The Compliance Assurance Process (“CAP”) is a program where a
team from the Internal Revenue Service (“IRS”) works with
participating taxpayers collaboratively to identify and resolve
potential tax issues before the tax return is filed each year. This
allows for major potential tax issues to be largely settled before filing
and allows for shorter and narrower post-filing reviews of the return.
To be eligible for the program taxpayers must have the following
criteria:
• Have assets of $10 million or more.
• Be a U.S. publicly traded corporation with a legal requirement
to prepare and submit Forms 10-K, 10-Q, and 8-K to the
Securities & Exchange Commission or an entity that was
accepted into the 2022 CAP Program and agrees to provide the
IRS with quarterly financial statements and audited annual
financial statements prepared in accordance with US GAAP for
the entity that was accepted into the Program.
• Not be under investigation by, or in litigation with, the IRS or
another government agency that would limit the IRS' access to
current corporate tax records; and
• If currently in the CAP program, must not have more than one
filed return and one unfiled return open on the first day of the
applicant's CAP year.
• For new applicants to the CAP program, the applicant is eligible
for participation in the program if the applicant has no more
than three tax years open for examination on the first day of
the applicant’s CAP year, and the examination team determines
(with concurrence from the applicant) that these open years will
close from the examination group no later than 12 months after
the first day of the applicant’s CAP year if accepted. Note: For
new applicants, any unexamined return with an open statute
will be risk-assessed as part of the required compliance check
for the first CAP year. If the examination team determines that
a material issue should be examined, the return with that issue
may be placed under examination. Any unexamined returns
that are placed under examination will be treated as a 'one filed'
return for purposes of the return criterion. Each return must be
closed by the end of the second CAP year following the
decision to examine or the applicant may not be eligible to
participate in future CAP years. (IRS.gov, 2018)
According to today’s IRS release—IR-2023-25 (February 13, 2023)—
the IRS made significant changes to the CAP program in 2019 to
improve its operation and promote the best use of limited
government resources. One outcome of this change was the
development of the bridge phase in CAP, which is reserved for
taxpayers whose risk of noncompliance does not support the
continued use of IRS compliance resources. During the bridge phase,
the IRS will not accept any disclosures, conduct any reviews, or
provide any assurances. In the three years since its inception, the IRS
has received consistent feedback from taxpayers that participation in
the bridge phase deprives them of the most important aspect of
CAP—the review by the IRS.
The Compliance Assurance Process (CAP) is a program that was
designed to benefit the taxpayers. The IRS should work to keep the
program going for the benefit of the public. Waiting two or three
years in an audit examination without CAP could prove to be very
costly for the taxpayer in the long run. The CAP process takes less
time when taxpayers work together to identify and resolve problems,
allowing the department to use its resources more effectively and
efficiently, especially considering budgetary uncertainty. The IRS
tends to put programs that are more beneficial to the taxpayers on
the back burner, which is what it appears to want to do to the CAP
program. With the recent influx of funds and auditors the IRS
recently was granted there is no reason they should remove a
resource that is beneficial to taxpayers.
References:
IRS.gov. (2018). Compliance Assurance Process. Retrieved from
irs.gov: https://www.irs.gov/businesses/corporations/compliance-
assurance-process
IRS announces changes to bridge phase of CAP program - KPMG
United States
