The Internal Revenue Service is under some pressure to fix its pre-filing program for large corporate taxpayers, which is meant to resolve sticky tax issues on the front end to simplify the examination after filing.

The Government Accountability Office says taxpayers in the Compliance Assurance Process as well as IRS officials reported the process doesn't involve the kind of cooperation or urgency that would seem necessary to arrive at efficient pre-filing agreement on key tax issues. The GAO says the IRS doesn't adequately assess CAP program outcomes to determine if in fact they are producing more certainty and more efficiency around arriving at tax liabilities.

The IRS developed the CAP program over a six-year pilot period to see if it would produce shorter, more narrow post-filing examinations for large corporate taxpayers. The idea is for taxpayers and the IRS to work together before a tax return is filed to iron out any differences over potentially contentious tax issues, thus giving both sides a greater sense of confidence in the contents of the return when filed. The IRS made the pilot program permanent in 2011.

Adam Fayne, a tax attorney with Arnstein & Lehr, says CAP agreements are taking a lot of time to settle. “There are lot of moving components and pieces to this procedure,” he says, coordinating with exam agents, technical advisors, territory managers, and attorneys in local IRS offices. “I'm not sure how much more efficient it is than simply being audited.”

Fayne says there are still some benefits to public companies in getting CAP agreements, most notably getting certainty over reported earnings and tax positions that are reported in financial statements. “If you go one way on a tax position, and the IRS determines you should have gone another way, that could drive earnings at some point,” he says. Still, “I don't see a lot of companies taking advantage of this CAP program.”

GAO says the IRS needs to develop more explicit goals for the program as well as a method of measuring whether they are met. As an example, GAO points out, the IRS says one of its goals with the program is to resolve complex tax issues, yet it's not clear whether that's happening. “As a result, IRS will not be able to tell whether CAP is dealing with disputes over the same issues year after year,” GAO says.

The IRS also doesn't track whether or how CAP is addressing emerging tax issues, producing a risk that some IRS audits may miss issues or treat taxpayers inconsistently. The IRS acknowledged GAO's recommendations and says it will develop measures and plans for tracking them. The GAO also offered the IRS some suggestions recently on how to improve implementation of the Foreign Account Tax Compliance Act.