The Compliance Assurance Process (CAP) Program is an initiative developed by the IRS's Large Business and International (LB&I) Division to enhance federal tax compliance among large corporate taxpayers. The program employs real-time issue resolution tools and techniques, allowing the IRS and taxpayers to work collaboratively to resolve tax issues before the filing of the tax return. This proactive approach aims to achieve tax compliance by addressing potential issues early, thereby providing several benefits to both the IRS and taxpayers.
Key Features of the CAP Program:
- Real-Time Issue Resolution: CAP facilitates the resolution of tax issues before the tax return is filed, ensuring that both the IRS and the taxpayer have a clear understanding of the tax positions taken.
- Tax Certainty: By resolving issues prior to filing, CAP provides taxpayers with greater certainty regarding their tax obligations sooner than traditional post-filing examinations.
- Resource and Time Savings: The program reduces the need for extensive post-filing examinations, saving time and resources for both the IRS and taxpayers.
- Voluntary Compliance: CAP promotes voluntary compliance by encouraging taxpayers to engage with the IRS in real-time to address and resolve potential tax issues.
- Corporate Governance and Accountability: The program complements existing corporate governance structures, enhancing accountability and transparency in tax reporting.
- Reduction in Amended State Tax Returns: By resolving federal tax issues early, CAP reduces the need for taxpayers to file amended state tax returns, which often depend on the federal tax return.
- Identification of Emerging Issues: CAP allows for the earlier identification of new and potentially emerging tax issues, enabling the IRS to address these issues more effectively.
Program Structure:
- Selection Stage: Taxpayers apply to participate in CAP by submitting a selection documentation package. The IRS evaluates the taxpayer's suitability for the program based on various factors, including the complexity and materiality of the taxpayer's transactions and their history of compliance and cooperation.
- Risk Assessment and Issue Resolution Stage: Once accepted into the program, the taxpayer and the IRS work together to assess and resolve potential tax issues. This stage involves the submission of detailed documentation and may include multilateral meetings between the taxpayer and the IRS.
- Outcome Stage: After completing the risk assessment, the IRS issues an outcome letter categorizing the taxpayer's transactions as either low risk or not low risk. Low-risk transactions are generally not subject to further examination for the covered periods unless there are significant changes in facts or circumstances.
Benefits to Taxpayers and the IRS:
- For Taxpayers: CAP provides earlier tax certainty, reduces the need for amended returns, and aligns with corporate governance practices.
- For the IRS: The program enhances compliance, reduces the need for post-filing examinations, and allows for better allocation of resources.
Additional Information:
For more details about the CAP Program, including updates and application procedures, taxpayers can visit the CAP Home Page on IRS.gov.
Sources:
Rev. Proc. 2021-9
Rev. Proc. 2019-9
IRM Part 1. Organization, Finance, and Management. Chapter 1. Organization and Staffing. Section 24. Large Business and International Division
IRM Part 4. Examining Process. Chapter 60. International Procedures. Section 11. International Compliance Assurance Program
