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Compliance Assurance Process (CAP) eligibility and suitability criteria

 

Eligibility criteria

To participate in the Compliance Assurance Process (CAP), a taxpayer must meet the following requirements.

General requirements

A taxpayer must:

  • Have assets of $10 million or more.
  • Not be under investigation by, or in litigation with, the IRS or another government agency if the matter would limit the IRS's access to current corporate tax records.

Entity requirements

Eligible taxpayers include:

  • U.S. publicly traded C corporations required to file Forms 10-K, 10-Q, and 8-K with the Securities and Exchange Commission.
  • U.S. privately held C corporations, including foreign-owned corporations, that agree to timely provide required financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), or another method deemed acceptable by the IRS. 
  • Partnerships accepted into CAP since 2020 that agree to timely provide required financial statements prepared in accordance with U.S. GAAP.

Financial statement requirements

Eligible taxpayers must:

  • Provide unaudited quarterly financial statements.
  • Provide audited annual financial statements.
  • Provide audited financial statements specific to the applicant. Parent company or related-entity financial statements are not acceptable.
  • Obtain an unqualified opinion from an independent auditor.
  • Reconcile audited net income or loss to Schedule M-3, Line 4(a), worldwide consolidated net income (loss).

Open return requirements

Current CAP participants

Taxpayers currently participating in CAP must not have more than one filed return and one unfiled return open on the first day of the CAP applicant's tax year.

New CAP applicants

New applicants must have no more than three tax years open for examination on the first day of the CAP applicant’s tax year. 

The examination team must determine that it can reasonably close the open years from the examination group within 12 months after the first day of the CAP applicant’s tax year if accepted into CAP.

For new applicants, the examination team will risk assess any unexamined return with an open statute as part of the required compliance check during the first CAP year. If a material issue requires examination, the examination team may place the return under examination. Any unexamined return placed under examination will be treated as one filed return for purposes of the open return criterion. The examination team must close such returns by the end of the second CAP year following the decision to examine or the applicant may not be eligible to participate in future CAP years.

Returns treated as closed

For purposes of the open return criterion, the following open returns are treated as closed:

  • Previously closed exception: Returns reopened to process a claim or other adjustment.
  • Large Business and International (LB&I) suspense exception: Returns placed in LB&I suspense for a TEFRA Linkage, Advance Pricing Agreement, Competent Authority Assistance, or Fast Track Settlement.
  • Inflation Reduction Act (IRA) and Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act exception: Returns open due to outstanding IRA or CHIPS Act tax issues.
  • National Office exception: Returns waiting for National Office to issue published guidance or a ruling, such as Chief Counsel Advice (CCA), Private Letter Ruling (PLR), or Change in Accounting Method (CAM) review.
  • Joint Committee on Taxation (JCT) review exception: Returns pending JCT review.
  • Closed from group exception: Returns closed from the examination group and sent to Technical Services, Centralized Case Processing, or Appeals.

Suitability criteria

CAP participation requires transparent and cooperative interaction between the taxpayer and IRS.

Examples of behaviors that may indicate a taxpayer is not suitable for CAP participation include:

  • Not adhering to document request response times or providing incomplete responses.
  • Not engaging in meaningful or good faith issue resolution discussions.
  • Failing to thoroughly disclose a material issue in a timely manner.
  • Failing to provide the Material Intercompany Transactions Templates (MITTs) or the Cross Border Activities Questionnaires (CBAQs) by the due dates or submitting incomplete MITTs or CBAQs.
  • Failing to disclose a Schedule Uncertain Tax Positions (UTP) item or reportable transaction.
  • Failing to disclose an investigation or litigation that limits IRS access to current corporate records.
  • Frequently filing claims or requesting appeals.
  • Failing to comply with the CAP Memorandum of Understanding (MOU).