Form 1099-CAP: Changes in Corporate Control and Capital Structure (2020) – A Complete Guide

What Form 1099-CAP Is For

Form 1099-CAP (Changes in Corporate Control and Capital Structure) is an IRS information return that corporations must file when they undergo major structural changes. Think of it as a receipt for shareholders—it documents what they received (cash, stock, or other property) when their company went through a significant transformation, like a merger, acquisition, or major restructuring.

The form serves two critical purposes. First, it alerts the IRS that a substantial corporate transaction has occurred. Second, it provides shareholders with the information they need to accurately report any taxable gains on their personal tax returns. When a company you own stock in gets acquired or dramatically reorganizes, you'll likely receive Form 1099-CAP showing exactly what you got in the exchange and what you gave up.

This form applies specifically to domestic corporations involved in transactions where control changes hands or the capital structure substantially shifts. The reporting requirement kicks in only when the transaction involves stock worth $100 million or more at fair market value, and when shareholders or the corporation must recognize gain under Internal Revenue Code section 367(a). Smaller transactions generally don't trigger this reporting obligation.

When You’d Use Form 1099-CAP (Late/Amended)

Normal Filing Timeline

For the 2020 tax year, corporations had two critical deadlines. They needed to file Form 1099-CAP with the IRS by March 1, 2021 (if filing on paper) or March 31, 2021 (if filing electronically). Shareholders had to receive their copies by January 31, 2021. There's one important exception: if the transaction involved a clearing organization like the Depository Trust Company (DTC), those copies were due even earlier—by January 6, 2021 for the 2020 tax year.

Late Filing

If you missed the original deadline, you still need to file—better late than never. The IRS assesses penalties for late filing under section 6652(l), which can accumulate quickly. The penalty is calculated per day of delay, up to $500 per day, with a maximum cap of $100,000 for each acquisition or structural change. These penalties apply whether you're a day late or a month late, so prompt correction is essential.

Amended Returns

If you discover errors after filing, you must submit a corrected Form 1099-CAP. Check the "CORRECTED" box on the new form and ensure all information is accurate this time. Common reasons for amendments include incorrect share quantities, wrong fair market values, or missing shareholder accounts. You'll need to file the corrected version with the IRS and furnish a corrected statement to affected shareholders. The IRS treats the original Form 8806 (the corporate information return) and all related Forms 1099-CAP as a single return for penalty purposes, so corrections help minimize overall exposure.

Extensions

Corporations could request an automatic 30-day extension by filing Form 8809 by the original due date. Under certain hardship conditions, an additional 30-day extension was available. However, extensions don't eliminate penalties for late furnishing to shareholders—those statements still had fixed deadlines.

Key Rules for 2020

Who Must File

A domestic corporation must file Form 1099-CAP when it experiences either an "acquisition of control" or a "substantial change in capital structure." Here's what those terms mean:

Acquisition of Control occurs when a second corporation goes from owning less than 50% to owning at least 50% of another corporation's voting power or total stock value. The transaction must involve stock worth at least $100 million, and either the target corporation or its shareholders must recognize gain under section 367(a).

Substantial Change in Capital Structure happens when a corporation merges, consolidates, transfers substantially all its assets, reorganizes under bankruptcy, or changes its identity or place of organization—and distributes at least $100 million in cash or property to shareholders, with gain recognition required under section 367(a).

Exempt Recipients

You don't need to file for shareholders who fall into these categories:

Corporations (except S corporations)
Tax-exempt organizations
IRAs and retirement accounts
Government entities
Foreign persons who provided Form W-8BEN or similar documentation
Shareholders receiving less than $1,000 in total cash and property
Shareholders in exchanges not subject to gain recognition under section 367(a)
Securities dealers, REITs, RICs, and financial institutions

Electronic Filing Threshold

For 2020 returns (filed in 2021), corporations filing 250 or more information returns of any type were required to file electronically. The IRS has since lowered this threshold dramatically—to just 10 returns for tax years 2024 and beyond—but 250 was the standard for 2020.

Broker Responsibilities

Brokers holding shares on behalf of customers have their own reporting obligation. If a broker knows or has reason to know (based on readily available information from clearing organizations or the IRS website) that a transaction occurred, the broker must file Form 1099-B unless the customer is an exempt recipient. This creates a parallel reporting system that captures transactions even if corporations elect certain exemptions.

Step-by-Step (High Level)

Step 1: Determine Reporting Obligation

First, evaluate whether your transaction meets the statutory thresholds. Calculate the fair market value of stock involved—does it exceed $100 million? Determine whether control shifted or capital structure substantially changed. Verify that gain recognition is required under section 367(a). If any element is missing, Form 1099-CAP may not be required.

Step 2: File Form 8806

Before filing Forms 1099-CAP, the corporation must file Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) with the IRS. This form provides the big-picture details of the transaction. Corporations can make a "consent election" on Form 8806 that allows the IRS to publish transaction details, which relieves the corporation from filing Forms 1099-CAP for shares held by clearing organizations.

Step 3: Identify Reportable Shareholders

Create a list of all shareholders who received cash, stock, or other property in the transaction. Exclude exempt recipients. For each reportable shareholder, gather their taxpayer identification number (TIN), address, and account number (if applicable).

Step 4: Calculate Amounts for Each Shareholder

For each shareholder, determine:

• Date of sale or exchange (Box 1): The trade date when shares were actually or constructively exchanged
• Aggregate amount received (Box 2): Total cash plus the fair market value of any stock and other property received
• Number of shares exchanged (Box 3): The quantity of shares the shareholder gave up
• Classes of stock exchanged (Box 4): Type of stock (common, preferred, etc.), using abbreviations if necessary

Step 5: Complete and File Forms 1099-CAP

Fill out a separate Form 1099-CAP for each reportable shareholder. Include your corporation's name, address, telephone number, and Employer Identification Number (EIN) in the payer section. For 2020, the form was available as an online fillable format. If filing 10 or more forms, electronic filing was recommended (and will be mandatory for future years).

Step 6: Submit to IRS with Form 1096

If filing on paper, send Copy A of all Forms 1099-CAP to the appropriate IRS Service Center (based on your business location: Austin, TX; Kansas City, MO; or Ogden, UT) along with Form 1096 (Annual Summary and Transmittal). Electronic filers submit through the IRS FIRE System following Publication 1220 specifications.

Step 7: Furnish Copies to Shareholders

Send Copy B to each shareholder by the January 31 deadline (or January 6 for clearing organizations). You may truncate the shareholder's TIN (showing only the last four digits) on copies provided to recipients, but the full TIN must appear on forms filed with the IRS.

Common Mistakes and How to Avoid Them

Mistake #1: Missing the Clearing Organization Early Deadline

Many corporations correctly file Forms 1099-CAP by the January 31 shareholder deadline but miss the earlier January 5/6 deadline for clearing organizations like DTC. Solution: Mark your calendar separately for clearing organization deadlines. These entities need earlier notification to process and distribute information to their participants.

Mistake #2: Incorrect Fair Market Value Calculations

Box 2 requires the aggregate amount of cash plus the fair market value of stock and property received. Some filers use book value or offering prices instead of true fair market value on the exchange date. Solution: Use professional appraisals or established valuation methods tied to the actual transaction date. Document your valuation methodology in case of IRS questions.

Mistake #3: Failing to Report Even When Stock Value Seems Unclear

Corporations sometimes skip reporting when they "reasonably determine" that shareholders wouldn't recognize gain on stock received. However, this exception is narrower than many assume. Solution: When in doubt, report. The safe harbor applies only when you can reasonably determine no gain would be recognized—if uncertainty exists, file the form.

Mistake #4: TIN Errors and Mismatches

Using incorrect or missing taxpayer identification numbers causes processing delays and triggers IRS notices. The filer's name and TIN must match their tax return records. Solution: Use the IRS TIN Matching program before filing to verify accuracy. For shareholders, use W-9 forms to collect correct TINs in advance.

Mistake #5: Confusing Forms 1099-CAP and 1099-B

Corporations sometimes file Form 1099-B instead of Form 1099-CAP, or vice versa. Form 1099-CAP is for corporate reporting of structural changes; Form 1099-B is for brokers reporting securities transactions. Solution: Understand your reporting role. If you're the corporation undergoing the change, use 1099-CAP. If you're a broker holding shares for clients, use 1099-B (unless the corporation made the consent election on Form 8806).

Mistake #6: Incomplete Form 8806 Elections

Some corporations make the consent election on Form 8806 but then incorrectly file Forms 1099-CAP for clearing organizations anyway, creating duplicate reporting. Solution: If you elect the consent option, let the IRS publish the information—you're relieved from filing Forms 1099-CAP for clearing organization holdings.

Mistake #7: Paper Filing When Electronic Is Required

Corporations filing 250 or more information returns (aggregated across all 1099 types) for 2020 were required to file electronically but sometimes filed on paper by mistake. Solution: Count all your information returns for the year. If you exceed the threshold, use the IRS FIRE System or an approved electronic filing vendor.

What Happens After You File

IRS Processing

Once the IRS receives your Forms 1099-CAP, they process them through the Information Returns Processing system. The IRS matches the information against shareholder tax returns to verify that shareholders properly reported their gains or losses. Mismatches may trigger automated notices or examinations. Processing typically takes several months.

Shareholder Use

Shareholders use Form 1099-CAP to complete their personal tax returns. The information helps them calculate basis in new shares received, determine taxable gains, and properly report the transaction on Schedule D (Capital Gains and Losses) or other applicable forms. Some transactions may qualify for tax-free treatment under reorganization rules, but shareholders need the 1099-CAP data to document their positions.

Penalties for Non-Compliance

If you fail to file or file late, section 6652(l) penalties apply. These accumulate at $500 per day, capped at $100,000 per transaction. Criminal penalties under sections 7203 (willful failure to file), 7206 (fraud and false statements), and 7207 (fraudulent returns) may apply in egregious cases. Penalties also apply for failure to furnish correct statements to shareholders, with graduated amounts based on how late the forms are provided.

Successor/Predecessor Liability

If your corporation transferred all or substantially all its assets and failed to file, both the transferor (predecessor) and transferee (successor) can be held jointly and severally liable for penalties. The successor must either verify the predecessor filed or take over the filing responsibility.

Record Retention

Keep copies of all filed Forms 1099-CAP, supporting documentation, valuation records, and shareholder communications for at least four years. The IRS may request these records during audits or examinations.

FAQs

1. What's the difference between Form 1099-CAP and Form 966?

Form 966 reports corporate dissolutions and liquidations under section 6043(a). Form 1099-CAP reports acquisitions of control and substantial capital structure changes under section 6043(c). If you properly report a transaction on Form 966, you generally don't need to file Form 1099-CAP. However, most mergers and acquisitions fall under the 1099-CAP rules, not Form 966. Dissolution and liquidation are different events from changes in control.

2. Do I need to file if the transaction involved less than $100 million in stock?

No. The $100 million threshold is a statutory requirement. Transactions below this amount don't trigger Form 1099-CAP filing obligations, even if control changed or capital structure substantially shifted. However, you may still have reporting obligations under other forms (like 1099-DIV for distributions or 1099-B for securities transactions).

3. Can I combine reporting for multiple shareholders on a single form?

No. You must file a separate Form 1099-CAP for each shareholder who received cash, stock, or property in the transaction (unless they're exempt recipients). There's no consolidated or summary filing option for shareholders. However, you do file a single Form 1096 as a transmittal document when sending multiple Forms 1099-CAP to the IRS.

4. What if I'm not sure whether section 367(a) gain recognition applies?

Section 367(a) involves complex rules about outbound transfers to foreign corporations. If your transaction includes international elements or transfers to foreign entities, consult a tax professional. Generally, domestic-to-domestic transactions don't trigger section 367(a), but cross-border reorganizations often do. If no section 367(a) gain recognition is required, Form 1099-CAP may not be necessary even if other conditions are met.

5. How do shareholders use Form 1099-CAP on their tax returns?

Shareholders report the transaction on Schedule D (Capital Gains and Losses) or Form 8949 (Sales and Other Dispositions of Capital Assets). Box 2 from Form 1099-CAP shows what they received. They calculate their gain by subtracting their original basis in the surrendered shares from the amount received. Some reorganizations qualify for tax-deferred treatment under sections 354, 356, or 361, meaning shareholders may not owe tax immediately even though they received the form.

6. What's the "consent election" on Form 8806, and should I make it?

The consent election allows the IRS to publish transaction details on its website, which relieves your corporation from filing Forms 1099-CAP for shares held by clearing organizations. Brokers can then access the IRS-published information and handle reporting via Form 1099-B. This election significantly reduces your filing burden if a clearing organization holds many shares. Most large corporations make this election. The trade-off is that your transaction details become publicly available on the IRS website.

7. I'm a shareholder—why did I receive both Form 1099-CAP and Form 1099-B?

This sometimes happens when both the corporation and your broker file reports. If the corporation didn't make the consent election on Form 8806, it files Form 1099-CAP. Meanwhile, your broker may also file Form 1099-B based on information from clearing organizations. You should use the most complete and accurate form for tax reporting purposes. Generally, Form 1099-CAP from the corporation provides the authoritative information, but consult a tax professional if the forms show conflicting information.

Additional Resources

For More Information: Visit the official IRS page for Form 1099-CAP at IRS.gov/Form1099CAP or review the complete instructions at IRS.gov/instructions/i1099cap.

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