TIGTA Says IRS CAP Program Works But Needs Additional Assessment

By Frank Byrt

The Treasury Inspector General for Tax Administration (TIGTA) said in a report publicly issued March 26, that the Compliance Assurance Process (CAP) program, a new cooperative effort between the IRS and business taxpayers to conduct real-time audits, is receiving positive feedback, but it may not be cost-efficient.
 
Unlike traditional audits, where tax issues are often resolved long after the tax return is filed,   business taxpayers volunteer to participate in the CAP and attempt to resolve potential tax issues before a tax return is filed. The goal is to reduce the length of the audit process for both the IRS and large businesses. 
 
After several years of field testing, on March 31, 2011, the IRS's Large Business and International (LB&I) Division announced it had decided to make the CAP a permanent program starting in tax year 2012.
 
"For taxpayers, achieving tax return certainty can significantly enhance public and investor confidence," TIGTA said.
 
In the report, The Compliance Assurance Process Has Received Favorable Feedback, but Additional Analysis of Its Costs and Benefits Is Needed, TIGTA states it found that the CAP audits are consuming substantially more staff hours than those under the traditional audit process. "This makes the hourly revenue rate for the CAP approximately a third of the hourly rate generated from traditional audits, $2,939 versus $8,448, respectively," the report said.
 
As a result, TIGTA recommended that the LB&I Division develop and implement an evaluation plan that verifies the CAP is delivering sufficient benefits in relation to the cost of the program, and to also assess whether the CAP is a potential new fee source once the IRS-wide user fee guidelines are revised and implemented.
 
"The CAP is being administered in accordance with IRS policies and procedures, and the pilot program followed many key best practices in the design and testing of the process," said Treasury Inspector General for Tax Administration J. Russell George. "However, even though the CAP pilot program ran for six calendar years and the permanent program is in its second calendar year of operation, the LB&I Division has yet to develop and implement a plan to thoroughly evaluate CAP data." 
 
In a response to the TIGTA report, IRS management said they agreed with the recommendations and plan to take appropriate corrective actions.