Background
The CAP program was launched as a pilot in 2005 and was made permanent in 2011, before putting a pause on accepting new applicants in 2016. In 2020, the IRS again began accepting new applicants into the program. The program was developed by the LB&I with the goal of improving the federal tax compliance of large corporate taxpayers. Taxpayers in the CAP program work with IRS examination teams in real time to resolve potential issues prior to the taxpayer filing its return.
Eligibility
To be eligible to be accepted into the 2023 CAP program, taxpayers must meet all the following requirements:
- Have assets of $10 million or more.
- Be a U.S. publicly traded corporation with a legal requirement to prepare and submit SEC Form 10-K, Form 10-Q, and Form 8-K (existing CAP taxpayers that are privately held or foreign-owned may remain in the program if they commit to provide financial statements prepared in accordance with U.S. GAAP).
- Not be under investigation by, or in litigation with, any government agency that would limit the IRS’ access to current tax records.
- For new applicants, have no more than three years open for examination on the first day of the applicant’s tax year. In addition, open years will have to close from the examination group no later than 12 months after the first day of the applicant’s CAP year, if accepted.
- Submit Form 14234, “Compliance Assurance Process (CAP) Application,” between Sept. 15, 2022, and Nov. 15, 2022.
CAP applicants also are required to provide the IRS with the following additional information:
- Form 14234-A, “Compliance Assurance Process (CAP) Research Credit Questionnaire (CRCQ),” disclosing information about research credits reported on the previous three filed tax returns.
- Form 14234-B, “Material Intercompany Transactions Template (MITT),” disclosing the relevant details of intercompany transactions, including attachments of transfer pricing studies and global tax organizational charts. An updated Form 14234-B is required to be filed for any new transactions during the year or for material changes to previously disclosed transactions.
- Form 14234-C, “Taxpayer Initial Issues List (TIIL),” disclosing any known or expected transactions for the upcoming year.
- Form 14234-D, “Tax Control Framework Questionnaire (TCFQ),” providing information about the applicant’s tax governance processes and the internal controls to ensure the accuracy and completeness of federal tax and information reporting.
Taxpayers accepted into the CAP program have a continuing obligation of transparency and disclosure. Specifically, taxpayers are required to make a written disclosure of material transactions and issues, along with a full description of transactions, within 30 days of a transaction being completed or the taxpayer becoming aware of issues materially affecting federal tax liability. Additionally, regardless of whether they are material to the taxpayer’s return, transactions involving tax shelters, listed transactions, transactions of interest, fraudulent transactions, LB&I compliance initiatives, LB&I directives, and emerging issues must be disclosed.
Looking ahead
CAP might not be a good fit for all taxpayers that are eligible. The transparency required and the effort involved in putting together the application and providing information each year might dissuade some taxpayers from participating. However, taxpayers that participate in the program have identified significant benefits, even as they advocate for improvements. Taxpayers interested in the CAP program should consult with their tax advisers to determine whether the CAP program would be a good fit for them and, if so, whether they are eligible to apply. Taxpayers interested in applying for 2023 must do so by Nov. 15, 2022.
