The IRS has requested (IR-2019-113) statements of interest from large public corporations interested in applying to the Compliance Assurance Process (CAP), for which it had previously suspended acceptance of new applicants in 2016. The IRS refers interested taxpayers to its statement of interest web page for additional details on CAP eligibility, criteria and instructions.

Background

CAP is a cooperative pre-filing program available to certain large taxpayers that began as a pilot program in 2005 and was made permanent in 2011. It is intended to allow the IRS and taxpayers to reach agreement on the treatment of various tax issues before a return is filed. The program involves three phases: (1) pre-CAP, (2) CAP and (3) Compliance Maintenance. For details, see Tax Alert 2011-0591.

Interested taxpayers must apply for the program and participants must apply annually to continue in the program each year. Currently, there are 169 taxpayers in the program. In August 2016, the IRS announced that it was suspending acceptance of new taxpayers into the CAP program while it assessed whether changes to the program were needed (see Tax Alert 2016-1487).

In August 2018, the IRS announced certain changes to the CAP for the 2019 filing season and future years (see Tax Alert 2018-1759).

Statements of interest due by July 26, 2019

The IRS states that taxpayers interested in applying for the 2020 CAP year should submit a statement of interest by July 26, 2019. The IRS explains that the statement of interest is a precursor to the formal application process that takes place in the fall of 2019. The IRS adds that it will use the information provided in the statements of interest by potential applicants to help determine the approach for expanding CAP in 2020. It plans to release additional details in advance of the 2020 application period that generally runs from September 1 to October 31.

Implications

The announcement suggests the IRS is willing to open the 2020 CAP tax year to new applicants under revised program criteria and more robust upfront disclosures on specific issues such as research credit and intercompany transactions. Additionally, CAP applicants will need to submit a new detailed "Tax Control Framework Questionnaire" outlining the taxpayer's tax governance processes and the system of internal controls that ensures the accuracy and completeness of the federal tax filings. The statement of interest for new CAP applicants is intended to provide the IRS an estimate of potential CAP participants in 2020 and could influence whether CAP will continue as a viable program and whether taxpayers are willing to pursue entry into CAP under the new criteria and application disclosures. LB&I executives recently stated publicly, subsequent to the announcement, that LB&I would struggle to accommodate 50 to 100 new CAP participants. It is plausible that these CAP disclosures could ultimately be adopted in the new Large Corporate Compliance program and Large Business Examination Process.

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