The Bridge Phase is a stage within the IRS's Compliance Assurance Process (CAP) Program. It is designated for taxpayers whose risk of noncompliance does not justify the continued use of Large Business and International (LB&I) examination resources. During this phase, the IRS will not accept any taxpayer disclosures, conduct any reviews, or provide any assurances. If a taxpayer has a specific issue on which they seek certainty, they may request a Pre-Filing Agreement (PFA) for that issue.
Taxpayers in the Bridge Phase remain part of the CAP Program, execute the CAP Memorandum of Understanding (MOU), and are considered returning taxpayers when applying for the CAP program in the next application period. The Bridge Phase is generally limited to two consecutive years, after which the taxpayer will typically return to the CAP or Compliance Maintenance (CM) phase, assuming they are accepted into the program for that year.
To qualify for the Bridge Phase, taxpayers must meet specific criteria, including having completed at least one complete Compliance Maintenance phase (or CAP phase when in the best interest of sound tax administration), having few, if any, material issues, being expected to receive a Full Acceptance Letter in their most recent CAP program phase, and continuing to satisfy the CAP eligibility and suitability requirements.
While in the Bridge Phase, taxpayers are required to sign the CAP MOU, although not all sections of the MOU are applicable. Specifically, sections related to issue disclosures, materiality thresholds, communications between the taxpayer and IRS, issue resolution agreements, and post-filing review are not applicable during Bridge years. Despite the reduced oversight, taxpayers are expected to maintain the same level of tax compliance as they would in the CAP or CM phases.
Sources:
A Bridge Between Debt and Equity: Taxation of Bridge Convertibles
