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CAP. Compliance Assurance Process (CAP) Permanency. CAP Permanency. CAP Overview. CAP Overview: History. Pilot program began in 2005 with 17 TPs For 2011, 140 TPs are anticipated CAP phase will be permanent in 2012. CAP Overview: What is CAP?. LB&I compliance strategy

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  1. CAP Compliance Assurance Process (CAP) Permanency

  2. CAP Permanency CAP Overview

  3. CAP Overview: History • Pilot program began in 2005 with 17 TPs • For 2011, 140 TPs are anticipated • CAP phase will be permanent in 2012

  4. CAP Overview: What is CAP? • LB&I compliance strategy • Method of identifying and resolving tax issues in a real-time environment

  5. CAP Overview: Basic Requirements • Open, cooperative, and transparent interaction between IRS and LB&I TPs • TPs disclose completed business transactions and the tax issue within the transactions

  6. CAP Overview: IRS Benefits • Quality work product • Post cycle-time has decreased • Emerging issues have been identified sooner

  7. CAP Overview: TP Benefits • Certainty • Currency • Potential to avoid amending state returns

  8. CAP Permanency CAP Permanency Phases

  9. CAP Permanency: Three Phases • Pre-CAP • CAP • Compliance Maintenance

  10. CAP Permanency Phases Pre-CAP Compliance Maintenance CAP Service and TP develop a plan to examine tax returns of the open years within a set timeframe TP is required to be fully cooperative and transparent Service may adjust the level of review work and time applied to each TP based on their unique factors

  11. Pre-CAP Phase: Description • Traditional post-file environment • Audit conducted by a Team Coordinator (TC), not an Account Coordinator (AC)

  12. Pre-CAP Phase: Description (2) • TP can apply at any time • TP and IRS develop action plan to close transition years • Purpose is to prepare TP to meet CAP selection criteria

  13. Pre-CAP Phase: Requirements • TP works with exam team to develop action plan to prepare TP for CAP • TP signs a Pre-CAP MOU • TP exhibits transparency and cooperation needed to progress to CAP

  14. Pre-CAP Phase: Requirements (2) • TP agrees to identify issues within transactions • TP agrees to provide information in a timely manner to resolve issues

  15. CAP Phase: Description • TP proactively provides all pertinent facts to develop material issues • Transparency and cooperation reduces use of resources • IRS conducts due diligence review as appropriate.

  16. CAP Phase: Requirements • TP signs the CAP MOU • TP exhibits transparency and cooperation • TP identifies tax issues within completed business transactions • TP meets CAP eligibility criteria

  17. CAP Selection Criteria Must have assets of $10M or more Must be a publicly held entity • Legal requirement to prepare and submit 10Ks, 10Qs, 8Ks, 20Fs and other disclosure type forms to the SEC or equivalent regulatory body

  18. CAP Selection Criteria (2) Privately held entities will be eligible if they are able to provide to the Service certified, audited financial statements or equivalent documentation on a quarterly basis

  19. CAP Selection Criteria (3) • Must not have more than two income tax returns under consideration by the Service. • Must not be in litigation with the Service and not under investigation that would limit access to books.

  20. CAP Application Example 2008/12 Filed 2009/12 Filed 2010/12 Filed 2011/12 Filed 09/15/2012 2012/12 Unfiled 2013/12 CAP Year Pre-CAP Years Transition Years (Intervening Yrs.) The CAP Assumption: 2013 will be the first CAP Year - 1 filed and 1 unfiled return plus the CAP Year. This is the structure presumed to be as of 10/31 of the year preceding the CAP Year.

  21. Compliance Maintenance Phase: Description • Teams conduct reduced scope and depth review • Level of review based on • TP’s experience in CAP • TP’s history of compliance and risk

  22. Compliance Maintenance Phase: Description (2) • Allows ACs to manage more than one CAP case • TP can move between CAP and Compliance Maintenance depending on the number and complexity of transactions

  23. Compliance Maintenance Phase: Requirements • TP completed one CAP cycle through post-file • TP maintains professional relationship with CAP team • TP maintains consistency in tax department personnel

  24. Compliance Maintenance Phase: Requirements (2) • TP must continue to maintain full transparency and cooperation • TP must disclose all material transactions and the tax issues within the transactions • TP has good internal controls

  25. Compliance Maintenance Phase: Requirements (3) • Historically, throughout CAP: • TP has low risk transactions • TP has limited controversy • TP has minimal non-complex issues anticipated for the CAP Year

  26. CAP Program Information • Resources – External Website • External CAP website – See irs.gov • Internal Revenue Manual • MOUs • FAQs

  27. Questions ??

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