1. Compliance Assurance Process (CAP) Permanency

2. CAP Permanency
CAP Overview

3. CAP Overview: History Pilot program began in 2005 with 17 TPs
For 2011, 140 TPs are anticipated
CAP phase will be permanent in 2012
STRESS – 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 strategy
Method of identifying and resolving tax issues in a real-time environment
What 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 TPs
TPs disclose completed business transactions and the tax issue within the transactions
TPs 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 product
Post cycle-time has decreased
Emerging issues have been identified sooner

7. CAP Overview: TP Benefits
Certainty
Currency
Potential to avoid amending state returns

8. CAP Permanency
CAP Permanency Phases

9. CAP Permanency: Three Phases
Pre-CAP
CAP
Compliance 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 timeframe
TP is required to be fully cooperative and transparent
Service may adjust the level of review work and time applied to each TP based on their unique factors 10

11. Pre-CAP Phase: Description
Traditional post-file environment
Audit 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 time
TP and IRS develop action plan to close transition years
Purpose is to prepare TP to meet CAP selection criteria
A 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 CAP
TP signs a Pre-CAP MOU
TP exhibits transparency and cooperation needed to progress to CAP

14. Pre-CAP Phase: Requirements (2)
TP agrees to identify issues within transactions
TP agrees to provide information in a timely manner to resolve issues

15. CAP Phase: Description
TP proactively provides all pertinent facts to develop material issues
Transparency and cooperation reduces use of resources
IRS conducts due diligence review as appropriate.
Resource savings for both TP and IRS
Due 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 MOU
TP exhibits transparency and cooperation
TP identifies tax issues within completed business transactions
TP meets CAP eligibility criteria

17. CAP Selection Criteria
Must have assets of $10M or more
Must be a publicly held entity
Legal requirement to prepare and submit 10Ks, 10Qs, 8Ks, 20Fs and other disclosure type forms to the SEC or equivalent regulatory body
Note: 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 exam
Must 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
2008/12
Filed
2009/12
Filed
2010/12
Filed
2011/12
Filed
09/15/2012
2012/12
Unfiled
2013/12
CAP
Year
Pre-CAP Years
Transition Years
(Intervening Yrs.)
The CAP
Assumption: 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 review
Level of review based on
TP’s experience in CAP
TP’s history of compliance and risk

22. Compliance Maintenance Phase: Description (2)
Allows ACs to manage more than one CAP case
TP 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-file
TP maintains professional relationship with CAP team
TP maintains consistency in tax department personnel
The 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 cooperation
TP must disclose all material transactions and the tax issues within the transactions
TP has good internal controls

25. Compliance Maintenance Phase: Requirements (3)
Historically, throughout CAP:
TP has low risk transactions
TP has limited controversy
TP has minimal non-complex issues anticipated for the CAP Year

26. CAP Program Information
Resources – External Website
External CAP website – See irs.gov
Internal Revenue Manual
MOUs
FAQs

27. Questions ??