According to participants in a recent webcast, the Internal Revenue Service’s (IRS) Large Business & International Division (LB&I) is no longer accepting applicants for its 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. The CAP program began in 2005 on an invitation-only basis with 17 taxpayers, and was subsequently expanded to include pre-CAP, CAP and CAP Maintenance components. Taxpayers and IRS leadership generally praised the CAP program as one of the most successful corporate tax enforcement programs, with surveys showing that over 90 percent of CAP taxpayers reported overall satisfaction with the program.
When the IRS announced its recent shift in the examination process to identifying and focusing on specific areas of risk, as opposed to general return review, the future of CAP became uncertain. High-ranking IRS officials questioned whether it made sense to continue spending time and resources on CAP taxpayers, who are viewed as the most compliant and transparent taxpayers. It remains to be seen whether the IRS will phase out the CAP program entirely for currently participating taxpayers. CAP taxpayers may want to discuss the matter with their Examination Teams to see if they can gain any insight into future developments in this area and to plan ahead if the CAP program is ultimately eliminated.
The end of the CAP program, as well as the end of the continuous audit program, marks a shift in the way that the IRS intends to audit large taxpayers in the wake of very limited resources. The IRS’s shift to auditing issues may be more efficient, but will likely miss more garden-variety adjustments, like depreciation and expense deductions.