Instructions For Form 8027 (Page 2 of 4) in pdf

Revenue Procedure 86-21, 1986-1 C.B. 560. Also include with your

Gross Receipts

petition a check or money order made payable to the “United States

Gross receipts include all receipts (other than nonallocable receipts –

Treasury” for the amount of the user fee required for determination

see definition below) from cash sales, charge receipts, charges to a hotel

letters. For the current user fee amount, contact the IRS at

room (excluding tips charged to the hotel room if your accounting

1-800-829-1040.

procedures allow these tips to be separated), and the retail value of

A majority of all the directly tipped employees must consent to any

complimentary food or beverages served to customers as explained

petition written by an employee. A “majority of employees” means more

below.

than half of all the directly tipped employees employed by the

Also include charged tips in gross receipts, but only to the extent that

establishment at the time the petition is filed. Employee groups must

you reduced your cash sales by the amount of any cash you paid to

follow the procedures in Regulations section 31.6053-3(h), Pub. 531,

tipped employees for any charged tips due them. However, if you did

Reporting Tip Income, and Revenue Procedure 86-21.

not reduce cash sales for charged tips paid out to employees, do not

The IRS will notify you when and for how long the reduced rate is

include those charged tips in gross receipts. Do not include state or

effective.

local taxes in gross receipts.

Reporting Allocated Tips To Employees

Remind all your directly and indirectly tipped employees to include

TIP

all charged tips and all cash tips received in the tip amount they

Give each employee who has been allocated tips a Form W-2 that shows

must report to you.

the allocated amount in box 8. The form must be furnished to the

Nonallocable receipts. These are receipts for carryout sales and

employee by January 31 of the following year. If employment ends

receipts with a service charge added of 10% or more.

before the end of the year and the employee asks for the Form W-2, a

Complimentary items. Food or beverages served to customers without

tip allocation is not required on the early Form W-2. However, you may

charge must be included in gross receipts if: (a) tipping for providing

include on the early Form W-2 the employee's actual tip allocation or a

them is customary at the establishment, and (b) they are provided in

good-faith estimate of the allocation. Signify a good-faith estimate by

connection with an activity that is engaged in for profit and whose

writing “estimate” next to the allocated amount in box 8 of the Form W-2.

receipts would not be included in the amount on line 5 of Form 8027.

If no allocation was shown on the early Form W-2 or if the estimated

For example, you would not have to include the retail value of

allocation on the early form differs from the actual amount by more than

complimentary hors d'oeuvres at your bar or a complimentary dessert

5%, give the employee Form W-2c, Corrected Wage and Tax

served to a regular patron of your restaurant in gross receipts because

Statement, during January of the next year.

the receipts of the bar or restaurant would be included in the amount on

If you allocate tips among employees by the methods described in the

line 5. You would not have to include the value of a fruit basket placed

instructions for lines 7a through 7c, you are not liable to any employee

in a hotel room in gross receipts since, generally, tipping for it is not

if any amount is improperly allocated. However, if the allocation shown

customary.

on the employee's Form W-2 differs from the correct allocation by more

However, you would have to include in gross receipts the retail value

than 5%, you must adjust that employee's allocation and must review the

of the complimentary drinks served to customers in a gambling casino

allocable amount of all other employees in the same establishment to

because tipping is customary, the gambling casino is an activity engaged

assure that the error did not distort any other employee's share by more

in for profit, and the gambling receipts of the casino are not included in

than 5%. Use Form W-2c to report the corrected allocation.

the amount on line 5.

You do not have to send to the IRS separate copies of Forms W-2

showing allocated tips. The IRS will use the information shown on the

Allocation of Tips

Forms W-2 that you file with the Social Security Data Operations Center.

Tip allocations have no effect on withholding income or social security

You must allocate tips among employees who receive them if the total

or Medicare taxes from employees' wages. Allocated tips are not subject

tips reported to you during any payroll period are less than 8% (or the

to withholding and are not to be included in boxes 1, 3, 5, and 7, of

approved lower rate) of this establishment's gross receipts for that

Form W-2.

period.

Generally, the amount allocated is the difference between the total

tips reported by employees and 8% (or the lower rate) of the gross

Specific Instructions

receipts, other than nonallocable receipts.

Lower rate. You (or a majority of the employees) may request a lower

File a separate Form 8027 for each large food or beverage

rate (but not lower than 2%) by submitting an application to: Internal

establishment. Do not attach copies or any unrelated correspondence.

Revenue Service, Compliance Policy Group, S:C:CP—Room 2404, 1111

Employer's name and address. Enter the name and address of the

Constitution Ave., N.W., Washington, DC 20224. The burden of

entity or individual whose EIN is shown above. Enter foreign addresses

supplying sufficient information to allow the IRS to estimate with

as follows: city, province or state, and country. Please do not abbreviate

reasonable accuracy the actual tip rate of the establishment rests with

the country name.

the petitioner. Your petition for a lower rate must clearly demonstrate

Establishment number. Enter a five-digit number to identify the

that a rate less than 8% should apply. It must include the following:

individual establishments that you are reporting under the same EIN.

1. Employer's name, address, and EIN.

Give each establishment a separate number. For example, each

2. Establishment's name, address, and establishment number.

establishment could be numbered consecutively, starting with 00001.

3. Detailed description of the establishment that would help to

Name and address of establishment and employer identification

determine the tip rate. The description should include the type of

number (EIN). Use the name and address label provided. Cross out

restaurant, days and hours of operation, type of service including any

any errors and print the correct information on the label. If you do not

self-service, the person (waiter or waitress, cashier, etc.) to whom the

have a label, type or print the name and address of the establishment.

customer pays the check, whether the check is paid before or after the

They may be different from your name and address, as in the case of

meal, and whether alcohol is available.

employers who have more than one establishment. If mail is not

4. Past year's information shown on lines 1 through 6 of Form 8027

delivered to the address, enter the P.O. box number. The EIN should

as well as total carryout sales; total charge sales; percentage of sales

be the same as the number on the Forms W-2 that you give to the

for breakfast, lunch, and dinner; average dollar amount of a guest check;

employees and the Form 941, Employer's Quarterly Federal Tax Return,

service charge, if any, added to the check; and the percentage of sales

you file to report wages and taxes for employees working for the

with a service charge.

establishment.

5. Type of clientele.

Type of establishment. Check the box (check only one box) on the

6. Copy of a representative menu for each meal.

form that best describes the food or beverage operation at this

The petition must contain the following statement and be signed by a

establishment:

responsible person who is authorized to make and sign a return,

1. An establishment that serves evening meals only (with or without

statement, or other document.

alcoholic beverages).

“Under penalties of perjury, I declare that I have examined this

2. An establishment that serves evening and other meals (with or

application, including accompanying documents, and to the best of my

without alcoholic beverages).

knowledge and belief, the facts presented in support of this petition are

3. An establishment that serves only meals other than evening meals

true, correct, and complete.”

(with or without alcoholic beverages).

You must attach to the petition copies of Form 8027 (if any) filed for

4. An establishment that serves food, if at all, only as an incidental

the 3 years prior to your petition. If you are petitioning for more than one

part of the business of serving alcoholic beverages.

establishment or you want to know your appeal rights, you should see

Page 2

Instructions For Form 8027 Page 2

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