By Published On: September 30, 2019Tags: , ,

Deadline Date Is October 31, 2019

The Compliance Assurance Process (“CAP”) is an IRS pre-filing program, intended to provide a means for large corporate taxpayers and the IRS to resolve issues prior to the filing of a tax return.

CAP was introduced as a pilot program in 2005, and although it was made permanent in 2011, the IRS has not admitted new taxpayers into the program since 2015. Just a few days ago, the IRS announced that taxpayers who meet eligibility requirements can once again apply for the program. While this is great news, the application period is limited. Eligible taxpayers interested in applying for the 2020 program will need to complete “CAP Application Form 14234” no later than October 31, 2019. The form and filing instructions are available on the IRS website, under the CAP Program webpage.

Program Overview:

The IRS’s Large Business and International (LB&I) Division created the CAP program as a means to improve federal tax compliance of large corporate taxpayers by employing real-time issue resolution tools and techniques. Limited in scope to only publicly traded companies with assets of $10 million or more, the core concept of the program is that the taxpayer and the IRS work together to resolve issues prior to the tax return being filed. The program tends to be best suited for taxpayers under continuous IRS audit which have the capability to deal with the audit process in a condensed time frame. Successful conclusion of CAP results in both the taxpayer and the IRS achieving resource and time savings in the area of tax compliance, as well as the added benefit of not having to amend State income tax returns, which is generally required following the general post return filing IRS audit.

The program has been recently recalibrated to address necessary changes to disclosures by the taxpayer of tax issues and tax system internal controls/governance.

Program Eligibility:

To be eligible for CAP, new taxpayer applicants must:

  1. Have assets of $10 million or more,
  2. Be a U.S. publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K, and
  3. Not be under investigation by, or in litigation with, any government agency that would limit the IRS’s access to current tax records.

In addition, taxpayers must adhere to the CAP program limits on the number of open years. For 2020, the IRS expanded the list of open-year exceptions and developed a process for new applicants who are currently under examination.

Accepted Applicants:

Applicants should be notified of acceptance around January 31, 2020. The IRS maintains sole discretion on which taxpayers will be accepted into the program. Once accepted, the taxpayer must sign a Memorandum of Understanding, agreeing to follow the processes and procedures of the program. The IRS will then provide training and orientation to the new member of the program.

An Opportunity Seriously Worth Considering:

I have a client who has been in CAP since the program’s inception, and I personally have represented the client on the R&D portion of the return. Year-after-year, I have seen firsthand the benefits of this program.

My client has significantly shortened its annual audit time frame, and built a mutual spirit of cooperation and resolution with the IRS that has resulted in the favorable resolution of many controversial issues. Based on this positive experience, I would recommend the program to any eligible taxpayer, if they have the capability to handle an audit in a real-time condensed time frame. The benefits of pre-filing issue resolution will certainly outweigh any additional cost of resources and accounting system changes that may be needed to meet the CAP time frame.

About the Author: Michael Krajcer

Michael Krajcer, JD, CPA, is founder and President of TCG. He has spent his entire 35 year career working with the Research and Development Tax Credit. This includes a decade of experience auditing businesses who claimed it, and over 20 years of experience helping U.S. companies navigate through it. He has also resolved dozens of IRS and state audits of credit claims.