IRS Compliance Assurance Program (CAP) Freeze Impact on Corporate Taxpayers
Despite its popularity, huge budget cuts and dwindling resources have spurred the IRS to announce an indefinite freeze to the CAP program.
In 2005, the IRS began a pilot Compliance Assurance Program with a small number of large corporate taxpayers. Since its inception, the program has grown from 17 corporate taxpayers to 181. Why the popularity? In a nutshell, taxpayers who participate in CAP have IRS auditors review and agree to their tax positions prior to filing their tax return. In other words, CAP reduces tax audit risk and removes the uncertainty surrounding tax positions.
CAP provides a real-time audit that is conducted while the taxpayer is preparing their tax return. Any issues that arise are resolved contemporaneously, eliminating the need to build in reserves for uncertain tax positions (UTPS). For big corporations this could equate to a savings of millions of dollars that could then be used for more strategic efforts. Plus, not having to file federal amended returns reduces the need for amended state tax returns, saving the corporation money, as well as time.
The program includes a pre-CAP designed to establish a plan for the IRS and taxpayers to eliminate tax years open for audit and help prepare for the CAP. A compliance maintenance phase allows the IRS to adjust the level of review based on the taxpayer’s history of compliance risk and length of time in the program.
Despite its popularity, huge budget cuts and dwindling resources have spurred a freeze on the program. The IRS recently announced an indefinite halt to the CAP, and is no longer accepting new taxpayers into the CAP program after October 1, 2016.
With the recent CAP freeze, corporate taxpayers are left to their own devices to navigate the risks associated with uncertain tax positions and costly IRS audits. Fortunately, there is an alternative. Advanced corporate tax planning software such as Corporate Tax Analyzer™, from Bloomberg Tax is available. This is the same software that the IRS uses to conduct corporate audits, and the same software many companies use to mitigate audit risks and analyze tax planning scenarios. Whether corporations are currently in CAP or are subject to more traditional audit methods due to CAP’s hiatus, savvy tax teams are seeking out tools to confidently and accurately calculate corporate income taxes over multiple years and multiple scenarios.