Internal Revenue Service officials announced today changes to the Compliance Assurance Process (CAP) program for 2019. CAP is a cooperative pre-filing program for some of the largest taxpayers. To give affected taxpayers more time to assess the proposed changes, the IRS will shift the start of the application period to Oct. 1, 2018, and it will close on November 30, 2018.
The CAP program began in 2005 as a way of resolving tax issues through open, cooperative, and transparent interactions between the IRS and taxpayers before the filing of a return. The program began with 17 taxpayers and currently has 169 taxpayer participants.
“After extensive review, we believe this program continues to provide benefit for taxpayers and tax administration,” said Large Business and International (LB&I) Commissioner Doug O’Donnell. “The program is intended to provide taxpayers and IRS certainty on the treatment of certain tax issues even before the return is filed while reducing the chance of potential disagreement and lengthy examinations.”
The proposed changes are designed to improve the operation of the program, make the best use of limited government resources, and to ensure the sustainability of the program. Changes will be effective for the upcoming 2019 application period, with additional changes expected the following year and into the future. While interest in CAP has grown, since the inception of the program, the IRS workforce in the LB&I division has declined more than 25 percent.
Changes for the 2019 Application Season: The changes and reinforcement of existing policies are intended to ensure that engagement by taxpayers and the IRS are consistent with the original objectives of the program.
- The 2019 application period will open October 1, 2018, for existing CAP taxpayers who meet the program eligibility requirements, including suitability criteria.
- As part of the application, taxpayers will be required 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, which will be used to determine the issues that will be reviewed and will be key in allocating resources for the case.
- As part of the LB&I division’s overall efforts to ensure that resources are deployed appropriately, the resources devoted to the CAP program will be allocated 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.
- Effective communication and prompt resolution of issues are key components of CAP. Both taxpayers and LB&I will be subject to additional requirements in these areas. For example, certain transfer pricing issues may be required to be resolved via the Advance Pricing Agreement program. LB&I will establish a 90-day goal for issue resolution. Disagreements will be sent to Appeals on a timelier basis to encourage quick resolution of issues.
- To promote timely resolution of each year’s issues, taxpayers will be required to provide a representation letter within 30 days of return filing, and timeframes will be implemented for IRS post-file review. Taxpayers and IRS will jointly monitor progress metrics and provide input for subsequent year cycles.
- A Compliance Maintenance phase of CAP will continue but will be modified. As part of Compliance Maintenance, some taxpayers determined to be the lowest risk may continue in the program without the IRS review of a particular year.
Changes Anticipated for Future Years: Additional changes are anticipated for the following CAP cycle and into the future.
- In the future, the program will be open to additional taxpayers who meet eligibility criteria and program requirements.
- For future years, taxpayers will be required to provide certification of a tax control framework. Additional details will be shared as available.
- Consistent with LB&I’s strategic vision, and mindful of resource constraints, LB&I is considering whether issue-based resolutions may be appropriate as the program is expanded.
- As taxpayers and LB&I gain experience with the 2019 changes, modifications will be made as appropriate.
Ongoing engagement: Stakeholder input — from both employees and taxpayers — is essential as the CAP program moves forward. In the coming months and years, LB&I officials will continue discussions, monitor the operation of all changes, and remain open to improvements.