On August 26, 2016, the IRS's Large Business and International (LB&I) Division announced that it is not accepting new taxpayers into the CAP program while it assesses whether changes to the program are needed.

The CAP Program began as a pilot program in 2005 and was made permanent in 2011. It involves three phases: (1) pre-CAP, (2) CAP and (3) Compliance Maintenance. For details, see Tax Alert 2011-591{}. Interested taxpayers must apply for the program and participants must apply annually to continue in the program each year. Currently, there are 181 taxpayers in the program.

LB&I stated that a reassessment of the CAP program is necessary in light of its limited resources and budget constraints, as well as to ensure that the program is aligned with the LB&I's strategic vision. In determining whether changes are need, the IRS plans to take into account input from external as well as internal stakeholders.

While the assessment is underway, the IRS stated that no new taxpayers will be accepted into the CAP program for the 2017 application season that beings in September 2016. Only taxpayers currently in the CAP and Compliance Maintenance phases may still submit applications to participate in the CAP program. Taxpayers currently in the pre-CAP phase may remain in the pre-CAP phase but will not be accepted into the CAP phase. Taxpayers currently in the CAP phase may still be moved into the Compliance Maintenance phase, as appropriate.

Implications

The recent LB&I's announcement concerning the CAP program is not unexpected considering the other recent changes to the LB&I examination process (see Tax Alert 2016-472{}), which are partially due to ongoing resource constraints. These changes to the CAP program, however, adversely affect the ability of certain LB&I taxpayers to obtain tax return certainty going forward. Taxpayers currently in pre-CAP phase or that were previously considering entering the pre-CAP phase will need to adjust their tax controversy strategy due to their inability to be accepted into the CAP phase. In addition, taxpayers in the CAP and Compliance Maintenance phases should assess the benefits and challenges of staying in the program (e.g., favorable procedural provisions in planning for accounting method changes, whereby a new member of a consolidated group in CAP can receive audit protection for an accounting method change request for the tax year that member joins the group, under certain conditions) and continue to have active discussions with their IRS examination teams.

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