Form 1099-CAP 2014: Purpose
Purpose and Reporting Scope
Form 1099-CAP reports changes in corporate control or substantial capital structure modifications occurring during the 2014 calendar year.
Corporations must report to shareholders the aggregate cash, stock, or property received in exchange transactions, with Copy A filed with the IRS by March 2, 2015, or March 31, 2015, if filed electronically using approved software per Publication 1220.
Filing Obligations and Triggering Events
Qualifying Transactions
Determine whether your corporation experienced a change in control or substantial change in capital structure during calendar year 2014, triggering reporting obligations under Internal Revenue Code section 6043(c) and related provisions.
A change in control occurs when a second corporation acquires stock of a first corporation and, before the acquisition, the second corporation does not have control of the first corporation, but after the acquisition, the second corporation has control of the first corporation.
The fair market value of the stock acquired in the transaction and in any related transactions as of the date or dates on which the stock was acquired must be $100 million or more.
For these purposes, control is defined as the ownership of stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote, or at least 50 percent of the total value of shares of all classes of stock.
Capital Structure Changes
A substantial change in capital structure occurs if the amount of cash or other property provided to shareholders is $100 million or more, and the corporation, in a transaction or series of transactions, merges, consolidates, or otherwise combines with another corporation.
The corporation may also transfer all or substantially all of its assets to one or more corporations, transfer assets under bankruptcy proceedings, or change its identity, form, or place of organization.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Shareholder Information Collection
Gather complete shareholder identification numbers, including social security numbers, individual taxpayer identification numbers, or adoption taxpayer identification numbers, along with names, addresses, and account numbers assigned by the corporation.
The 2014 form permits display of only the last four digits on Copy B furnished to shareholders for protection. However, the complete identification number must be reported to the IRS on Copy A.
Exempt Recipients
The corporation is not required to file Form 1099-CAP for shareholders who receive only stock for their stock in the corporation, or for any shareholder whose amount of cash plus the fair market value of any stock and other property does not exceed $1,000.
Additional exempt recipients include corporations except subchapter S corporations, tax-exempt organizations, individual retirement accounts, the U.S. government or a state, foreign governments, international organizations, foreign central banks of issue, real estate investment trusts, regulated investment companies, securities or commodities dealers, entities registered under the Investment Company Act of 1940, common trust funds, and financial institutions such as banks, savings and loans, credit unions, or similar organizations.
Box Completion Instructions
Box 1: Transaction Date
Enter the trade date of the sale or exchange, actually or constructively received, which occurred during 2014.
The transaction date determines whether the event is reportable in the 2014 tax year and triggers the February 2, 2015, furnishing deadline, or January 5, 2015, if the recipient is a clearing organization.
Box 2: Aggregate Amount Received
Calculate the aggregate amount of cash and the fair market value of any stock and other property received by each shareholder in exchange for the corporation's stock during the 2014 transaction.
Include all consideration without reduction for liabilities or basis because this amount represents the maximum potential gain, but cannot support loss claims under the 2014 instructions.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Box 3: Share Count and Box 4: Stock Classes
Enter the number of shares the shareholder exchanged in the reporting corporation for cash or other property received.
Enter the class or classes of stock, such as preferred or common, exchanged in the reporting corporation for cash or other property received, and abbreviate the class to fit the entry.
Filing and Furnishing Procedures
Copy A Submission to IRS
Assemble Form 1099-CAP Copy A with Form 1096 transmittal for filing with the IRS by March 2, 2015.
If you file electronically using software that generates a file according to the specifications in Publication 1220, the due date is March 31, 2015.
Copy B Distribution to Shareholders
Furnish Copy B to shareholders by February 2, 2015, unless the shareholder is a clearing organization, in which case furnish Copy B by January 5, 2015.
Mail or deliver the shareholder copy with the statement that the shareholder cannot claim a loss based on box 2 and must report gains on Form 8949 per Publication 550, chapter 4.
Record Retention Requirements
Maintain Copy C in your corporate files with supporting documentation of the transaction, including contemporaneous valuations, stock ledgers, and any board resolutions authorizing the capital structure change during 2014.
These records support the reasonable determination methodology for identifying shareholders affected by control changes and provide documentation if the IRS requests verification of reported amounts.
2014 Regulatory Guidance
The 2014 General Instructions for Certain Information Returns introduce clarified guidance on reasonable determination standards for identifying shareholders affected by control changes.
Corporations must document their methodology for determining which shareholders receive the form during 2014 transactions to satisfy compliance requirements under section 6043(c).
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Electronic filing via Publication 1220 becomes the IRS-endorsed alternative to paper filing for 2014 returns, with the March 31, 2015 e-file deadline superseding the March 2, 2015 paper-filing deadline only for electronically filed Copy A transmissions.
The 2014 instructions explicitly prohibit printing from the IRS website because paper forms are scanned during processing, so use only pre-printed forms or electronically file using approved software.
Tax Treatment and Shareholder Obligations
The IRS reiterates that Form 1099-CAP does not create or alter the shareholder's underlying tax liability for gain recognition under section 368 because the form is an information return only.
Shareholders must independently determine whether the exchange qualifies for reorganization treatment or triggers immediate gain recognition under the 2014 tax law based on the specific facts and circumstances of the transaction.
Loss Claim Prohibition
The loss-claim prohibition appears on both Copy A and Copy B to prevent shareholder misinterpretation, emphasizing that box 2 represents consideration received and not basis or loss threshold calculations.
This statement reinforces that shareholders cannot claim a loss on Form 8949 as a result of the exchange, even though they must report any gain from the exchange.
Penalties for Noncompliance
The penalties under section 6652(l) for failure to file information returns under section 6043(c) apply to Form 1099-CAP reporting obligations.
For purposes of the section 6652(l) penalty, Form 8806 and all Forms 1099-CAP required to be filed are treated as one return, so the penalty will not exceed $500 for each day the failure continues, up to a maximum of $100,000, for any acquisition of control or any substantial change in capital structure.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
