Opening Statement of The Honorable Earl Pomeroy, a Representative in Congress from the State of North Dakota July 15, 2004
Opening Statement
The
goal of today’s Oversight Subcommittee hearing is to examine the IRS’s current
tax administration policies for encouraging employer and employee compliance in
the reporting of and paying of taxes on tip income.
In
1982, Congress passed legislation to provide the IRS with new measures to
identify unreported tip income. At that time, it was estimated that about 85
percent of tip income went unreported by workers in food and beverage, beauty
and barber, gambling, and taxicab businesses.
Two
decades later, IRS reports indicate that there has been a significant
improvement in tip reporting compliance. Tips reported from all industries
have risen from $8.5 billion in 1994 to $18 billion in 2003. This is largely
attributed to the private sector working closely with the IRS to improve tax
reporting by employers and employees. It is my hope that this coordination
will continue and improve even further.
Currently,
there are three voluntary IRS programs through which employers can establish
tip reporting and tax payment compliance mechanisms. These programs – the Tips
Reporting Alternative Commitment (TRAC), the Tip Rate Determination Agreement
(TRDA), and the Employer-designed Tip Reporting Alternative Commitment (EmTRAC)
– have had some success operating on a volunteer basis. The IRS has entered
into approximately 35,000 agreements with restaurant employers, for example,
because employers recognize that by being part of one of these agreements, a
business can significantly decrease the likelihood of future IRS audits of
related records.
The
first panel of witnesses today, representing the restaurant, cosmetology, and
gaming industries, will discuss the successes and failures of these programs
from their experiences. I hope that, as a result of this hearing, we will
bring to light some of the problems these types of businesses are facing in
complying with the law and that additional dialogue between the parties and the
IRS may take place to resolve these issues.
On
the second panel, we will have the senior IRS official in charge of tax
reporting compliance. Among other issues, he will discuss how the various
tip-reporting programs operate to the benefit of employers, employees, and
efficient tax administration. In addition, for firms that have not chosen to
enter into voluntary agreements with the IRS, he will discuss the importance of
the recent U.S. Supreme Court decision supporting the IRS’s practice of
estimating unreported tip income for purposes of calculating an employer’s
liability for Social Security and Medicare taxes.
I
thank and commend Chairman Houghton for holding this hearing. This is an issue
that clearly has significance to small businesses as well as their employees,
and I know this is the case in North
Dakota where I represent thousands of
small business owners and employees. In discussing this issue, we need to
ensure that we strike a fair balance among taxpayer rights, small business
needs, and tax enforcement. I am pleased that the Oversight Subcommittee is
examining the matter.
Thank
you Mr. Chairman.
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