On December 12, 2005, the IRS announced that it was initiating the CAP pilot for large business taxpayers. The objective of this pilot was "to reduce taxpayer burden and uncertainty while assuring the Service of the accuracy of tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations." See Announcement 2005-87, 2005-50 IRB 1144.

Subsequent significant announcements about the CAP program are listed here to document the history of the program:

See IRM 4.46.1.1.3, General Information and Definitions, Roles and Responsibilities.

The CAP program tracks and captures CAP case data from the geographic practice areas on a monthly basis in two reports. The reports (CAP Summary and CAP Measures) are provided to Portfolio Management.

The CAP program uses the LB&I CAP Application and Recommendation Tracking System (CAP Tracking System) to provide consistency to the application and recommendation process. The CAP Tracking System maintains a record of current and historical taxpayers in the CAP program, the required application, the risking forms, the recommendation form, and the CAP Memorandum of Understanding (MOU). The CAP Tracking System is also used to maintain updated taxpayer and IRS contact information.

Commonly used acronyms are listed below.

See Compliance Assurance Process website on IRS.gov for application forms, FAQs and additional information.

To be eligible for participation in the CAP program, a taxpayer must meet the following criteria:

A return is treated as closed for purposes of the open return criterion if it has been "closed in examination" with Status Code 90 or qualifies for one or more of the following exceptions:

All new CAP taxpayers under examination can have no more than three tax years open for examination on the first day of the taxpayer's CAP year and all parties concur that these open years must close from the examination group no later than 12 months after the first day of the taxpayer’s CAP year. For all new taxpayers, any unexamined return with an open statute will be risk assessed as part of the required compliance check for the first CAP year. If the examination team determines that a material issue should be examined, the return with that issue may be placed under examination. 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 end of the second CAP year or the taxpayer may not be eligible to participate in future CAP years.

Because the CAP program is based on the transparent and cooperative interaction between the taxpayer and the IRS, a taxpayer that does not exhibit this type of behavior is not suitable for the CAP.

Examples of significant or material failures to exhibit transparent and cooperative behavior include, but are not limited to:

A taxpayer interested in participating in the CAP program that meets the eligibility and suitability criteria must complete the CAP application form and any related documents for acceptance into the CAP.

The application must be submitted annually during the application period immediately preceding the CAP year. The application period is generally from September 1st to October 31st but may be subject to change on a year-to-year basis. The application period for each year will be announced in advance of the application period opening.

The application is available on IRS.gov and should be submitted by one of the following methods:

The CAP team members assigned to the taxpayer will evaluate the application to determine if the taxpayer meets the eligibility and suitability criteria and will forward a recommendation to the LB&I Geographic Compliance Practice Area Director through the Specialist and Geographic Directors of Field Operations (DFOs) with jurisdiction over the taxpayer.

In evaluating an application, the IRS will consider factors such as:

If a taxpayer’s application is approved by the IRS, the taxpayer will be notified, in writing, via a Notification of Acceptance Letter signed by the territory manager assigned to the taxpayer, that it was accepted into the CAP program and selected for one of the three phases of the CAP.

After receiving the Notification of Acceptance Letter, the taxpayer must execute a standardized CAP MOU that outlines the CAP requirements and establishes the agreement to meet the requirements. The MOU must be executed by the taxpayer and returned to the AC by the requested date to secure its participation in the CAP program. Once the MOU is executed by the IRS and taxpayer, the taxpayer will be accepted into the CAP program. The CAP MOU is available on IRS.gov.

The IRS, in its sole discretion, may decline to approve a taxpayer’s application whenever warranted by the facts and circumstances of the application or in the interest of sound tax administration. If a taxpayer’s application is not approved by the IRS, the taxpayer will be informed, in writing, by the territory manager assigned to the taxpayer, that it was not accepted into the CAP program and the reason or reasons why it was not accepted.

Adherence to the processes and procedures established by the CAP MOU is an integral part of identifying, developing and resolving issues, and assuring the IRS of the accuracy of the return. Failure to comply with the terms of the MOU will result in removal of the taxpayer from the CAP program.

Once a taxpayer is accepted into the CAP program, the IRS will assign an AC to the taxpayer. The AC serves as the primary IRS representative, facilitates tax compliance and provides a single point of contact for all federal tax matters.

The IRS will also provide a list of additional IRS participants on the CAP team to the taxpayer. The IRS team members will include, but may not be limited to, the team manager, the territory manager and the director of field operations (DFO). Similarly, the taxpayer must provide a list of designated personnel to act as points of contact for gathering information, answering questions and resolving issues by attaching a Form 2848, Power of Attorney and Declaration of Representative.

The taxpayer is expected to make open, comprehensive and contemporaneous disclosures of the material issues.

A material issue is defined as any recurring or repeating issue that has a change exceeding the materiality threshold, any new issue that exceeds the materiality threshold, or any other issue that is required to be reserved or reported on Schedule UTP. An issue is defined as a completed business transaction, an item, a change in accounting method or any other issue with material tax impact.

To be considered comprehensive, the material issue must be disclosed in writing and the full disclosure must include the historical facts, surrounding circumstances and proposed tax position to include the law relied upon to develop the position.

To be considered contemporaneous, the material completed transaction or item affecting the taxpayer’s income tax liability must be disclosed within 30 days of its completion. If the taxpayer is unable to provide a full disclosure by the 30-day mark, they may meet the contemporaneous requirement if they provide as much information as available within the 30 days and a full disclosure within 90 days of the completed transaction or of learning of an issue that may affect the taxpayer’s income tax liability.

To allow sufficient time for issue resolution in pre-filing, the latest date for the taxpayer to submit disclosures is 90 days after the end of the tax year. Disclosures received after this date will be accepted but may not be reviewed in pre-filing.

The AC will maintain an issues list which contains the material issues disclosed by the taxpayer or identified by the IRS that will be reviewed by the IRS. Any disputes regarding which material issues will be included on the issues list will be elevated to the territory manager. However, the ultimate decision regarding which material issues will be reviewed remains within the discretion of the IRS.

The taxpayer will submit an initial issues list with the CAP application. By the date of the opening conference, the parties will jointly determine which material issues will be included on the initial issue list. Additional material issues may be added to the issues list during the CAP year by taxpayer disclosure or IRS identification, but may only be added with the approval of the territory manager.

If issues are added to the issues list without consultation with the taxpayer, the taxpayer should elevate this situation to the DFO.

The parties will jointly determine the scope of the CAP review by setting materiality thresholds that will be a guide to selecting issues for disclosure and review. The parties will openly discuss where exceptions to the materiality thresholds may be warranted. However, the IRS retains final discretion for identifying issues. In addition, materiality thresholds may be reconsidered during the CAP year.

Materiality thresholds are used in the CAP for the taxpayer to know which issues should be disclosed. They are not relevant to the adjustments that may be made regarding the tax consequences of such issues. Therefore, adjustments to issues may be made that are below the relevant materiality thresholds.

The materiality thresholds will be documented in the CAP Plan and apply only to the relevant CAP year. The CAP Plan will be discussed during the opening conference and a copy provided to the taxpayer at this time or shortly thereafter.

Notwithstanding the materiality thresholds and issue identification process discussed above, the IRS may consider the following items for compliance review regardless of when or how they are identified:

In addition, obvious computational/mathematical or accounting errors/omissions that are not technical or legal in nature may be corrected.

Taxpayers will provide information and documentation proactively and as requested by the AC and other team members. The team will promptly review all relevant information provided and will communicate to the taxpayer whether:

Taxpayers will provide the IRS with:

Privately held U.S. C-corporations, including foreign owned, must timely provide the IRS with unaudited quarterly and audited annual financial statements for the entity in the CAP program. These financial statements must be 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. Grandfathered partnerships must provide financial statements prepared in accordance with U.S. GAAP on the same timeline.

Taxpayers will provide the AC with tax schedules and computations for all rollover and recurring adjustments from any previously examined and closed period that impact the CAP year, including the impact of any closing agreements or Appeals settlements. The taxpayer will provide these initial disclosures by the date of the opening conference. The parties will discuss the effect of such adjustments on the CAP year and any unexamined year and incorporate any changes as appropriate.

The taxpayer will provide notice and documentation of any subsequent issue resolutions from a prior examination within 15 business days of the resolutions. The parties will discuss the effect of such resolutions on the CAP year and any unexamined year and incorporate any changes as appropriate.

The taxpayer will immediately notify the AC of any investigation initiated on the taxpayer by a federal or state agency. The notification should include:

The taxpayer will notify the AC of any foreign initiated examinations or assessments that may impact income, expenses or credits reported in the United States, for the current or prior tax years, and will update this information on a quarterly basis as the information becomes available.

All information provided to the IRS in connection with the CAP is return information protected from disclosure by the confidentiality provisions of IRC 6103.

Ordinarily, a formal Information Document Request (IDR) should not be necessary in CAP and informal requests should be sufficient. However, if it is necessary to issue an IDR, the scope of the IDR should be discussed and the parties should reach a mutually agreed upon due date for the response.

The requirements for issuing IDRs, outlined in IRM Exhibit 4.46.4-1 , apply to both the pre-filing and post-filing periods of CAP. However, the IDR enforcement process outlined in IRM Exhibit 4.46.4-2, applies only to filed returns and a delinquency notice and subsequent summons may only be issued during the post-filing period of CAP.

The IRS will promptly evaluate the IDR response for completeness and, after a thorough analysis of the response, will discuss the results of the review with the taxpayer. The parties must strive for urgency during this real-time compliance review process to meet the CAP program goals.

The IRS and taxpayers should interact on a regular basis. Calls and meetings should be held as needed to discuss and provide relevant information and documentation, and to discuss the status of the CAP and resolve concerns as they arise during the CAP. The parties should have in attendance representatives with sufficient authority to resolve any concerns being addressed.

Since the CAP program relies on the transparent and cooperative interaction of the parties, the IRS and taxpayer should meet as needed to evaluate and document the transparency and cooperation of the parties.

Typically, in the CAP, summons are not necessary but may be issued in the post-filing period only. Letter 2205-L , LB&I Initial Contact, must be issued to the taxpayer prior to the issuance of a summons.

Once both parties agree that an issue has been fully disclosed, the IRS will ordinarily have 90 days to resolve the issue during the pre-filing period. If additional time is required, the case territory manager, in collaboration with the issue territory manager, may approve additional time. The IRS will promptly inform the taxpayer of any approved time extensions.

The IRS and taxpayer should regularly engage in discussions for resolving any factual or technical differences related to the identified material issues.

The CAP team member must draft and provide the taxpayer with an Issue Resolution Agreement (IRA) during the pre-filing period as the issues are completed in the following circumstances:

As stated above, agreed issues require preparation of an IRA. However, for agreed issues, the IRS may use an IRA that includes only a brief description of the issue on the IRA form.

For pre-filing unagreed issues, the IRS must attach a Form 886-A, Explanation of Items, following the format and components used in regular examinations. See IRM 4.46.6.10.

During the post-filing period, use an IRA if the return amount on the IRA is equal to the amount reported on the tax return. This shows there is no proposed adjustment to the filed tax return.

Upon the issuance of an IRA, the parties will mutually agree to a timely response date. In the response, the taxpayer will indicate its agreement or disagreement with the IRA. If the taxpayer disagrees with the IRA, the taxpayer will state, in writing, the relevant facts and legal arguments for its position.

If for any reason the taxpayer is unable to comply with the due date of an IRA response, the taxpayer will notify the IRS immediately, explain the circumstances for the delay, and the parties will agree to a revised due date.

Ordinarily an IRA is sufficient for documenting the resolution of most material issues. However, as deemed appropriate, the IRS may prepare a Form 906, Closing Agreement, based on the completed IRA. Issues resolved using closing agreements may be, but are not limited to, large or controversial issues.

If the issue is eligible for the Fast Track Settlement (FTS) process and still unresolved after 90 days or a different period if an extension is approved, the IRS will initiate the FTS process and the taxpayer must agree to participate in the process. If the issue is still unresolved after the FTS process, the taxpayer retains its traditional appeal rights.

Within 30 days of the date the return is filed, the taxpayer will provide the IRS Form 14234-F, Post-Filing Representation by Taxpayer, executed by an officer of the taxpayer with authority to sign the return. The Form 14234-F, Post-Filing Representation by Taxpayer, includes:

If, after the receipt and review of Form 14234-F, Post-Filing Representation by Taxpayer, the IRS determines that all material issues have been disclosed and resolved through simple factual clarification, issue resolution agreement or closing agreement, the IRS will provide the taxpayer with a Full Acceptance Letter.

The Full Acceptance Letter constitutes written confirmation that, subject to the completion of the post-filing review of the return, the IRS will accept the taxpayer’s return if it is filed consistent with the resolutions of the resolved issues and no additional material issues or correlative adjustments are discovered during the post-filing review that were not previously disclosed.

If, after the receipt and review of Form 14234-F, Post-Filing Representation by Taxpayer, the IRS determines that the taxpayer did not disclose all material issues or that the IRS and the taxpayer did not resolve all identified material issues, the IRS will provide the taxpayer with a Partial Acceptance Letter.

The Partial Acceptance Letter constitutes written confirmation that, subject to the completion of the post-filing review of the return, the IRS will accept the taxpayer’s return, but for the undisclosed and unresolved material issues and correlative adjustments, if the return is filed consistent with the resolutions of the resolved issues and no additional material issues and correlative adjustments are discovered during the post-filing review that were not previously disclosed.

After a taxpayer files its return, the AC will secure a copy of the return and initiate the post-filing review. The goal for completing this review when a Full Acceptance Letter has been issued is within 60 days of the filing of the return.

During the post-filing review, the IRS and the taxpayer will jointly review the filed return to verify that all material issues were disclosed and resolved and that all resolved issues were reported as agreed.

The pre-filing review during the CAP does not constitute an examination or inspection of the taxpayer's books of account for purposes of IRC 7605(b).

Wholly owned entities of the CAP taxpayer are included in the CAP program and deemed covered by the CAP MOU.

Non-income tax returns, such as, Forms 940, 941, 5500, 720 and 1042 are not included in the CAP and may be the subject of post-filing examinations.

In addition, partnerships and other entities that are not 100% owned by members of the taxpayer's consolidated group are not included in the CAP and may also be the subject of post-filing examinations.

The procedures of Rev. Proc. 2022-39 are not applicable to CAP taxpayers.

The taxpayer will make open, comprehensive and contemporaneous disclosures of its research activities.

The taxpayer will prepare and submit Form 14234-A, CAP Research Credit Questionnaire (CRCQ) in accordance with the form instructions and other guidance posted to the CAP page on IRS.gov.

The AC will review the completed CRCQ and prepare the Account Coordinator Evaluation of the form.

The Research Risk Review Team (RT) will review the completed CRCQ and risk assess the taxpayer’s research credit and amortization of research and experimental expenditures.

The RT will communicate the results of its risk assessment to the AC during the planning phase of the pre-filing review.

If consensus is not reached between the RT and CAP teams regarding the scope of the review of the research credit and amortization of research and experimental expenditures, the matter will be elevated to the next level of management.

The taxpayer will make open, comprehensive and contemporaneous disclosures of its material transfer pricing transactions.

The taxpayer will disclose its material transfer pricing transactions by preparing Form 14234-B, Material Intercompany Transactions Template (MITT) in accordance with the form instructions and other guidance posted to the CAP page on IRS.gov.

The Transfer Pricing Risk Assessment (TPRA) team will review the completed MITT and assess the taxpayer’s transfer pricing risk.

If a material risk is identified, the TPRA team will communicate the results of its risk assessment to the Transfer Pricing Practice (TPP) Practice Network program manager during the planning phase of the pre-filing review.

If a material risk is not identified, the TPRA team will send a transfer pricing deselection notice to the AC during the planning phase of the pre-filing review.

If consensus is not reached between the CAP team and TPRA team and TPP Practice Network regarding the scope and depth of the transfer pricing transaction review, the matter will be elevated to the next level of management.

A taxpayer that has already submitted a request for, or renewal of, an Advance Pricing Agreement (APA) under Rev. Proc. 2015-41 (or successor thereto) and/or a request for assistance from the U.S. Competent Authority under Rev. Proc. 2015-40 (or successor thereto) will notify the AC of the existence of such request and provide a copy of the request or renewal. The AC will then contact the appropriate Advance Pricing and Mutual Agreement (APMA) team or the Treaty Assistance and Interpretation Team (TAIT) lead or analyst to ensure ongoing coordination between the CAP and APMA/TAIT programs.

The taxpayer is encouraged, and may be required, to seek an APA to cover a recurring controlled transaction. A taxpayer with ongoing transfer pricing issues may contact, or may be contacted by, the AC to request a meeting with APMA to discuss the benefits and/or requirement of entering into an APA. The taxpayer will provide notice and documentation of any subsequent resolutions of items or issues in prior examination cycles within 15 business days of the agreed determinations. The parties will discuss the effect of such resolutions on any unexamined tax years and on the CAP year and incorporate the changes as appropriate.

The taxpayer will notify the AC of any foreign initiated examinations, pending adjustments or assessments that may impact income, expenses and/or credits reported in the United States, for the CAP year or any prior tax years, and will update such information on an as-needed basis to report any changes as the information becomes available.

The taxpayer will make open, comprehensive and contemporaneous disclosures of its material cross border activities transactions by preparing Form 14234-E, Cross Border Activities Questionnaire (CBAQ), in accordance with the form instructions and other guidance posted to the CAP page on IRS.gov.

The CBAQ team will review the completed CBAQ and assess the taxpayer’s cross border activities risk.

The CBAQ team will communicate the results of its risk assessment to the AC during the planning phase of the pre-filing review.

If consensus is not reached between the CAP and CBAQ teams regarding the scope and depth of the cross border transaction review, the matter will be elevated to the next level of management.