On August 26, the Internal Revenue Service (IRS) announced that its Large Business & International (LB&I) division is in the process of assessing the Compliance Assurance Process (CAP) program. CAP is a real-time audit program that seeks to resolve the tax treatment of all or most return issues before the tax return is filed. CAP began as a pilot program in 2005 with 17 taxpayers and has grown to currently include 181 taxpayers. In 2011, the CAP program was made permanent and expanded to include Pre-Cap and Compliance Maintenance. Pre-Cap provides interested taxpayers with a roadmap of the steps required for gaining entry into CAP, which as noted above is the standard real-time audit program whereby the IRS examines relevant transactions and proposed reporting positions before the tax return is filed. Cap Maintenance is intended for taxpayers who have been in CAP, have fewer complex issues, and have a track record of working cooperatively and transparently with the IRS. Under this phase, there is a reduced level of review with respect to the pre-filing review and the post-filing examination.
We previously wrote about the potential death of the CAP program. Based on the recent announcement, it appears that CAP is now on its deathbed. The recent announcement states that no new taxpayers will be accepted into the CAP program for the 2017 application season that begins in September 2016, which means that only taxpayers currently in the CAP and Compliance Maintenance phases may continue in the program. No new Pre-Cap application will be accepted and taxpayers currently in pre-Cap will not be accepted into the CAP phase. However, taxpayers currently in the CAP phase may be moved into the Compliance Maintenance phase, as appropriate. The announcement is not surprising in light of recent reorganization changes by the IRS and shifts to a “campaigns” approach, which we have written about here and here. The announcement explains that the CAP assessment is necessary given the IRS’s limited resources and constraints, combined with a business need to evaluate existing IRS programs to ensure that they are aligned with LB&I’s strategic vision. We will continue to monitor developments on this front, but for now any taxpayers that were planning on applying for the CAP program will no longer have that opportunity.