US Outbound: New updates to CAP focus on transfer pricing issue resolution

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

US Outbound: New updates to CAP focus on transfer pricing issue resolution

Sponsored by

sponsored-firms-kpmg.png

On August 27 2018, the Internal Revenue Service (IRS) announced changes to the compliance assurance process (CAP) for future years. CAP is an IRS programme that allows select taxpayers to participate in advance resolution of issues with IRS personnel prior to filing their returns.

The programme began with 17 participants in 2005, and has grown to 169 in 2018.

The IRS announced in 2016 that new participants would not be accepted into the CAP, leaving the future of the programme uncertain. The 2018 news release, however, indicated that the IRS intends to maintain and expand the CAP. Doug O'Donnell, commissioner of the IRS's large business and international division, stated that "after extensive review, we believe this programme continues to provide benefit for taxpayers and tax administration". While applications for 2019 are restricted to current CAP taxpayers, the IRS announced that the programme would reopen to new participants in the future.

The changes, which are effective for the 2019 application season, require taxpayers applying for the CAP to provide the IRS with a preliminary list of material issues and, if applicable, specified transfer pricing and research credit information. Additionally, under the new procedures, taxpayers may be required to resolve certain transfer pricing issues using an advance pricing agreement (APA). Generally, the CAP procedures move quickly, since their duration is limited by the return filing date, and the recent news release announces a 90-day goal for issue resolution in the CAP. The requirement that some issues be resolved through APAs rather than the CAP seems to reflect the IRS's understanding that complex transfer pricing issues may not be suited to the timeframe and procedures of the CAP, and instead require more deliberate consideration by subject matter experts in the APA process.

Importantly, the requirement that APAs be used for certain issues also suggests that the IRS does not believe difficult transfer pricing issues should preclude taxpayers from participating in the CAP. Rather, it seems to contemplate a coordinated approach under which some transfer pricing issues may be severed from the normal CAP and addressed in a parallel, albeit longer, APA procedure. This should help the IRS reach its 90-day issue resolution goal for the CAP, while also opening the door to bilateral resolution of significant transfer pricing issues through the APA process. Since bilateral resolutions are not available in the CAP, this is a significant benefit to taxpayers.

more across site & shared bottom lb ros

More from across our site

An OECD report on taxation of the digital economy is expected by the end of 2026, according to the group of nations
Trophy assets are evolving from personal indulgences to structured investments, prompting family offices to prioritise tax efficiency, governance discipline, and cross-border compliance
As demand for complex, cross-border private client counsel spikes, Patrick McCormick sees opportunity in starting from scratch
As part of an exclusive global alliance, KPMG will become one of Anthropic’s ‘preferred consultants’ for private equity
In the second part of this series, the focus shifts to how taxpayers can manage ongoing risks across the lifecycle of cross-border structures
Jurisdictions have moved to ensure that multinationals are not punished for late GIR filings due to a lack of available filing portals or exchange relationships
HMRC’s push for unified tax adviser registration won’t prevent every instance of improper conduct, but it is good for taxpayers and the UK’s reputation
Elsewhere, the UAE’s tax office has issued an update on registration penalties and two firms have been busy making lateral hires
The case sits within a context of Brazil signalling that it is replacing informal discretion and ambiguity with structures that reward analytical rigour, one expert tells ITR
Jeff Soar lifts the lid on WTS UK’s ambitious recruitment plans, the firm's positioning against the big four, and why tax is the perfect profession for AI
Gift this article