Before IRS created CAP, large corporations waited about 50 months on  average from the time a tax return was filed to IRS closing of the  traditional audit under CIC. As already noted,  taxpayers had to reflect uncertainty about their tax liability on their  financial statements. IRS’s vision is reflected in the following seven CAP goals: ensure taxpayer compliance; reduce overall examination time;  increase currency for taxpayers (e.g., working on the unfiled return for  the most recent tax year during the CAP pre-filing stage); enhance the accurate, efficient, and timely resolution of complex tax  issues;  increase audit coverage by providing more efficient use of resources;  reduce taxpayer administrative burden; and  increase certainty for taxpayers. IRS Has Not Evaluated Whether CAP Is Meeting Its Intended Goals, Has Not Established a Full Suite of Performance Measures and Targets, and Has Not Developed Consistent and Complete Data

Although CAP started 8 years ago and IRS is looking to further expand  CAP, IRS has not evaluated CAP’s effectiveness, whether its goals are  being accomplished, or whether it should be expanded and if so, to what  extent. The Treasury Inspector General for Tax Administration (TIGTA) in  February 2013 recommended that IRS develop an evaluation plan for  CAP and IRS agreed to do so in responding to TIGTA’s report. IRS  officials stated in May 2013 that they will start to develop a plan for  evaluating CAP during the fourth quarter of fiscal year 2013 but they did  not state when the plan would be completed or the evaluation would be  done. As shown in table 2 and discussed below, IRS cannot show the extent to  which CAP goals are being met because some goals do not have  measures and none have specific targets. It  is useful to know how taxpayers feel about issue resolution; however,  IRS does not have a system to track issues that are being audited and  resolved to provide data to help assess the goal. Specifically, tracking staff time charges on pre-filing activities for CAP  could not be done because the code used by IRS to track some  charges also included non-CAP activities; doing an analysis of CAP  time charges would help determine whether CAP saves resources  compared to traditional audits. Even if IRS compiled and tracked data on all audited issues, whether or  not resolved, IRS does not have a way to identify and track emerging tax  issues. Without this tracking, IRS cannot readily determine how quickly  new issues are identified or resolved in CAP. IRS’s Readiness to Further Expand Compliance Maintenance Is Unclear

IRS has been moving taxpayers into the Compliance Maintenance phase. In this phase, IRS intends to save resources by streamlining its reviews of  corporate tax returns. Such a plan also could discuss how IRS will assimilate these taxpayers  and ensure that IRS has the capacity to manage the increased workload  within the expedited time frames envisioned for corporate taxpayers  placed into Compliance Maintenance. CAP may not achieve its  intended goals if IRS does not have a clear plan or criteria for how it  would expand Compliance Maintenance and monitor and ensure that the  right taxpayers are in this phase. CAP’s Expedited Time Frames Pose Coordination Difficulties for Some Tax Issues Which IRS Is Addressing

According to IRS account coordinators for CAP cases, other IRS officials,  corporate tax experts, and large corporation tax officials that we  interviewed or that participated in our focus groups, the expedited nature  of a CAP audit has led to difficulties in coordinating IRS reviews of APAs  and research credits—both take longer to complete than the pre-filing  time frame of CAP allows. However, it is too early to tell whether IRS’s efforts  will work. Similarly, IRS  does not track whether CAP is identifying emerging tax issues. Absent a clear plan for expanding Compliance  Maintenance and ensuring that account coordinators clearly understand  guidance on monitoring and removing taxpayers, it will be difficult for IRS  to provide reasonable assurance that Compliance Maintenance accepts  the most compliant and cooperative corporate taxpayers, which is  necessary for this phase to work as intended and to contribute to CAP  goals, such as generating resource savings to increase audit coverage. Develop measures for each CAP goal and set related targets. Consistently and completely capture data needed to track progress  against the CAP goals. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to (1) describe the goals and potential  benefits of the Compliance Assurance Process (CAP), (2) assess the  Internal Revenue Service’s (IRS) efforts to determine whether CAP is  meeting its goals, (3) assess IRS’s readiness to expand Compliance  Maintenance, and (4) describe IRS’s efforts to coordinate CAP with  existing processes for large corporate compliance.
Why GAO Did This Study

IRS audits of the tax returns filed by large corporations take four years, on average, to complete. Additional years can be spent in appeals. This is costly to IRS and creates years of uncertainty about a large corporation's actual tax liability. In response, IRS developed CAP in 2005. Under this process, IRS and taxpayers agree on how to report tax issues before the return is filed: compliant and cooperative taxpayers can get a streamlined IRS review of their tax return in a phase called Compliance Maintenance. GAO was asked to assess this process. In this report, GAO (1) describes the goals and potential benefits of the process, (2) assesses IRS's efforts to determine whether these goals are met, (3) assesses IRS's readiness to move more taxpayers into Compliance Maintenance, and (4) describes IRS's efforts to coordinate the process with its existing compliance processes. GAO reviewed IRS documentation and data, interviewed IRS officials and corporate tax experts, and held focus groups with tax executives of large corporations and with IRS audit staff.

What GAO Found

Officials GAO interviewed inside and outside of the Internal Revenue Service (IRS) generally agreed on the potential major benefits of the Compliance Assurance Process (CAP) to taxpayers and IRS as reflected in its goals. These goals include saving IRS time and resources to use for other audits while ensuring compliance, and reducing taxpayer burden while increasing certainty on tax amounts now owed.
Contrary to its guidelines, IRS has not evaluated whether the goals are being achieved or the process should be expanded. IRS officials told GAO that IRS will start developing an evaluation plan in 2013, but did not provide dates for when an evaluation would be completed. IRS cannot show the extent to which the goals are being met for two reasons.
Some goals do not have measures and none have targets. Although developing measures and setting targets for goals (such as ensuring taxpayer compliance) can be difficult, not doing so limits IRS's ability to determine whether the process is working as intended.
IRS does not have consistent and complete data for CAP. Inconsistent data make some analyses difficult to do. For instance, the average annual staff hours spent auditing a return could not be analyzed because the code to track staff time charges sometimes included non-CAP time charges. Incomplete data did not allow IRS to track progress for some goals. While IRS audit teams document tax issues in case files, IRS does not compile the data to track issue resolution. As a result, IRS cannot readily determine whether audit teams are resolving issues uniformly or identifying emerging tax compliance issues. Similarly, IRS does not have a system to track resource savings. Without a system, IRS cannot know the amount of saved resources or plan for their reallocation.
IRS has been moving taxpayers into Compliance Maintenance without documenting a plan to ensure, among other things, that IRS has the capacity to assimilate these taxpayers in an expedited fashion, as intended. In addition, IRS audit staff had concerns about guidance on moving taxpayers in and out of this phase. IRS clarified the guidance in May 2013, but has not verified whether the audit staff understand it. Without verification, IRS does not have reasonable assurance that the audit staff understand which taxpayers are right for Compliance Maintenance and when it would be appropriate to remove them.
IRS is addressing difficulties in coordinating CAP with other compliance processes. Difficulties include resolving some complex tax issues within the expedited time frames, and ensuring that all IRS specialists who assist audit teams understand the process. It is too early to tell whether IRS's efforts will work.

What GAO Recommends

GAO recommends that IRS evaluate the process, develop measures and targets for the goals, consistently capture data to track goal progress, track resolution of tax issues and resource savings, develop a plan to expand Compliance Maintenance, and verify that audit staff understand attempts to clarify related guidance. In written comments, IRS agreed with our recommendations.