Form 1099-CAP: Changes in Corporate Control and Capital Structure (2021)

What Form 1099-CAP Is For

Form 1099-CAP is an information return that corporations must file with the IRS—and provide to you—when there's been a major corporate shake-up. Think of it as the IRS's way of tracking when a company goes through a significant transformation, like being acquired by another company or undergoing a major restructuring that changes its capital structure. IRS.gov

Specifically, this form reports two types of major corporate events: (1) an acquisition of control, where another corporation takes over at least 50% of the company's voting power or total stock value, and (2) a substantial change in capital structure, such as when a company merges, consolidates, transfers substantially all its assets, or changes its organizational structure. The key threshold? These transactions must involve at least $100 million in stock value or cash/property distributed to shareholders.

If you're a shareholder who received cash, stock, or other property from one of these transactions—and the total value you received exceeds $1,000—you'll likely receive Form 1099-CAP. The form documents the date of the transaction, the aggregate amount you received, the number of shares you exchanged, and what class of stock was involved. This information is crucial because these corporate restructurings may trigger taxable gains under Section 367(a) of the Internal Revenue Code, particularly when foreign corporations are involved. IRS Instructions

When You’d Use Form 1099-CAP

For the 2021 tax year, corporations had specific deadlines to file Form 1099-CAP with the IRS and furnish copies to shareholders. The standard filing deadline was February 28, 2022 for paper returns or March 31, 2022 for electronic filing. Shareholders should have received their copies by January 31, 2022—except for special situations involving clearing organizations like the Depository Trust Company, which had an earlier deadline of January 5, 2022.

If a corporation missed these deadlines or discovered errors after filing, they would need to file corrected or late returns. Late filing isn't casual—penalties under Section 6652(l) can be steep, reaching up to $500 per day (maximum $100,000) for each corporate transaction not properly reported. If the original corporation transferred all its assets to another entity, both the predecessor and successor can be held jointly liable for these penalties if neither fulfills the reporting requirements.

Corporations that needed more time could request an automatic 30-day extension by filing Form 8809 before the original due date. Under hardship conditions, an additional 30-day extension might be granted. However, these extensions only applied to filing with the IRS—not to providing statements to shareholders, which generally couldn't be extended beyond January 31. If you received a corrected Form 1099-CAP after filing your tax return, you might need to file an amended return (Form 1040-X) to reflect the corrected information. 2021 General Instructions

Key Rules or Details for 2021

The 2021 filing requirements contained several important rules that determined who must file and when reporting exceptions applied. First, the $100 million threshold was critical—transactions involving stock worth less than this amount generally didn't trigger Form 1099-CAP requirements. Similarly, the $1,000 recipient threshold meant that if you received cash and property totaling less than $1,000, you likely wouldn't receive a form.

Several categories of shareholders were considered exempt recipients and wouldn't receive Form 1099-CAP even in large transactions. These included C corporations, tax-exempt organizations, IRAs, government entities, REITs, regulated investment companies, securities dealers, and financial institutions like banks. Foreign persons who provided proper documentation (such as Form W-8BEN) were also exempt from receiving the form, though corporations still had withholding obligations under Section 1441.

A significant rule involved the consent election on Form 8806. When corporations made this election, they weren't required to file Form 1099-CAP for shares held by clearing organizations, because the IRS would publish necessary information for brokers to meet their reporting obligations instead. Brokers themselves had an important responsibility: if they held shares for customers and knew (or should have known from readily available information) about a qualifying corporate transaction, they had to file Form 1099-B unless the customer was an exempt recipient.

The control definition mattered enormously—it meant owning stock with at least 50% of voting power or 50% of total stock value. Constructive ownership rules under Section 318(a) applied, meaning shares owned by related parties could count toward the control threshold. Finally, corporations weren't required to report the fair market value of stock if they could reasonably determine that receiving it wouldn't cause the shareholder to recognize taxable gain. IRS Instructions

Step-by-Step (High Level)

Understanding the Form 1099-CAP process helps demystify what happens during major corporate transitions. Here's how the reporting flows from corporate transaction to your tax return:

Step 1: Qualifying Event Occurs. A corporation undergoes either an acquisition of control (another company buys at least 50% of its stock worth $100 million or more) or a substantial change in capital structure (merger, consolidation, asset transfer, or reorganization involving at least $100 million). The corporation or shareholders must recognize gain under Section 367(a).

Step 2: Corporation Determines Filing Obligation. The corporation (or its successor) evaluates whether it must file Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) with the IRS and Form 1099-CAP for shareholders. They identify which shareholders are exempt and which received more than $1,000 in cash and property.

Step 3: Forms Prepared and Filed. The corporation completes Form 1099-CAP for each non-exempt shareholder, reporting: Box 1 (date of sale/exchange), Box 2 (aggregate amount received), Box 3 (number of shares exchanged), and Box 4 (classes of stock exchanged). Copy A goes to the IRS, and Copy B is furnished to shareholders.

Step 4: Shareholders Receive Documentation. By January 31 following the transaction year, you receive your Form 1099-CAP showing what you received in the exchange. This document becomes essential for preparing your tax return.

Step 5: Tax Reporting. When filing your tax return, you use the information from Form 1099-CAP to determine whether you must recognize gain on the exchange. Depending on the transaction structure, you might report gains on Schedule D (Capital Gains and Losses) or use other forms if the exchange qualified for special tax treatment. The form helps you calculate your basis in any new stock received and any taxable gain from cash or other property.

Common Mistakes and How to Avoid Them

Several pitfalls trip up both corporations and shareholders when dealing with Form 1099-CAP. Being aware of these errors can save significant headaches—and potential penalties.

Mistake #1: Corporations failing to recognize filing requirements. Some corporations incorrectly assume they're exempt from filing because the transaction involved affiliated companies or because they filed other information returns like Form 1099-DIV. Solution: Review the specific filing exceptions carefully. Transactions within affiliated groups and those where proper reporting occurred on Forms 1099-DIV, 1099-B, or Form 966 may be exempt, but this exemption isn't automatic.

Mistake #2: Misunderstanding the $1,000 threshold. Shareholders sometimes don't report transactions because their Form 1099-CAP shows a small amount, not realizing the $1,000 threshold determines whether the corporation must issue the form—not whether you must report taxable income. Solution: Report all transactions shown on Forms 1099-CAP regardless of amount. The IRS receives copies and expects consistency.

Mistake #3: Ignoring constructive ownership rules. Corporations sometimes miscalculate whether ""control"" was acquired by failing to consider constructive ownership under Section 318(a). Family members and related entities can cause control to be attributed to the acquiring party. Solution: Consult with tax professionals when determining control percentages, especially in transactions involving related parties.

Mistake #4: Missing clearing organization deadlines. Corporations sometimes miss the special January 5 deadline for furnishing forms to clearing organizations, focusing only on the January 31 shareholder deadline. Solution: Create a dual-deadline calendar noting that clearing organizations like the DTC require earlier reporting.

Mistake #5: Shareholders discarding forms or not reconciling with other tax documents. Some shareholders treat Form 1099-CAP as informational only and fail to properly report the transaction, or they receive both Form 1099-CAP and Form 1099-B for the same transaction and get confused. Solution: Keep all Forms 1099 organized and work with a tax professional if you receive multiple forms reporting the same transaction. Each may show different aspects of the exchange that need coordinated reporting.

Mistake #6: Incorrect broker reporting. Brokers who hold shares in street name sometimes fail to file required Forms 1099-B because they don't monitor published IRS information about corporate transactions. Solution: Brokers should regularly check IRS.gov for Form 8806 filings and subscribe to clearing organization alerts to identify reporting obligations.

What Happens After You File

For Corporations: After filing Form 1099-CAP with the IRS, corporations must retain their records for at least three years from the filing date. The IRS may use the information to verify proper reporting under Section 6043(c) and to ensure consistency with the corporation's Form 8806. If discrepancies arise, the IRS may issue information document requests (IDRs) seeking additional documentation about the transaction structure, valuation of assets exchanged, and calculations of amounts reported.

For electronically filed returns, corporations receive acknowledgment files confirming receipt and identifying any records that failed validation. Paper filers don't receive confirmation unless there's a problem. If the corporation made the consent election, the IRS publishes transaction information that brokers use for their Form 1099-B reporting obligations. This published data helps create consistency across the reporting ecosystem.

For Shareholders: After you file your individual return including information from Form 1099-CAP, the IRS matches the data from your return against what the corporation reported. This automated matching process looks for discrepancies in amounts, dates, and taxpayer identification numbers. If the IRS computer systems detect a mismatch, you may receive a CP2000 notice proposing additional tax based on the corporation's reported information.

The transaction reported on Form 1099-CAP may trigger special reporting requirements beyond your standard Form 1040. For example, if foreign corporations were involved, you might need to file Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) or other international information returns. Failing to file these additional forms can result in separate penalties.

Audit Implications: Form 1099-CAP can increase audit scrutiny because corporate restructurings often involve complex tax issues. The IRS may examine whether shareholders properly applied Section 367(a) rules, correctly calculated basis in new shares received, and properly characterized gains as capital or ordinary income. Keeping excellent documentation—including corporate communications, fairness opinions, and legal documents describing the transaction—becomes crucial for audit defense.

FAQs

Q1: I received Form 1099-CAP showing a large amount in Box 2, but I didn't receive any cash—only stock. Do I owe taxes?

Not necessarily. Box 2 shows the aggregate fair market value of everything you received—cash, stock, and other property. If you only received stock in an exchange that qualified for tax-free treatment under the Internal Revenue Code (such as certain reorganizations), you may not owe tax immediately. However, you must still track your basis in the new stock for future tax calculations when you eventually sell. Review the transaction details and consult a tax professional to determine if gain recognition applied under Section 367(a).

Q2: I'm a foreign shareholder. Why didn't I receive Form 1099-CAP even though I participated in the corporate transaction?

Foreign persons who provided proper documentation to the corporation (like Form W-8BEN) are exempt from receiving Form 1099-CAP. However, this doesn't mean you have no tax obligations—the corporation should have withheld tax under Section 1441 and reported the transaction on Form 1042-S instead. Check with the corporation or your broker to obtain the correct international reporting forms.

Q3: My broker sent me Form 1099-B, but the corporation never sent Form 1099-CAP. Which one should I use?

You should use whichever form you received. When corporations make the consent election on Form 8806, brokers assume the reporting responsibility and issue Form 1099-B instead of the corporation issuing Form 1099-CAP. These forms report essentially the same information but from different parties. Don't report the transaction twice—use only the form you actually received.

Q4: The corporation missed the filing deadline. Am I still required to report the transaction on my tax return?

Yes. Your obligation to report taxable transactions doesn't depend on whether the corporation timely issued Form 1099-CAP. Even without the form, you must report gains from the corporate transaction based on your own records and calculations. The corporation may face penalties for late filing, but that doesn't relieve your reporting responsibility. Use corporate communications, brokerage statements, and other documentation to determine the correct reporting.

Q5: Can I claim the transaction was tax-free if Form 1099-CAP shows an amount in Box 2?

The presence of an amount in Box 2 doesn't automatically mean the transaction is taxable. The form reports the fair market value received, but whether you recognize gain depends on the specific tax rules applicable to the transaction structure. Many corporate reorganizations qualify for partial or complete tax deferral under various Code sections. The corporation should provide supplemental information explaining the transaction's tax treatment. Review all corporate communications and consult a tax advisor to determine your actual tax liability.

Q6: I own shares in multiple classes of stock. Should I receive separate Forms 1099-CAP?

Typically, you'll receive one Form 1099-CAP that lists all the classes you exchanged in Box 4 (using abbreviations like "C" for common or "P" for preferred). The form aggregates all shares and amounts for the entire transaction. If you had shares in separate accounts or held some directly and others through a broker, you might receive multiple forms—one for each account number.

Q7: What's the difference between Form 1099-CAP and Form 966?

Form 966 reports complete corporate liquidations and dissolutions, while Form 1099-CAP reports acquisitions of control and substantial capital structure changes where the corporation continues operating (perhaps under new ownership or in a different form). If the corporation properly reported the transaction on Form 966, it doesn't need to also file Form 1099-CAP. These are alternative reporting methods for different types of corporate events.

About This Guide

This summary provides general information based on 2021 IRS guidance. Tax situations vary significantly based on individual circumstances and transaction structures. Always consult the official IRS instructions and a qualified tax professional for guidance specific to your situation.

Sources

All information derived from official IRS publications available at IRS.gov, including Form 1099-CAP instructions, 2021 General Instructions for Certain Information Returns, and related IRS guidance documents.

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