According to a recent IRS press release, changes are coming to the Compliance Assurance Program (CAP), which has helped large corporations avoid tax problems by working closely with the IRS Large Business and International division prior to filing since 2005.
The IRS’ stated goal is to “ensure the sustainability of [CAP],” and that will take the form of a series of changes that are implemented over the course of several years—beginning with the “2019 application season.” The agency reports that these changes result from budget cuts and staff reductions, noting that “the IRS workforce in the LB&I division has declined more than 25 percent” despite growing from 17 to 169 participating corporations.
While participants will be affected by the following changes when applying for CAP this year, the IRS has promised to closely monitor the effectiveness of program tweaks by maintaining an open dialogue with everyone involved, from taxpayers to IRS employees:
- “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 lowest risk may continue in the program without IRS review of a particular year.”
The IRS believes more taxpayers will be able to participate as the program evolves, and the agency predicts a certification component and “issue-based resolutions” will be included in future changes to CAP.