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CAP Permanency in a Nutshell

I. Pre-CAP

A. Pre-CAP Description

Takes place in a traditional post-file environment and is conducted by a Team Coordinator, not an Account Coordinator.
The purpose is to close all transition years except for one open and one unfiled year and to assist the Taxpayer to qualify for CAP.
Taxpayer must meet the CAP eligibility criteria (see IRM).
Taxpayer can apply for Pre-CAP at any time.
Taxpayer and the Service will develop an action plan to eliminate transition years within an agreed amount of time.

B. Pre-CAP Requirements

Taxpayer will work with the exam team to develop an action plan for preparing the Taxpayer to enter the CAP.
Taxpayer will sign a Pre-CAP MOU.
Taxpayer and Team will work in a CAP environment.
Taxpayer will exhibit the transparency and cooperation needed to progress to the CAP.
Taxpayer will agree to identify issues within transactions and provide information in a timely manner to resolve the issues.
For a Taxpayer to be eligible for the CAP after 2011, all transition years must be closed except for one open, filed year and one unfiled year.

II. CAP

A. CAP Description

Taxpayer will proactively provide the Service with pertinent facts in order to develop material issues.
Transparency and cooperation will reduce the Taxpayer’s and the Service’s use of resource needs.
The Service will conduct due diligence review as appropriate

B. CAP Requirements

Taxpayer will sign a CAP MOU.
Taxpayer will exhibit transparency and cooperation with the Service.
Taxpayer will identify issues within completed business transactions.
Taxpayer must meet the CAP eligibility criteria (see IRM).

III. Compliance Maintenance

A. Compliance Maintenance Description

Exam teams will conduct a significantly reduced scope and depth pre-file review and post-file examination.
Allows varying levels of review based on the Taxpayer’s experience in the CAP and history of compliance and risk.
This level will enable increased optimization of resources by allowing ACs to manage more than one CAP Taxpayer.
Taxpayers can move between Compliance Maintenance and the CAP at any time depending on the complexity and/or volume of transactions.

B. Compliance Maintenance Requirements

In coordination with the CAP team, the DFO and TTM should consider the following factors when evaluating Taxpayer eligibility for reduced review:

Taxpayer completed one CAP cycle through post-file.
Taxpayer maintains professional relationship and open, honest communication with CAP team and consistency in tax department personnel.
Taxpayer is transparent and cooperative and has fully disclosed all material and significant transactions.
Taxpayer has good internal controls.
Historically, Taxpayer has low risk transactions and limited controversy throughout the CAP.

C. Compliance Maintenance Criteria

Minimal non-complex issues anticipated for the CAP Year (i.e. the Taxpayer is not considering any major new transactions during the year). Issues can be completed within approximately 12 -15 days per quarter.
No domestic team members are needed and the review will require no more than 50 - 60 staff days for the AC during the 12 month pre-filing period.
Minimal due diligence work is anticipated and the annual significant calculations have been reviewed with little to no changes during prior CAP Years.
Specialist resources should be minimal: Issues can be completed within 3-5 days of specialist resources per quarter.
Taxpayer complied with the letter and spirit of the CAP in prior year(s):
- The assessments of Taxpayer transparency and cooperation in the prior CAP Year were optimal.
- Taxpayer has disclosed all transactions that have a material effect, along with their proposed tax positions, and identified the tax issues within the transactions.
- Taxpayer responses to written and/or oral IDRs were given within the timeframe outlined in the requests and were complete.
- Taxpayer disclosed all material issues with regard to completed business transactions and no additional issues were identified by the CAP Team during the Post-File Examination.
- Open communication procedures were/are established and abided to between the Service and the Taxpayer personnel.
- All Taxpayer personnel familiar with the transactions were made available to the team in a timely manner.
- Taxpayer was proactive in advising the CAP Team of major transactions that required significant resource planning prior to the transaction date.
A proven process is in place for disclosures that has worked on prior CAP reviews.
There have been no changes in tax department personnel that would result in a significant learning curve regarding the CAP.
No issues have gone into post-file on prior CAP Years as a result of inadequate time to develop.
No new issues have been discovered on the prior cycle when the return was filed.

Page Last Reviewed or Updated: 2013-05-02