3 CAP Overview: History Pilot program began in 2005 with 17 TPs For 2011, 140 TPs are anticipatedCAP phase will be permanent in 2012STRESS – The CAP phase will become permanent for CAP Years that begin in 2012.Pre-CAP is permanent now!
4 CAP Overview: What is CAP? LB&I compliance strategyMethod of identifying and resolving tax issues in a real-time environmentWhat is CAP? First and foremost, CAP is an IRS compliance strategy. It is a method of identifying and resolving tax issues. Under this method, participating taxpayers work collaboratively with the IRS to identify and resolve tax issues in a real-time environment before the tax return is filed
5 CAP Overview: Basic Requirements Open, cooperative, and transparent interaction between IRS and LB&I TPsTPs disclose completed business transactions and the tax issue within the transactionsTPs must contemporaneously disclose the completed business transactions and the tax issues within the transactions as soon as the transactions are complete.
6 CAP Overview: IRS Benefits Quality work productPost cycle-time has decreasedEmerging issues have been identified sooner
7 CAP Overview: TP Benefits CertaintyCurrencyPotential to avoid amending state returns
9 CAP Permanency: Three Phases Pre-CAPCAPCompliance Maintenance
10 CAP Permanency Phases Compliance Maintenance Pre-CAP CAP Service and TP develop a plan to examine tax returns of the open years within a set timeframeTP is required to be fully cooperative and transparentService may adjust the level of review work and time applied to each TP based on their unique factors10
11 Pre-CAP Phase: Description Traditional post-file environmentAudit conducted by a Team Coordinator (TC), not an Account Coordinator (AC)The Pre-CAP takes place in a traditional post-file environment and is conducted by a Team Coordinator, not an Account Coordinator.
12 Pre-CAP Phase: Description (2) TP can apply at any timeTP and IRS develop action plan to close transition yearsPurpose is to prepare TP to meet CAP selection criteriaA taxpayer can apply and be recommended for Pre-CAP at any time. In the Pre-CAP phase, the taxpayer and the IRS work together to develop an action plan to eliminate transition years within an agreed amount of time. The purpose of the Pre-CAP phase is to close all transition years except for one open and one unfiled year in order to assist the Taxpayer in qualifying for the CAP phase.
13 Pre-CAP Phase: Requirements TP works with exam team to develop action plan to prepare TP for CAPTP signs a Pre-CAP MOUTP exhibits transparency and cooperation needed to progress to CAP
14 Pre-CAP Phase: Requirements (2) TP agrees to identify issues within transactionsTP agrees to provide information in a timely manner to resolve issues
15 CAP Phase: Description TP proactively provides all pertinent facts to develop material issuesTransparency and cooperation reduces use of resourcesIRS conducts due diligence review as appropriate.Resource savings for both TP and IRSDue diligence means the IRS retains the right to review any item that may be on the return (i.e., LIFO, 861 allocation, etc.). Teams can review the prior year workpapers to approve the methodology used for the calculation.
16 CAP Phase: Requirements TP signs the CAP MOUTP exhibits transparency and cooperationTP identifies tax issues within completed business transactionsTP meets CAP eligibility criteria
17 CAP Selection Criteria Must have assets of $10M or moreMust be a publicly held entityLegal requirement to prepare and submit 10Ks, 10Qs, 8Ks, 20Fs and other disclosure type forms to the SEC or equivalent regulatory bodyNote: this includes the domestic subs of foreign parents.
18 CAP Selection Criteria (2) Privately held entities will be eligible if they are able to provide to the Service certified, audited financial statements or equivalent documentation on a quarterly basis
19 CAP Selection Criteria (3) Must not have more than two income tax returns under consideration by the Service.Must not be in litigation with the Service and not under investigation that would limit access to books.Must not have more than two income tax returns under consideration by the Service. This includes one unfiled year and one filed year under examMust not be in litigation with the Service and not under investigation by the IRS or any federal or state agency which would limit access to current corporate tax records or could result in a material tax item
20 CAP Application Example 2008/12Filed2009/12Filed2010/12Filed2011/12Filed09/15/20122012/12Unfiled2013/12CAPYearPre-CAP YearsTransition Years(Intervening Yrs.)The CAPAssumption: will be the first CAP Year - 1 filed and 1 unfiled return plus the CAP Year. This is the structure presumed to be as of 10/31 of the year preceding the CAP Year.
21 Compliance Maintenance Phase: Description Teams conduct reduced scope and depth reviewLevel of review based onTP’s experience in CAPTP’s history of compliance and risk
22 Compliance Maintenance Phase: Description (2) Allows ACs to manage more than one CAP caseTP can move between CAP and Compliance Maintenance depending on the number and complexity of transactions
23 Compliance Maintenance Phase: Requirements TP completed one CAP cycle through post-fileTP maintains professional relationship with CAP teamTP maintains consistency in tax department personnelThe requirements to consider in evaluating a taxpayer’s eligibility for this new compliance maintenance phase include:
24 Compliance Maintenance Phase: Requirements (2) TP must continue to maintain full transparency and cooperationTP must disclose all material transactions and the tax issues within the transactionsTP has good internal controls
25 Compliance Maintenance Phase: Requirements (3) Historically, throughout CAP:TP has low risk transactionsTP has limited controversyTP has minimal non-complex issues anticipated for the CAP Year
26 CAP Program Information Resources – External WebsiteExternal CAP website – See irs.govInternal Revenue ManualMOUsFAQs