Inside the Compliance Assurance Process (CAP) Program: Is it Right for Your Clients?

Transcription

1 Inside the Compliance Assurance Process (CAP) Program: Is it Right for Your Clients? Administrative Practice Committee ABA Tax Section October 21, 2011 Denver, Colorado

2 Panel Participants Corina Trainer, PricewaterhouseCoopers LLP, Washington, DC (Moderator) Patricia Chaback, Large Business & International Industry Director, Communications, Technology, & Media Loren Opper, Senior Counsel, Miller Canfield, Detroit, Michigan Ty Kearns, Vice President of Tax, Liberty Media Corporation, Englewood, Colorado Eli Dicker, Chief Tax Counsel for Tax Executives Institute, Washington, DC Slide 2

3 Table of Contents Overview of the CAP Program History, Expansion and Eligibility Pre-CAP Phase Compliance and Maintenance Phase Perceived Benefits of CAP Participation in CAP Taxpayer Observations Considerations When Advising Clients Specific Client Considerations Questions Slide 3

4 Overview of the CAP Program The CAP Program began as an invitation only, pilot program in On March 31, 2011, the IRS announced that it was making the CAP program permanent and expanding it to include two new phases, Pre- CAP and Compliance Monitoring. To be eligible for the CAP program, taxpayers must: be an LB&I taxpayer be a publicly-held entity required to submit disclosure type forms (i.e., 10K, 10Q, 20F) to the SEC or equivalent regulatory body or, if privately-held, agree to provide certified, audited financial statements or equivalent to IRS; not be under investigation by, or in litigation with, the IRS or another federal or state agency such that the IRS would be limited in its ability to access the taxpayer s records. Slide 4

5 Overview of the CAP Program On March 31, 2011, the IRS also issued: Frequently Asked Questions (FAQs); New provisions of the Internal Revenue Manual (IRM); CAP Permanency in a Nutshell; Pre-CAP and CAP Applications; and The Memorandum of Understanding (MOU) for Pre-CAP and CAP. Slide 5

6 Overview of the CAP Program (cont.) The permanent CAP program generally operates in the same manner as the pilot, with the following new features: Standardized application process (Form 14234); Taxpayers apply between September 1 and October 31 of the year before the CAP year; Applicants may have only one year open in examination and at most one unfiled return, which may only be for the most recent year and which is not yet due; and IRM provisions contemplate taxpayers moving from Pre-CAP to CAP, but if a taxpayer has no years open in examination, it can apply directly to CAP. Slide 6

7 Overview of the CAP Program (cont). The Pre-CAP Phase readies the taxpayer and the team for participation into CAP. The taxpayer signs a memorandum of understanding with the IRS which governs the Pre-CAP Phase of the Program. The taxpayer agrees with the IRS on a plan of action for eliminating the taxpayer s backlog of open tax years. The taxpayer is fully transparent to the IRS with respect to the tax years under review in the Pre-CAP Phase of the CAP Program. Participation in Pre-CAP terminates when the taxpayer becomes eligible to participate in CAP. Taxpayers may apply to Pre-CAP at any time. Slide 7

8 Overview of the CAP Program, (Cont.) The Compliance Maintenance Phase is for taxpayers who are veterans of the CAP Program. These taxpayers have established a history of cooperation and transparency during CAP. Only taxpayers that have completed at least one cycle in CAP are eligible for Compliance Maintenance. These taxpayers must continue to sign MOU, remain transparent and disclose all material issues to the IRS. The IRS will conduct reduced scope pre-filing review and post filing examinations. Taxpayers may move between CAP and Compliance Maintenance based on the number and complexity of issues in a given year. Slide 8

9 Perceived Benefits of CAP Participation Participation in CAP may provide benefits to both taxpayers and the IRS. These include: The ability to achieve certainty prior to the filing of a tax return; The ability to achieve certainty to permit future tax planning; The ability to increase currency in examinations; The potential to decrease interaction with the IRS; and The potential for fewer tax department resources being dedicated to the examination process. Slide 9

10 Participation in CAP Taxpayer Observations Taxpayers contemplating applying to participate in Pre-CAP, may want to consider the experiences of similarly situated taxpayers. Ty Kearns is willing to give us a brief description of his company s experience during their initial entry into CAP and now. Initial entry was very labor intensive. Ongoing Participation Tax Department resource requirements have decreased Interactions with Service include monthly meetings and quarterly disclosures Company continues to experience issues where specialists are required Slide 10

11 Considerations When Advising Clients Taxpayers will also want to consider their own facts and circumstances when deciding whether to apply and participate in the CAP program. These may include: Taxpayer s risk tolerance; Start-up costs (systems and personnel) needed to provide real-time information and data to the IRS; Taxpayer s comfort level with degree of transparency required; The need for specialist with respect to taxpayer s issues (e.g., R&D); and Taxpayer s current relationship with its examination team. Slide 11

12 Considerations When Advising Clients Questions? Slide 12