On this page CAP overview How to apply for CAP Eligibility and suitability criteria New taxpayer rule Phases of CAP Issue identification, disclosures and materiality thresholds for taxpayers in the CAP or Compliance Maintenance (CM) Phases Issue development and resolution Termination and withdrawal during the pre-filing period Miscellaneous CAP overview Q1. What is the Compliance Assurance Process (CAP) program? Large Business and International (LB&I) Division developed the Compliance Assurance Process (CAP) to improve the federal tax compliance of large corporate taxpayers. CAP employs real-time issue resolution tools and techniques. In the CAP, the IRS and taxpayer work together to achieve tax compliance by resolving issues prior to the filing of the tax return. Successful conclusion of the CAP allows the IRS to achieve an acceptable level of assurance regarding the accuracy of the taxpayer’s filed tax return and to substantially shorten the length of the post-filing examination. Q2. What benefits does the CAP program provide to the taxpayer and the IRS? While the CAP is not suitable for every taxpayer, it can deliver significant benefits to taxpayers and the IRS when the CAP is working as intended: Resolves issues prior to filing and provides tax certainty sooner. Allows real-time review of transactions and promotes voluntary compliance. Provides resource and time savings to both the IRS and taxpayers. Complements current corporate governance and accountability. Reduces the need for taxpayers to amend state tax returns. Provides earlier identification of new and potentially emerging issues. Q3. What are the challenges of the CAP program? While the CAP Program can deliver significant benefits to both the taxpayer and the IRS, there are challenges. Resource constraints may affect timely issue resolution. Reticence to view the other party as a partner and to be less adversarial may elongate the process. Aggressive timelines do not necessarily correspond to the complexity of certain issues. Due to the complexity of certain issues, taxpayers may have more than one open filed tax year and one open unfiled tax year when the new CAP year begins. Q4. What is the CAP Memorandum of Understanding (MOU)? (updated Oct. 24, 2024) The same standardized CAP Program MOU is used for each of the three phases of the CAP Program: CAP, Compliance Maintenance (CM) and Bridge Plus. The annual CAP MOU sets the expectations and requirements for both the taxpayer and the IRS. The only variable elements to the MOU are the taxpayer's name, EIN, and tax year. Q5. Do taxpayers waive any rights as a result of entering into a CAP MOU? No. As in traditional post-filing examinations, the IRS will respect all taxpayer rights and privileges. Q6. How can I learn more about the CAP program? The IRS LB&I Division manages the CAP Program. For additional information about and updates to the CAP Program, please visit the CAP webpage on IRS.gov. How to apply for CAP Q1. What is the CAP application process? The application forms and information about the CAP application process are available on the Compliance Assurance Process webpage. Taxpayers must apply for the CAP Program each year. The application period is generally from September 1st through October 31st. Eligibility and suitability criteria Q1. What are the eligibility requirements for a taxpayer in the CAP program? (updated Oct. 24, 2024) A CAP taxpayer must be a U.S. publicly held or U.S. privately held C-corporation, including foreign owned, with assets of $10 million or more. A CAP taxpayer must not be under investigation by, or in litigation with, the IRS or any Federal or state agency which would limit access to current corporate tax records. If currently in the CAP Program, the taxpayer must not have more than one filed return and one unfiled return open on the first day of the CAP applicant’s tax year. For further details and updates see the CAP eligibility and suitability criteria on IRS.gov. Q2. Which types of financial statements are taxpayers required to prepare to be eligible for the CAP program? (updated Oct. 24, 2024) U.S. C-corporation taxpayers are required to file SEC Forms 10-K, 10-Q and 8-K; or timely provide unaudited quarterly and audited annual financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS) or another permissible method, as deemed appropriate by the IRS. Q3. What type of financial statements are grandfathered partnerships required to provide to be eligible for the CAP Program? (updated Oct. 24, 2024) Grandfathered partnerships must provide unaudited quarterly and audited annual U.S. GAAP financial statements to be eligible for the CAP Program. The disclosures presented in the notes of the quarterly and annual financial statements must fulfill the same requirements as in SEC reporting to be eligible for the CAP Program. Q4. When do the grandfathered CAP partnerships submit audited U.S. GAAP annual financial statements to the CAP Program? (updated Oct. 24, 2024) The grandfathered CAP partnerships must submit audited U.S. GAAP annual financial statements to the CAP Program 90 days after their year-end. Q5. When do the grandfathered CAP partnerships submit unaudited U.S. GAAP quarterly financial statements to the CAP Program? (updated Oct. 24, 2024) The grandfathered CAP partnerships must submit unaudited quarterly financial statements under U.S. GAAP 45 days after the end of the quarter. Q6. What are the exceptions to the closed case eligibility criteria? (updated Oct. 24, 2024) The closed case eligibility criteria state that if currently in the CAP Program, must not have more than one filed return and one unfiled return open on the first day of the applicant’s CAP year. However, there are certain exceptions. See the exceptions listed in the CAP eligibility and suitability criteria page. Q7. Which investigations must the taxpayer in the CAP program disclose to the account coordinator? Taxpayers in the CAP Program must disclose any federal or state agency investigation that could limit the Service’s access to corporate books and records or could result in a material tax item. Q8. What are the suitability requirements for the taxpayer in the CAP program? (updated Oct. 24, 2024) Must adhere to all the CAP MOU commitments Must timely respond and provide complete responses to formal and/ or informal information requests Must engage in meaningful or good faith issue resolution discussions Must thoroughly disclose material items, Schedule Uncertain Tax Positions (UTP) items, tax shelters and listed transactions in a timely manner Must timely provide complete and accurate Material Intercompany Transactions Templates (MITTs) and Cross Border Activities Questionnaires (CBAQs) Must not file frequent claims For further details and updates see the CAP eligibility and suitability criteria on IRS.gov New taxpayer rule Q1. What is the rule for new applicants to the CAP program who are under examination? (updated Oct. 24, 2024) For new applicants to the CAP Program, the applicant is eligible for participation in the program if the applicant has no more than three tax years under examination on the first day of the CAP applicant’s tax year. The examination team would determine (and the accepted applicant would concur by signing the CAP MOU) that it is feasible these open years could close from the examination group no later than 12 months after the first day of the CAP applicant’s tax year, if accepted. Q2. For new applicants to the CAP Program, how will unexamined returns with open statutes be treated? Unexamined returns with an open statute will be risk assessed as part of the required compliance check for the first CAP year to determine if an examination is warranted. See the CAP eligibility and suitability criteria for more details. Q3. For new taxpayers accepted to the CAP program, if the examination team determines that prior year material issues should be examined, how will those prior year returns be treated? Any unexamined returns that are placed under examination will be treated as one filed return for purposes of the return criterion. These returns must be closed by the first day of the third CAP year or the applicant may not be eligible to participate in the third CAP year. See the CAP eligibility and suitability criteria for further details. Phases of CAP Q1. What are the phases of the CAP program? (updated Oct. 24, 2024) The CAP Program has three phases: the CAP Phase, the Compliance Maintenance (CM) Phase and the Bridge Plus Phase. Q2. What is the CAP Phase? In this phase, the parties work contemporaneously to achieve compliance and certainty by resolving all or most tax positions prior to filing of a tax return. A successful pre-filing review allows the IRS to achieve an acceptable level of assurance regarding the accuracy of the taxpayer’s filed tax return. The taxpayer will proactively provide the IRS with pertinent facts in order to develop material issues. Transparency and cooperation should reduce the taxpayer’s and the IRS’ use of resources. Within 30 days of the date the return is filed, the taxpayer will provide a Post-Filing Representation that states that the filed return is consistent with the pre-filing resolution agreements. The representation must be signed by an officer of the taxpayer with authority to sign the taxpayer’s U.S. income tax returns. Q3. What is the Compliance Maintenance (CM) Phase? (updated Oct. 24, 2024) In the CM Phase, the IRS, at its discretion, will adjust the level of review of the tax year based on the complexity and number of issues. It is important to note that the CM Phase relies on the same provisions as the CAP Phase. The same MOU and criteria that apply to the CAP Phase also apply to the CM Phase. Taxpayers will need to continue to make open, comprehensive, and contemporaneous disclosures of their completed business transactions in CM. After the taxpayer’s annual application for the CAP Program, LB&I will consider if CM or another phase is appropriate and will consider the taxpayer’s history of compliance, cooperation and transparency in the CAP Program. To be eligible for the CM Phase The taxpayer has completed at least one CAP cycle through post-filing. The taxpayer and the IRS have an effective pre-filing process in place and have a history of concluding post-filing examinations timely. A taxpayer in the CM Phase has a history of generally receiving Full Acceptance Letters and has relatively few issues to be considered. Q4. What is the Bridge Phase? (updated Oct. 24, 2024) The Bridge Phase had been reserved for taxpayers whose risk of noncompliance did not warrant the continual use of LB&I examination resources. The IRS did not accept any taxpayer disclosures, did not review any issues and did not provide any assurance. If the taxpayer had a specific issue on which it wanted certainty, the taxpayer was able to request a Pre-Filing Agreement (PFA) for that issue. A taxpayer selected for the Bridge Phase remained in the CAP Program, executed the CAP MOU, and was considered as a returning taxpayer when applying for the CAP Program in the next application period. See the Bridge Phase frequently asked questions for more details The Bridge Plus Phase, which became permanent for the 2025 CAP Cycle, replaced the Bridge Phase starting with the 2024 CAP Cycle. Q5. What is the Bridge Plus Phase? (updated Oct. 28, 2024) The Bridge Plus Phase is reserved for taxpayers whose risk of noncompliance does not warrant the continual use of LB&I examination resources but allows for a risk assessment of a taxpayer’s tax return information. The taxpayer is required to provide book-to-tax reconciliations, credit utilization and other supporting documentation shortly after their audited financial statements are finalized. An IRS team will then risk assess the documents. Taxpayers will be required to submit a draft tax return 30 days before the filing of their tax return with the IRS. The IRS team will review the draft return for consistency with the taxpayer’s prior submissions. If the draft return is consistent, the taxpayer will be instructed to file a return. If the filed return is consistent with prior submissions, the taxpayer will be issued the appropriate acceptance letter. The same MOU that applies to the CAP and CM Phases also applies to the Bridge Plus Phase. To be eligible for the Bridge Plus Phase The taxpayer has consistently participated in CM cycles through post-filing. The taxpayer and the IRS have an effective pre-filing process in place and have a history of concluding post-filing examinations timely. The taxpayer has a history of generally receiving Full Acceptance Letters and has relatively few issues to be considered. Issue identification, disclosures and materiality thresholds for taxpayers in the CAP or Compliance Maintenance (CM) Phases Q1. How are issues identified for the Issues List? (updated Oct. 24, 2024) As part of the CAP Program application process, the taxpayer will submit Form 14234-C, Taxpayer Initial Issues List. The taxpayer will disclose known or expected transactions for the upcoming CAP tax year. The taxpayer and CAP team will work together to determine which of these preliminary issues will be included as part of the CAP review. In addition to issues disclosed by the taxpayer, the IRS may identify issues for potential consideration based on the review of various sources of information, such as SEC filings. As the CAP year progresses, the taxpayer will make contemporaneous disclosures of all additional material issues. Q2. What is the taxpayer required to disclose? Taxpayers are required to make disclosures of material transactions and issues. Taxpayer disclosures must be in writing and include a full description of each step in the process, the historical facts, the surrounding circumstances, the proposed reporting position, and the associated tax authority. Taxpayers must disclose uncertain transactions below the materiality threshold if those transactions would ordinarily need to be reported on Schedule UTP. Q3. What must a taxpayer provide to meet the 30-day issue disclosure requirement? (updated Oct. 24, 2024) Taxpayers make open, comprehensive, and contemporaneous disclosures of their material issues. To be considered contemporaneous, an issue must be disclosed within 30 days of the transaction being completed or of becoming aware of an issue having a material impact upon the federal income tax liability. While the MOU states that the issue must be “fully” disclosed within 30 days, there is recognition that taxpayers may not have all the information needed to make a full disclosure at the 30-day juncture. As such, a taxpayer will meet this requirement by providing as much information as possible within 30 days (sufficient information to facilitate preliminary resource planning and risk assessment by the CAP team) and completes its full disclosure within 90 days of the transaction being completed or of becoming aware of an issue having a material impact upon the federal income tax liability. The MOU continues to provide that the latest date for the taxpayer to submit disclosures is 90 days after the end of the tax year for the issue to be worked in pre-filing. The previous quarterly disclosure model was not sufficiently contemporaneous. A 30-day disclosure timeframe is rooted in allowing sufficient time for issue resolution in a pre-filing environment. Having a contemporaneous disclosure model better positions the taxpayer to meet the number of years eligibility criteria going forward. Q4. What are materiality thresholds and how are they used? Materiality thresholds are mutually agreed upon amounts that are used as a guide for both the IRS and the taxpayer in determining which issues and transactions to review. There are separate thresholds for permanent and timing items and tax credits. The taxpayer and the IRS will openly discuss situations where exceptions to the materiality threshold may be warranted. However, the ultimate decision of identifying issues for the compliance review remains within the discretion of the IRS. Materiality thresholds do not affect any adjustment to arrive at the corrected tax return amount on an Issue Resolution Agreement (IRA), or an adjustment to the tax return on a Form 5701 Notice of Proposed Adjustment (NOPA). Q5. Which items must be disclosed without regard to materiality thresholds? Tax shelters Listed transactions Transactions of interest Fraudulent transactions LB&I compliance initiatives LB&I directives Emerging issues Issue development and resolution Q1. How are issues developed in the CAP and CM Phases? (updated Oct. 24, 2024) The IRS reviews completed business transactions in real-time when the necessary specialists, experts and records are available. The taxpayer must facilitate the participation of their knowledgeable employees in issue development. The taxpayer must fully disclose and provide all pertinent information. Both the IRS and the taxpayer must agree that all the relevant facts have been provided. Q2. How are issues resolved in the CAP and CM Phases? (updated Oct. 24, 2024) Once an issue has been fully disclosed by the taxpayer during the pre-filing period, the IRS will ordinarily have 90 days to complete the review and determine agreement or disagreement with the tax treatment. If additional time is required beyond the 90 days to complete a review of the issue, the territory manager in collaboration with the issue territory manager, if applicable, may approve additional time. The IRS will promptly inform the taxpayer of any approved extensions of time. Issue resolution is structured to provide timely specialist and Counsel support throughout the process. If for some reason resolution cannot be reached in the pre-filing environment, the IRS will issue a Partial Acceptance Letter and allow the resolution process to continue in a post-filing examination. All issue resolution tools remain available to the CAP team and taxpayers throughout the pre-filing and post-filing activities. Q3. Does the CAP program put the IRS in the business of providing tax advice? The CAP Program does not put the IRS in the business of providing tax advice. The CAP team reviews fully disclosed completed business transactions and determines the resulting tax consequences. Q4. What is a completed business transaction? A completed business transaction is one where the tax treatment of that transaction or item can no longer be affected by events that have not yet occurred. “Because the CAP Program does not change existing Service procedures for issuing determinations regarding prospective transactions or incomplete transactions and oral discussions of these types of transactions present significant hazards, CAP teams should not discuss with taxpayers the tax implications of any transaction or item until the tax treatment of that transaction or item can no longer be affected by events that have not yet occurred.” CCA No. 200944040 Q5. What is a prospective or incomplete transaction or issue? A prospective transaction is one that has not yet occurred. CCA No. 200944040 An incomplete transaction or issue is one for which the tax consequences may be affected by events that have not yet occurred. CCA No. 200944040 Q6. Can the Fast Track Settlement (FTS) issue resolution tool be used in the CAP Program? (updated Oct. 24, 2024) Fast Track is available as an issue resolution tool for suitable issues during both pre-filing and post-filing. If the tax treatment of an issue is unagreed between the parties after 90 days from the date of full disclosure, or different period if an extension is approved, the IRS CAP Team can make an application to FTS. If the IRS offers FTS, the taxpayer must agree to FTS and both parties will make a good faith attempt to resolve the disagreement. If an issue is still unagreed after FTS, the taxpayer and IRS may use other applicable issue resolution processes such as a submission to Appeals. Once the taxpayer utilizes FTS in pre-filing, it cannot be used for the same issue during post-filing. Q7. How will the CAP affect the appeals process? All appeals rights will remain available to the taxpayer. Q8. What are Full and Partial Acceptance Letters? (updated Oct. 24, 2024) Full Acceptance Letters are issued if all the issues under consideration have been resolved in the pre-filing period or the CAP team agrees with the tax return presentation by the 45th day after the tax return filing. Partial Acceptance Letters are issued if one or more issues are unresolved at the end of the pre-filing period and remain unresolved by the 45th day after the tax return filing. Q9. What is the CAP conclusion and post-filing exam? The IRS and the taxpayer will conduct a joint post-filing exam to verify that all items or issues were reported and disclosed as agreed and there were no new items or issues on the return that were not disclosed. The Full or Partial Acceptance Letter will be issued after the team reviews the taxpayer’s Post-Filing Representation. If the items or issues were reported as agreed and no new items or issues were discovered, the IRS will issue a No Change Letter to conclude the exam. If the items or issues were not reported as agreed, or new items or issues are identified in post-filing, an issue focused examination will be conducted for those items or issues and normal post-filing procedures will be followed. Termination and withdrawal during the pre-filing period Q1. What is the termination process in the CAP program? If the taxpayer or the IRS is unable or has failed to comply with the responsibilities and obligations contained in the CAP Memorandum of Understanding (MOU), the parties will attempt to resolve their concerns. If the concerns cannot be resolved and the IRS determines that the taxpayer continues to fail to adhere to the terms of this MOU, the territory manager assigned to the case will issue a written notice of the IRS concerns. If the stipulated concerns are not resolved within 30 days after receiving a written notice of IRS concerns, the DFO assigned to the case will issue a termination letter to the taxpayer and the taxpayer’s participation in the CAP Program will cease. The IRS may then conduct a traditional post-filing examination of the taxpayer’s return after it is filed. Q2. What is the withdrawal process in the CAP program? If at any time during pre-filing the taxpayer determines it cannot comply with the MOU requirements, the taxpayer may submit a written request to withdraw from the CAP and the IRS will issue a termination letter. Miscellaneous Q1. Does the pre-filing period process constitute an examination? (updated Oct. 24, 2024) The IRS’ participation in the pre-filing review during the CAP, Compliance Maintenance (CM) or Bridge Plus Phase does not constitute an examination or inspection of the taxpayer’s books of account for purposes of IRC section 7605(b). Q2. Who is the primary contact for a taxpayer in the CAP program? The Account Coordinator (AC) is the primary contact for the taxpayer. Q3. What is the CAP plan? (updated Oct. 24, 2024) The CAP plan includes essential aspects of the process, including the organizational structure, materiality and other pertinent agreements, communications agreement (taxpayer contacts), IRS CAP team members and the timeline. The CAP plan attaches certain documents including but not limited to the CAP MOU, the initial issues list and any approved digital communications agreement. The Bridge Plus Phase does not utilize the CAP plan. Q4. When are taxpayers in the CAP program required to file Schedule UTP with their tax return? CAP taxpayers with uncertain tax positions at their tax return filing will be required to file Schedule UTP. Q5. How are short year returns for corporate acquisitions and dispositions handled in CAP? (updated Oct. 24, 2024) An acquired entity that is owned 100% by the CAP taxpayer and files as part of the consolidated return post-acquisition is subject to the CAP MOU for that period. The short year return of the acquired entity (the period before the entity was acquired) can be reviewed in the CAP environment if the CAP taxpayer has control over the preparation of the short period return. The short period return for an entity departing the consolidated group of the CAP taxpayer (the period before the entity departed) is subject to the CAP MOU. The departed entity’s tax return for the period after the departure should not come under the purview of the CAP MOU since the departing entity is no longer under the control of the CAP taxpayer. Q6. If a CAP Program taxpayer owns an interest in another entity, when can completed business transactions of that entity be worked? If a CAP Program taxpayer owns 100% of a corporation or partnership, either directly or indirectly, the completed business transactions of that entity can be worked in real-time before the entity return is filed since it is deemed to be covered by the CAP Memorandum of Understanding (MOU). Such transactions must be material and, as with any issue in CAP, the ultimate decision of which issues will undergo compliance review remains within the discretion of the IRS. If a CAP Program taxpayer does not own 100% of a corporation or partnership, either directly or indirectly, the completed business transactions of that entity cannot be worked until the entity return is filed since it is not deemed to be covered by the CAP MOU. Q7. Does Rev. Proc. 2022-39 apply to CAP taxpayers? The procedures of Rev. Proc. 2022-39 are not applicable to CAP taxpayers. Q8. Does the Information Document Request (IDR) Directive issued on February 28, 2014, apply to CAP taxpayers? The requirements in attachment 1 of the Directive issued on February 28, 2014, for issuing IDRs apply to the pre-filing and post-filing period of CAP cases. However, the IDR enforcement process outlined in attachment II of the Directive applies to only filed returns and would only apply during the post-filing period of CAP. Q9. What are the procedures when a taxpayer files a “bare-bones” or “skeletal” return? Taxpayer must provide advanced notice to the CAP team. Pre-filing procedures will continue until the superseding return is filed.
