Participation in either a TRDA or TRAC is voluntary.
A TRDA represents an agreement between the IRS and the employer that specifies an agreed-upon rate of tips for each occupational category of tipped employees.
While both programs were initially available for all employers, there appears to be a push toward the TRDA agreements.
Employers that sign the TRDA agreement will be deemed in compliance, meaning the IRS will not audit the employer's payroll tax returns for periods prior to the agreement, or for those years covered by the agreement, as long as the employer remains in compliance with the agreement.
In addition, the TRDA program requires the employer to provide the IRS with quarterly reports detailing the number of total employees and participating employees.
Having a TRDA agreement might also affect hiring practices.
Under TRDA, participating employees report charged and cash tips at a fixed percentage of total sales, even though some employees may have received more or less than the fixed rate.
The IRS may terminate the TRDA agreement if this percentage is not met.
In practice, the IRS has not conducted any of these audits after an employer has entered into a TRDA.