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CAP

Compliance Assurance Process (CAP) Permanency

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CAP Permanency

CAP Overview

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CAP Overview: History

•Pilot program began in 2005 with 17 TPs

•For 2011, 140 TPs are anticipated

•CAP phase will be permanent in 2012

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CAP Overview: What is CAP?

•LB&I compliance strategy

•Method of identifying and resolving tax issues in a real-time environment

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CAP Overview: Basic Requirements

•Open, cooperative, and transparent interaction between IRS and LB&I TPs

•TPs disclose completed business transactions and the tax issue within the transactions

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CAP Overview: IRS Benefits

•Quality work product

•Post cycle-time has decreased

•Emerging issues have been identified sooner

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CAP Overview: TP Benefits

•Certainty

•Currency

•Potential to avoid amending state returns

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CAP Permanency

CAP Permanency Phases

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CAP Permanency: Three Phases

•Pre-CAP

•CAP

•Compliance Maintenance

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CAP Permanency Phases

Pre-CAP Compliance Maintenance

CAP

TP is required to be fully cooperative and

transparent

Service and TP develop a plan to

examine tax returns of the open years within

a set timeframe

Service may adjust the level of review work

and time applied to each TP based on their

unique factors

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Pre-CAP Phase: Description

•Traditional post-file environment

•Audit conducted by a Team Coordinator (TC), not an Account Coordinator (AC)

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Pre-CAP Phase: Description (2)

•TP can apply at any time

•TP and IRS develop action plan to close transition years

•Purpose is to prepare TP to meet CAP selection criteria

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Pre-CAP Phase: Requirements

•TP works with exam team to develop action plan to prepare TP for CAP

•TP signs a Pre-CAP MOU

•TP exhibits transparency and cooperation needed to progress to CAP

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Pre-CAP Phase: Requirements (2)

•TP agrees to identify issues within transactions

•TP agrees to provide information in a timely manner to resolve issues

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CAP Phase: Description

•TP proactively provides all pertinent facts to develop material issues

•Transparency and cooperation reduces use of resources

• IRS conducts due diligence review as appropriate.

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CAP Phase: Requirements

•TP signs the CAP MOU

•TP exhibits transparency and cooperation

•TP identifies tax issues within completed business transactions

•TP meets CAP eligibility criteria

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CAP Selection Criteria

Must have assets of $10M or more

Must be a publicly held entity•Legal requirement to prepare and submit 10Ks, 10Qs, 8Ks, 20Fs and other disclosure type forms to the SEC or equivalent regulatory body

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CAP Selection Criteria (2)

Privately held entities will be eligible if they are able to provide to the Service certified, audited financial statements or equivalent documentation on a quarterly basis

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CAP Selection Criteria (3)

• Must not have more than two income tax returns under consideration by the Service.

• Must not be in litigation with the Service and not under investigation that would limit access to books.

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CAP Application Example

2008/12Filed

2009/12Filed

2010/12Filed

2011/12Filed

09/15/2012

2013/12

Pre-CAP Years

2012/12Unfiled

Transition Years(Intervening Yrs.)

CAP

Year

The CAP

Assumption: 2013 will be the first CAP Year - 1 filed and 1 unfiled return plus the CAP Year. This is the structure presumed to be as of 10/31 of the year preceding the CAP Year.

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Compliance Maintenance Phase:

Description

•Teams conduct reduced scope and depth review

•Level of review based on• TP’s experience in CAP

• TP’s history of compliance and risk

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Compliance Maintenance Phase: Description (2)

•Allows ACs to manage more than one CAP case

•TP can move between CAP and Compliance Maintenance depending on the number and complexity of transactions

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Compliance Maintenance Phase: Requirements

•TP completed one CAP cycle through post-file

•TP maintains professional relationship with CAP team

•TP maintains consistency in tax department personnel

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Compliance Maintenance Phase: Requirements (2)

• TP must continue to maintain full transparency and cooperation

• TP must disclose all material transactions and the tax issues within the transactions

• TP has good internal controls

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Compliance Maintenance Phase: Requirements (3)

• Historically, throughout CAP:

• TP has low risk transactions

• TP has limited controversy

• TP has minimal non-complex issues anticipated for the CAP Year

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CAP Program Information

Resources – External Website•External CAP website – See irs.gov

• Internal Revenue Manual

• MOUs

• FAQs

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Questions

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