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Weekly IRS Roundup August 23 – August 27, 2021

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 23, 2021 – August 27, 2021. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

August 23, 2021: The IRS announced that the application period for the 2022 Compliance Assurance Process (CAP) program will run September 1 to November 1, 2021. Acceptance notices will be delivered in February 2022. The CAP program employs real-time issue resolution between taxpayers and the IRS to improve federal tax compliance by resolving problems prior to the filing of a tax return. To be eligible, applicants must: (1) have assets worth $10 million or more; (2) be a US publicly traded corporation with a legal requirement to prepare and submit US Securities and Exchange Commission (SEC) Forms 10-K, 10-Q and 8-K and (3) not under investigation by—or in litigation with—any government agency that would limit the IRS’s access to current tax records. The IRS’s CAP webpage can be found here.

August 25, 2021: The IRS announced that interest rates for the calendar quarter starting October 1, 2021, will remain the same and will be issued in Rev. Rul. 2021-17, dated September 13, 2021.

August 27, 2021: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Emily Mussio in our Chicago office for this week’s roundup.




The Internal Revenue Service Is Expanding the 2020 Compliance Assurance Process

The Large Business and International Division of the Internal Revenue Service (IRS) developed the Compliance Assurance Process (CAP) program to improve large corporate taxpayer compliance with US federal tax obligations through the use of real-time issue resolution tools and techniques.

On September 12, 2019, the IRS announced that it was accepting applications—for the first time since 2015—from new corporate taxpayers that meet the eligibility requirements for the CAP program. The application period for the 2020 CAP year begins on September 16, 2019, and ends on October 31, 2019. Generally, applicants must meet the following requirements in order to be eligible to apply for CAP: (1) applicants must have assets of $10 million or more; (2) applicants must be a US publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K; and (3) the applicant must not be under investigation by, or in litigation with, any government agency that would otherwise limit the IRS’s access to current tax records.

Taxpayers interested in applying for the 2020 CAP year must submit an application with several forms:

  • Form 14234 – CAP Application
  • Form 14234-A – CAP Research Credit Questionnaire
  • Form 14234-B – Material Intercompany Transactions Template
  • Form 14234-C – Taxpayer Initial Issues List
  • Form 14234-D – Tax Control Framework Questionnaire

If the taxpayer also meets the eligibility and suitability criteria, the application will be forwarded for an evaluation of the application. Accepted taxpayers will be notified in writing by the Territory Manager assigned to the taxpayer.

However, acceptance is not automatic; the IRS, in its sole discretion, may reject the application when warrants by the facts and circumstances of the application or in the interest of sound tax administration. If an application is rejected, the taxpayer will be notified in writing and provided with the reasons why it was not accepted.

Further information regarding the IRS’s CAP program may be found here. Earlier coverage of the IRS’s 2018 recalibration of the CAP program can be found here.

Practice Point: The CAP program is a valued tool for many large corporate taxpayers. Eligible taxpayers that are interested in the CAP program for 2020 should prepare and submit an application as soon as possible.




More Developments on IRS’s Real-Time Audit Program

We have previously discussed ongoing developments with the Internal Revenue Service’s (IRS) Compliance Assurance Process (CAP) program. In brief summary, 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 more than 90 percent of CAP taxpayers reported overall satisfaction with the program.

The fate of CAP has been uncertain in recent years given the IRS’s shift in the examination process to identifying and focusing on specific areas of risk and the continued dwindling of IRS resources. In 2016, we discussed whether this change might result in the death of the CAP program and the IRS’s announcement that it was formally assessing the program. In August of this year, the IRS announced that the CAP program will continue, with some modifications.

At a September 26 conference, the IRS indicated that it wanted to expand the CAP program, but that changes were needed to keep the program sustainable over the long term given issues with increased examination times for CAP audits based primarily on issues involving transfer pricing, research credits under Internal Revenue Code (Code) Section 41, and former Code Section 199. The IRS indicated that it needed to resolve two issues for the CAP program: (1) eligibility and (2) suitability. Regarding eligibility, the IRS indicated that only public companies will likely be allowed into the program. Regarding suitability, factors include: (1) responses to IRS information requests; (2) good-faith efforts to resolve issues; (3) disclosure of tax shelters, material items, investigation or litigation; (4) frequency of claims; and (5) complying with the terms of the program’s memorandum of understanding.

The IRS has also released a Compliance Assurance Process (CAP) Recalibration discussion document, dated September 28, 2018. The discussion document provides more detail on the IRS’s current thinking regarding the CAP program and the two issues identified above. The document indicates that no new applications will be accepted for 2019 but that the IRS expects to accept new application for the 2020 tax year. In addition to general application information, taxpayers with international cross-border activity and research and experimentation activities will be required to submit additional information.

Practice Point: Taxpayers that are currently in the CAP program or that are considering applying to the program should review the IRS’s recent discussion document to identify potential changes to the program and whether the program would be a good fit. For many taxpayers, the CAP program has been—or could be­—a great program for resolving tax disputes in a timely fashion and gaining finality on tax position at an early date. The [...]

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Weekly IRS Roundup September 24 – 28, 2018

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 24 – 28, 2018:

September 25, 2018: The IRS announced a study regarding the active trade or business requirements under section 355(b) and stated that it is considering guidance on whether a business can qualify as an active trade or business if entrepreneurial activities, as opposed to investment or other non-business activities, take place with the purpose of earning income in the future, but no income has yet been collected in order to give more ventures access to tax-free spinoff under section 355(b).

September 25, 2018: The IRS issued a statement on the reorganization of the Advance Pricing and Mutual Agreement program, which will merge its economists and non-economists to facilitate the collaboration between team members and optimize economist involvement.

September 27, 2018: The IRS announced in Notice 2018-80 that it will issue proposed regulations providing that accrued market discount is not includable in income under section 451(b), which was added by 2017 tax reform.

September 27, 2018: The IRS issued a release reminding taxpayers ahead of the October 15 tax-filing extension deadline to be aware of criminal who continue to using devious tactics to steal money and personal information from unsuspecting taxpayers.

September 28, 2018: The IRs issued a discussion document regarding recalibration of the Compliance Assurance Process (CAP) program.

September 28, 2018: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandum and Chief Counsel Advice).

Special thanks to Alex Cheng-Yi Lee in our DC office for this week’s roundup.




IRS Announces That CAP Will Continue

On August 27, 2018, the Internal Revenue Service (IRS) announced that the Compliance Assurance Process (CAP) program will continue, with some modifications.  As we previously discussed, the IRS began an assessment of the CAP program in August 2016 to determine if any recalibration was needed.

CAP is an IRS program that seeks to identify and resolve tax issues through open, cooperative, and transparent interaction between the IRS and Large Business and International (LB&I) taxpayers prior to the filing of a return.  The goal of CAP is greater certainty of the treatment of tax positions sooner and with less administrative burden than conventional post-file audits.  The program began in 2005, and became permanent in 2011.  Several notable taxpayers publically disclose their involvement in the CAP program. (more…)




IRS Audits and IRS Appeals — A Year in Review

This year has been marked with substantial changes in the manner in which the Internal Revenue Service (IRS) operates. Shrinking resources and retiring IRS professionals have marred the IRS and its efficiency. The pervasive theme for 2016 was trying to do the job with fewer resources.  For example, IRS audits continue to devolve with standardized information document requests (IDRs), international practice unit guides and issue-focused examinations (mostly focused on international tax issues). We say “goodbye” to old friends [au revoir Compliance Assurance Process (CAP) Program] and hello to new rules (e.g., partnership entity audit rules and adjustments). And we have born witness to the slow evisceration of the independence of IRS Office of Appeals.

As we turn the corner to a new year, we expect the IRS’s war on taxpayers to manifest itself in “campaign” after “campaign,” reminiscent of the tiered issue system of days gone by. We expect coordination on a national level to reside with IRS “issue specialists” controlling and dictating audits and appeals, which will increasingly challenge the efficiency of pre-litigation resolution techniques. The end result of these contractions may very likely be an increase in tax litigation as frustration with the administrative process boils over. But the wild card, of course, is what changes will be ushered in by the new administration. Will it be business as usual, or will we see a complete overhaul of the system? Only time will tell, as we wait with bated breath for the ball to drop.  (more…)




IRS Begins Formal Assessment of CAP Program

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.




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