Highlights and Updates for the CAP 2023 Application Period

 

Return to Open Year Criteria — For the 2023 CAP year, we are returning to the regular open year eligibility criteria of one filed return and one unfiled return open on the first day of the applicant's CAP year.  There are several exceptions to this requirement (e.g., pending Advance Pricing Agreement resolution or Competent Authority Assistance, etc.).

Revised Eligibility Criteria for New Applicants - For a new applicant currently under examination to be eligible for participation in the CAP Program, the applicant can have no more than three tax years open for examination on the first day of the applicant’s CAP year, and the examination team determines (with concurrence from the applicant) that these open years will close from the examination group no later than 12 months after the first day of the applicant’s CAP year if accepted.

Tax Control Framework (TCF) Questionnaire  Only new CAP applicants are required to provide the TCF Questionnaire with the application. For returning CAP taxpayers, there will be a discussion at the opening conference regarding internal controls over the tax function. If there are any material changes since the questionnaire was last completed, the taxpayer would then be required to provide an updated questionnaire. Likewise, all taxpayers who have material changes to their tax function during the course of the CAP year, such as a major reorganization, have been acquired, or decide to outsource any part of their tax function will be required to update the questionnaire.

Requirement for US GAAP Audited Financial Statements — CAP differs from a traditional audit in that most examination work in CAP is completed before the tax return is filed. Without a tax return, CAP relies on the review of quarterly and annual financial statements to identify and verify that the correct material tax issues are being reviewed. For this reason and others, CAP eligibility starting with 2020 has been limited to US publicly traded taxpayers that are required to prepare financial statements in accordance with US GAAP. However, existing CAP taxpayers who are privately-held or foreign-owned were given the opportunity to remain in the program if they made the commitment to provide financial statements prepared in accordance with US GAAP for the entity in CAP. Several existing CAP taxpayers have made this commitment and remained a part of the CAP program, while others were unable to make this commitment and are no longer eligible to be in the CAP program.

The eligibility requirement to provide audited financial statements in accordance with US GAAP remains for the 2023 CAP year. However, the IRS will continue to assess this requirement going forward and invites suggestions on viable alternatives in bridging and reconciling the disclosure gap between US GAAP and non-US GAAP reporting.