Should Your Company Apply for the IRS’ Compliance Assurance Process (CAP) Program?

The IRS recently announced the opening of the application period for the 2022 Compliance Assurance Process (CAP) program. The application period runs from September 1 to November 1, 2021. While the CAP program can be a good option for some companies, participating in the program also carries certain risks. As a result, prior to applying for the program, company executives will want to thoroughly discuss their options with an experienced Virginia business tax attorney.

Eligibility for the IRS’ CAP Program

Eligibility for the IRS’ CAP program is limited to U.S. publicly-traded companies that have assets of $10 million or more. Additionally, in order to qualify, a company cannot “be under investigation by, or in litigation with, any government agency that would limit the IRS' access to current tax records.” The IRS also limits the number of open years for which applicants can have pending returns. While the IRS has traditionally limited applicants to one filed return and one unfiled return (as of the first day of the applicant’s CAP year), it expanded the program to allow two filed open returns in 2021, and it has maintained this expansion for 2022.

Benefits of Utilizing the IRS’ CAP Program

The primary benefit of the IRS’ CAP program is that it reduces the risk of facing a post-filing audit or investigation. It also reduces the timeframe of the post-examination process, which can reduce the costs of managing tax compliance as well. As the IRS explains, “In CAP, the IRS and taxpayer work together to achieve tax compliance by resolving issues prior to the filing of the tax return. The successful conclusion of 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.”

Risks Associated with the IRS’ CAP Program

Upon being accepted into the IRS’ CAP program, companies must enter into a Memorandum of Understanding (MOU) with the IRS. Among other things, this MOU establishes the terms under which the IRS can terminate a company’s participation in the program. If terminated, companies remain subject to traditional post-filing examinations.

While this isn’t necessarily a risk in itself (since a post-filing examination is simply the alternative to participating in the CAP program), the IRS will have access to all of the information the company provided while going through the CAP process. If any of this information presents grounds for enforcement action, and if the company would have otherwise had grounds to withhold this information from the IRS, then the company’s participation could ultimately prove to do more harm than good.

Schedule an Appointment with Virginia Business Tax Attorney Kevin E. Thorn

There are many other considerations involved in deciding whether to apply for the IRS’ CAP program as well. If you have questions about whether your company should apply, or if your company needs tax counsel to assist with the CAP process, we encourage you to get in touch. To schedule an appointment with Virginia business tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752, email ket@thornlawgroup.com or contact us online today.