On August 27, 2018, the IRS announced the continuation of its Compliance Assurance Process (“CAP”) program for 2019, subject to certain modifications. IR-2018-174. CAP began in 2005, as a cooperative pre-filing program for large taxpayers, specifically companies under the jurisdiction of the IRS’s Large Business & International (“LB&I”) Division, with assets of $10 million or more, and meet certain other requirements.

CAP replaces the traditional examination process and is intended to reduce the taxpayer’s burden through the contemporaneous exchange of information about events and transactions. CAP is intended to resolve issues prior to filing a return providing tax certainty sooner, decrease overall audit cycle time, and provide resource and time savings for the taxpayer.

CAP is divided into three stages, and taxpayer progress through each stage:

  1. Pre-CAP: taxpayer works with the IRS to resolve filed years with the goal of meeting the CAP selection criteria and getting on a real-time schedule;
  2. CAP: taxpayer works collaboratively and transparently to resolve material tax positions before they are filed on the return; and
  3. CAP Maintenance: for taxpayers that have a completed two full CAP audit cycles, maintained professional relationships with open, honest communication with the CAP team, and have fewer complex issues.

Since the CAP program began in 2005 it has grown from 17 taxpayers to 169 taxpayers. While the CAP program expands, the LB&I division of the IRS responsible for the program has declined by more than 25 percent. The IRS announcement of changes to the CAP program are in part an attempt to improve the operation of the program and ensure the efficient use of limited resources.

Changes for the 2019 CAP Program

The following summarizes the key changes to the CAP program announced by the IRS for the 2019 year. For 2019, the CAP program is limited to current participants.

  1. The application period for 2019 has shifted to open on October 1, 2018 and close on November 30, 2018. CAP remains limited to existing CAP taxpayers who meet eligibility requirements.
  2. Applications must include a preliminary list of materials issues for the year, including specified transfer pricing issue information and research credit information. This list will be used to determine issues reviewed and resources allocated during the CAP audit.
  3. LB&I will establish a 90-day goal for issue resolution. All disagreements will be sent to Appeals on a “timelier basis to encourage quick resolution of issues.” Certain transfer pricing issues may be required to be resolved via the Advance Pricing Agreement program.
  4. Taxpayers must provide a representation letter within 30 days of filing the return (representing that it took the agreed-to positions on the return) and timeframes will be implemented for IRS post-file review.
  5. CAP Maintenance will be modified so “lowest risk” taxpayers may continue in the program without IRS review of a particular year.
  6. LB&I will allocate resources to the CAP program as part of annual planning, and this planning may determine the number of taxpayers in the program and/or whether all issues can be addressed.

Changes Anticipated For the Future

In addition to immediate changes listed above for the 2019 year, the IRS has indicated that additional modifications to the CAP program may be appropriate in the future. In particular the IRS has highlighted the following changes for the future:

  1. The CAP program will be open to additional taxpayers who meet eligibility criteria and program requirements.
  2. Taxpayer will be required to provide certification of a tax control framework.
  3. Issue-based resolutions may be appropriate as the program is expanded.


The IRS announcement extending the CAP program is good news for taxpayers currently in CAP and those seeking entrance into CAP. The IRS focus on transfer pricing issues as the subject of several of the modifications is notable and acknowledges IRS’s concern related to these resource-intensive matters. The ability to stay in CAP Maintenance and receive the benefits of CAP, such as certainty related to the return, without IRS review for a particular year signals an IRS appreciation for those taxpayer in CAP with good track records. For taxpayers desiring more certainty with respect to reporting, CAP promotes better management of tax reserves and more precise reporting of earnings and financial statements. Taxpayers not yet in the program may be able to apply in years subsequent to 2019. Overall the changes are reflective of the IRS acknowledging its own resource constraints and the need to adjust their approach to CAP in an environment of reduced budget and resources.