the internal record.
If the casino examined documents verifying an individual's identity and recorded them on a signature card when he/she opened a deposit or credit account, the casino may rely on that information as long as it is reverified periodically.
Financial institutions have extensive recordkeeping requirements. Casinos have additional ones. Find a complete list of requirements in 31 CFR Chapter X. See 31 CFR 1021.410(a)-(c) for recordkeeping requirements specifically for casinos.
Important recordkeeping requirements include deposit(s) of funds, account(s) opened, or credit(s) extended:
The casino must secure and maintain the name, permanent address, and SSN for each person having a financial interest in the account.
They must verify the information by examining a driver's license or any other form of identification that is acceptable within the banking community for cashing checks of non-depositors.
For aliens or U.S. non-residents, verify using a passport, alien identification card, or other official document corroborating nationality or residency.
Other key records include:
Credit transactions greater than $2,500
Records used to monitor customers gaming activity (i.e., player rating records)
List of transactions involving monetary instruments of $3,000 and greater
Records of wire transfers involving funds of $3,000 or more
A copy of the casino's written compliance program
Computerized transaction records of casinos with automated recordkeeping systems
Casinos are required to develop and implement a reasonably designed, written program to monitor compliance with the BSA. At a minimum, the plan must include:
A system of internal controls to assure ongoing compliance.
Internal and/or external, independent testing of compliance.
Training of casino personnel in BSA requirements.
An individual or individuals to ensure day-to-day compliance.
Procedures for using all available information to determine (when required) accurate customer identity, suspicious or unusual activity, and whether recordkeeping requirements are met.
For casinos with automated systems, the casino must use the programs to help in ensuring compliance.
ITG can’t make any oral or written statements on the quality or accuracy of a tribe's BSA program. See IRM 18.104.22.168 (3).
Casinos have a certain vulnerability to potential money laundering schemes caused by the cash intensive nature of the games. The BSA was designed to create an audit trail to help minimize illicit financial transactions. Suspicious activities often involve structuring to avoid recordkeeping and reporting thresholds.
Structuring occurs when a person, alone or with others, conducts or attempts to conduct one or more currency transactions in amounts of $10,000 or less in order to evade the reporting requirements of the BSA. Casinos should be aware that both customers and employees may be involved.
Casinos must report all suspicious transactions that involve or aggregate to at least $5,000 in funds or other assets that it knows, suspects, or has reason to suspect is relevant to a possible violation. Possible violations that involve less than $5,000 may be reported on a voluntary basis. Use FinCEN Suspicious Activity Report (SAR) to report suspicious transactions. This report must be filed electronically through the BSA E-Filing System by the 30th calendar day after the date of the initial detection of the transaction. FinCEN has issued guidance on suspicious activity reporting and preparation, including SAR narrative examples.
Currency transactions in other operational aspects of a casino complex may be subject to other reporting requirements:
The FinCEN Currency Transaction Report (CTR) is also used by independent check cashiers, money remitters, wire transfer companies, etc., operating inside or outside of the casino to report transactions. This report must be filed electronically through the BSA E-Filing System by the fifteenth calendar day after the day of the transaction.
IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, is used by the hotel, retail outlets and other non-gaming departments. The form can be electronically filed or submitted as a paper file.
Rev. Rul. 67-284 states that tribal income distributed by the tribe or constructively received from the tribe is taxable to the tribal member if the income is not otherwise exempted from income taxation.
Under the Indian Gaming Regulatory Act (IGRA), net revenues from any Class II or Class III gaming activities conducted or licensed by an Indian tribe may be used to make per capita payments to members of the tribe only if four conditions are met.
The tribe must prepare a plan to allocate revenues only to uses authorized under IGRA. These uses are to:
a. Fund tribal government operations or programs,
b. Provide for the general welfare of the tribe or its members,
c. Promote tribal economic development,
d. Donate to charitable organizations, or
e. Help fund operations of local government.
The plan must be approved by the Secretary of the Interior as adequate, particularly with respect to the use of revenues to fund tribal government operations or programs and to promote tribal economic development.
The interests of minors and other legally incompetent persons entitled to receive any of the per capita payments must be protected and preserved and payments are to be disbursed to the parents or legal guardian of such persons as necessary for the health, education, or welfare of the minor or other legally incompetent person under a plan approved by the Secretary and the governing body of the Indian tribe.
The per capita payments are subject to federal taxation and the tribe must notify members of such tax liability when payments are made.
In December 1992, the Department of Interior issued "Guidelines to Govern the Review and Approval of Per Capita Distribution Plans" (Guidelines). The guidelines were revised, effective April 1, 2014. These guidelines set forth the procedures regarding the submission, review, and approval of tribal revenue allocation plans or ordinances relating to the distribution of net revenues from a gaming activity. Title 25, Chapter 1, Part 290 contains the revised guidelines. Under the guidelines:
A tribal revenue allocation plan or ordinance (allocation plan) providing for the distribution of net gaming revenues shall be approved by the Department of Interior if the allocation plan provides sufficient detail to determine that it complies with the Guidelines and IGRA.
The tribe must provide a percentage breakdown of the uses to which the tribe intends to allocate its net gaming revenues and the allocation plan shall provide that the tribe plans to dedicate a significant portion of its net gaming revenues to one or more of the purposes in 25 U.S.C. section 2710(b)(2)(B).
The Guidelines define "per capita" payments as those payments made or distributed to all members of the tribe or to identifiable groups of members which are paid directly from the net revenues of any gaming activity.
Per capita payments do not include benefits for special purposes or programs, such as social welfare, medical assistance, or education. Although a tribal member may receive benefits from net revenue for social welfare, medical assistance, or education, the tribe's designation of these payments is not determinative of their tax status.
The general welfare doctrine was codified in part as IRC 139E. Generally, the statute provides that Indian general welfare benefits are not included in gross income.
The term "Indian general welfare benefit" includes any payment made or services provided to or on behalf of a member of an Indian tribe (or any spouse or dependent of such a member) pursuant to an Indian tribal government program, but only if the program is administered under specified guidelines and does not discriminate in favor of members of the government body of the tribe, and the benefits provided under such program are:
Available to any tribal member who meets such guidelines,
For the promotion of general welfare,
Not lavish or extravagant, and
Not compensation for services.
A program shall not fail to be treated as an Indian tribal government program solely by reason of the program being established by tribal custom or government practice.
Any items of cultural significance, reimbursement of costs, or cash honorarium for participation in cultural or ceremonial activities for the transmission of tribal culture shall not be treated as compensation for services.
Ambiguities in IRC 139E shall be resolved in favor of Indian tribal governments for the programs administered and authorized by the tribe to benefit the general welfare of the tribal community. Deference shall be given to tribes in administering their programs.
The Tribal General Welfare Exclusion Act of 2014, which enacted IRC 139E, suspended all audits and examinations for Indian tribal governments and tribal members to the extent any audit or examination relates to a general welfare payment or benefit until IRS field staff and tribal financial officers receive further training. At this time, the suspension is in effect.
Until the suspension is lifted, you should consult with your ITG group manager and the National Office on any and all issues with general welfare implications.
The IGRA mandates that the gaming revenue distributions are to be taken into account in computing the income tax of the member. See 25 U.S.C. section 2710(b)(3)(D). For those who receive distributions outright, the year of income inclusion is the year of receipt. See Rev. Rul. 67-284.
Per capita payments and other distributions are generally made in cash, but also may be in kind, (e.g., services, property, or relief of debt). Identifying the initial source of funds used for the distributions is an important aspect of the reporting and withholding requirements.
Unless specifically exempt from taxation, the amounts that make up the distributions are taxable and subject to the requirements of filing Forms 1099. A distribution could be derived from many sources. Examples include the following:
Distributions of profits from Class II and III gaming activities
Profits from a tribal business other than a Class II or III gaming operation
Interest income on investments
Rental payments from improvements on tribal lands
Revenue sharing programs
All of these payments would require the tribe to prepare a Form 1099 when a payment was made to the tribal member. (Exceptions for nontaxable distributions are discussed below.) Taxable distributions must be included on an individual's income tax return.
If property, services, or relief of debt is received, the tribal member must include the fair market value of the item in gross income. It is only the amount distributed from the net revenues of Class II or III gaming activity, conducted or licensed by such tribe, that is subject to withholding under IRC 3402(r). Withholding provisions are discussed below.
The following items are excluded from the taxable income of individual tribal members:
Income directly derived by the Indian allottee from restricted allotted land that is held in trust by the United States Government;
Income derived from a fishing rights-related activity which is exempt under IRC 7873;
Income that is exempt under treaty or statute;
Income received from land claim settlements and judgments pursuant to 25 U.S.C. 1401;
Income from the proceeds of an agreement between the United States and an Indian tribe listed in the Appendix to Notice 2013-1 settling the tribe’s claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior under 25 U.S.C. §117b(a). The appendix currently lists 75 tribes, but it is updated occasionally, as tribes continue settling their cases.
Per capita distributions to members of Indian tribes made from funds held in a tribal Trust Account. Notice 2015-67.
Indian general welfare benefits which qualify for exclusion under IRC 139E; or
Medical benefits which qualify for exclusion under IRC 139D.
A listing and synopsis of past general welfare guidance is provided in Exhibit 4.88.1-3, General Welfare Exception -- Summary of Authority. The applicability of the guidance listed in the Exhibit, however, is unclear after enactment of IRC 139E. The Service anticipates issuing guidance on IRC 139E. Until such guidance is issued, you should consult with your ITG group manager and the National Office on any and all issues with general welfare implications.
One of the requirements for the distribution of gaming revenues to tribal members under the IGRA is that the interests of minors be protected. To meet this requirement, many tribes have established trusts for minors.
Rev. Proc. 2011-56 provides information on trusts established for the receipt of gaming revenue under the IGRA for the benefit of minors and legal incompetents. The revenue procedure provides guidance on the taxation of trust contributions and disbursements.
Tribes considering establishing trusts for minors should take into account the potential tax imposed on certain unearned income of minor children at the allocable parental tax rate. See IRC 1(g), and Temp. Reg. section 1.1(i)-IT.
As discussed earlier, the provisions of IRC 3402(r) require withholding from the distribution of net gaming revenue. These requirements are provided to the tribes each year. The tribes are sent a mailing, which includes tables covering the requirements. Also, these tables are included in Pub 15-A, Employer's Supplemental Tax Guide. During outreach visits, compliance reviews, and examinations these tables should be reviewed and discussed with the tribe.
The tribe should be advised that when distributions subject to IRC 3402(r) are issued at certain intervals and an additional separate payment is made (e.g., bonuses) this additional payment is aggregated with the regular payment for withholding computation purposes.
A regular monthly per capita payment of $5,000, subject to IRC 3402(r), is issued to all tribal members. An additional per capita payment of $5,000, also subject to IRC 3402(r), is made during December. In that instance, for the month of December, the computation for withholding on monthly per capita payments would be based on the aggregate payment amount of $10,000. If the computations were based on separate $5,000 payment amounts, underwithholding would have occurred and the tribe would be potentially liable under IRC 3402(r).
According to IRC 3402(r), the tribe is potentially liable for the difference between the amount required to be withheld pursuant to the tables and the amount actually withheld.
In addition, under IRC 3406 the tribe is potentially liable for backup withholding provisions.
Withholding on distributions to tribal members is reported on Form 945, Annual Return of Withheld Federal Income Tax.IRM 22.214.171.124, Employment Tax (Forms 941, 943, 944, 945, and CT-1), provides information on Form 945, including deposit requirements. Pub 15, Circular E, is a good source on deposit requirements for the tribes.
Form 1099-MISC is filed by the tribe to report distributions to tribal members including cash and the fair market value of any property received.
In addition, each tribal member may be required to submit Form 1040-ES, Estimated Tax Penalty For Individuals, and make quarterly estimated tax payments for taxable distributions received.
See abatement procedures for IRC 3402(r) assessments under IRC 3402(d). These provisions are discussed under Information Reporting. See IRM 126.96.36.199, Information Reporting, and IRM 188.8.131.52, IRC 3402(d) - Relief For Employer When Employees Have Paid Additional Medicare Tax Wages.
Refer to the "ITG Specialist’ Adjustment Desk Guide Form 3870" located on the TE/GE Intranet at http://tege.web.irs.gov/article.asp?title=6_Indian-Tribal-Governments&path=/my-job/6_Indian-Tribal-GovernmentsCase Processing tab. Find "Form 3870 Adjustments Guide ITG Specialists" under the Other - File tab in the library.
The Tip Rate Determination and Education Program (TRD/EP) was initiated by the Service to improve and ensure compliance by employees and employers in industries where tipping is customary. If noncompliance exists, both employees and employers can be held liable for payment of significant taxes, penalties, and interest. Under the TRD/EP the employer may enter into a tip agreement in order to promote tip compliance and to reduce disputes under IRC 3121(q).
Tribal government employers can voluntarily enter into one of four tip agreement arrangements with the Service:
The Tip Rate Determination Agreement (TRDA) for the gaming industry,
The Gaming Industry Tip Compliance Agreement (GITCA),
The Tip Rate Determination Agreement (TRDA) for the food and beverage industry, or
The Tip Rate Determination Agreement (TRDA) for industries other than the food and beverage and gaming industry.
Samples of Tip Rate Determination Agreement (TRDA) may be viewed at Exhibit 4.88.1-5, Tip Rate Determination Agreement, or provided by the ITG Tip Analyst. Gaming Industry Tip Compliance Agreements (GITCA) are described in Rev. Proc. 2007-32.
Exhibit 4.88.1-4, Comparison of TRDA and GITCA, provides a comparison chart regarding various provisions of the gaming industry TRDA and the GITCA.
Tip agreements are voluntary. Although tip agreements provide many benefits to both the employees and the employer, some employers may choose not to participate in the program.
Section 3414 of the IRS Restructuring and Reform Act of 1998 prohibits the threat of an audit to coerce taxpayers into signing a TRDA or tip agreement. This prohibition extends to GITCA agreements.
IRC 3121(q) explains employer liability for FICA taxes on tips. Effective January 1, 1988, IRC 3121(q) provides that the employers pay their share of FICA taxes on tips reported by their employees. Such remuneration is deemed to have been paid at a time a written statement including such tips is furnished to the employer. If no such statement is furnished (or to the extent the statement is incomplete or inaccurate) such remuneration shall be deemed paid on the date on which notice and demand for such taxes is made to the employer.
IRM 4.23.7, Employment Tax on Tip Income, provides additional information on employment taxes and tip income including information on tip agreements.
Tip agreements provide several benefits to the employer:
Lessen the potential contingent employer liability under IRC 3121(q) for the employer's share of FICA tax on tips.
Increase employee compliance with the tax laws.
Reduce the burden on employers by establishing rates or methods to ensure that the employees are reporting appropriate tips.
Provide that the IRS will not make an assessment against the employer under IRC 3121(q) while the employer is covered by a tip agreement.
There are two exceptions: assessments on additional tips reported by the employee on Form 4137, Social Security Tax on Tip Income Not Reported to the Employer, and attached to the employees’ Form 1040; and additional tips determined during an employee audit and reported on Form 885-T, Adjustment of Social Security Tax on Tip Income Not Reported to the Employer.
Tip agreements also provide many benefits to employees:
Ensure that the IRS will not examine a participating employee's tip income if the employee is reporting tips at or above the tip rate established for their occupational category.
Increase employees' compliance with the tax law.
Increase reported tip income.
When employees increase reported tip income they increase any benefits based on reported income. Among these are:
Provides proof of income when applying for mortgages, auto loans, etc.
Increased worker compensation unemployment benefits.
Increased Social Security and Medicare benefits.
Increased pension, annuity or 401(k) participation.
Tip agreements provide benefits to the IRS, such as:
Result in higher voluntary compliance with tip reporting.
Reduce disputes with employers under IRC 3121(q).
Require less IRS enforcement measurement and resources.
Lead to better relationships between the IRS and taxpayers.
To participate in a Tip Rate Determination Agreement (TRDA) the employer agrees to comply with certain requirements.
The TRDA details the commitments made by the employer and the IRS upon entering the agreements. Each TRDA also includes definitions, tip rate methods, and miscellaneous provisions.
There are minor variances among the various TRDAs (gaming, food and beverage, and other industries). Some of these variances are discussed below. Refer to the specific TRDA for details.
The authority to sign the TRDA is provided at IRM 184.108.40.206.15, Authority to Sign Tip Agreements.
The TRDA is effective on the first day of the first calendar quarter following the date the authorized ITG Representative signs the agreement.
The employer agrees to maintain specific employee records, detailed in the TRDA, including all records of data used to determine tip rates.
The employer must retain these records for at least 4 years after April 15 following the calendar year to which they relate.
The employer must furnish any of these records plus required annual reports to the ITG Tip Analyst upon request.
The ITG Tip Analyst may evaluate the employer and its participating employees for compliance with the provisions of the tip agreement.
The employer will furnish to the ITG Tip Analyst an annual report on each nonparticipating employee listing the employee's name, social security number, occupational category, shifts and hours. The report is due on March 31 following each calendar year and may include participating employees as long as all information is included for nonparticipating employees.
If the employer is required to file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, the employer will furnish copies of the filed forms to the ITG Tip Analyst.
The employer will comply with all the requirements for filing all required federal tax returns and paying and depositing all federal taxes.
Participating Employee: If the employee reports tips to the employer at or above the agreed rate of the employee's occupational category on a timely filed return, the IRS will not examine a participating employee's tip income for any period for which a Tipped Employee Participation Agreement (TEPA) is in effect.
Employer: Any IRC 3121(q) notice and demand issued to the employer by the Service Representative will be based solely on one or more of the following forms:
Form 4137, Social Security and Medicare Tax on Unreported Tip Income, filed by an employee on his or her Form 1040.
Form 885-T, Adjustment of Social Security Tax and Income Not Reported to the Employer, prepared at the conclusion of an employee tip examination.
In the event of a termination of the tip agreement, the rule listed at (2) above will apply to all tips received from the effective date of the agreement to the effective date of the termination.
Depending on the occupational categories and the employer's business practices, tips rates are reported on the agreement using the following types of measurements:
Actual Tips: Actual tips generally refers to an occupational category where pooling of tips is common. Employees in categories where tips are pooled must report the actual tips received and may not use a tip rate. Actual tips may also include occupational categories where strict employer internal controls are in place tracking the tip from the moment the employee receives the tip from the customer until that tip is reported in payroll.
Tip Rates: Tip rates apply to occupational categories where there are no actual tips that may be determined by tip pooling methods or by strong employer internal tracking systems. The rates may be determined as a percentage of sales, a dollar amount per hour, a dollar amount per drink, or other measurable basis.
If the tip rate measurement is used, the employer will determine the rates based on information available to the employer, information provided by the ITG specialist, and generally accepted accounting principles. The ITG specialist may provide acceptable formulas used to determine tip rates in specific areas, such as ""McQuatters" Formula" used to determine tip rates in the food and beverage industry. See McQuatters v. Commissioner, T.C. Memo, 1973-240.
The employer will review annually, on a calendar year basis, the tip rates and occupational categories. In addition, the employer may review its occupational categories to ensure that new categories are added and that eliminated categories are deleted. If the employer believes that a revision of rates or categories is appropriate, the employer will submit the proposed revisions to the ITG specialist by September 30. For more details on this review process, refer to the TRDA.
The employer can terminate the agreement at anytime with written notice. The termination will be effective the first day of the calendar quarter following the date of the notice.
The Service may terminate the agreement with written notice effective on the first day of the calendar quarter following the date of the notice if any of the following conditions exist:
At the end of the calendar year less than 75% of the employees in tipped occupational categories are participating.
The employer fails to maintain required records.
The employer fails to submit the required annual employee report or the Form(s) 8027.
The employer fails to make required records available to ITG, upon request.
The employer fails to file all required federal tax returns and/or fails to make related payments and required tax deposits.
The Director, ITG, has sole authority to terminate any Indian Tribal Government tip agreement on behalf of the Service.
The Gaming Industry Tip Compliance Agreement (GITCA) is designed specifically to address concerns of the gaming industry relating to tip income and to reduce disputes under IRC 3121(q). Some of the basic provisions of the GITCA are listed below. For more details review the model GITCA in Rev. Proc. 2007-32.
To participate in a GITCA the employer agrees to comply with certain requirements. Pub 4936, Your Guide to Maintaining and Complying with the GITCA, provides information on maintaining the GITCA, securing a new GITCA, the streamlined rate review process, and annual reporting.
The GITCA details the commitments made by both the employer and the IRS upon entering the agreement. The GITCA also includes definitions, tip rate methods, and miscellaneous provisions.
The authority to sign the GITCA is provided at IRM 220.127.116.11.15, Authority to Sign Tip Agreements.
Pub 4932, Gaming Industry Tip Compliance Agreement (GITCA), provides an overview of the GITCA program including employer and employee benefits of participation, eligibility requirements, and the responsibilities of non-participating employees.
Pub 4985, Gaming Industry Tip Compliance Agreement – for Tipped Employees, summarizes the eligibility requirements and benefits for tipped employees participating in a GITCA agreement.
A "participating employee" in a GITCA is a tipped employee who:
Signs a Model Gaming Employee Tip Reporting Agreement as provided in Appendix C of the GITCA.
Prior to signing the Model Gaming Employee Tip Reporting Agreement filed federal tax returns for the three years prior to the GITCA effective date. The employee must have paid the tax or made arrangements to pay the tax no later than 60 days after signing the agreement.
Reports tips at or above the agreed rate on timely filed tax returns.
If an employee revokes the Model Gaming Employee Tip Reporting Agreement at any time during the taxable year, the employee will be treated as a nonparticipating employee for the entire year and may not enter into a new Model Gaming Employee Tip Reporting Agreement until January 1 of the following taxable year.
If employee participation is below 75% of the eligible employees, ITG and the employer will meet to discuss the decline in participation and take appropriate measures to increase the participation rate.
Housekeeping employees may not be included in a GITCA and are not considered eligible employees for the purpose of the agreement.
The employer agrees to encourage all eligible employees to participate in the program and to sign the Model Gaming Employee Tip Reporting Agreement. See Rev. Proc. 2007-32.
The employer will withhold and pay tax on reported tips and will include all reported tips on Forms W-2 as required by law.
The employer acknowledges that the Service has the authority to secure the information necessary for the Service to develop the tip rates of nonparticipating employees.
The employer will maintain certain employee, food and beverage, and tip rate records, and make them available to the Service upon request.
The employer will furnish an annual report to the ITG Tip Analyst with specific information on each nonparticipating employee no later than March 31 for the prior calendar year.
If the employer does not use a certified Employer-Computed Tip Reporting Process (ECTRP), the employer must also furnish an annual report to the ITG Tip Analyst with specific information on each participating employee no later than March 31 for the prior calendar year. See IRM 18.104.22.168.8 for information on ECTRP.
If the establishment qualifies as a large food and beverage establishment under IRC 6053, the employer is required to provide certain information annually to the ITG Tip Analyst no later than the due date for filing Form 8027, Annual Employer Report of Allocated Tip Income.
If the employer provides the information as required in IRM 22.214.171.124.8 (3) above, the employer will be deemed to satisfy the requirement to file Forms 8027 with respect to all of its employees.
If the employer has a certified ECTRP, the employer will provide a time-and-attendance system or a payroll processing system report that evidences the tip rates used in the implementation of the agreement and for the preparation of Forms W-2. The report is due to the ITG Tip Analyst no later than March 31 for the prior calendar year. See IRM 126.96.36.199.8 for information on ECTRP.
The Employer-Computed Tip Reporting Process (ECTRP) is defined as a process established, maintained, and controlled by the employer under which time-and-attendance and payroll processing systems are used to compute, without intervention by the employee, the tips reportable by the employee in accordance with the GITCA rates for that employee's occupation and shift.
The tips determined under the ECTRP system will be treated as tips reported to the employer by the participating employee for purposes of reporting, withholding, and paying the applicable taxes.
The employer's process will qualify as an ECTRP upon certification by the employer with the concurrence of the Service that the process satisfies the requirements for the ECTRP listed in the GITCA. The certification form is Appendix E of the GITCA.
The Service will not examine a participating employee's tip income for any taxable year that begins after the effective date of the agreement provided that each of the following conditions are met:
The employee is a participating employee for the entire year.
The employee reports tips earned during the taxable year at or above the tip rates in the agreement or works for an employer who utilizes an ECTRP system.
The participating employee timely files a federal income tax return that reports earned tips and wages on Form W-2.
The Service will not examine a participating employee's tip income for any taxable year that ends on or before the effective date of the agreement if during the prior period the employee met certain conditions clarified in the GITCA.
During any taxable year during which the GITCA is in effect the Service may not assert liability against the employer pursuant to IRC 3121(q) except based on:
The final audit results of a nonparticipating employee.
Additional tip income reported by an employee.
GITCA applicable tip rates include the following:
Employees Who Pool Tips. With respect to employees who pool tips, the employees or their group representative will present to the employer a listing of the actual share of pooled tips received by each employee. If chips are used, the listing must reconcile with the tips presented at the employer's cage for cashing.
Other Tipped Employees - Specified Occupational Categories emphasis. By agreement between the employer and the Service, tip rates are established for the occupational tip categories listed on Appendix A of the GITCA. These rates specify tips received by the hour, by shift, by drink, by percentage of sales, or other mutually agreed and verifiable bases of measurement.
Mutual Agreement Process. The employer or the Service may propose revisions to the tip rates or occupational categories during the term of the agreement. The non-proposing party will notify the proposing party in writing of approval or disapproval within 60 days of receipt of the proposed revision.
Request for Tip Rate Modification. Upon the occurrence of specific significant events such as a significant change in the business, a 20% decrease in the employer's monthly gross income, or a drop below 50% in the participation rate of any occupational category, the employer may request a modification in the relevant rate that is appropriate in amount and duration.
The GITCA commences on a date agreeable to both parties and the GITCA terminates no later than 3 years after the initial agreement date.
The Service and the employer agree to start discussions as to any appropriate revisions needed to the agreement no later than six months prior to the termination date.
The Service and the employer by mutual agreement may extend the GITCA termination date by completing the GITCA Appendix D Extension Agreement in order to provide appropriate time to finalize and execute a renewal agreement.
The Service may terminate the agreement by written notice if participation falls below 50% of the eligible employees.
The agreement may be terminated upon the joint agreement of the employer and the Service, without the consent of any participating employee.
If either party fails to comply with any material provision of the agreement, the non-defaulting party may terminate this agreement by giving written notice of termination to the other party.
If the agreement is terminated pursuant to the GITCA's terms, the mutual obligations of the parties will remain in effect through the effective date of termination.
The tip agreement must be signed by the tribal representative who has been delegated this authority by the tribal government.
ITG group managers have the authority to sign tip agreements on behalf of the Service per Delegation Order 4-34 (Rev. 1), Gaming Tip Compliance Agreements. See IRM 188.8.131.52.
The ITG group manager must review and approve the tip agreement before it is presented to the tribal representative for signature. Two original unsigned agreements are sent to the tribe. The tribal representative signs both agreements and returns them to the ITG specialist.
The ITG group manager countersigns both agreements. One original is sent to the tribal representative, and the other original is kept in the closed paper tip case file.
The paper tip case file (containing the original signed agreement) is forwarded to ITG Compliance and Project Management (CPM) for review. CPM subsequently closes the paper file to the ITG Tip Analyst for review and processing for storage.
Initial tip rates, and requests to revise existing tip rates, require a validation review by the ITG specialist. The specialist will review:
How the rates were determined, and
Related internal and accounting controls.
The tribal tipped establishment may use different methodologies to determine tip rates based on available data, formulas, and generally accepted accounting principles. The specialist can provide suggested formulas, methods, and internal controls for determining reasonable tip rates. Generally, ""McQuatters" Formula" should be used for all food and beverage venues that charge tips.
It is highly desirable for the tribal establishment and the specialist to agree on the methodology for each tipped category prior to the entity setting up the tests and securing the data. This initial step will reduce or eliminate any potential disagreements over the methodology used subsequent to the studies. This step will also reduce time and eliminate the need for initiating additional studies agreeable to both parties.
Tip rates may be based on:
A dollar amount per hour with possible shift differentials
A dollar amount per beverage served
A dollar amount per dealing hour (requires records separating dealing hours from total hours for each dealer)
A percentage of sales, or
Some other accurate basis of measurement
Tip rates may also be listed as:
Actual. Actual tip rates require enforced strong internal controls that clearly track the tip from the moment of receipt by the employee to reporting of the tip in payroll. The internal controls should eliminate any opportunity for the tip to be diverted from the internal control procedures and thereby fail to be reported in payroll.
Actual Pool/Split. Actual Pool/Split rates occur when there is pooling of tips in the occupational category. Employees who pool tips are required to report actual tips and may not use a tip rate as described in (4) above. These employees or their group representative must present to the employer a listing of the actual share of pooled tips received by each employee. If chips are used, the listing must reconcile with the chips presented at the employer's cage for cashing.
The TRDA and GITCA require the employer to retain for each occupational category all records of data used to determine the tip rates. These records should be requested and reviewed by the specialist.
Tip rate reviews initiated by the specialist should be done using statistically valid sampling techniques. In some cases the use of a statistically qualified Computer Audit Specialist (CAS) may be necessary.
The internal and accounting controls insure that the tip income under any tip rate methodology is accurately and correctly reported. A copy of the written internal and accounting controls should be obtained and reviewed. In some cases it may be appropriate to test, on a sample basis, the existing controls.
Tip rates that are based on an actual or a pooling method require enforced strong internal controls to ensure that all tips received by the employee are reported in payroll. For example, procedures listed below provide some examples of internal control procedures:
Upon receipt of the tip the employee makes an overt sign such as tapping the chip on the dealer's table then immediately clearly depositing the chip in the locked toke box.
The locked toke box cannot leave the gaming floor. If the employee leaves the gaming floor during his/her shift, the locked toke box is deposited in a designated area under surveillance.
The keys for the toke boxes are located in the Cashier's Cage and are never accessible to the tipped employee.
At the end of the employee's shift, the toke box is taken to the Cashier's Cage for the tokes to be counted and recorded by the cashier under surveillance. Both the cashier and the employee sign the tip report verifying the accuracy of the report.
A copy of the tip report is forwarded to payroll so the tips may be included in the employee's next pay statement.
Some factors that should be considered when reviewing tip rates are:
Type and location of tipped establishment
Customer base and regional economic conditions
Possible shift differentials or seasonal factors
Occupational categories and tip outs
Statistical relationships such as the number of poker hands dealt bears a direct relationship to the number of tips paid. The number of buffet meals served bears a direct relationship to the number of potential buffet tips.
Based on "Interim Guidance on Tips vs. Service Charges" provided for at Rev. Rul. 2012-18, the specialist should ensure that any distributed service charges are properly characterized as social security (SS) wages and not SS tips. Service charges should not be included in any calculation of either a tip rate or unreported tips. The specialist should note in the workpapers and appendices that service charges were not included in the tip computations and explain that service charges should be reported as SS wages.
During a rate review, the specialist will clearly document by occupational category the methodology and data used to determine the tip rate for that occupational category in the workpapers. The workpapers will be submitted to the ITG group manager for review.
The workpapers must stay with the case file until the documentation is no longer relevant for determining the appropriate tip rate for an occupational category or as a basis for a nonparticipating employee tip audits
When the final agreement is presented to the tribe for signature, a reasonable amount of time for tribal review and signature should be specified and communicated to the tribe. If the signed agreement has not been received within that time frame, consideration should be given to issuing a declination letter.
Once both signatures of the taxpayer and the ITG group manager are secured on the agreement, the specialist will:
Verifying workpaper documentation supports the conclusion(s) and are properly indexed to the Form 4318, Examination Workpaper Index.
Upload workpapers into RCCMS Office Documents folder. This includes the signed electronic tip agreement (including the signature page with both signatures (taxpayer and ITG group manager). Document this activity on your Form 9984, ITG Specialist’s Activity Record.
Email or efax the signed electronic agreement (including the signature page with both signatures (taxpayer and ITG group manager) to the ITG Tip Analyst.
Ship the paper tip case file with Form 3210, Document Transmittal, via UPS, to your ITG group manager, or to CPM, if your group manager approves directly shipping the case to CPM Review.
Once the ITG specialist completes the above steps, the specialist must ensure all the above actions are documented in their Form 9984, ITG Specialist’s Activity Record, including the case is ready to close, and forward the case on RCCMS to their ITG group manager for approval/closure.
Upon receipt of a closed case from an ITG specialist, the manager is responsible for ensuring that the conclusion reached is technically correct and that the case is accurate from a procedural perspective. This includes, but is not limited to:
Reviewing, approving, and timely closing the case in RCCMS to CPM in Status 20 (10 calendar days for ITG group manager to initial, date and close the case activity record after receiving case from the ITG specialist).
Documenting their actions on Form 9984, ITG Specialist’s Activity Record.
Immediately mailing any paper case files included with RCCMS file to CPM Review using Form 3210, Document Transmittal, to the following address:
Internal Revenue Service
55 North Robinson Avenue, Mail Stop 4900
Oklahoma City, OK 73102-9229
The ITG Tip Analyst oversees the ITG Tip Program and works directly with the tribes on issues that arise after both parties have entered into a tip compliance agreement.
The ITG Tip Analyst also coordinates with other IRS operating divisions and campuses on tip related issues to ensure consistency and to clarify areas where the approach may be different due to the variance in the customer base.
A primary goal of the ITG Tip Analyst is to ensure that all parties (the tribes, their employees, and the Service) adhere to the agreements. This generally involves monitoring annual reports required by the tip agreements, assisting ITG field employees, referring nonparticipating tipped employees for audit, and issuing notice and demand to the tribal entity participating in the tip agreement based on the results of their nonparticipating employee audits.
The ITG Tip Analyst reviews internal data and selects tip case work for the field. Prior to assignment to the field, the ITG Tip Analyst analyzes each assignment, prepares case building materials and posts the case building materials to the RCCMS Office Documents section of the case.
The ITG Tip Analyst is responsible for updating the ITG Tip Database and for notifying management regarding trends or issues within the ITG Tip Program.
In the event the ITG Tip Analyst receives an inquiry that is best handled directly by an ITG specialist, the ITG Tip Analyst will forward the inquiry to the ITG group manager to coordinate a direct response to the taxpayer from a specialist.
The ITG Tip Analyst will receive Form 4137, Social Security and Medicare Tax on Unreported Tip Income, data from SB/SE on Indian tribal government entities. Based on the data received, the ITG Tip Analyst will issue notice and demand to the tribal entities for the employer’s share of FICA on the unreported tips.
Upon receipt of an initial tip agreement, the ITG Tip Analyst will send a letter of introduction to the tipped establishment offering assistance on federal tip issues and advising the entity of the annual reporting requirements required by the tip agreement.
The ITG Tip Analyst will set up a tip file for the entity that includes contact information along with any other relevant information on the entity. The file will include a copy of the tip agreement plus copies of any correspondence between the entity and the ITG Tip Analyst.
The ITG Tip Analyst will maintain an activity spreadsheet in the file regarding contacts between the ITG Tip Analyst and the tribal entity along with related ITG specialist contacts.
The ITG Tip Analyst sends letters to the tribal entities with tip agreements each January reminding the entity of the required annual reports and the due dates of those reports.
The required annual reports are transmitted by the taxpayer, electronically or by mail to the ITG Tip Analyst. In addition, the entity must send a copy of the filed Forms 8027, or specific food and beverage data for entities with a GITCA, to the ITG Tip Analyst each year.
The ITG Tip Analyst reviews the reports for completeness and for indications of tip reporting problems. Information from these reports and the Forms 8027 are included in the case building documents when the tip file is sent out for refreshment.
ITG specialists should relay any changes in the tribe's business operations that would affect the tribe's tip agreement for possible revisions to the ITG Tip Analyst.
The ITG Tip Analyst enters the data on nonparticipating employees into prescribed spreadsheets for referral to the IRS audit unit for employee tip examinations. The spreadsheets are transmitted electronically.
Following the completion of the nonparticipating employee audits, the IRS audit unit transmits the nonparticipating employee exam results to the ITG Tip Analyst.
The ITG Tip Analyst uses the nonparticipating employee exam results as a basis for issuance of notice and demand letters under IRC 3121(q) to the tipped entities. The ITG Tip Analyst will monitor the entity accounts to ensure that the additional tax is reported.
Failure to follow the requirements of the tip agreements may result in substantial unreported tip income and lost revenue to the federal government. Although the revocation of a tip agreement should be the last resort, a revocation may be necessary in egregious situations.
The Director, ITG, has sole authority to terminate an agreement on behalf of the Service.
This section describes the general responsibilities for ITG specialists in handling excise taxes, in particular, wagering taxes of Indian tribal governments.
A Memorandum of Understanding between Indian Tribal Governments (ITG) and Office of Specialty Programs (formerly known as the Office of Excise Taxes or OET) provides guidance for employees in those functions with regard to examination and education activities relating to the federal excise tax responsibilities of Indian tribal governments. The MOU between ITG and Office of Specialty Programs (formerly known as the Office of Excise Taxes or OET) can be found at: www.irs.gov/Government-Entities/Indian-Tribal-Governments/ITG-Memorandum-of-Understanding/.
On January 1, 2001, ITG assumed responsibility for all wagering tax issues relating to Indian tribal governments, including any subdivision, subsidiary, or wholly owned business of the Indian tribal government. Office of Speciality Taxes will keep jurisdiction over all other excise tax issues relating to Indian tribal governments.
ITG group managers will refer any issues they identify concerning non-wagering excises taxes to the designated Excise Tax Managers. Office of Speciality Taxes managers will notify the applicable ITG group manager prior to initiating any examination or outreach activity with an Indian tribal government.
The ITG office may at times be involved in the Coordinated Industry Case Program (CIC). The procedure for this type of examination can be found in IRM 184.108.40.206, CIC Program - General Procedures. The CIC procedures and guidelines promote uniformity and consistency in the management of coordinated examination cases. Examination activities in tribal governments may raise concerns which require fragmenting the examination for a multi-agent approach and assigning specific examination work to each team member.
Tribal governments are, for certain excise taxes, treated as states, and a political subdivision of a tribal government is, for certain excise taxes, treated as a political subdivision of a state under IRC 7871(a) and (d) respectively. This treatment is for purposes of any refund or credit, or any exemption from or payment of certain federal excise taxes if, and only if, the article is for the exclusive use of the tribe and the transaction involves the exercise of an essential governmental function of the Indian tribal government.
Functions that qualify as essential governmental functions (fire and police protection, etc.) will generally include those that are customarily performed by State and local governments with general taxing powers.
Individual tribal members are citizens of the United States and are subject to federal income tax, unless specifically exempted by a treaty or statute.
Wages received by individual tribal members are subject to federal income tax regardless of whether they are earned inside or outside of Indian territory, unless there is a specific treaty or statute exempting those wages. Gambling winnings, even if they are won at a tribally-owned casino, also are subject to federal income tax. Likewise, cash prizes to the winners of dance contests at pow-wows or similar cultural events are taxable.
The following items are specifically excluded from the taxable income of individual tribal members:
Income directly derived by the Indian allottee from restricted allotted land that is held in trust by the United States Government.
Per capita distributions made from funds held in trust by the Secretary of the Interior pursuant to Notice 2015-67.
Income derived from a fishing rights-related activity, which is exempt under IRC 7873.
Income that is exempt under treaty or statute.
Income received from land claim settlements and judgements pursuant to 25 U.S.C. 1401.
Restricted allotted land is land that is allotted to a tribal member but restricted as to alienation. Income directly derived from restricted allotted land includes the proceeds from sales of timber harvested from the land, grazing fees, and income from mineral rights. Examples of income not directly derived from restricted allotted land are income from:
even if conducted on restricted allotted land.
Once a tribal member acquires fee simple title to restricted allotted land, any income derived from the land, including the sale of the land, is subject to federal income tax.
The tribal member's tax basis in the allotted land is determined using the fair market value as of the date the tribal member receives fee simple title, unless that value is less than the tax basis computed under the rules set forth in Rev. Rul. 58-341.
Refer to "position paper" "Income Derived from Allotted Land" located on the TE/GE Intranet at http://tege.web.irs.gov/article.asp?title=6_Indian-Tribal-Governments&path=/my-job/6_Indian-Tribal-GovernmentsKSGs tab. Find "Natural Resources KSG" under the Position Papers tab in the library.
IRC 7873 exempts from federal taxation (i.e., income, employment, and self-employment) any income derived by a member of an Indian tribe or a qualified Indian entity from a fishing rights-related activity of that member's or entity's tribe.
The fishing rights must be guaranteed to a tribe by a treaty, statute, or executive order secured as of March 17, 1988. Any member of a tribe guaranteed a right to fish for subsistence or commercial purposes by treaty, executive order, or statute may be eligible for the exclusion.
A fishing rights-related activity is any activity directly related to harvesting, processing, or transporting fish harvested in the exercise of a treaty fishing right; or to selling such fish but only if all of such harvesting was performed by members of such tribe. This includes administrative, judicial, and enforcement activities. See Exhibit 4.88.1-6, Tax Audit Guidelines for Internal Revenue Examiners - Indian Fishing Rights--IRC 7873.
Frequently Asked Questions (FAQ) regarding Fishing Rights-Related Activities are located at http://www.irs.gov/Government-Entities/Indian-Tribal-Governments/FAQs-for-Indian-Tribal-Governments-regarding-IRC-Section-7873-(Fishing-Rights)/.
Abatement requests on Form 3870, Request For Adjustment, that pertain to "fishing rights" should be sent directly to:
Ogden Submission Processing Campus
1973 North Rulon White Blvd.
M/S 6552, BMF Adjustments
Ogden, Utah 84404
The following information is required by the Ogden Campus to process fishing rights claims:
Signed statement from the employer, indicating they will not repay the over-collected amount to the employee, nor file a claim for a refund of the over-collected amount
Employer Identification Number (EIN) and name of employer
Copies of the Form(s) W-2 involved
Certification of tribal membership, obtained from either the tribal council or the Bureau of Indian Affairs (a photocopy of tribal membership is acceptable)
Certification of treaty fishing rights-related employment
If any one or more of the above items is omitted from the claim, the claim will be returned to the taxpayer, requesting the missing information.
ITG specialists have specialized training in the administration of tax law and protocols unique to Indian tribes. ITG has an Abuse Detection and Prevention Team (ADAPT) of specialists for fraud in Indian Country (including tribes, its members and officials, and third parties dealing with tribes).
To ensure proper detection and prevention of fraud in Indian tribal government entities, and to ensure consistency within the Service, ITG will coordinate resources with the National Fraud Coordinator, located within SB/SE.
Refer to IRM 25.1, Fraud Handbook, for additional procedures.
Refer to IRM 25.1.9, Fraud Handbook, Tax Exempt/Government Entities, and IRM 220.127.116.11, Fraud in Indian Tribal Governments (ITG) for additional procedures.
Refer to IRM 25.1.2, Recognizing and Developing Fraud, provides guidance recognizing signs of fraud and the development process used to prove fraud.
The Director, ITG, has designated an ITG Fraud Coordinator (FC) and ITG Fraud Suspense Coordinator in the Abuse Detection and Prevention Team (ADAPT) group. They have been specifically trained in fraud and facilitate the development of cases, and assist with communications between operating functions.
The ITG FC, in conjunction with the SB/SE Fraud Technical Advisors (FTA), will provide guidance to ITG group managers and specialists on the development of fraud cases.
As soon as a specialist discovers indicators of fraud, they should discuss the issue with their group manager. Refer to IRM 18.104.22.168, Indicators of Fraud and IRM 22.214.171.124, Investigative Techniques.
If the group manager concurs that the indicators of fraud are present, the specialist will contact the ITG FC to discuss the indications of fraud.
The FC and an ADAPT group manager will determine if the case should be referred to ADAPT or continue to be worked by the specialist.
The ITG FC will contact the SB/SE FTA in the appropriate location. If the SB/SE FTA agrees, the ITG FC will set up a conference call or meeting with the specialist, group manager and SB/SE FTA to discuss the case. If all parties agree that the case should be developed for fraud, the specialist and ITG FC will complete Form 11661, Fraud Development Recommendation -- Examination, and forward it to the ITG FC for review.
The ITG FC will forward the Form 11661 to the SB/SE FTA for their signature. The ITG FC, SB/SE FTA and the specialist will jointly prepare a plan of action.
Upon receipt of a signed Form 11661, the specialist will update the case to Status 17 (fraud development) through RCCMS on AIMS (check the update AIMS box), and proceed with the plan of action.
The specialist should obtain a "WebETS naming convention code" from the ITG FC to track WebETS time.
During the fraud development phase of the examination the specialist should work closely with the ITG FC and SB/SE FTA as additional information/facts are developed. The specialist, the ITG FC and the SB/SE FTA will jointly determine when/if enough information has been developed to make a criminal referral to Criminal Investigation (CI). Likewise, the specialist, the ITG FC, and the SB/SE FTA will jointly determine if and/or when additional facts developed do not warrant a criminal referral. If a criminal referral is not made the case should be updated through RCCMS on AIMS (check update AIMS box) to Status 12.
Always refer to IRM 25.1, Fraud Handbook, for additional procedures.
Keep the ITG FC and SB/SE FTA advised as new facts develop.
The specialist will complete the development of the case, including the recommendation regarding the assertion of the civil fraud penalty. The ITG FC and/or the SB/SE FTA will assist with the write-up. The case will remain in status 17 on AIMS during this process.
The ITG specialist should forward the case to TE/GE District Counsel for review of the civil fraud penalty prior to issuance of a statutory notice of deficiency or assessment of the penalty in an assessable case.
Always refer to IRM 25.1, Fraud Handbook, for additional procedures.
Keep the ITG FC and SB/SE FTA advised as new facts develop.
If the specialist, the ITG FC and the SB/SE FTA agree that affirmative acts (actions taken by the taxpayer that establish criminal intent) have been established, and criminal criteria (criteria used by CI for selecting a case for criminal investigation) are present, the specialist will suspend all examination activity and refer the case to CI. The referral will be made via Form 2797, Referral Report of Potential Criminal Fraud Cases. The ITG FC and/or SB/SE FTA will assist in the preparation of Form 2797.
The completed Form 2797 will be routed through the group manager and ITG FC for concurrence. The ITG FC will route the Form 2797 to the SB/SE FTA, who will forward the approved Form 2797 to the appropriate CI field office for consideration.
The CI Special Agent assigned to evaluate the criminal fraud referral will arrange an initial meeting to discuss the merits of the case within ten (10) working days of receipt of the referral. The specialist, group manager, the ITG FC, SB/SE FTA, and the Supervisory Special Agent will be invited to attend.
CI will conduct a disposition conference within 30 working days of receipt of the criminal fraud referral to discuss acceptance or denial of the referral. CI can request (and be granted) an extension of time. If the criminal fraud referral is accepted, CI may make a request for a cooperating agent. If the referring agent is assigned as the cooperating agent this will be documented on Form 2797. Alternatively, Form 6544, Request for Cooperating Agent, may also be used.
A copy of the executed Form 11661 and Form 2797, which are completed in the process and returned to the specialist, should remain in the case file. The ITG FC will also keep a copy of the form. In addition, forms submitted on all fraud cases to the ITG FC will be maintained as documented involvement.
Criminal Investigation (CI) has complete jurisdiction over grand jury cases.
See IRM 25.1.5, Fraud Handbook - Grand Jury Investigations, for a detailed discussion on grand jury procedures, and see IRM 126.96.36.199, Fraud in Indian Tribal Governments.
Once the Department of Justice (DOJ) approves a request for a grand jury, CI notifies the ADAPT group manager, ITG group manager or the originating ITG specialist that a taxpayer is under grand jury investigation.
The ITG specialist must suspend all civil actions, terminate the exam and close the case to grand jury civil fraud suspense.
Refer to IRM 25.1.5, Fraud Handbook - Grand Jury Investigations, for detailed instructions of what the case should contain when it is closed. The ITG Fraud Suspense Coordinator has prepared check sheets that may be utilized to ensure all required elements have been considered and are included.
Statute protection is the responsibility of the specialist prior to the time the case is closed. The specialist will ensure a minimum of one year remains on the statute of limitations prior to closing cases to suspense.
The ITG Fraud Suspense Coordinator will review the case within 45 days. Once the case is reviewed and accepted into Fraud Suspense, update the case on AIMS through RCCMS to Status Code 36, Grand Jury Fraud Suspense.
The ITG Fraud Suspense Coordinator’s review will include a full analysis of the statute of limitations, specialist’s development of fraud, sufficiency of workpapers prepared to support conclusions reached to date, and other compliance with IRM 25.1.5, Fraud Handbook - Grand Jury Investigations.
The ITG Fraud Suspense Coordinator monitors the statute while it is in suspense. This includes preparing Form 10498-A, Joint Investigations Intent to Commence Civil Actions, or Form 10498-B, Joint Investigations Intent to Solicit Consent to Extend Statute, as necessary, and securing the Director, ITG, and CI’s consent to rely on applicable alpha statutes (i.e., NN, OO, CC).
Once CI has concluded its investigation (prosecution, plea or discontinuance) it will issue Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only). Upon receipt of Form 13308 (and not before), the ITG Fraud Suspense Coordinator will prepare the case to return to a group for civil settlement and closure.
The Fraud Suspense Coordinator will determine what statutes exist at the time Form 13308, Criminal Investigation Closing Report (Tax and Tax Related Only), is received.
Upon receipt, the group assigned the civil settlement of the case will also be responsible for the civil statutes.
ITG's role in the collection process involves education, outreach, assistance, facilitation and coordination. ITG personnel assist tribes in understanding pertinent collection policies and procedures. ITG personnel also facilitate resolution of collection matters by coordinating with other IRS employees and serving as a liaison with the tribe.
Every effort should be made to prevent collection problems through education and outreach. When collection problems occur, efforts should be made to resolve the issue at the earliest possible stage.
Examples of collection issues and procedures in which ITG personnel can provide information and assistance are:
Federal Tax Return Filing
Federal Tax Deposits
Interest and Penalties
Abatements and Adjustments
Trust Fund Recovery Penalties
Notice of Levy
Other Collection Procedures
IRM 20.1, Penalty Handbook, provides detailed criteria, guidelines and procedures for both assessing and abating penalties.
In IRM 188.8.131.52, Criteria for Relief From Penalties, four general categories of penalty relief are discussed:
Administrative waivers, and
Correction of IRS errors
Other criteria for relief from penalties are also discussed, such as undue hardship, advice from a tax advisor, fire, casualty, and natural disaster.
Reasonable cause is generally granted when ordinary business care and prudence is exercised by the taxpayer in determining his or her tax obligations.
Reasonable cause, as well as other relief provisions, is to be administered in a consistent manner.
ITG personnel should consider the definitions of "ordinary" and "prudence" as it pertains to the specific tribal taxpayer. Each case is to be judged individually based on the facts and circumstances at hand.
For a further discussion of reasonable cause and the review of information to determine if ordinary business care and prudence were exercised, see IRM 184.108.40.206, Criteria for Relief From Penalties.
Requests for penalty relief may be received in conjunction with:
An outreach visit
A compliance review
In the course of, or after an examination
With the filing of a return
In the form of a telephonic inquiry from an Indian tribal entity
When a telephonic inquiry is received, ITG personnel may advise the taxpayer as to the potential of a written relief request, subject to a determination by the appropriate IRS employee.
Each request is to be evaluated on its own merit. The method to review the request and examples where relief may and may not be appropriate are discussed in IRM 220.127.116.11.5, Requesting Penalty Relief.
IRM 18.104.22.168, Penalty and Interest Abatements, covers the use of Form 3870, Request for Adjustment, for processing penalty abatements. Penalty abatements/adjustments are to be approved by the ITG group manager.
Refer to the ITG Specialist’ Adjustment Desk Guide Form 3870 located on the TE/GE Intranet at http://tege.web.irs.gov/article.asp?title=6_Indian-Tribal-Governments&path=/my-job/6_Indian-Tribal-GovernmentsCase Processing tab. Find "Form 3870 Adjustments Guide ITG Specialists" under the Other - File tab in the library.
Approved penalty adjustments of less than $1 million are input by the ITG designated CPM analyst.
Methods of appealing penalties are discussed IRM 22.214.171.124, Methods of Appealing Penalties.
Procedures for abatement of interest can be found in IRM 20.2.7, Abatement and Suspension of Debit Interest. Reasonable cause is not a basis for abating interest. Interest-free adjustments are discussed under Employment Taxes in this ITG manual. See IRM 126.96.36.199, ITG Employment Tax Related Issues, and IRM 188.8.131.52, Interest-Free Adjustments.
IRC 6404(a) allows abatement of interest that is:
Excessive in amount
Assessed after the expiration of the period of limitations, or
Erroneously or illegally assessed
IRC 7508A provides for interest abatement in Presidentially declared disaster areas.
IRC 6404(e)(2) provides for interest abatement on any erroneous refund under IRC 6602, with certain qualifications.
Delegation authority varies depending on code section and dollar amount of the request. See IRM 184.108.40.206.2, IRC 6404(e)(1) Delegation of Authority. It addresses actions to take, referencing when the interest abatement issue is raised by the taxpayer and under what function (i.e., compliance, appeals, criminal investigation, etc.).
Interest computation, transaction codes, blocking series, and periods to include in calculations are discussed in IRM 220.127.116.11, Interest Calculation.
Provisions for advising the taxpayer of the abatement determination are included in IRM 18.104.22.168, Abatement and Suspension of Debit Interest Overview.
Procedures for processing requests are discussed in IRM 22.214.171.124, Request for Interest Abatement, IRM 126.96.36.199.1, Closing Other Interest Abatement Requests, and IRM 188.8.131.52.2, Closing IRC 6404(e)(1) Interest Abatement Requests.
Use of Form 3870, Request for Abatement, and other forms for processing abatements are found in IRM 184.108.40.206.1(2), Types of Reconsiderations-Audits, Automated Underreporter (AUR), Substitute For Return (SFR) and Automated Substitute For Return (ASFR), and IRM 220.127.116.11, Employment Tax Refund or Abatement Claims, Special Procedures for Adjusted Returns.
Appeals rights are discussed in IRM 18.104.22.168, Appeal Rights.
Disputes on the amount of interest, based on interpretation of law or as to the method used to compute, are to be resolved at the immediate supervisory level. See IRM 22.214.171.124, Disputes as to Interest Amount.
Form 3870, Request For Abatement, adjustments are to be approved by the ITG group manager.
Approved adjustment documents will be forwarded by the ITG group manager to CPM to post the adjustments to IDRS.
A copy of the Form 3870 and all supporting documentation will be maintained by each ITG specialist to monitor for final and complete posting of the transaction. Upon verification of the completed transaction (final not pending), the ITG specialist will shred all the retained copies of the material.
Sometimes an account receivable cannot be collected in full or there is a dispute on what is owed. The authority to compromise tax is found in IRC 7122 and Regulation section 301.7122-1.
Offers-in-Compromise (Offers) can be based on:
Doubt as to collectibility
Doubt as to liability
Effective tax administration (additional Basis for Compromise)
See IRM 5.8.11, Effective Tax Administration.
Policy Statement P-5-100 presents the Service’s position on using offers. In short, the Service will accept an offer when it is unlikely that the liability can be collected in full and when the amount offered reasonably reflects collection potential. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the government. See IRM 126.96.36.199.3, Policy.
SB/SE Collection is responsible for:
Offers based on doubt as to collectibility
Offers to compromise Trust Fund Recovery Penalty
Offers on personal liability for excise tax, and
Offers based on effective tax administration unless the original assessment determination was made by Appeals.
Assignment of offers based on both doubt as to liability and doubt as to collectibility will be assigned initially to the SB/SE Collection function for a collectibility determination.
SB/SE Examination is responsible for offers based solely on doubt as to liability, except the liabilities described above. See IRM 188.8.131.52.3, Offer in Comprise - Overview, Collection Function.
Examples of doubt as to liability offers that may be assigned to ITG specialists include:
Income Tax Withholding
Excise Tax pertaining to Gaming
IRM 5.7, Trust Fund Compliance, contains several sections concerning the Trust Fund Recovery Penalty (TFRP). The TFRP is based on IRC 6672.
Employment tax examinations in which full rates are used will necessitate a TFRP determination, with consideration to the dollar criterion. See IRM 184.108.40.206, Consideration for Employment Tax Examination (ETE) Assessment.
Also, a claim may be submitted by a tribal entity for consideration of an abatement of a TFRP assessment. "Responsibility" and "willfulness" (defined below) are the key elements that need to be established in order to assess and sustain the TFRP.
As discussed below, the extent of SB/SE involvement in the TFRP process will be determined on a case-by-case basis.
IRM 220.127.116.11.1, Establishing Responsibility, and IRM 18.104.22.168.2, Establishing Willfulness, discuss responsibility and willfulness. The criteria to use in determining who is a responsible person and definitions of willful and willfulness are provided. Computing the statutory assessment period and extending the statutory assessment date are covered in IRM 22.214.171.124, Statutory Assessment Period, and IRM 126.96.36.199, Extension of Statutory Assessment Period.
Factors to consider in determining whether a person is "responsible" are described. These factors involve whether a person has the status, duty and authority to ensure that the trust fund taxes are paid.
The definitions of "willful" and "willfulness" which are provided are as follows:
Willful -- Intentional, deliberate, voluntary, reckless, knowing, as opposed to accidental.
Willfulness -- To show willfulness, the government generally must demonstrate that a responsible person was aware or should have been aware of the outstanding taxes and either intentionally disregarded the law or was plainly indifferent to its requirements.
IRM 5.7.4, Investigation and Recommendation of the TFRP, covers the investigation of all potential responsible persons and includes securing Form 4180, Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes. Also covered are securing additional information when necessary and considerations in the decision to pursue the investigation of the trust fund liability.
The ITG specialist, with a Revenue Officer, can secure an installment agreement on a business trust fund case. Considerations and procedures for installment agreements are discussed in IRM 5.7.7, Payment Application and Refund Claims,188.8.131.52, In-Business Trust Fund Installment Agreements Requiring Financial Analysis and Determining Liability to Pay, and IRM 184.108.40.206, Payments on Trust Fund Accounts During Approved In-Business Trust Fund Installment Agreements.
Alternatives to the TFRP, such as transferee assessments, suits, and payments on behalf of the corporation are discussed in IRM 220.127.116.11.2, Additional Actions to Consider.
If an ITG specialist, in consultation with his/her manager, determines that a Trust Fund Recovery Penalty (TFRP) may be applicable, they will refer the matter to a revenue officer for resolution.
ITG will assist the revenue officer to make a determination (appropriate initial information and facts to assist making a decision). See IRM 5.7.6, Trust Fund Penalty Assessment, and IRM 18.104.22.168, Calculating the TFRP.
When SB/SE Collection considers use of certain procedures (e.g., federal tax liens, notice of levy, and seizure and sale), the circumstances will be discussed with an ITG specialist and/or an ITG group manager. The ITG group manager will determine in which instances the ITG Director's involvement is appropriate.
Tribal contact with ITG personnel may occur concerning the use of the procedures referenced above. ITG personnel may discuss the situation with the tribe, SB/SE Collection and/or Submission Processing Campus.
In certain unusual and/or exigent circumstances, see IRM 5.10, 5.11, Property Offered For Sale by More Than One Method, and IRM 5.12, Federal Tax Liens. ITG personnel may need to use the above referenced procedures. If the procedures after consultation with the ITG group manager are determined to be necessary, revenue officer involvement is required.
Tribes, tribal enterprises, or tribal members may request ITG assistance in resolving SB/SE Collection, Submission Processing Campus or other matters. ITG personnel may contact Collection, Submission Processing Campus and other IRS personnel to determine the status of a situation as appropriate and serve as a liaison in the resolution process. See IRM 22.214.171.124.2, Interest Abatement and Adjustments, for criteria and procedures relating to penalties and interest. See IRM 126.96.36.199.4, Abatement Procedures, for a discussion of processing IRC 3402(d) adjustments.
In some instances coordination with the Submission Processing Campus is needed. For example:
Penalty and interest abatements
Payment and credit transfers
Changes - IRM 4.4.11 covers entity changes that can be accomplished by using the Form 2363, Master File Entity Change. These include, but are not limited to, name, address, and marital status changes. See IRM Exhibit 4.4.11-1 to complete Form 2363.
Unpostables - Chapter 8 of ADP and IDRS Information, Document 6209 (for internal use only), gives explanations of unpostable codes. If a Submission Processing Campus employee controls the account on IDRS, it is helpful to ask for this person's assistance.
Establishment - When ITG personnel have a customer who needs to establish an entity with the Service by securing an Employer Identification Number (EIN), the Form SS-4, Application for Employer Identification Number, is used. The Submission Processing Campus can be telephoned to initially secure the EIN with a follow up by the mailing or faxing of the SS-4. The SS-4 instructions provide specific information on the application process. Direct contact information for the applicable Entity Control Unit is included.
IRM 188.8.131.52, Payment Tracers, is the process used to locate a missing or misapplied payment made by a taxpayer. This IRM Section provides procedures for locating missing payments and deciding who works payment tracer cases needing various levels of research.
While ITG personnel may research misapplied payments and/or prepare/process Form 4159, Payment Tracer Request, if the case is assigned to a revenue officer (RO), coordination with the RO is required. If not assigned to an RO, assistance from Collection in the IDRS research and Form 4159 preparation may be necessary.
Coordination with the Submission Processing Campus (SPC) may be needed if the SPC controls the account on IDRS. This coordination may include a telephonic resolution. Contact with the SPC prior to processing the Form 4159 is recommended. This contact will enable ITG personnel to determine SPC employee assignment and direct communication with that employee.
IRM 21.5.8 contains procedures for transferring credits once payment tracer research has located any missing payments/credits.
The mailing address for the Submission Processing Campus location that processes ITG account adjustments, payment tracers and credit transfers is:
Internal Revenue Service
1973 N. Rulon White Blvd.
Mail Stop 6552
Ogden, UT 84404-7843
The IRS Taxpayer Advocate program is designed to alleviate taxpayer hardships that arise from systemic problems or the application of the Internal Revenue Code. IRM 13.1, Taxpayer Advocate Case Procedures, provides pertinent information. Pub 1546, Taxpayer Advocate Service—Your Voice at the IRS, provides contact and additional information.
If during a customer contact, the specialist cannot resolve the issue and determines that either:
There may be a hardship situation as defined in IRM 13.1.7, Taxpayer Advocate Service (TAS) Case Criteria,
The customer insists on being referred to the Taxpayer Advocate Service (TAS)
The contact meets TAS criteria (provided in IRM 13.1.7)
the specialist must prepare or assist the taxpayer with completion of the Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order (ATAO)). The specialist ensures the Form 911 is received timely by the Local Taxpayer Advocate's office, and then monitors the status with TAS until the issue is resolved.
Refer to the Service Level Agreement between the National Taxpayer Advocate and the Commissioner, Tax Exempt and Government Entities, for procedural guidance located at http://tas.web.irs.gov/policy/sla/default.aspx/.
Technical questions arising in ITG tax cases involving the interpretation and application of tax laws, regulations, or other precedents published by the ITG Headquarters to a specific set of facts may involve a request for a Private Letter Ruling (PLR) (by the taxpayer) or a request for a technical advice (TAM) (by the ITG specialist). See Rev. Proc. 2015-1 and Rev. Proc. 2015-2, (revised annually) for procedures for requesting private letter rulings and technical advice, etc.
Upon written request, the Service issues interpretations to taxpayers or their authorized representatives to advise them of the proper application to specific situations of the provisions of the Internal Revenue laws, related statutes and regulations, or revenue rulings and other precedents.
Technical advice is furnished as a means of assisting Service personnel in closing cases and establishing and maintaining uniformity in the treatment of issues.
TE/GE Counsel is responsible for providing interpretations for ITG and its customers. When releasing letter rulings, technical advice, information letters, closing agreements, and determination letters that result from an Indian tribal or ITG request, Counsel provides an unredacted copy of the document to the Director, ITG as part of its normal distribution.
Chief Counsel Directives Manual 33.2, Technical Advice and Technical Expedited Advice, includes considerations of the timing and manner of processing letter rulings, including situations involving pending revenue rulings. Definitions of these interpretations can be found in the annual revenue procedures mentioned above, as can situations in which the interpretations will and will not be issued.
Revocation and modification of the interpretations, the processing and withdrawal of requests, and requirements for submission of requests are covered, with reference to the applicable revenue procedure section.
When a taxpayer is not under examination, but discusses an issue with an ITG specialist, the ITG specialist may consult with TE/GE District Counsel in providing information to the taxpayer. The ITG specialist may also discuss with the taxpayer the use of a PLR request to receive further consideration of the issue from Chief Counsel.
When a taxpayer decides to proceed with a PLR, the ITG specialist may work with the taxpayer to facilitate the submission of the request. The ITG specialist may provide the Revenue Procedure and may assist in processing the PLR request through Compliance and Program Management.
Chief Council Directives Manual 33.2.2 provides standards for requesting and the effect of technical advice, as well as procedures for requests and issuing advice. Revenue Procedure 92-2, 1992-1 I.R.B. (revised annually) is cited. The Rev. Proc. is updated annually as the second revenue procedure of the year, but may be modified or amplified during the year. For example, Rev. Proc. 2015-2 was dated January 2, 2015. Specifics on the preparation of the TAM request are included in the revenue procedure.
As discussed in IRM 184.108.40.206, field offices are encouraged to request technical advice at the earliest possible stage of the proceedings on any technical or procedural question that cannot be resolved on the basis of law, regulations, or a clearly applicable revenue ruling or other precedent. Technical advice should be requested in cases in which any of the following conditions exist:
The law and regulations are not clear as to their application to the issue being considered and there is no published precedent for determining the proper treatment of the issue;
There is reason to believe that a lack of uniformity in the disposition of the issue exists;
A doubtful or contentious issue is involved in a number of cases;
The issue is so unusual or complex as to warrant TAM consideration; or
The Director or the Appeals Office believes that securing technical advice would be in the best interest of the Service.
As discussed in IRM 33.2.1, a technical advice memorandum represents an expression of the views of the Service as to the application of tax law, tax treaties, regulations, revenue rulings, or other published precedents to the facts of a specific case. Except in rare or unusual circumstances, a holding in a technical advice memorandum that is favorable to the taxpayer is applied retroactively. Also as discussed in Rev. Proc. 2015-2, section 15.02, an adverse holding is generally applied retroactively. Provisions for modification and revocation of holdings are also covered in IRM 33.1.2.
Specifics on procedures for requesting and processing technical advice are covered in IRM 220.127.116.11.3.2.
The ITG specialist, usually in consultation with TE/GE District Counsel will initially develop the issue(s) involved. This initial development is to be a synopsis and will include the issue(s), the known facts and circumstances, existing relevant law and regulations, and any lack of clarity in the law impacting the determination for proper treatment in the subject case. Prior to proceeding further, Compliance and Program Management (CPM) will be consulted. CPM will review the synopsis and provide a response to the ITG specialist. See the ITG CPM IRM Section on TAMs.
If CPM and the ITG specialist agree to proceed, the specialist will further develop the TAM request. This may involve Information Document Request(s) and meetings with the taxpayer/representative. The specialist should always consider reaching an agreement to resolve the issue(s) during this process. In preparing the TAM request, the specialist is to follow the Rev. Proc. and may consult with TE/GE District Counsel during this preparation. The TAM request draft is to be shared with the taxpayer/representative in an attempt to reach agreement on the wording of the sections covering the issue(s), the facts, the law, and the Taxpayer's Position. The specialist should transmit the completed TAM request, along with a completed ITG transmittal form, Form 13842, through CPM for the approval of the Director, ITG. Approved TAMs will be forwarded to Chief Counsel, Tax Exempt and Government Entities.
CPM will send a reminder to the specialist, upon receipt of a request for TE/GE District Counsel input, to update the RCCMS and AIMS status to 38.
The CPM staff will track the progress of TAMs after they have been received by TE/GE District Counsel. Chief Counsel will return the completed TAM to CPM for transmittal to the originator. TE/GE District Counsel provides an unredacted copy of the document to the Director, ITG as part of its normal distribution.
All issues regarding the performance of professional tax practitioners representing a tribe are to be referred to the IRS Office of Professional Responsibility of the Deputy Commissioner for Services and Enforcement.
|GAME||FORM 1099 Required||FORM W-2G Proceeds Not Reduced by Wager||FORM W-2G Proceeds Reduced by Wager||FORM W-2G Withholding Required |
See Note 1
|FORM 1042-S Foreign Payouts Verifiable Payments |
See Note 2
|Slot win |
(slot tournaments with entry fee)
|Bingo win |
(Bingo tournaments with entry fee)
|Keno win |
(IRC 4421(2)(A) applicable)
See Note (3) and (5).
|Keno win |
(IRC 4421(2)(A) not applicable)
See Note (4) and (5).
|Sweepstakes, lotteries, wagering pools |
Proceeds < 300 times amount wagered.
|Sweepstakes, lotteries, wagering pools. |
Withholding required regardless of payout ratio.
Wagering transactions with proceeds < 300 times the amount wagered.
|$ 600|| |
no entry fee
with entry fee
See Note (6) and (7).
|Pari-mutuel, including horse racing, dog racing and Jai Alai |
With proceeds < 300 times amount wagered.
|$ 600|| |
|Prizes received with no wager (Drawings, Promotions, Bad Beat Poker win, etc.)||$ 600||Yes|
|Sports event or contest |
(Only reportable if proceeds exceed 300 times the wager.)
|$ 600|| |
|Pull-tabs||$ 600|| |
|1. Winnings proceeds must exceed $5,000 after reduction of the amount wagered.|
|2. Payments made to non-resident aliens are subject to withholding and reporting on Form 1042-S (Proceeds from traditional blackjack, craps, roulette, baccarat, or big wheel 6 are exempt from withholding and reporting.)|
|3. Wagers placed, winners determined and disbursement of prizes made in the presence of all participants.|
|4. Odds greater than 300 to 1 and either advance wagers or winner not required to be present results in excise tax.|
|5. Multi-race and Multi-way Keno games must be aggregated and reported as a single transaction as indicated above.|
|6. See Rev. Proc. 2007-57 for poker tournament filing and withholding requirements.|
|7. For tournaments other than poker tournaments, entry fees must be analyzed to see if the entry fee is a wager, and if the proceeds exceed the wager by 300 times or more, or if the tournament is a wagering pool.|
Treas. Reg. 7.6041-1 provides that Form W-2G shall be issued for slot machine and bingo wins of $1,200 or greater, and for keno wins of $1,500 or greater. For keno, the winnings from one game shall be reduced by the amount wagered in one game.
|Rev. Rul. 57-1, 1957-1 C.B. 15||Strike benefits paid by union to needy striking employees not excludable from income; general welfare exception rulings distinguished.|
|Rev. Rul. 57-102, 1957-1 C.B. 26||General welfare exception applies to state's payments to blind persons.|
|Rev. Rul. 63-136, 1963-2 C.B. 19||Benefits paid to persons undergoing training excluded under general welfare exception where no services required.|
|Rev. Rul. 65-139, 1965-1 C.B. 31, clarified by Rev. Rul. 66-240, 1966-2 C.B. 19||Where state hires unemployed persons to perform socially beneficial work and pays reasonable compensation for work performed, employment relationship arises and payments are not general welfare payments.|
|Rev. Rul. 66-240, 1966-2 C.B. 19||Basis for conclusion in Rev. Rul. 65-139 is that enrollees receive wages for services performed, even though services may embody some training.|
|Rev. Rul. 66-285, 1966-2 C.B. 455||Amounts paid to students under college work- study program are wages for services performed, not excludable under general welfare exception.|
|Rev. Rul. 67-144, 1967-1 C.B. 12, modified by Rev. Rul. 71-425, 1971-2 C.B. 76||Bifurcating amounts paid to needy persons into noncompensatory general welfare payments -- amounts in excess of that directly attributable to services performed -- and compensation for services performed. See Rev. Rul. 71-425 for modification.|
|Rev. Rul. 68-38, 1968-1 C.B. 446||Payments to participants in tribal program to train enrollees in construction skills to enhance employability are excludable under general welfare doctrine; main purpose is training.|
|Rev. Rul. 68-133, 1968-1 C.B. 136||Payments to "job service corpsmen" to aid in their efforts to acquire new job skills are general welfare payments; training.|
|Rev. Rul. 70-217, 1970-1 C.B. 13, superseding I.T. 3447, 1941-1 C.B. 191||Social security benefits excludable under general welfare exception.|
|Rev. Rul. 71-425, 1971-2 C.B. 76, modifying Rev. Rul. 67-144||Holding that on facts, payments to needy persons to participate in work experience programs to help them develop work habits to enhance employability are all excluded under general welfare exception. Note: concludes exclusion appropriate when payments are made in lieu of and not in excess of subsistence payments; if in excess of that amount, all payments are taxable except to extent the amount received exceeds the fair market value of the services performed under the program.|
|Rev. Rul. 72-340, 1972-2 C.B. 31||Stipend paid to encourage probationers to participate in job counseling/training/work experience program are general welfare payments; training.|
|Rev. Rul. 73-87, 1973-1 C.B. 39||Payments to needy families are excludable as general welfare payments where no services were required to be performed; university experiment encouraging work.|
|Rev. Rul. 74-74, 1974-1 C.B. 18||Payments by state to crime victims based on need are not income under general welfare exception.|
|Rev. Rul. 74-153, 1974-1 C.B. 20||State payments to needy adoptive parents to assist in raising adopted children are excludable under general welfare exception.|
|Rev. Rul. 74-205, 1974-2 C.B. 20||Payments to needy families whose homes have been taken by government action are excludable as general welfare payments where payments are designed to assist needy families in acquiring a decent home and suitable living conditions.|
|Rev. Rul. 74-413, 1974-2 C.B. 333||Wages paid by state to short-term employees hired to assist in disaster clean up are not excludible under general welfare exception despite needy status of hirees.|
|Rev. Rul. 75-32, 1975-1 C.B. 14||Amounts paid by USDOT for retraining discharged air traffic controllers is compensation to controllers because paid by USDOT in its capacity as employer with respect to past services.|
|Rev. Rul. 75-246, 1975-1 C.B. 24||Scenarios distinguish between amounts paid in connection with training -- excludable under general welfare exception -- and amounts paid in connection with services -- compensation.|
|Rev. Rul. 75-271, 1975-2 C.B. 23||Interest subsidies paid by HUD on behalf of needy families not income under general welfare exception.|
|Rev. Rul. 76-75, 1976-1 C.B. 14||Interest subsidy payments made by HUD on behalf of owners of low-income housing projects are income to project owners.|
|Rev. Rul. 76-131, 1976-1 C.B. 16||Bonuses paid by state to long-time residents not excludable as general welfare because not need based.|
|Rev. Rul. 76-144, 1976-1 C.B. 17||Disaster grants by states to needy individuals to pay for essential needs not income under general welfare doctrine.|
|Rev. Rul. 76-230, 1976-1 C.B. 19||Amounts paid by IRS under IRS Scholarship program not excludable under general welfare exception because relates to performance of services.|
|Rev. Rul. 76-373, 1976-2 C.B. 16||Relocation costs paid to families displaced by urban renewal project excluded under general welfare exception.|
|Rev. Rul. 76-395, 1976-2 C.B. 16||Home rehabilitation grants to needy families to correct substandard conditions are excludable as general welfare payments.|
|Rev. Rul. 77-77, 1977-1 C.B. 11||Payments to Indians to expand profit-making enterprises on or near reservations excludable under general welfare exception.|
|Rev. Rul. 78-46, 1978-1 C.B. 22||Forgiving repayment of interim survivor's benefit, paid by a governmental unit later found to be improperly paid not income under general welfare doctrine if forgiveness of the repayment is due to a showing of economic hardship.|
|Rev. Rul. 78-170, 1978-1 C.B. 24||Utility subsidy grants paid by state on behalf of needy residents not income under general welfare exception.|
|Rev. Rul. 82-106, 1982-1 C.B. 16||Relocation assistance payments made by landlord to evicted tenants, in accordance with local ordinance requiring flat payment, not excludable under general welfare exception.|
|Rev. Rul. 85-39, 1985-1 C.B. 21||Payments made by state of Alaska to residents regardless of need are not excluded from income under general welfare exception.|
|Rev. Rul. 98-19, 1998-1 C.B. 840||Payments made by city to residents moving from a flood-damaged residence to another residence are excluded from income under general welfare exception.|
|Rev. Rul. 99-44, 1999-2 C.B. 549||Interest earned by an Individual Development Account (IDA) project participant on funds deposited in a participant's personal account is includible in the participant's gross income; however, a participant may exclude parallel funds paid by a charity for a qualified expense as a gift under 102.|
|Notice 99-3, 1999-1 C.B. 271||Federal Temporary Assistance for Needy Families (TANF) payments will be excluded from income under general welfare exception if: |
(1) the only payments received by individuals with respect to a work activity are received directly from the state or local welfare agency;
(2) individual eligibility is based on need, and the only payments relating to a work activity are funded entirely under a TANF program; and
(3) the size of payments is determined by the applicable welfare law, and the number of hours allowed for work activity is limited by the size of the individual's payment divided by the higher of the federal or state minimum wage.
|Notice 2002-76, 2002-2 C.B. 917||Payments by governmental unit to help individuals pay for extra reasonable and necessary personal, living, and family expenses they incur as a result of the continuing effects of a Presidentially declared disaster under IRC 1033 are excluded from income under the general welfare exclusion and IRC 139. Payments in excess of such amounts and made regardless of any other needs-based criterion must be included in income.|
|Rev. Rul. 2003-12, 2003-1 C.B. 285, modifying Rev. Rul 131, 1953-2 C.B. 112.||Payments received by individuals to help pay for unreimbursed reasonable and necessary medical, temporary housing, and transportation expenses they incur as a result of a Presidentially declared disaster under IRC 1033 are excluded from income under (i) the general welfare exclusion and IRC 139 if received from a governmental unit, (ii) IRC 102 as a gift if received from a charity, or (iii) IRC 139 if received from an employer.|
|Notice 2003-18, 2003-1 C.B. 699||Payments by governmental unit to aid businesses affected by a disaster do not qualify under the general welfare exclusion because the exclusion generally is limited to individuals who receive governmental payments to help them with their individual needs (e.g., housing, education, and basic sustenance expenses). In addition, the payments do not qualify for exclusion from income under IRC 139.|
|Rev. Rul. 2005-46, 2005-2 C.B. 120||Payments by a governmental unit to reimburse real and other tangible property losses incurred by businesses as a result of a disaster are not excluded from gross income under general welfare or IRC 139.|
|Notice 2013-1||Per capita payments made from the proceeds of an agreement between the United States and an Indian tribe settling the tribe’s claims that the United States mismanaged monetary assets and natural resources held in trust for the benefit of the tribe by the Secretary of the Interior are excluded from the gross income of the members of the tribe receiving the per capita payments. Per capita payments that exceed the amount of the Tribal Trust case settlement proceeds and that are made from an Indian tribe’s private bank account in which the tribe has deposited the settlement proceeds are included in the gross income of the members of the tribe receiving the per capita payment under IRC 61.|
|Notice 2013-55||Supersedes the Appendix to Notice 2013-1 and provides an updated Appendix to include the additional tribes that settled tribal trust cases since the publication of Notice 2013-1.|
|Notice 2014-17||Per capita distributions to members of Indian tribes made from funds held in trust by the Secretary of the Interior (Trust Account) are excluded from the gross income of the members of the tribe receiving the per capita distributions. Only applies to per capita distributions out of a tribal Trust Account, not from individual Indian trust accounts. Distributions may constitute gross income if based on facts and circumstances, the distributions are mischaracterized compensation, mischaracterized distributions of business profits, or mischaracterized gaming revenues.|
|Rev. Proc. 2014-35, 2014-26 IRB 1110||This revenue procedure describes principles of the general welfare exclusion and provides safe harbors under which the Service will conclusively presume that the individual need requirement of the general welfare exclusion is met for benefits provided under Indian tribal governmental programs described in the revenue procedure, and programs described in section 5.02 of this revenue procedure. Also, the Service will not assert that benefits provided under programs described in section 5.03 of this revenue procedure represent compensation for services.|
|Notice 2015-34||The enactment of the Tribal General Welfare Exclusion Act of 2014, Pub. L. No. 113-168, 128 Stat. 1883 (2014) and its codification of IRC 139E, has no effect on Rev. Proc. 2014-35, 2014-26 I.R.B. 1110. Therefore, taxpayers may continue to rely on Rev. Proc. 2014-35.|
|United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975)||In non-tax case, Court states, "The low rent derives from the financial subsidies provided by the State of New York. This benefit cannot be liquidated into cash; nor does it result from the managerial efforts of others. In a real sense, it no more embodies the attributes of income or profits than do welfare benefits, food stamps, or other governmental subsidies."|
|Bannon v. Commissioner, 99 T.C. 59 (1992)||State payments to incompetent's mother in her capacity as care-giver are taxable as income and may not be excluded under general welfare exception; compensation for services performed.|
|Bailey v. Commissioner, 88 T.C. 1293 (1987)||Facade grant paid to building owner as part of urban renewal initiative was not need based and may not be excluded under general welfare exception.|
|Graff v. Commissioner, 74 T.C. 743 (1980), aff'd 673 F.2d 784 (5th Cir. 1982)||HUD's payment of interest payments on behalf of low income housing project owner are includible in owner's income; not excludable under general welfare exception.|
|TIP RATE DETERMINATION AGREEMENT (TRDA)||GAMING INDUSTRY COMPLIANCE AGREEMENT (GITCA)|
|Term of Agreement||As stated in agreement||3 years or less -- May be renewed for additional terms of 3 years|
|Effective Date||First day of the next calendar quarter following signature by both parties||On date agreed within the body of the GITCA|
|Reopening of Rates||On application by casino by 9/30 of each year||Mutual agreement of both parties at any time during the term of the agreement|
|Threshold to Maintain Agreement||75% of eligible employees must participate to guarantee TRDA maintained||50% of eligible employees must participate to guarantee GITCA maintained|
|IRC 3121(q) Relief||During the period the TRDA is in effect no IRC 3121 (q) assessment against the employer except for employee tips reported on Forms 4137 and 885-T.||For any taxable year the GITCA is in effect no IRC 3121(q) assessment on tip income of the employees except for audit results on non participating employees and employee tip income reported on F-4137|
|Form 8027 Filing||Required for all food and beverage operations and employees||Not required for food and beverage operation and employees if records are given to the Service that includes all relevant data|
|Shift/Hour/Occupational Category Reporting Requirements||Required annually on non-participating employees||Annual reporting required on all tipped employees|
|Tip Rate Calculation /Methodology||By occupation and shift||By occupation and shift --housekeeping occupations cannot be included|
|Tip Audits of Participating Employees||No guarantee of retroactive relief||No retroactive audit unless the employee declined prior participation in a TRDA or GITCA|
|Termination of Agreement||At any time by the casino, or by IRS if less than 75% participation at the end of a calendar year, failure to comply with the agreement terms, or where an enforcement proceeding exists||By joint agreement of both parties, or by IRS if participation is less than 50%, the employer fails to attempt to raise participation to 75%, or the employer fails to comply with any material provision of the agreement|
|TIP RATE DETERMINATION AGREEMENT|
|[Name of Employer]|
|Department of the Treasury-Internal Revenue Service|
|(Taxpayer-Employer's name, address, and identifying number) ("Employer" ) hereby agree to the following Tip Rate Determination Agreement ("Agreement" or "Gaming TRDA" ).|
|All employees who receive tips are required (1) to keep contemporaneous and accurate records of the tips received, (2) to report the tips received to their employer at least monthly, and (3) to report those tips on their federal income tax returns.|
|This document has been developed pursuant to the Market Segment Understanding (MSU) Program. The purpose of this document is to implement a program (1) to ensure maximum compliance by the employees of the Employer with those provisions of the Internal Revenue Code of 1986, as amended, relating to tip income; and (2) to avoid disputes under section 3121(q) of the Code. This program will minimize the burden on the Employer resulting from tip compliance programs of the Internal Revenue Service as well as reduce enforcement costs.|
|The parties therefore agree as follows:|
|A. "Service Representative" means the Internal Revenue Service employee or delegate authorized to execute or terminate this TRDA on behalf of the Internal Revenue Service and Indian Tribal Governments.|
|B. "Gaming establishment" means a casino or other building, vessel, or room used for gambling. It includes land and water based establishments, bingo parlors, card rooms, slot machine and keno facilities, and any similar place where wagering is conducted.|
|C. "Employee" means an individual who|
|D. "Employer" means _____________________________________ |
[insert name, address, and EIN].
|E. "Occupational Category" means a category listed in Attachment A.|
|F. "Participating Employee" means an Employee who--|
|G. "Tip Rate" means the applicable rate described in Section III.|
|II. COMMITMENT OF EMPLOYER|
|A. Records maintenance requirements. While this Agreement is in effect, and in addition to records otherwise required to be maintained, the Employer agrees to maintain the following records:|
|B. Requirements for furnishing information. The Employer will furnish to the Service Representative the following documents:|
|C. Requirements for making records available at the request of the Service Representative. At the request of the Service Representative, the Employer will furnish any of the records identified in section II.A.|
|D. Requirements for filing returns and paying and depositing taxes. The Employer will comply with the requirements for filing all required federal tax returns and paying and depositing all federal taxes.|
|III. TIP RATES|
|A. Methods of measuring tips. Depending on the Occupational Category and the Employer's business practices, tips can be measured in different ways. This Agreement contemplates the following types of measurements:|
|B. Actual tips. Employees in Occupational Categories where tips are pooled and split must report the actual amount of tips they receive. The tip rate method of reporting tips is not available for these Employees.|
|C. Tip rates.|
|D. Determination of subsequent tip rates and Occupational Categories. |
|IV. COMMITMENT OF INTERNAL REVENUE SERVICE|
|A. Participating Employee. The Internal Revenue Service will not examine a Participating Employee's tip income for any period for which a TEPA is in effect, if the Employee reports tips to the Employer at or above the tip rate established for the Employee's Occupational Category and the Employee reports that income on a timely filed return.|
|B. Employer. |
|C. Compliance review. The Internal Revenue Service may evaluate the Employer and its Participating Employees for compliance with the provisions of this Agreement.|
|A. Termination by Employer. The Employer may terminate this Agreement at any time.|
|B. Termination by Internal Revenue Service. The IRS may terminate this Agreement if: |
|C. Termination upon failure of parties to agree to revision of tip rates. If the Employer and the Internal Revenue Service fail to agree to a revision of any of the tip rates under the procedures set forth in section III.D.2.b., this Agreement will terminate.|
|D. Notice of termination and effective date. Any termination under section V.A. or B. must be in writing and will be effective on the first day of the calendar quarter following the date of the notice.|
|A. Effective date of agreement. This Agreement is effective on the first day of the first calendar quarter following the date the Service Representative signs the TRDA.|
|B. Examinations and/or inspections of books and records. For purposes of this TRDA -|
|C. Notices. The parties will send all correspondence pertaining to this TRDA to the stated below, unless notified in writing of a change of address. In the event of a change of address, the parties must send all correspondence to the new address. All notices are deemed to be sent or submitted on the date of the postmark stamped on the envelope or, in the case of a notice sent by certified mail, the sender's receipt.|
|D. Authority. The Employer represents that it has the authority to enter into this TRDA.|
|E. Statutory changes. The Commissioner of Internal Revenue Service may terminate this Agreement at any time following a significant statutory change in the FICA taxation of tips.|
|F. Statutory Changes. The Commissioner of Internal Revenue may terminate this agreement at any time following a significant statutory change in the FICA taxation of tips.|
|VII. PAPERWORK REDUCTION ACT|
|The collections of information contained in this document have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control number 1545-1530.|
|An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collections of information in this document are in sections II.A, II.B., II.C., III.D., V.A., and V.D. This information is required to comply with sections 6053(a) and 6001 of the Internal Revenue Code and to assist the Internal Revenue Service in its compliance efforts. This information will be used to monitor the Employer's performance under the Agreement. The collections of information are required to obtain the benefits available under the Agreement. The likely respondents are business or other for-profit institutions.|
|The estimated total annual reporting and/or recordkeeping burden is 4,367 hours.|
|The estimated annual burden per respondent/recordkeeper varies from 12 hours to 99 hours, depending on individual circumstances, with an estimated average of 44 hours. The estimated number of respondents and/or recordkeepers is 100.|
|The estimated annual frequency of responses (used for reporting requirements only) is on occasion.|
|Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103 of the Code.|
|By signing this Agreement, the parties certify that they have read and agreed to the terms of this document, including Attachments A and B.|
|EMPLOYER||INTERNAL REVENUE SERVICE|
(Name of Employer)
|Indian Tribal Governments|
|BY: _____________________________||BY: _____________________________ |
|TITLE :___________________________||TITLE :Group Manager |
(City, State, ZIP code)
(City, State, ZIP code)
|DATE: ___________________________||DATE: ___________________________|
|TRDA (Gaming Industry)|
|Food servers||% of sales|
|Cocktail servers||% of sales|
|Bartenders||% of sales|
|Room service food servers||% of sales|
|Bell persons||$ /|
|TRDA (Gaming Industry)|
|TIPPED EMPLOYEE PARTICIPATION AGREEMENT|
|I am an employee of _______________________________ and wish to participate in my employer's tip reporting program.|
|In accordance with a Tip Rate Determination Agreement (Gaming Industry) between my employer and the Internal Revenue Service, I agree to report my tips to my employer, as required by law, at or above the tip rate established by my employer and approved by the IRS for my Occupational Category.|
|Social Security Number: __________________________|
TAX AUDIT GUIDELINES FOR INTERNAL REVENUE EXAMINERS
Indian Fishing Rights-- IRC Section 7873
Section 3041 of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) added Internal Revenue Code section 7873, Income Derived by Indians from Exercise of Fishing Rights. This section exempts from federal taxation (i.e., income, employment, and self-employment) any income derived by a member of an Indian tribe or a qualified Indian entity from a fishing rights-related activity of that member's or entity's tribe. The fishing rights must be guaranteed to a tribe by a treaty, statute, or executive order secured as of March 17, 1988.
When a taxpayer reports the receipt of income as excludable from gross income under IRC Section 7873, the examiner should verify the following:
|a) Excluding wages earned as an employee|| |
|b) Excluding income from self-employment|| |