In a recent news release, the IRS announced a number of changes to its Compliance Assurance Process (CAP) Program. The CAP program, “is a method of identifying and resolving tax issues through open, cooperative, and transparent interaction between the IRS and Large Business and International (LB&I) taxpayers prior to the filing of a return.” By settling issues with the IRS before filing, taxpayers participating in the CAP program are subject to “shorter and narrower post-filing examinations.”
The program launched in 2011 and has since expanded to include two additional phases, the Pre-CAP program and the CAP maintenance program. During the Pre-CAP phase the Taxpayer and IRS develop a roadmap for the Taxpayer to meet the selection criteria for entry into the CAP program. The CAP maintenance program features an adjusted level of review and is intended for taxpayers “who have been in CAP, have fewer complex issues, and have established a track record of working cooperatively and transparently with the IRS.”
In 2016, the IRS stopped taking any new CAP partcipants into the program as the IRS assessed its resources. Many feared that the IRS would discontinue the program entirely due to reductions in the LB&I examination workforce. In the news release, the IRS will continue the CAP program with modifications and will accept new applications this fall.
The following changes to the program will become effective in the 2019 application season:
- The application period will run from Oct. 1, 2018 to Nov. 30, 2018 instead of the usual Sept. 1 to Oct. 31 deadline.
- As part of the application, taxpayers will need to provide a preliminary list of material issues for the year, and, if applicable, specified transfer pricing issue information and research credit information. This preliminary list will be the starting point for discussions with the IRS to reach an agreed issues list. That list will then be used to determine the issues that will be reviewed and will determine resource allocation for the case.
- The LB&I division will allocate resources to the CAP program as part of annual planning. In future years, resource availability may determine the number of taxpayers in the program or whether all issues can be addressed.
- Taxpayers and LB&I will be subject to additional requirements for effective communication and prompt resolution of issues. LB&I will establish a 90-day goal for issue resolution. All disagreements will be sent to Appeals on a “timelier basis to encourage quick resolution of issues.”
- Taxpayers will be required to provide a respresentation letter within 30 days of filing and timeframes will be implenmented for IRS post-file review. Taxpayers and IRS will jointly monitor progress metrics and provide input for subsequent year cycles.
- The Compliance maintanence phase of CAP will be modified so that taxpayers determined to be “lowest risk” may continue in the program without IRS review of a particular year.
Additional changes to the program are expected in future years. These anticipated changes include opening the program to additional taxpayers and requiring taxpayers to provide certification of a tax control framework. RSM US LLP has a number of tax professionals who can answer questions about the CAP program and advise taxpayers who believe the procedures may apply to the taxpayer’s specific situation.