CORPORATE TAX 

COMPLIANCE

IRS Should Determine 

Whether Its 

Streamlined Corporate 

Audit Process Is 

Meeting Its Goals

Report to Congressional Requesters

August 2013

GAO-13-662

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-662, a report to

congressional requesters

August 2013

CORPORATE TAX COMPLIANCE

IRS Should Determine Whether Its Streamlined 

Corporate Audit Process Is Meeting Its Goals

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 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.

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.

View GAO-13-662. For more information, 

contact James R. White at (202) 512-9110 or 

whitej@gao.gov.
Page i GAO-13-662 Corporate Tax Compliance

Letter 1

Background 3

Significant Benefits Are Envisioned from CAP As Reflected in Its 

Goals 9

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 12

IRS’s Readiness to Further Expand Compliance Maintenance Is 

Unclear 20

CAP Taxpayers and Auditors Use IRS Compliance Processes in the 

Same Manner as Traditional Audits but Coordination Difficulties 

Exist 23

Conclusions 25

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 27

Appendix I Objectives, Scope, and Methodology 30

Appendix II Comments from the Internal Revenue Service 32

Appendix III GAO Contact and Staff Acknowledgments 36

Related GAO Products 37

Tables

Table 1: Eligibility Criteria for Each Compliance Assurance 

Process (CAP) Phase 6

Table 2: Not all Compliance Assurance Process (CAP) Goals Have 

Measures or Targets 13

Contents
Page ii GAO-13-662 Corporate Tax Compliance

Figures

Figure 1: Average Months Spent on Traditional Audits under 

Coordinated Industry Cases (CIC) and Industry Cases (IC) 

for Large Corporations before Appeals, Fiscal Year 2012 4

Figure 2: Number of Compliance Assurance Process (CAP) 

Taxpayers by Tax Year 7

Abbreviations

APA Advance Pricing Agreement 

APMA Advance Pricing and Mutual Agreement 

CAP Compliance Assurance Process 

CIC Coordinated Industry Case 

GPRA Government Performance and Results Act 

IC Industry Case 

IDR Information Document Request 

IMS Issue Management System 

IPG Issue Practice Group 

IRS Internal Revenue Service

LB&I Large Business and International

MOU Memorandum of Understanding 

RAS Research, Analysis, and Statistics 

SEC Securities and Exchange Commission 

TIGTA Treasury Inspector General for Tax Administration 

UTP Uncertain Tax Position 

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Page 1 GAO-13-662 Corporate Tax Compliance

441 G St. N.W.

Washington, DC 20548

August 22, 2013

The Honorable Max Baucus

Chairman, Committee on Finance

United States Senate

The Honorable Dave Camp

Chairman, Committee on Ways and Means

House of Representatives

In fiscal year 2012, the Internal Revenue Service (IRS) collected about 

$282 billion in gross federal income tax from corporations. To ensure 

compliance, IRS examines (audits) corporate tax returns of the largest 

corporations every year.1 IRS views the continuous audits as necessary 

because the largest corporations regularly engage in complex business 

transactions for which determining the correct tax requires careful 

interpretation of the tax code. Through these audits, IRS proposed 

assessments of $20.1 billion in additional tax in fiscal year 2012.2

While resulting in billions of dollars of additional tax assessed, traditional 

corporate audits usually start months or years after a tax return is filed 

and can take years to complete. Even after completion, more years 

usually elapse before appeals are resolved and final tax assessments are 

determined. For corporations, the traditional audit process leads to years 

of uncertainty about their actual tax liabilities, uncertainty that must be 

reflected on financial statements. For IRS, the process is costly and can 

result in delays in uncovering new types of transactions that evade or 

misinterpret the tax laws.

In an attempt to improve the traditional corporate audit process, IRS 

developed the Compliance Assurance Process (CAP) as a pilot program 

in 2005. Managed by IRS’s Large Business and International Division 

(LB&I), IRS examiners and participating large corporations work to reach 

agreement on how to report tax issues before their tax returns are filed. 

 1

IRS defines large corporations as having assets greater than $10 million. For purposes of 

this report, we will focus on the largest corporations which IRS defines as having assets of 

at least $250 million.

2

Taxpayers may appeal proposed assessments of additional tax amounts before any such 

amounts are actually assessed as owed. 
Page 2 GAO-13-662 Corporate Tax Compliance

To the extent CAP works as intended, taxpayers should achieve tax 

certainty sooner with less administrative burden compared to traditional 

post-filing audits, allowing taxpayers to better manage tax reserves and 

more precisely report earnings on financial statements.3 In addition, IRS 

intends for CAP to foster tax compliance while reducing its cost for 

corporate audits. IRS also intends that any resources saved, particularly 

in a streamlined review CAP phase known as Compliance Maintenance, 

be devoted to auditing other corporations, thereby increasing audit 

coverage.

You asked us to assess CAP. This report (1) describes the goals and 

potential benefits of CAP, (2) assesses IRS’s efforts to determine whether 

CAP is meeting its goals, (3) assesses IRS’s readiness to expand 

Compliance Maintenance, and (4) describes IRS’s efforts to coordinate 

CAP with existing processes for large corporate compliance. To address 

these objectives, we reviewed IRS documentation, our prior work, and 

other relevant literature. We also assessed IRS’s efforts on CAP with 

criteria in the Government Performance and Results Act (GPRA) of 

1993,4 GPRA Modernization Act of 2010,5 and the Standards for Internal 

Control in the Federal Government.

6 We attempted to replicate IRS’s 

analysis of CAP and do separate analyses of CAP taxpayers. We 

interviewed IRS officials responsible for managing CAP and conducting 

exploratory CAP research. In addition, we interviewed 11 corporate tax 

experts, including former IRS officials who were familiar with or had 

experience with CAP. We held six focus groups with a total of 22 account 

coordinators who are the primary IRS representative for CAP audits,7 two 

focus groups with a total of 11 managers of IRS’s Issue Practice Groups 

who are responsible for providing guidance and advice to CAP audit 

teams on resolving tax issues, and one focus group with 12 tax 

 3

Corporations may set aside tax reserves for current, deferred, and potential or contingent 

tax liabilities. 

4

Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 

(Aug. 3, 1993). 

5

GPRA Modernization Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011). 

6

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 

7

We selected account coordinators for our focus groups from an IRS list of account 

coordinators.
Page 3 GAO-13-662 Corporate Tax Compliance

executives of large corporations to understand their experiences using 

CAP.8 For details on our scope and methodology, see appendix I.

We conducted this performance audit from July 2012 to August 2013 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

IRS has two categories of traditional audits for large corporations: 

Coordinated Industry Cases (CIC) and Industry Cases (IC). CAP includes 

both CICs and ICs, with the majority being CICs (about 88 percent). The 

distinction between CIC and IC is based on criteria such as the amount of 

gross assets, amount of gross receipts, number of operating entities, 

multiple industry status, total foreign asset amounts, and amount of 

foreign taxes paid. All corporations that are designated as CICs are 

audited every year by a team of IRS staff while corporations that are 

designated as ICs are not held to the same requirement.

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. This did not include additional time after the 

audits were closed to resolve any appeals of the audit results—a process 

that usually took another 2 or 3 years. Therefore, obtaining certainty 

about the status of tax issues reported on the tax return for a given tax 

year may have taken 6 or 7 years—if not longer. This created significant 

burdens and problems for taxpayers and IRS. As already noted, 

taxpayers had to reflect uncertainty about their tax liability on their 

financial statements. This meant that taxpayers had to put aside reserves 

in a provisional account meant for changes in taxes owed after an audit. 

Large corporation tax officials we spoke to said that when corporations 

have a large reserve, it lowers their expected profits. In addition, IRS 

might not become aware of emerging tax issues associated with new 

 8

Because the focus groups included non-probability selections of managers and 

coordinators, the results cannot be used to make inferences about the populations. 

Background
Page 4 GAO-13-662 Corporate Tax Compliance

types of business transactions or products for years. Traditional audits of 

large corporations still take years, as shown in figure 1.

Figure 1: Average Months Spent on Traditional Audits under Coordinated Industry Cases (CIC) and Industry Cases (IC) for 

Large Corporations before Appeals, Fiscal Year 2012

Note: Figure 1 does not include the number of months and associated returns that are appealed after 

traditional audits are closed. IRS provided such a number for all Large Business and International 

audits, including Compliance Assurance Process and traditional audits. In fiscal year 2012, the 

average number of months to finish appeals after taxpayers filed their return was 83.6 months for 

CICs and 50.9 months for ICs.

IRS launched CAP in March 2005 as a pilot program to assess its viability 

as an alternative approach to large corporate tax administration. For the 

pilot, IRS selected voluntary, corporate taxpayers based on factors 

including their working relationship with IRS, a history of not taking 

aggressive tax positions, and not having major tax litigation under way.

IRS created pre-filing and post-filing stages for CAP. In pre-filing, a 

taxpayer works with the CAP team to resolve issues of tax controversy 

and to determine the appropriate tax treatment of completed transactions 

before filing the tax return. CAP requires contemporaneous exchange of 

information about a taxpayer’s completed transactions and other events 

that may affect tax liability. In post-filing, the CAP audit team reviews the 

tax return to confirm adherence to agreements on how tax issues should 

be reported. In exchange for increased cooperation and transparency, the 
Page 5 GAO-13-662 Corporate Tax Compliance

taxpayer may attain tax certainty sooner and with less administrative 

burden, compared to traditional post-filing audits.

After 6 years of experience with the CAP pilot, IRS management decided 

to make CAP permanent in March 2011.9 IRS had received positive 

feedback from taxpayers and employees on the CAP pilot, indicating they 

wanted CAP to continue. Officials who had worked at IRS told us that IRS 

did exploratory research on the pilot’s impacts on timeliness as well as on 

other areas.

In making CAP permanent, IRS created three phases by adding the PreCAP and Compliance Maintenance phases to the existing CAP phase. To 

avoid confusion, we will refer to the entire CAP program (all three phases) 

as CAP to distinguish it from the CAP phase defined below.

Pre-CAP phase: To enter CAP, all audits for prior tax years must be 

resolved. The large corporate taxpayer and IRS work together in the 

traditional post-file audit process to close audits of tax returns filed for 

previous tax years within agreed upon time frames. Closing these audits 

can take significant time if, as suggested by figure 1, audits are open for 

many tax years. 

CAP phase: The large corporate taxpayer and IRS work to identify tax 

issues and resolve how they are to be reported for the current tax year in 

the pre-filing stage. IRS then confirms these issues are reported as 

agreed upon during the post-filing review.

Compliance Maintenance phase: Large corporate taxpayers who 

continue to meet the CAP phase eligibility requirements and expectations

may progress to Compliance Maintenance after at least 1 year in the CAP 

phase. Taxpayers must continue to be compliant and transparent in filing 

tax returns and pose no new tax compliance risks. IRS intends to spend 

less time examining these returns when filed as well as significantly 

reducing the scope and depth of the pre-filing review. IRS’s guidance 

explains that the criteria for considering a taxpayer for Compliance 

Maintenance include the complexity and number of issues, and the 

taxpayer’s history of CAP compliance, cooperation, and transparency. 

 9

IRS made CAP permanent in March 2011, applying to taxable years after December 31, 

2011. 
Page 6 GAO-13-662 Corporate Tax Compliance

Taxpayers are expected to continue disclosing completed business 

transactions, information on material items and issues that occur during 

the CAP year, and their proposed tax positions on these disclosed items. 

The Internal Revenue Manual states that taxpayers can be removed from 

Compliance Maintenance depending on the complexity, number of 

issues, or other factors.

Not every large corporation is eligible for CAP. Table 1 shows the criteria 

for each phase.

Table 1: Eligibility Criteria for Each Compliance Assurance Process (CAP) Phasea

Pre-CAP phase • Assets of $10 million or more.

• If publicly-held, has complied with legal requirements to submit Form 10K, 10Q, 8K, or 20F 

to the Securities and Exchange Commission or other regulatory body.a

• If privately held, must agree to provide certified, audited financial statement or equivalent on

a quarterly basis.

• Not under investigation by or in litigation with IRS or other federal or state agencies that 

would limit access to tax records.

CAP phase • Same as Pre-CAP, and

• If under examination, taxpayer can have no more than one filed return that has not been 

closed and one unfiled return for the year most recently ended, the return for which is not 

yet due.

Compliance Maintenance phase • Taxpayer maintains honest communication with CAP team and consistency in tax 

department personnel.

• Taxpayer fully discloses all material and significant transactions.

• Taxpayer has good internal controls.

• Historically, taxpayer has low risk transactions and limited controversy.

• Taxpayer has minimal noncomplex issues anticipated for the CAP year (meaning no major 

new transactions for the coming year).

Source: GAO analysis of IRS documents.

a

The federal securities laws require publicly traded companies to disclose information to the 

Securities and Exchange Commission (SEC) on an ongoing basis. Domestic issuers must submit 

annual reports on Form 10-K and quarterly reports on Form 10-Q. The annual report on Form 10-K 

provides a comprehensive overview of the company’s business and financial condition and includes 

audited financial statements. Form 8-K is the current report companies must file with the SEC to 

announce major events that shareholders should know about. Form 20-F is for foreign companies.

Taxpayers must sign a memorandum of understanding (MOU) that 

outlines their agreement to meet the CAP requirements. For Pre-CAP, the 

MOU will be effective for the first Pre-CAP year and continue until audits 

of tax returns for all transition years are closed and the CAP phase 

selection criteria are fulfilled. For the CAP phase, the MOU applies to a 

single tax year known as the CAP year. For Compliance Maintenance, 

the CAP phase MOU is used. To continue in the CAP and Compliance 
Page 7 GAO-13-662 Corporate Tax Compliance

Maintenance phases, taxpayers must reapply and execute a new MOU 

for each CAP year.

Of about 60,000 large corporate taxpayers considered for audit in fiscal 

year 2012, 161 were in CAP. Figure 2 shows the growth of CAP since its 

inception in 2005.

Figure 2: Number of Compliance Assurance Process (CAP) Taxpayers by Tax Year

CAP taxpayers work with team and account coordinators who serve as 

the primary IRS representative for all federal tax matters. In the Pre-CAP 

phase, taxpayers work with an assigned team coordinator; in the CAP 

phase or Compliance Maintenance phase, taxpayers work with an 

assigned account coordinator. Other IRS team members include IRS 

examiners, the team manager, the territory manager, and the Director of 

Field Operations, as well as various IRS specialists (as needed) who offer 

technical knowledge about tax issues and large corporations.

CAP work on a tax return may be concluded in one of three ways:

1. Full Acceptance Letter—IRS provides the taxpayer with a full 

acceptance letter if the pre-filing stage concludes with a taxpayer fully 

complying with the MOU and with resolutions of all identified items 

and issues through factual clarification, closing agreement(s), issue 
Page 8 GAO-13-662 Corporate Tax Compliance

resolution agreement(s), or a combination of these.10 The letter 

constitutes written confirmation that IRS will accept the taxpayer’s 

return if it is filed consistent with those resolutions and no additional 

items or issues are discovered during the post-filing review that were 

not previously disclosed.

2. Partial Acceptance Letter—IRS provides the taxpayer with a partial 

acceptance letter if the pre-filing stage concludes with a taxpayer fully 

complying with the MOU, but IRS and the taxpayer cannot resolve all 

identified items or issues before the tax return is filed. The letter 

constitutes written confirmation that IRS will accept the taxpayer’s 

return for the resolved items and issues if the post-filing review shows 

the return is filed consistent with the agreement(s).

3. Termination Letter—IRS can issue a termination letter at any time, 

which results in the case being withdrawn from CAP and transferred 

to a traditional post-filing examination. This can happen for several 

reasons, including the taxpayer:

• not adhering to information document request (IDR)11 response times, 

not responding to IDRs, or not providing complete IDR responses;

• not engaging in meaningful or good-faith issue resolution discussions;

• failing to thoroughly disclose prior, concurrent, and ongoing 

transactions;

• failing to disclose a tax shelter or listed transaction;

• failing to disclose an investigation or litigation that limits access by the 

IRS to current corporate records; or

• not adhering to any other MOU commitment(s).

Two other new reporting requirements, one financial and one tax, have 

been introduced since the 2005 pilot and may reinforce CAP. The first, 

Financial Accounting Standards Board Interpretation Number 48, 

Accounting for Uncertainty in Income Taxes, implemented in June 2006, 

requires public and private corporations subject to the U.S. Generally 

Accepted Accounting Principles to disclose uncertain tax positions. 

Several of the tax experts we spoke to said this gives IRS an additional 

 10IRS drafts an issue resolution agreement for each item or issue that is resolved with the 

CAP taxpayers during the pre-filing stage, except for items or issues that are resolved 

through simple factual clarification. 

11According to the Internal Revenue Manual 4.46.4, IDRs are used by examination teams 

to gather information. The process is intended to encourage collaboration between the 

taxpayer and IRS to provide information needed to support an audit. 
Page 9 GAO-13-662 Corporate Tax Compliance

source for verifying the completeness of the disclosures that corporations 

make in the CAP phase. The second, Schedule UTP, Uncertain Tax 

Position Statement, has a similar disclosure purpose. IRS implemented it 

in 2010 as required reporting by taxpayers that have assets equaling or 

exceeding $50 million.12 Along with their tax returns, these taxpayers are 

to disclose information on the Schedule UTP about tax positions that may 

affect federal income tax liabilities or are included in audited financial 

statements. According to the August 2011 UTP guidance and procedures 

for CAP, CAP teams should compare the list of taxpayer disclosures 

made to them during the CAP year to the issues identified on the 

Schedule UTP to verify that the disclosures match.

IRS envisioned that CAP would yield significant benefits to participating 

taxpayers and IRS by resolving tax issues in a pre-filing environment. 

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 account coordinators for CAP cases, other IRS officials, and non-IRS 

officials (such as corporate tax experts and large corporation tax officials) 

told us what they believe the benefits of CAP are if its goals are 

achieved.13 Because the goals are not all mutually exclusive, some 

benefits can be perceived as relating to more than one goal.14

 12For 2010 and 2011, taxpayers that had assets equaling or exceeding $100 million were 

required to report uncertain tax positions on Schedule UTP. The asset threshold 

decreased from assets that equal or exceed $100 million to assets that equal or exceed 

$50 million for 2012. 

13Examples we cited in this section were derived from interviews or focus groups with IRS 

and non-IRS officials.

14Those we interviewed did not point to benefits from reducing overall examination time. 

Significant Benefits 

Are Envisioned from 

CAP As Reflected in 

Its Goals
Page 10 GAO-13-662 Corporate Tax Compliance

• Ensure taxpayer compliance: IRS and non-IRS officials indicated 

that compliance may be higher under CAP. Specifically, transactions 

disclosed by taxpayers in CAP may not have been disclosed or 

otherwise detected during traditional audits. For example, some 

account coordinators and large corporation tax officials who 

participated in our focus groups said that the risk of getting removed 

from CAP sometimes prompts large corporations to over-disclose 

issues and transactions.

• Increase currency for taxpayers: IRS and non-IRS officials 

generally agreed that CAP increases currency. Some of the officials 

informed us that currency reduces taxpayers’ cost to retrieve 

information as well as their interest expenses on unpaid tax liabilities. 

Currency means that the appropriate documents and corporate staff 

knowledgeable about a particular transaction are more likely to be 

available for consultation.

• Enhance the accurate, efficient, and timely resolution of complex 

tax issues: IRS and non-IRS officials generally agreed that currency 

could also enhance the resolution of disputes over tax issues for the 

reasons given above. Having documents and responsible corporate 

staff available should make it easier for IRS to understand the tax 

implications of a transaction. In addition, a full or partial acceptance 

letter can speed the post-filing review of resolved issues.

• Increase audit coverage by providing more efficient use of IRS 

resources: IRS and non-IRS officials generally agreed that CAP has 

the potential to reduce IRS resources spent auditing large 

corporations relative to what would have been spent on traditional 

audits. Some of the officials stated that most of the resource savings 

would occur in the Compliance Maintenance phase. Any resources 

saved through Compliance Maintenance could be reinvested in 

increasing the audit coverage of CAP and non-CAP taxpayers. As an 

example of resource savings, an account coordinator informed us that 

she was able to devote more time and resources to other audits 

because one of her taxpayers was in Compliance Maintenance.

• Reduce taxpayer administrative burden: CAP taxpayers who 

participated in IRS’s 2012 survey responded that they were satisfied 

that CAP had reduced their administrative burden compared to 

traditional post-file audits. While CAP may reduce taxpayer 

administrative burden over time, corporate tax experts indicated that 

CAP requires significant upfront investment from taxpayers because 
Page 11 GAO-13-662 Corporate Tax Compliance

all audits for prior tax years must be resolved.

• Increase certainty for taxpayers: IRS and non-IRS officials we 

spoke with generally agreed that CAP can increase the certainty that 

taxpayers have about their tax obligations when tax returns and 

financial statements are filed. They specifically emphasized the value 

to corporations of not having to maintain reserves for potential future 

tax liabilities. A corporate tax expert told us that certainty is so 

valuable to corporations that they may be willing to concede certain 

tax issues to achieve it. Increased certainty has other effects, such as 

making it less likely that state tax returns will need to be amended, 

which also saves time and resources.

Both IRS officials and corporate tax experts informed us that for CAP to 

achieve such benefits, taxpayers must be willing to disclose transactions 

to IRS. For this reason, transparency and communication are emphasized 

in the MOU. The corporate tax experts we interviewed readily 

acknowledged that not all large corporate taxpayers may be good 

candidates for CAP. As examples, they mentioned corporations that 

consistently take aggressive tax positions, have numerous complex 

transactions, or are unwilling to be cooperative and transparent with IRS.
Page 12 GAO-13-662 Corporate Tax Compliance

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 evidence in the preceding section about the benefits of CAP 

is based on viewpoints of those in our focus groups which cannot be 

generalized to the entire population of IRS and non-IRS officials. The 

Senate Committee on Appropriations, in June 2012, urged IRS to develop 

additional performance measures to evaluate the effectiveness of CAP.15

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.16 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.

IRS faces challenges in evaluating CAP. For example, it is not easy to 

measure compliance by large corporations or concepts like certainty and 

administrative burden. IRS has attempted exploratory research on the 

impacts of CAP but these efforts were not conclusive. However, without 

evaluations of CAP or its expansion, IRS does not have a credible base 

of information for understanding the current effectiveness of CAP such as

for saving resources or for making decisions about any future expansion 

of CAP.

IRS has guidelines for conducting program evaluations that could be 

applied to CAP.17 According to the guidelines, a program evaluation 

attempts to provide accurate, objective, and trustworthy information about 

program performance and to help assess the quality or value of a 

program. Conducting a program evaluation can help answer questions 

decision makers have about the basic reasons the program exists and the 

continuing need for it. The guidelines also allow for evaluating the costs 

and benefits of continuing, revising, or ending a program.

 15S. Rep. No. 112-177, at 28 (June 14, 2012).

16TIGTA, The Compliance Assurance Process Has Received Favorable Feedback, but 

Additional Analysis of Its Costs and Benefits Is Needed, Reference Number 2013-30-021 

(Washington, D.C.: Feb. 22, 2013). 

17IRS, Guidelines for Conducting Program Evaluations (Washington, D.C.: May 2012).

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
Page 13 GAO-13-662 Corporate Tax Compliance

The Government Performance and Results Act of 1993 (GPRA), as 

enhanced by the GPRA Modernization Act of 2010, requires agencies to 

set results-oriented goals, establish performance measures and related 

performance indicators with targets in meeting such goals,18 and report 

progress.19 Performance measures and targets are established so that 

actual results can be compared to planned performance or goals.

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.

Table 2: Not All Compliance Assurance Process (CAP) Goals Have Measures or 

Targets

CAP goal IRS measure Target

Ensure taxpayer compliance None None

Reduce overall examination cycle 

time

Overall examination cycle time, 

although data are inconsistent

None

Increase currency for taxpayers None None

Enhance accurate, efficient, and 

timely resolution of complex tax 

issues 

None None

Increase audit coverage by providing 

more efficient use of resources

Partial—average staff hours for pre- and 

post-filing 

None

Reduce taxpayer administrative 

burden

Partial—taxpayer satisfaction on burden 

of CAP compared to traditional audits 

None

Increase certainty for taxpayers Taxpayer assessment of extent to which 

certainty increased and percentage of 

full acceptance or no change letters 

None

Source: GAO analysis of IRS data.

Note: Partial means that the measure does not fully address the goal.

 18According to the GPRA Modernization Act of 2010, a performance indicator is a 

particular value or characteristic used to measure output or outcome, and common federal 

government performance indicators with quarterly targets are to be used in measuring or 

assessing, among other things, overall progress toward each federal government 

performance goal. GPRA Modernization Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866, 

3868-3871 (Jan. 4, 2011).

19Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 

(Aug. 3, 1993). GPRA Modernization Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866 

(Jan. 4, 2011).

IRS Has Created Some 

Performance Measures, 

but Has No Targets to 

Measure Progress Towards 

CAP Goals
Page 14 GAO-13-662 Corporate Tax Compliance

• Ensure taxpayer compliance: IRS officials we interviewed said that, 

despite multiple attempts, they do not have measures or targets 

related to CAP taxpayer compliance because of the difficulty of 

measuring it. IRS has directly measured compliance for different 

groups of taxpayers in the past, such as through audits of randomlyselected taxpayers. IRS has not used this approach with large 

corporations because it may be a burden both for IRS and taxpayers.

An alternative to measuring the direct impact of CAP on compliance is 

the use of proxy measures.20 During the pilot as well as after making 

CAP permanent, IRS tried various approaches to measure a proxy for 

compliance in paying taxes owed, such as the taxes paid before and 

after audit by CAP taxpayers compared to non-CAP taxpayers. One

approach attempted to create peer groups for CAP taxpayers to 

compare taxes paid by CAP taxpayers with those paid by non-CAP 

peers. Another approach explored ways to estimate the impact of 

CAP on effective tax rates. However, the results were not conclusive 

because of the challenges of controlling for other factors that could 

affect taxes paid.21 IRS has not researched the potential use of 

another proxy measure for compliance: using the results from 

measuring the quality of work by CAP teams to identify material tax 

issues and to develop support for how these issues should be 

reported on tax returns. Without compliance measures or related 

proxy measures and accompanying targets, it will be difficult for 

Congress and IRS to know whether CAP is meeting its goal for 

ensuring taxpayer compliance.

• Reduce overall examination cycle time: IRS has defined a measure 

for this goal but its related data are inconsistent. This measure 

combines IRS’s traditional cycle time metric—the number of months 

or years it takes to close an audit after a tax return is filed—with the 

number of months for pre-filing work. Measuring the pre-filing time 

could provide insights on whether a taxpayer is a good candidate for 

CAP. For example, a long pre-filing period could be an indicator of 

 20A proxy measure is an attempt to indirectly measure a variable that is difficult to directly 

measure. GAO, Informing Our Nation: Improving How to Understand and Assess the 

USA’s Position and Progress, GAO-05-1 (Washington, D.C.: Nov. 10, 2004).

21The IRS research completed to date has not used data that reflect the factors that IRS 

uses to select corporations for CAP; this omission could affect the results as well as 

whether the results can be generalized to potential CAP participants.
Page 15 GAO-13-662 Corporate Tax Compliance

complex tax issues or delays in providing information to IRS. 

However, as discussed in the next section, we found inconsistencies 

in the CAP data for use in measuring this goal. In particular, we could 

not resolve inconsistencies in the reporting of cycle time data by 

different sources.

• Increase currency for taxpayers: LB&I has data on currency for all 

CIC audits, but it has not broken out currency data for CAP pre-filing 

work or post-filing audits. IRS officials stated that they believe that all 

CAP cases are current (which could be a CAP target). However, they 

had no measures for either the pre-filing or post-filing stages or 

related targets.

• Enhance the accurate, efficient, and timely resolution of complex 

tax issues: IRS does not have a measure or target for this goal. IRS 

knows that CAP taxpayers are satisfied with their issue resolutions. 

According to IRS’s 2012 taxpayer satisfaction survey,22 80 percent of 

the CAP respondents were satisfied with issue resolution in CAP.23 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. For example, IRS 

does not track whether the same issues repeat year after year or 

whether IRS and the CAP taxpayer agreed on a method to be used to 

resolve the issue in future tax years. Having such tracking to measure 

success in meeting this issue resolution goal could reduce the costs 

of future audits.

• Increase audit coverage by providing more efficient use of 

resources: IRS partially measures this goal by tracking certain CAP 

resources spent, such as the average staff hours for pre-filing and 

post-filing activities, but does not measure whether any savings are 

used to increase audit coverage.

 22Pacific Consulting Group, Internal Revenue Service Taxpayer Satisfaction Survey: 

Large Business and International (LB&I), Compliance Assurance Process (CAP) Taxpayer 

Satisfaction Report Covering 2012 (November 2012). Taxpayers who were in CAP for the 

2012 tax year were surveyed.

23In terms of how significant issues were resolved, 82 percent of CAP respondents were 

“somewhat” or “very satisfied” with resolutions before filing their return and 80 percent

were “somewhat” or “very satisfied” with resolutions after filing their return.
Page 16 GAO-13-662 Corporate Tax Compliance

• Reduce taxpayer administrative burden: IRS partially measured

this goal through its 2012 customer satisfaction survey to determine 

whether CAP taxpayers believed that the administrative burden had 

decreased. However, IRS does not have a measure of the actual 

burden on CAP taxpayers because it has not been able to identify 

how to capture taxpayer burden (other than relying on survey 

responses). IRS has been attempting to more directly measure how 

CAP affects taxpayer burden but has faced challenges. In 2013, IRS’s 

Research, Analysis, and Statistics (RAS) division analyzed whether 

CAP taxpayers were less likely to use outside tax preparation 

services. While RAS concluded that payments for such services were 

significantly lower for corporations that had been in CAP for at least a 

year, this result might indicate that CAP corporations choose to use 

more in-house staff and fewer outside experts for work related to 

taxes rather than from being in CAP. RAS also analyzed responses to 

its tax year 2009 tax compliance cost survey to compare compliance 

costs for CAP and non-CAP corporations while controlling for other 

factors that might influence the costs. The results of this analysis were 

inconclusive.

• Increase certainty for taxpayers: IRS relies on its customer 

satisfaction survey to measure whether taxpayer certainty has 

increased. In its 2012 survey, 90 percent of CAP respondents said 

that tax certainty has increased “somewhat” or “a lot” for their 

corporations. In addition, an IRS official informed us in June 2013 that 

IRS has begun to use data it has been collecting on the percentage of 

taxpayers that are issued full acceptance or no change letters by tax 

and fiscal years to reflect certainty.

IRS officials stated that the measures being used for CAP, such as cycle

time, staff hours, and taxpayer satisfaction, are derived from the 

traditional LB&I balanced measures related to business results and 

customer satisfaction for all of its audits. These traditional balanced 

measures do not directly link to all CAP goals.

According to an IRS official, IRS has not identified targets for any of its 

CAP measures because it does not traditionally set official targets for pilot 

programs. The official informed us in July 2013 that IRS is developing 

targets, which may be in place by the start of fiscal year 2014 pending 

approval by LB&I leadership. Even if IRS implements targets, IRS does 

not have an objective basis for determining whether CAP is effective 

because some goals do not have measures.
Page 17 GAO-13-662 Corporate Tax Compliance

To implement a performance measurement system, it is necessary to 

collect the right data and ensure its accuracy. Standards for Internal 

Control in the Federal Government calls for a variety of control activities 

for data being collected to help ensure that actions are taken to reduce 

risk.24 Even though some CAP measures exist, the IRS data being 

collected are not consistent or complete to use in determining whether the 

CAP goals are met.

Such inconsistencies arise in part from data collection processes. An IRS 

official indicated that data used by IRS to manage CAP are manually 

transferred from multiple databases into an excel spreadsheet. Without 

controls or documentation to ensure and validate their consistency, we 

could not be assured of the validity and accuracy of the data that IRS 

uses to create the CAP report used by LB&I leadership. Furthermore, this 

limits the ability to do analyses, such as:

• measuring the average hours spent to close a tax return and staff time 

charges for a tax year by pre-filing and post-filing activities. 

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.

• comparing taxpayer’s returns filed before and after they entered CAP 

to analyze any similarities and differences, accounting for when 

taxpayers entered CAP and moved from the Pre-CAP phase to the 

CAP phase. Doing an analysis may help IRS determine whether the 

right taxpayers are in CAP.

• replicating IRS management reports and TIGTA data tables on the 

total number of CAP taxpayers, using taxpayer identification numbers,

tax years, and form types.

• reconciling differences in the reported number of months for cycle 

time. An IRS official provided a report used by LB&I leadership 

involved with CAP showing that the average cycle time for closed 

CAP audits is about 20 months for both pre-filing and post-filing work, 

 24GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). 

IRS Does Not Have 

Consistent and Complete 

Data for CAP
Page 18 GAO-13-662 Corporate Tax Compliance

with more than half of this time spent on post-filing work rather than 

pre-filing work. However, TIGTA reported average cycle time for 

closed audits to be about 24 months with more than half of this time 

spent on pre-filing work rather than post-filing (over 15 months and 

about 8.5 months, respectively).25

IRS’s Issue Management System (IMS)26 has a field for the type of issues 

audited, but IRS officials said that they did not have assurance that the 

issue data were consistent and complete. When CAP audit teams entered 

issue data into IMS, IRS did not know whether the teams were 

consistently selecting the proper issue codes. IRS officials indicated that 

entering the issue into IMS can be a significant burden because IRS has 

tens of thousands of issue codes to consider and one issue can be 

associated with multiple codes from which to choose. Furthermore, IRS 

does not require this issue field to be completed and does not know 

whether CAP teams entered all issues audited. As a result, the risk 

increases that data are not consistent and complete. Thus, neither we nor 

IRS could determine the number, types, and dollar amounts of 

recommended tax changes for issues addressed in CAP.

In addition, data in CAP case files are not tracked and thus are not readily 

available to assess whether the issue resolution goal is being met. IRS 

has not created a system to compile data from the issue resolution 

agreements between CAP teams and taxpayers to guide how issues are 

to be reported on tax returns when corporations file; instead, these 

agreements are kept in a case file for each CAP taxpayer. An IRS official 

agreed to attempt to start electronically tracking issues reported on issue 

resolution agreements and said in July 2013 that the mandatory entry of 

data from the issue resolution agreements into the IMS would be 

recommended to the LB&I Business Review Board in late July 2013.27

Thus, the date and methodology for starting to track the issues resolved 

during pre-filing are not known. Even if implemented, the planned tracking 

 25Analysis covered fiscal years 2007 through 2011. TIGTA, The Compliance Assurance 

Process Has Received Favorable Feedback, but Additional Analysis of Its Costs and 

Benefits Is Needed, Reference Number 2013-30-021 (Washington, D.C.: Feb. 22, 2013). 

26According to IRS, IMS is an automated tool that collects issue-based information on 

audits in a way that makes it available centrally for audit monitoring and strategy 

development. 

27The LB&I Business Review Board includes LB&I management and National Treasury 

Employees Union officials. 
Page 19 GAO-13-662 Corporate Tax Compliance

would not cover all other audited issues and whether they were resolved 

during post-filing. Without such CAP-wide data, it will be difficult for IRS to 

know whether it is resolving issues uniformly across CAP taxpayers for a 

current tax year or addressing the same complex tax issues year after 

year for a CAP taxpayer.

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. Compared to traditional audits, CAP could help identify new 

issues sooner for multiple CAP taxpayers because CAP occurs in realtime.28 Without this tracking, IRS cannot readily determine how quickly 

new issues are identified or resolved in CAP. Thus, IRS could miss 

opportunities to detect new types of noncompliance earlier and to share 

the information IRS-wide. Account coordinators in our focus groups 

informed us they used an informal process to relay information on 

emerging issues, such as to the local office counsel, but the extent to 

which this information circulates across IRS is not known.

Similarly, as of May 2013, IRS was not tracking data on its CAP goal for 

resource savings to invest in increased audit coverage. Without the data 

on the savings and a related plan for using any savings to increase audit 

coverage, IRS cannot be assured that the saved resources are invested 

effectively on either CAP or non-CAP taxpayers with high compliance 

risks. IRS officials explained that a possible way to track the effect of the 

saved resources would be to count the number of cases that account 

coordinators work, expecting that some coordinators will be able to work 

non-CAP cases that would not have been worked.29

 28These new tax issues may emerge from how CAP taxpayers interpreted the tax impacts 

from new laws or changes to the laws as well as from changes in the business 

environment and new products or activities. An example includes new tax credits such as 

for hiring new employees.

29IRS provided summary information in June 2013 on the workload for 10 account 

coordinators working CAP cases in the Compliance Maintenance phase. However, the 

results only showed a very minor increase in the number of cases worked by account 

coordinators.
Page 20 GAO-13-662 Corporate Tax Compliance

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. IRS expects that Compliance Maintenance will start 

generating resource savings in 2014. The number of taxpayers in 

Compliance Maintenance has increased from 10 in early fall 2012 to 44 

as of June 2013.

Although Compliance Maintenance is growing, IRS has not assessed 

whether it is working as intended and has not developed a plan to expand 

it. Standards for program management state that specific desired 

outcomes or results should be conceptualized, defined, and documented 

in the planning process as part of a road map, along with the appropriate 

steps and time frames needed to achieve those results. The standard 

practices also call for assigning responsibility and accountability for 

ensuring the results of program activities.30

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. Without such an assessment and 

plan to guide expansion, IRS will not know whether Compliance 

Maintenance will help meet CAP goals, such as reducing the resources 

devoted to pre- and post-filing, or increasing audit coverage while 

maintaining compliance.

The lack of a documented plan for expanding Compliance Maintenance 

could create risks for CAP in ensuring that this phase includes the right 

types of taxpayers. Our reviews of IRS documents and our focus groups 

held with account coordinators indicated that confusion exists about how 

IRS would monitor taxpayers in Compliance Maintenance and how it 

would remove taxpayers that no longer qualify. Account coordinators that 

we included in our focus groups expressed uncertainty over how IRS 

would monitor CAP taxpayers, given that some taxpayers could 

potentially “game” Compliance Maintenance because this phase requires 

a lighter review using less resources than the CAP phase. Account 

coordinators were also uncertain about the process and criteria for 

removing taxpayers when we spoke to them in March and April 2013. In 

 30Project Management Institute, The Standard for Program Management (Newtown 

Square, PA: 2006).

IRS’s Readiness to 

Further Expand 

Compliance 

Maintenance Is 

Unclear
Page 21 GAO-13-662 Corporate Tax Compliance

addition, they told us that a taxpayer that had been accepted into

Compliance Maintenance for tax year 2013 was expected to remain in 

Compliance Maintenance until all of the work was completed for that tax 

year, regardless of whether their circumstances changed (such as tax 

personnel changes in the taxpayer’s business or discovery of new 

complex tax issues).

We brought the concerns from account coordinators that participated in 

our focus groups to the attention of IRS. In response, IRS management 

informed us that they revised their draft user guide for Compliance 

Maintenance at the end of May 2013 and clarified the process and criteria 

for moving taxpayers from Compliance Maintenance back to the CAP 

phase. An IRS official explained that moving a taxpayer out of 

Compliance Maintenance would require a serious compliance risk. 

According to the May 2013 draft user guide, taxpayers would remain in 

Compliance Maintenance for the entire pre-filing phase. If their 

compliance risk changes,31 such taxpayers will remain in Compliance 

Maintenance for that calendar year but may be moved back to the CAP 

phase in the next year. Additionally, a March 2013 notification letter to 

CAP taxpayers approved for Compliance Maintenance highlighted that if 

changes occurred (such as to transparency, cooperation, or tax return 

filing activity) IRS might revisit whether they should remain in Compliance 

Maintenance.

IRS has not yet verified whether these recent changes are uniformly 

understood by account coordinators and resolve their concerns, which 

they shared in our focus groups during March and April 2013. At the end 

of June 2013, IRS indicated agreement that verifying the changes to the 

guidance may help address the account coordinators’ concerns. Verifying 

that the changes it took resolved account coordinators’ concerns could 

provide IRS with reasonable assurance that its staff are including the right 

types of taxpayers in Compliance Maintenance and are monitoring and 

removing them appropriately.

The potential savings from Compliance Maintenance relate to multiple 

CAP goals, such as increased audit coverage and taxpayer certainty, as 

well as reduced overall examination cycle time. CAP may not achieve its 

 31Events that may change risk include the number of high-risk and material transactions 

reported, breakdown in personnel relations, change in tax department personnel that 

significantly impacts timeliness of review, and taxpayer relocation.
Page 22 GAO-13-662 Corporate Tax Compliance

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.
Page 23 GAO-13-662 Corporate Tax Compliance

Regardless of whether taxpayers are in CAP, they have access to other 

existing IRS processes to help resolve tax issues with IRS. Examples 

include accelerated issue resolution,32 advance pricing agreements (APA) 

to help resolve transfer pricing issues,33 Appeals,34 early referral to 

Appeals,35 fast track settlement,36 industry issue resolution,37 and 

settlement authority for coordinated issues.38 For example, CAP 

taxpayers retain the same appeal rights as non-CAP taxpayers if they 

disagree with IRS’s audit findings. As for IRS staff, both CAP and 

traditional audit teams can contact Issue Practice Groups (IPG) for 

technical advice on specific tax issues.39 IPGs are designed to foster 

effective collaboration and sharing of knowledge and expertise across 

LB&I and Chief Counsel. In our focus groups, account coordinators that 

requested assistance from IPGs generally reported that IPGs responded 

 32Accelerated issue resolution is an examination process to apply the resolution of the 

same or similar issues arising for an examination of an LB&I taxpayer from one or more 

tax periods to other tax periods. 

33In advance of a taxable transaction, taxpayers voluntarily use APAs to help resolve 

transfer pricing issues in a cooperative manner with IRS and with countries that have a tax 

treaty with IRS. A transfer price is the price charged by one company for a product or 

service supplied to a related company, such as the price a parent corporation charges its 

wholly-owned subsidiary. Any company that has a related company with which it transacts 

business establishes transfer prices for those intercompany transactions.

34Appeals is independent of any other IRS office and serves as an informal administrative 

forum for a taxpayer who disagrees with an IRS determination. Appeals provide a venue 

where disagreements concerning the application of tax law can be resolved on a fair and 

impartial basis for both the taxpayer and the government. 

35Early referral is an optional process to resolve cases faster through LB&I and Appeals 

working simultaneously. This process may be requested by any taxpayer. A taxpayer may 

request early referral for one or more unresolved issues. 

36Taxpayers can request the use of fast track settlement if they cannot resolve issues 

identified. For CAP, fast track can be used on an issue-by-issue basis during the pre-filing 

and post-filing periods. However, if a taxpayer elects to use fast track in pre-filing, it 

cannot be used for the same issue during the post-filing period. 

37The Industry Issue Resolution Program resolves frequently disputed or burdensome tax 

issues that affect a significant number of business taxpayers through the issuance of 

guidance. 

38Settlement authority covers coordinated issues with Appeals Settlement Guidelines. 

Settlement authority is available for these types of issues, regardless of the amount of the 

adjustment. 

39IRS has 15 IPGs for issues related to accounting, corporate issues, credits, and 

penalties, among others. 

CAP Taxpayers and 

Auditors Use IRS 

Compliance 

Processes in the Same 

Manner as Traditional 

Audits but 

Coordination 

Difficulties Exist
Page 24 GAO-13-662 Corporate Tax Compliance

in a timely manner and prioritized their inquiry over non-CAP audits, even 

though IRS does not formally require that priority.

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.40 IRS has initiated some efforts to address 

such difficulties:

• For APAs, IRS highlighted in the 2013 CAP MOU that complex 

transfer pricing issues may require additional time beyond the typical 

CAP time frame to reach an agreement and consequently, could 

result in a partial acceptance letter. The MOU also states that the 

account coordinator is responsible for contacting the appropriate 

Advance Pricing and Mutual Agreement (APMA) Team to ensure 

ongoing coordination between the CAP and APMA programs.

• For research credits, IRS implemented the General Business Credits 

IPG, which consists of IRS’s technical experts on corporate tax credit 

issues, to provide assistance in reaching a resolution.

As mentioned previously, IRS does not systematically track tax issues for 

CAP in a centralized manner. To the extent IRS begins tracking how long 

it takes to audit and resolve specific tax issues, IRS would have data to 

assess the effectiveness of these efforts to better coordinate CAP with 

APAs and research credit claims.

 40Research credits allow taxpayers to claim tax credits in the amounts they paid for 

supplies used when conducting qualified research. Clarifying the type of supplies that 

qualify for the credit can be very difficult. 

CAP’s Expedited Time

Frames Pose Coordination 

Difficulties for Some Tax 

Issues Which IRS Is 

Addressing
Page 25 GAO-13-662 Corporate Tax Compliance

IRS and non-IRS officials highlighted the need for IRS specialists to better 

understand the cooperative and transparent culture necessary for CAP to 

succeed. For example, in IRS’s 2012 survey of taxpayers, the most 

frequently cited barriers to the CAP review process were the lack of 

training and urgency by specialists that CAP teams rely on for advice. 

Specifically, CAP taxpayers in the survey perceived a lack of urgency and 

cooperation by the specialists working on CAP audits. Moreover, account 

coordinators we included in our focus groups expressed some concerns 

that the need for cooperation between IRS and the taxpayer in the CAP 

environment had not been fully adopted by specialists throughout IRS.

Without a cooperative and transparent environment, CAP teams are 

hindered in coordinating with specialists, which may affect IRS’s ability to 

achieve its goals. To address these concerns, IRS is acting on the 

following efforts to improve coordination with these IRS specialists:

• Joint training is being conducted on CAP to include all CAP team 

members, specialists, and taxpayers.

• Monthly meetings on CAP are being set up with the Tax Executives 

Institute, which represents the tax executives of large corporations, to 

discuss common concerns and practices, such as those with 

specialists.

• Procedures are being updated to help with transparency. For 

example, CAP teams, including specialists, must discuss IDRs with 

the taxpayer before they are filed.

• Work is being done to improve specialists’ knowledge of the 

corporations whose audits they are involved in, as well as their 

methods of communication with such corporations.

IRS officials indicated that they have taken these actions to ensure that 

coordination has improved between taxpayers and CAP teams (including 

specialists), and to monitor whether taxpayer concerns about specialists 

have been addressed. However, it is too early to tell whether IRS’s efforts 

will work.

CAP is an ambitious effort to improve tax audits of large corporations. It 

holds the promise of significant benefits for participating corporations in 

the form of increased certainty about tax liability and reduced 

administrative burden. It also has the potential to save IRS resources, 

IRS Is Working to Ensure 

CAP’s Culture of 

Cooperation and 

Transparency Is

Understood Throughout 

IRS

Conclusions
Page 26 GAO-13-662 Corporate Tax Compliance

which could be reallocated to increase audit coverage. Attracted by these 

benefits, IRS has been expanding the number of taxpayers in CAP and 

the related Compliance Maintenance phase. However, despite several 

efforts, IRS has not succeeded at assessing whether or not CAP is 

achieving its goals. While anecdotal evidence indicates that CAP may be 

effective at ensuring compliance, increasing certainty, saving resources, 

and achieving other goals, a CAP-wide assessment could validate these 

results and help ensure that support for CAP, both inside and outside 

IRS, does not wane.

The lack of a CAP assessment is related to missing or incomplete 

performance measures, nonexistent targets for the CAP goals, and 

incomplete or inconsistent data. Without a full suite of measures and 

targets as well as appropriate data for program evaluation, fully assessing 

whether CAP is achieving its goals is not possible. The consequences of 

not establishing performance measures and not collecting the data 

needed to track performance can be significant. For example, one CAP 

goal is to resolve complex tax issues, but IRS does not track whether they 

are being resolved. As a result, IRS will not be able to tell whether CAP is 

dealing with disputes over the same issues year after year. Similarly, IRS 

does not track whether CAP is identifying emerging tax issues. Without 

such tracking, IRS cannot share information about emerging issues 

across IRS, creating a risk that some IRS audits might miss the issue or 

treat taxpayers inconsistently. For its goal on increasing audit coverage 

by saving resources through CAP, IRS did not have a way to collect data 

on the resources saved. Without that data, IRS cannot readily plan for 

how any savings will be used to increase audit coverage.

Finally, without an assessment and plan for expansion, the rationale and 

pathway for expanding Compliance Maintenance are missing. In addition, 

the extent to which CAP staff understand how taxpayers are to be 

monitored and, if necessary, removed from Compliance Maintenance has 

not been verified. 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.
Page 27 GAO-13-662 Corporate Tax Compliance

To ensure that IRS is meeting the stated goals of CAP, we recommend 

that the Principal Deputy Commissioner of Internal Revenue and Deputy 

Commissioner for Services and Enforcement take the following seven 

actions:

• Develop an evaluation plan for CAP, using IRS’s guidelines for 

conducting program evaluations, that can

• track progress against the goals, and

• determine whether and how much to expand CAP.

• Develop measures for each CAP goal and set related targets.

• Consistently and completely capture data needed to track progress 

against the CAP goals.

• Track all CAP tax issues and at a minimum, identify

• whether they are resolved or not resolved, and

• whether any are new or emerging issues that should be shared 

IRS-wide.

• Track savings from Compliance Maintenance and CAP overall and 

develop a plan for reinvesting any savings.

• Develop a plan for expanding Compliance Maintenance.

• Verify that the updated guidance for Compliance Maintenance on 

monitoring and removing CAP taxpayers has resolved CAP staff 

concerns about how these tasks are to be accomplished.

We provided a draft of this report to IRS for review and comment. The 

Acting Deputy Commissioner for Services and Enforcement at IRS

provided written comments, which are reprinted in appendix II. IRS plans 

to implement all seven of our recommendations but was not clear on the 

extent to which its plans will fully address our first six recommendations, 

as highlighted below.

• For the first recommendation, IRS stated that it would develop and 

execute a program evaluation for CAP by June 30, 2014. However, 

IRS did not state whether the plan would track progress against goals 

and determine whether and how to expand CAP. 

• For the second recommendation, IRS stated that it will develop a 

balanced measures scorecard for CAP, but it is unclear whether IRS 

intends to develop measures for each CAP goal and set related 

targets as part of this action.

• For the third recommendation, IRS stated that it will capture additional 

data points to track progress on the CAP goals, but did not indicate 

how it will ensure that the data are consistent and complete, 

accounting for problems we discussed in this report.

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 28 GAO-13-662 Corporate Tax Compliance

• For the fourth recommendation, IRS stated that it will mandate use of 

the Issue Resolution Agreement tool to track CAP issues, but did not 

clarify how it will track CAP issues that were not resolved.

• For the fifth recommendation, IRS stated that it will identify resource 

savings from CAP by June 30, 2014, but did not mention how it will 

develop a plan for reinvesting any savings.

• For the sixth recommendation, IRS stated that it annually evaluates 

whether a CAP taxpayer should be included in the CAP Compliance

Maintenance phase. However, IRS did not list actions it will take to 

develop a plan for expanding this phase. This report provides details 

on what a plan might cover (such as steps to be taken at certain times 

by specified parties to achieve desired results) as well as IRS’s 

capacity to assimilate more CAP taxpayers and manage the workload 

within expedited time frames for this phase. 

IRS also provided technical comments on the draft report, which we 

incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Chairmen and 

Ranking Members of other Senate and House committees and 

subcommittees that have appropriation, authorization, and oversight 

responsibilities for IRS. We are also sending copies of the report to the 

Principal Deputy Commissioner of Internal Revenue and Deputy 

Commissioner for Services and Enforcement, the Secretary of the 

Treasury, and other interested parties. In addition, this report is available 

at no charge on the GAO website at http://www.gao.gov.
Page 29 GAO-13-662 Corporate Tax Compliance

If you or your staff have any questions or wish to discuss the material in 

this report further, please contact me at (202) 512-9110 or 

whitej@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Key contributors to this report are listed in appendix III.

James R. White

Director, Tax Issues

Strategic Issues Team
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-13-662 Corporate Tax Compliance

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.

To address these objectives, we reviewed IRS’s strategic plan from 2009 

to 2013, IRS’s guidance for CAP and conducting program evaluations, a 

CAP management report, CAP research studies, results from IRS’s 2012 

CAP taxpayer survey, IRS documents pertaining to other compliance 

processes, our prior work on corporate audits and the tax gap, and other 

relevant literature. We also assessed IRS’s efforts on CAP by comparing 

them with criteria in the Government Performance and Results Act 

(GPRA) of 1993, GPRA Modernization Act of 2010, and the Standards for 

Internal Control in the Federal Government. We also attempted to 

replicate analysis of IRS’s data and tried to conduct our own analyses of 

CAP taxpayers but could not do so because of inconsistent data sources 

from multiple systems.

Further, we interviewed officials from IRS’s Large Business and 

International Division, who were responsible for managing CAP; 

Research, Analysis, and Statistics Division, who were responsible for 

conducting exploratory CAP research studies; and the Treasury Inspector 

General for Tax Administration. In addition, we interviewed 11 corporate 

tax experts, including former IRS employees who were familiar with CAP 

or had some experience with CAP. We also conducted one focus group 

with tax executives of 12 large corporations to understand their 

experiences using CAP; six focus groups with 22 account coordinators 

responsible for being the primary IRS representative for CAP audits; and 

two focus groups with 11 managers of IRS’s Issue Practice Groups 

responsible for providing guidance and advice to CAP teams on resolving 

complex tax issues. To select the 22 CAP account coordinators for our six 

focus groups, we received a list from IRS and drew a random sample to 

ensure a variety of independent viewpoints of those employees who work 

on different accounts in varied locations.1

 1

Results from nongeneralizable samples cannot be used to make inferences about a 

population. 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-13-662 Corporate Tax Compliance

We conducted this performance audit from July 2012 through August 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Comments from the Internal 

Revenue Service

Page 32 GAO-13-662 Corporate Tax Compliance

Appendix II: Comments from the Internal 

Revenue Service
Appendix II: Comments from the Internal 

Revenue Service

Page 33 GAO-13-662 Corporate Tax Compliance
Appendix II: Comments from the Internal 

Revenue Service

Page 34 GAO-13-662 Corporate Tax Compliance
Appendix II: Comments from the Internal 

Revenue Service

Page 35 GAO-13-662 Corporate Tax Compliance
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 36 GAO-13-662 Corporate Tax Compliance

James R. White, (202) 512-9110 or whitej@gao.gov

In addition to the contact named above, Tom Short (Assistant Director); 

Ben Crawford; Sara Daleski; Amy Radovich; Susan Sato; Jehan Chase; 

Edward Nannenhorn; and Cynthia Saunders made key contributions to 

this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments
Related GAO Products

Page 37 GAO-13-662 Corporate Tax Compliance

Tax Policy: The Research Tax Credit’s Design and Administration Can Be 

Improved. GAO-10-136. Washington, D.C.: November 6, 2009.

Tax Administration: IRS’ Advance Pricing Agreement Program. 

GAO/GGD-00-168. Washington, D.C.: August 14, 2000.

Tax Administration: IRS Measures Could Provide a More Balanced 

Picture of Audit Results and Costs. GAO/GGD-98-128. Washington, D.C.: 

June 23, 1998.

Internal Revenue Service: IRS Initiatives to Resolve Disputes Over Tax 

Liabilities. GAO/GGD-97-71. Washington, D.C.: May 9, 1997.

Tax Administration: Factors Affecting Results from Audits of Large 

Corporations. GAO/GGD-97-62. Washington, D.C.: April 17, 1997.

Tax Administration: Audit Trends and Taxes Assessed on Large 

Corporations. GAO/GGD-96-6. Washington, D.C.: October 13, 1995.

Tax Policy: Additional Information on the Research Tax Credit. 

GAO/T-GGD-95-161. Washington, D.C.: May 10, 1995.

International Taxation: Transfer Pricing and Information on Nonpayment 

of Tax. GAO/GGD-95-101. Washington, D.C.: April 13, 1995.

Tax Policy: Information on the Research Tax Credit. T-GGD-95-140. 

Washington, D.C.: April 3, 1995.

Tax Policy and Administration: Information on Transfer Pricing. 

GAO/GGD-94-206R. Washington, D.C.: September 15, 1994.

Tax Administration: Compliance Measures and Audits of Large 

Corporations Need Improvement. GAO/GGD-94-70. Washington, D.C.: 

September 1, 1994.

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