Form 1099-CAP: Changes in Corporate Control and Capital Structure (2017)
When a company goes through major changes—like being acquired by another company or undergoing a significant restructuring—the IRS needs to know about it, and so do the shareholders. That's where Form 1099-CAP comes in. This guide breaks down everything you need to know about this specialized tax form in plain English.
What the Form Is For
Form 1099-CAP is a tax document that corporations must send to shareholders when the company experiences either an "acquisition of control" or a "substantial change in capital structure." In simple terms, this means the company has been taken over by another corporation, has merged with another business, or has undergone a major reorganization that affects how shares are structured.
The form serves an important purpose: it tells shareholders (and the IRS) about cash, stock, or other property they received during these corporate changes. This matters because receiving these assets might trigger taxable gains—money you'll need to report on your tax return. The corporation files this form with the IRS and sends a copy to each affected shareholder so everyone has the same information about the transaction.
Think of Form 1099-CAP as the official record that says, "Your company changed hands or restructured, and here's what you got in the deal." It documents the value of what you received, the number of shares you exchanged, and when the transaction happened. IRS.gov
When You’d Use It (Including Late and Amended Returns)
Regular Filing Timeline
- For shareholders: You should receive your Form 1099-CAP by January 31 of the year following the corporate change
- Special case for clearing organizations (like the Depository Trust Company): They must receive the form by January 5
- For corporations filing with the IRS: Paper forms are due by February 28, while electronic filers have until April 2
When Late or Amended Forms Are Needed
Sometimes mistakes happen, or circumstances change after the original form was filed. You'll see a "CORRECTED" box at the top of an amended Form 1099-CAP when the corporation needs to fix errors in the original submission. This might happen if:
- The aggregate amount received (Box 2) was calculated incorrectly
- The number of shares or class of stock was reported wrong
- The transaction date was entered incorrectly
- A shareholder's identification information needs correction
If you receive a corrected form, don't panic—but don't ignore it either. You'll need to amend your own tax return (using Form 1040-X) if you've already filed and the corrections affect your taxable gain. If you haven't filed yet, simply use the corrected information on your return. The corporation faces penalties for late filing that start at $500 per day (up to $100,000 maximum) for each acquisition or capital structure change, so they have strong motivation to get it right and on time. IRS 2017 Instructions for Form 1099-CAP
Key Rules for 2017
The $100 Million Rule: The form is only required when the transaction involves at least $100 million in stock value (for acquisitions of control) or when the corporation provides at least $100 million in cash or property to shareholders (for capital structure changes). Smaller transactions don't trigger the reporting requirement.
Control Means 50%: An "acquisition of control" officially occurs when a second corporation acquires at least 50% of either the voting power or the total value of all stock classes in the target corporation. Before the acquisition, the acquiring corporation must not have had control; after, it must have control.
The $1,000 Minimum Per Shareholder: If an individual shareholder receives less than $1,000 in total value (combining cash, stock, and other property), the corporation doesn't need to issue them a Form 1099-CAP. This exception reduces paperwork for small holdings.
Exempt Recipients Don't Get the Form: Certain shareholders are exempt from receiving Form 1099-CAP, including corporations (except S corporations), tax-exempt organizations, IRAs, government entities, foreign governments, REITs, regulated investment companies, securities dealers, financial institutions, and properly documented foreign persons. Brokers holding shares for these exempt customers also don't need to file.
Stock-for-Stock Transactions: If a shareholder receives only stock in exchange for their old shares (no cash or other property), and the corporation reasonably determines this wouldn't trigger taxable gain, no Form 1099-CAP is required for that shareholder.
Section 367(a) Requirement: For the form to be mandatory, either the corporation or its shareholders must be required to recognize gain under Internal Revenue Code Section 367(a)—which typically applies to international transfers where assets move outside the United States. IRS 2017 Instructions for Form 1099-CAP
Step-by-Step (High Level)
For Corporations Required to File
Step 1: Determine if filing is required
Verify that your transaction meets the $100 million threshold and involves acquisition of control or substantial capital structure change. Check that Section 367(a) applies.
Step 2: Identify who gets the form
Make a list of all shareholders who received cash, stock, or other property worth $1,000 or more. Remove exempt recipients from your list (corporations, tax-exempt entities, IRAs, properly documented foreign persons, etc.).
Step 3: Gather shareholder information
Collect each recipient's taxpayer identification number (Social Security number or EIN), name, and address. Also compile transaction details: date of exchange, aggregate value received, number and class of shares exchanged.
Step 4: Complete Form 8806 first
Before filing Forms 1099-CAP, file Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) with the IRS. This parent form provides the overall transaction details.
Step 5: Fill out each Form 1099-CAP
Complete a separate form for each non-exempt shareholder. Include Box 1 (date of exchange), Box 2 (aggregate amount received), Box 3 (number of shares exchanged), and Box 4 (stock classes exchanged).
Step 6: File with the IRS
Submit Copy A forms to the IRS by February 28 (paper) or April 2 (electronic). If filing 250 or more forms, electronic filing is mandatory. Include Form 1096 as a transmittal document for paper filings.
Step 7: Furnish to shareholders
Send Copy B to each shareholder by January 31 (or January 5 for clearing organizations like DTC). Keep Copy C for your corporate records.
For Shareholders Who Receive the Form
Step 1: Review the form carefully
Check that all information matches your records—especially the number of shares you held and the date of the transaction.
Step 2: Calculate your taxable gain
Use the amount in Box 2 along with your original cost basis in the stock to determine if you have a taxable gain. Note: You cannot claim a loss based on this form.
Step 3: Report on your tax return
Report any recognized gain on Form 8949 (Sales and Other Dispositions of Capital Assets) when filing your tax return. Consult Publication 550, Chapter 4, for detailed guidance.
Step 4: Keep the form
Retain your copy for your tax records in case of future IRS questions. IRS 2017 Instructions for Form 1099-CAP
Common Mistakes and How to Avoid Them
Mistake #1: Failing to File When a Consent Election Is Made
Some corporations make a "consent election" on Form 8806 that allows the IRS to publish transaction information publicly, which relieves them from filing Forms 1099-CAP for shares held by clearing organizations. However, corporations still must file for individual shareholders and non-clearing-organization holders. Don't assume the election eliminates all filing requirements.
Mistake #2: Including Exempt Recipients
Filing Forms 1099-CAP for corporations, IRAs, foreign persons with proper documentation, or other exempt recipients wastes time and creates confusion. Always check the exempt recipient list before preparing forms. When in doubt, verify whether you have proper exemption certificates on file.
Mistake #3: Using the Wrong Deadline for Clearing Organizations
Regular shareholders get their forms by January 31, but clearing organizations have a special January 5 deadline. Missing this earlier deadline for DTC and similar entities can trigger penalties.
Mistake #4: Miscalculating the Aggregate Amount (Box 2)
Box 2 should include the total fair market value of cash, stock, and other property received. Some filers forget to include the value of property or stock, reporting only cash. Calculate the complete package value as of the exchange date.
Mistake #5: Reporting Losses
Shareholders cannot claim losses based on Form 1099-CAP information. The form only documents potential gains. If you try to report a loss on Form 8949 using these numbers, the IRS will likely reject or adjust your return.
Mistake #6: Forgetting About the $100 Million Threshold
Not every merger or restructuring requires Form 1099-CAP. Transactions below $100 million (for acquisitions) or where less than $100 million in cash/property is distributed (for capital structure changes) don't trigger the requirement. Check the threshold before spending time on forms you don't need to file.
Mistake #7: Ignoring Electronic Filing Requirements
If you're filing 250 or more information returns of any type during the year, you must file electronically. Form 1099-CAP is an "online fillable form," meaning paper versions are rare, but the electronic mandate still applies if you hit that 250-form threshold. IRS 2017 Instructions for Form 1099-CAP
What Happens After You File
For Corporations
After filing Forms 1099-CAP with the IRS and furnishing copies to shareholders, your obligation is essentially complete—unless errors emerge. The IRS processes these information returns to verify that shareholders report their gains correctly on their personal tax returns. If there's a mismatch (a shareholder doesn't report gain that the Form 1099-CAP indicates they should), the IRS may send the shareholder a notice asking about the discrepancy.
If you discover errors after filing, prepare corrected forms with the "CORRECTED" box checked. File the corrections with the IRS and send new copies to affected shareholders as soon as possible to minimize penalties.
If you fail to file Forms 1099-CAP altogether, or file late, the penalty structure under Section 6652(l) applies: $500 per day the failure continues, capped at $100,000 per acquisition or capital structure change. For Form 1099-CAP purposes, Form 8806 plus all related Forms 1099-CAP are treated as one return when calculating penalties. Additionally, if your corporation transfers all its assets to another entity as part of the transaction and fails to file, both the transferor and transferee corporations can be held jointly and severally liable for penalties.
For Shareholders
After receiving your Form 1099-CAP, you'll use it to complete your tax return. Report any recognized gain on Form 8949 and carry that through to Schedule D (Capital Gains and Losses) on your Form 1040. The IRS has a copy of your Form 1099-CAP, so they'll be watching to make sure you report the transaction.
If you don't report the gain and the IRS catches it (which they likely will, since they match information returns to tax returns electronically), you may face accuracy penalties, interest on unpaid tax, and potentially a negligence penalty. The form itself warns shareholders: "If you are required to file a return, a negligence penalty or other sanction may be imposed on you if taxable income results from this transaction and the IRS determines that it has not been reported."
If you receive a corrected Form 1099-CAP after filing your return, file an amended return (Form 1040-X) if the corrections change your tax liability. IRS 2017 Instructions for Form 1099-CAP
FAQs
1. What's the difference between an "acquisition of control" and a "substantial change in capital structure"?
An acquisition of control happens when one corporation buys enough stock in another corporation to take over—specifically, acquiring at least 50% of the voting power or total stock value. A substantial change in capital structure is broader: it includes mergers, consolidations, asset transfers, bankruptcy reorganizations, or changes in the corporation's identity or form—essentially any major corporate restructuring where at least $100 million in cash or property goes to shareholders. Both trigger Form 1099-CAP requirements, but they're different types of corporate events.
2. I received Form 1099-CAP, but I don't think I owe any tax. Do I still need to report it?
Yes, you should still report the transaction on Form 8949, even if you determine there's no taxable gain. For example, if your cost basis in the stock equals or exceeds the amount shown in Box 2, you might have no gain or even a loss. However, you cannot claim a loss based on Form 1099-CAP. Show the transaction on your return to demonstrate to the IRS that you received and properly addressed the form.
3. Can a corporation avoid filing Forms 1099-CAP by reporting the transaction on Form 1099-DIV or Form 1099-B instead?
Sometimes, yes. Corporations don't need to file Form 1099-CAP if they properly report the transaction under Section 6043(a), or if information returns are filed under Section 6042 (Form 1099-DIV) or Section 6045 (Form 1099-B), unless the corporation knows or has reason to know those returns weren't filed. Many brokers will handle the reporting on Form 1099-B for shares they hold on behalf of customers, which can reduce the corporation's Form 1099-CAP obligations. However, the corporation must ensure proper reporting actually occurs.
4. What is the "consent election" mentioned in the instructions?
The consent election is an option corporations can make on Form 8806 that allows the IRS to publish necessary transaction information publicly. When a corporation makes this election, it doesn't have to file Forms 1099-CAP for shares held by clearing organizations (like the Depository Trust Company) because brokers can get the information directly from the IRS website. This significantly reduces paperwork for large public companies where most shares are held in street name through brokers. The election doesn't eliminate filing requirements for shares held directly by individual shareholders.
5. I'm a foreign shareholder. Do I still get a Form 1099-CAP?
Generally, no. Foreign persons who have provided the corporation with a valid Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) or other proper documentation are exempt recipients. However, this doesn't relieve the corporation from its withholding obligations under Section 1441 for nonresident aliens. Foreign shareholders may still have U.S. tax obligations even if they don't receive Form 1099-CAP.
6. Our company merged but the transaction value was only $80 million. Do we still need to file?
No. Form 1099-CAP is only required when the transaction meets the $100 million threshold—either $100 million in stock value for acquisitions of control, or $100 million in cash/property distributed to shareholders for capital structure changes. Transactions below this threshold don't trigger the requirement, though other reporting obligations might still apply under different sections of tax law.
7. Where can I find more information if I have complex questions about my specific situation?
The IRS has a dedicated information reporting customer service line at 1-866-455-7438 (toll-free) or 304-263-8700. For additional guidance, review IRS Publication 550 (Investment Income and Expenses), Chapter 4, which covers reporting gains from corporate reorganizations. You can also consult with a tax professional who specializes in corporate transactions and shareholder taxation. For the most current information and any legislative updates, visit www.irs.gov/form1099cap. IRS 2017 Instructions for Form 1099-CAP
Additional Resources
- 2017 Instructions for Form 1099-CAP
- 2017 Form 1099-CAP
- About Form 1099-CAP – IRS.gov
Disclaimer
This summary is for informational purposes only and does not constitute tax advice. Consult a qualified tax professional for guidance on your specific situation.
