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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.


    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: 18-Apr-2014