Announcement 2005-87

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Internal Revenue Bulletin:

2005-50 December 12, 2005

Announcement 2005-87

Compliance Assurance Process


The Internal Revenue Service is conducting a pilot program, the Compliance Assurance Process (CAP), for large business taxpayers. Under this pilot program, the Service’s Large and Mid-size Business Division is working with large business taxpayers to identify and resolve issues prior to the filing of a tax return. The objective of the program is to reduce taxpayer burden and uncertainty while assuring the Service of the accuracy of tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations. The CAP will reduce taxpayer burden through the contemporaneous exchange of information about completed events and transactions that affect tax liability, rather than through the traditional examination process. The CAP will also foster compliance by helping the Service achieve its goal of shortening examination cycles and increasing currency for taxpayers while enhancing the accurate, efficient, and timely final resolution of increasingly complex corporate tax issues. In addition, the program will assist in increasing audit coverage by providing a more efficient use of audit resources. Finally, the program will allow taxpayers to better manage tax reserves and ensure more precise reporting of earnings on financial statements.

Several large business taxpayers volunteered to participate in the CAP pilot program during the 2005 tax year. Upon its conclusion, the Service will evaluate the pilot program, consider necessary adjustments, and determine whether to make the program permanent.


The CAP requires extensive cooperation between the Service and participating taxpayers. Throughout the tax year, these taxpayers are expected to engage in full disclosure of information concerning their completed business transactions and their proposed return treatment of all material issues. Participating taxpayers that resolve all material issues will be assured, prior to the filing of the tax return, that the Service will accept their tax return, if filed consistent with the resolutions (described below), and that no post-filing examination will be required. If all issues cannot be resolved prior to the filing of the return, the program will identify the remaining items that will need to be resolved through traditional examination processes.

Significant aspects of the CAP include:

  • Communication of information about completed transactions in a manner that is timely and allows a meaningful analysis of material items affecting the tax return;
  • The review of significant transactions immediately after completion, while knowledgeable personnel and necessary records are most accessible;
  • The sharing of all relevant data and positions between the Service and the taxpayer;
  • The early identification of compliance issues in need of resolution;
  • Access to and willingness to participate in issue resolution methods; and
  • Determination of return acceptance prior to filing.

The program does not include providing participating taxpayers with guidance on or resolving prospective or incomplete transactions outside of existing procedures.

The Service has assigned an Account Coordinator to each taxpayer participating in the CAP pilot program. The Account Coordinator serves as the primary point of contact with the Service for issue resolution. The Account Coordinator will review the taxpayer’s audit history and prior tax issues and will become familiar with relevant industry trends and current business practices of the taxpayer. To ensure proper and accurate evaluation of all tax items, the Account Coordinator will consult with Service specialists, Appeals personnel, and Chief Counsel advisors. Similarly, participating taxpayers have designated personnel to act as the primary contact for the Account Coordinator.

The Service has also asked the participating taxpayers, if relevant:

  • To provide an industry overview;
  • To prepare current organizational charts reflecting all related entities and the flow of relevant information involving those entities;
  • To give financial performance information;
  • To outline any anticipated significant events that will affect reporting for the tax year;
  • To give access to accounting records and systems; and
  • To make available the necessary resources for disclosure of requested information.

All information provided to the Service in connection with the CAP concerning the participating taxpayers’ tax liability and all closing agreements entered into between the Service and the participating taxpayers are return information protected from disclosure by the confidentiality provisions of section 6103.

A standardized memorandum of understanding (MOU), which sets the ground rules for the CAP, has been executed between each participating taxpayer and the assigned Account Coordinator. The MOU defines specific objectives for the program, sets parameters for the disclosure of information, describes the methods of communication, and serves as a statement of the parties’ commitment to good-faith participation in the CAP. Adherence to the processes established by the MOU is an integral part of resolving identified issues and assuring the Service of the accuracy of the tax return. Failure to comply with the terms of the MOU may result in removal of the taxpayer from the program.

The Account Coordinator and the taxpayer will work together during the process to identify and resolve issues. As issues are resolved, the Account Coordinator and the taxpayer will enter into Issue Resolution Agreements (IRAs) recording the resolutions. When necessary, the parties may use existing issue resolution processes, such as Fast Track Settlement (Rev. Proc. 2003-40, 2003-1 C.B. 1044). After the close of the tax year, the Account Coordinator will incorporate the resolution of the identified issues in Form 906 closing agreement(s), based on the completed IRAs. The CAP does not change or modify LMSB’s current authorities to resolve cases.

If the taxpayer has fully complied with the terms of the MOU, and all identified issues have been resolved through closing agreement(s), the Service will provide the taxpayer with written confirmation that, subject to the completion of a post-filing review, it will accept the taxpayer’s return if it is filed consistent with the closing agreement(s).

If the taxpayer has fully complied with the terms of the MOU, but the Service and the taxpayer cannot resolve all identified issues prior to filing the tax return, the Service will provide the taxpayer with written confirmation that, subject to the completion of a post-filing review, it will accept the taxpayer’s return as to the resolved issues if the return is filed consistent with the closing agreement(s).

Once the taxpayer files the return, the Service and the taxpayer will participate in a joint post-filing review to confirm that all resolved issues were reported as agreed. It is expected that this post-filing review will be completed within 90 days of the filing of the return. If the post-filing review reveals that the return is not consistent with the terms of the closing agreement(s), or reveals that there are items on the return presenting material issues that were not adequately disclosed, the Service will examine all inconsistent or inadequately disclosed issues through the traditional examination process. The taxpayer will retain access to all available Appeals proceedings with respect to any traditional examination that is conducted.

Although the CAP is not subject to the restrictions in section 7605(b), the Service will only reopen the year after the post-filing review has occurred and any traditional examination of inconsistent or inadequately disclosed issues has concluded if the circumstances set out in section 5 of Rev. Proc. 2005-32, 2005-23 I.R.B. 1206, apply.


For further information regarding this announcement, contact Christopher Johnson, LMSB Communications and Liaison Director, at (202) 283-8588 (not a toll-free number) or by email at

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