The IRS announced in IR-2011-32 that it was making the complaince assurance process (CAP) for large corporate taxpayers permanent and expanding it to other corporations. The process is designed to allow the IRS and corporate taxpayers with assets of $10 million or more to work out potential problems prior to the time of the filing of the return, helping to avoid problems on audit. The program started in 2005 with 17 taxpayers, and has expanded to 140 corporate taxpayers at this time.
With the CAP program growing in popularity, it is being expanded to include two additional components. A new pre-CAP program will provide interested taxpayers with a clear roadmap of the steps required for gaining entry into CAP. A new CAP maintenance program is intended for taxpayers who have been in CAP, have fewer complex issues, and have established a track record of working cooperatively and transparently with the IRS.
“CAP is a program where the tax system is at its best -- when the taxpayer and the IRS are transparent and issues are resolved before a return is filed,” Shulman said.
I admit that I am skeptical about this program, as I am skeptical about the contractual process "advanced pricing agreements" whereby the IRS signs off on taxpayer proposals for transfer pricing. A the recent discussion of corporate offshoring and other activities demonstrates, corporate taxpayers are able to afford sophisticated tax advice, and they use that advice to avoid taxes wherever possible. They know their own situation intimately, and may well be in a position to cast transactions that are primarily tax avoidance arrangements as though they were germane to the business. The IRS may be understaffed and short on time, and may not give these processes the time they demand. The worry, at least, is that the IRS will satisfy itself that the company is a good tax citizen and then not focus on that taxpayer much at all once the CAP program is in place. If the corporate taxpayer has fooled the IRS in the process, that makes for a tidy tax package for the corporation, but not such good news for the fisc.
Does this happen much of the time? I don't know. And it is very hard for an outsider to assess the program without reviewing confidential tax information. So that is another worry--that these types of relationships with taxpayers are behind the scenes and it is hard to hold the IRS accountable.