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IRS opens application period for 2021 Compliance Assurance Process (CAP) program

IRS opens application period for 2021 CAP program

The IRS today announced the opening of the application period for the Compliance Assurance Process (CAP) program for 2021.

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The application period begins September 1, 2020, and ends November 13, 2020.

According to today’s IRS release—IR-2020-193—the IRS will inform taxpayers if they are accepted into the program in February 2021. New corporate applicants can apply for the CAP program if they meet certain eligibility requirements including:

  • They have assets of $10 million or more.
  • They are a U.S. publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K.
  • They are not under investigation by, or in litigation with, any government agency that would limit the IRS’s access to current tax records.

To be eligible to participate in the CAP program, taxpayers must adhere to CAP program limits on the number of open years. For 2021, the IRS modified the open-year criteria, updated its requirements for the “tax control framework” questionnaire, and established a limit on the duration of the “bridge phase.” Additional information about the CAP program is available on a dedicated IRS webpage.

Background

The CAP program allows large corporate taxpayers to work collaboratively with an IRS team to identify and resolve potential tax issues before tax returns are filed.

The CAP program provides for “real-time audits” of taxpayers—i.e., the review and resolution of tax issues through open, cooperative, and transparent interactions between the IRS and taxpayers before the filing of a return.

From its inception some 15 years ago, the CAP program was intended for a select group of taxpayers under the jurisdiction of the IRS’s Large Business & International (LB&I) division. 

KPMG observation

From the taxpayer’s perspective, a principal benefit of CAP is obtaining earlier certainty on the proper treatment of material positions. This permits the taxpayer company to avoid having to set up financial statement reserves. Contemporaneous resolution of tax issues can in some instances also afford competitive advantages vis-à-vis competitors that are not part of CAP.

The “real time” resolution of issues was originally designed with the expectation that the process would create earlier certainty at a reduced cost to both the taxpayer and the government. However, in the review of CAP that resulted in its “recalibration,” the IRS found that the current CAP engagements were generally taking longer and costing more than anticipated.  As a result, much of the additional information now required as part of the application process is aimed at better evaluating whether a taxpayer’s circumstances will be best addressed within CAP or through more traditional post-filing processes.

The IRS, too, benefits from CAP. By reducing the time and expense required to identify, audit, and resolve issues, the CAP can free up resources for the IRS to use for other audits while ensuring compliance among participating taxpayers. The program also provides the IRS with a clear line of sight into emerging activities and issues, thereby potentially giving the IRS advance notice of issues requiring either guidance or specially tailored enforcement action.

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