On August 26, 2016, the Internal Revenue Service announced that its Compliance Assurance Process (CAP) program is no longer accepting applications, which could mark the end of the CAP program as well as the end of the continuous audit program. According to the IRS release:

(i) No new taxpayers will be accepted into the CAP program for the 2017 application season that begins in September 2016.

(ii) Only taxpayers currently in the CAP and Compliance Maintenance phases may submit applications to participate in the CAP program.

(iii) Taxpayers currently in the pre-CAP phase will not be accepted into the CAP phase.

(iv) New Pre-CAP applications will not be accepted.

(v) Current Pre-CAP taxpayers may remain in the Pre-CAP phase.

(vi) Taxpayers currently in the CAP phase may be moved into the Compliance Maintenance phase, as appropriate.

CAP began as a pilot program in 2005 with 17 taxpayers and has grown to include 181 taxpayers today. Under CAP, participating taxpayers work collaboratively with an IRS team to identify and resolve potential tax issues before the tax return is filed each year. By eliminating major potential tax issues before filing, taxpayers are generally subject to shorter and narrower post-filing examinations. In 2011, the CAP program became permanent and added the Pre-CAP and Compliance Maintenance phases. The rest of the program has remained relatively unchanged since its inception. The IRS said that CAP assessment was necessary given today’s challenging environment of limited resources and budget constraints as well as the need to evaluate existing programs to ensure they are aligned with LB&I’s strategic vision.

Although the CAP program was a success by any measure, the recent announcement is not a complete shock as senior IRS officials over the past few months have publicly questioned CAP in light of recent shift of LB&I to identify and focus on specific areas of risk.