Form 1099-CAP: Changes in Corporate Control and Capital Structure – A Complete Guide for 2024

When a company undergoes major changes like a merger, acquisition, or significant restructuring, shareholders need to know how these events affect their taxes. That's where Form 1099-CAP comes in. This IRS form helps track what happens when corporate ownership changes hands or when a company's structure transforms dramatically—and what those changes mean for your investment.

What Form 1099-CAP Is For

Form 1099-CAP (Changes in Corporate Control and Capital Structure) is an information return that corporations must file when they undergo significant ownership or structural changes that result in shareholders receiving cash, stock, or other property. Think of it as the IRS's way of keeping tabs on major corporate transformations and ensuring that any taxable gains are properly reported.

The form serves two primary purposes. First, it informs the IRS about corporate transactions involving acquisitions of control (when one company takes over at least 50% of another) or substantial changes in capital structure (like mergers, consolidations, or major reorganizations). Second, it provides shareholders with the information they need to report potential capital gains or losses on their personal tax returns.

According to the IRS instructions, a corporation must file this form when the fair market value of the transaction equals or exceeds $100 million and the corporation or shareholders must recognize gain under Internal Revenue Code Section 367(a). Individual shareholders receive a copy showing exactly what they received—whether cash, stock, or other property—so they can accurately calculate their tax liability.

As stated in the official IRS form, corporations must send this statement to shareholders by January 31 of the year following the calendar year of the change. The form indicates that the corporation has reasonably determined that the shareholder may be required to recognize gain from the receipt of cash, stock, or other property exchanged for the corporation's stock.

Importantly, not every shareholder gets a Form 1099-CAP. The form is only required for non-exempt recipients who received at least $1,000 in aggregate value. Exempt recipients include corporations, tax-exempt organizations, retirement accounts, government entities, and foreign persons with proper documentation.

When You’d Use Form 1099-CAP

The standard filing deadlines for Form 1099-CAP follow a tight schedule. Corporations must file the form with the IRS by February 28 if filing on paper, or March 31 if filing electronically. Starting with the 2024 tax year, electronic filing is mandatory if you're filing 10 or more information returns in aggregate—this threshold was lowered from the previous 250-return requirement.

Shareholders must receive their copies by January 31 following the year of the transaction. However, there's a special exception for clearing organizations like the Depository Trust Company (DTC): they must receive their forms even earlier, by January 5 (or January 6 for 2025, as stated in the official instructions).

If you miss these deadlines, you can and should file late—it's always better than not filing at all. Late filing still subjects you to penalties, but they're less severe than the consequences of never filing. To file a late Form 1099-CAP, simply prepare the form with the correct information and submit it as soon as possible, marking it clearly if it's being filed after the deadline.

For corrected returns, you'll need to check the "CORRECTED" box at the top of the form and resubmit it to both the IRS and the affected shareholders. Common reasons for amendments include incorrect shareholder identification numbers, wrong amounts in Box 2 (aggregate amount received), or inaccurate share quantities. When filing corrections, be sure to include all information—not just the corrected data—so the new form completely replaces the original.

Key Rules or Details for 2024

Several important rules govern Form 1099-CAP filing for 2024. The most significant change affecting this tax year is the lowered electronic filing threshold. As noted on IRS.gov, anyone filing 10 or more information returns (aggregated across all 1099 types) must now file electronically—a dramatic reduction from the previous 250-return threshold. This change became effective for information returns required to be filed on or after January 1, 2024.

The $100 million transaction threshold remains a crucial rule. A corporation must file Form 1099-CAP only if the fair market value of the stock acquired (for control changes) or the cash and property provided to shareholders (for capital structure changes) reaches or exceeds $100 million. This ensures the reporting requirement focuses on substantial corporate transactions.

Control acquisition specifically means one corporation obtains at least 50% of another corporation's total voting power or total stock value. The transaction must also trigger gain recognition under Section 367(a) for the corporation or its shareholders. Without this tax consequence, no Form 1099-CAP is required.

Corporations can elect to avoid filing Forms 1099-CAP for shares held by clearing organizations by making a "consent election" on Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure). This election allows the IRS to publish transaction details publicly, enabling brokers and clearing organizations to meet their reporting obligations without corporations having to file thousands of individual forms for brokerage-held shares.

The IRS has also converted Form 1099-CAP to an online fillable format due to low paper filing volumes. While you can print a black-and-white Copy A from the IRS website for paper filing (if filing fewer than 10 returns), the agency strongly encourages electronic submission through the Information Returns Intake System (IRIS).

Step-by-Step (High Level)

Step 1: Determine if Filing is Required

First, assess whether your transaction meets the filing criteria. Calculate whether the transaction value reaches $100 million and verify that a change of control or substantial capital structure change occurred. Confirm that gain recognition is required under Section 367(a). If all three conditions are met, proceed with filing.

Step 2: Complete Form 8806

Before filing individual shareholder Forms 1099-CAP, the corporation must file Form 8806 with the IRS. This master information return describes the overall transaction, including whether you're electing to consent to publication (which eliminates the need to file Forms 1099-CAP for clearing organization shares). File Form 8806 with your corporate return or separately as directed in its instructions.

Step 3: Gather Shareholder Information

Compile a complete list of non-exempt shareholders who received at least $1,000 in aggregate value. Verify each shareholder's correct name, address, and taxpayer identification number (Social Security Number or Employer Identification Number). This information should come from Forms W-9 collected from shareholders.

Step 4: Calculate Amounts for Each Shareholder

For each shareholder, determine: the exact date of the transaction (Box 1), the aggregate amount of cash plus fair market value of stock and other property received (Box 2), the number of shares exchanged (Box 3), and the class of stock exchanged (Box 4). These calculations must be precise, as shareholders will use them to determine their capital gains or losses.

Step 5: Prepare Forms 1099-CAP

Complete a separate Form 1099-CAP for each qualifying shareholder using the fillable online form available at IRS.gov/Form1099CAP or approved tax software. Include your corporation's name, address, phone number, and EIN in the designated fields.

Step 6: File with the IRS

If filing 10 or more returns, submit electronically through IRIS. If filing fewer than 10, you may file paper copies with Form 1096 (Annual Summary and Transmittal) by the February 28 deadline, or electronically by March 31. Send paper returns to the appropriate IRS processing center as listed in the General Instructions for Certain Information Returns.

Step 7: Furnish Copies to Shareholders

Provide Copy B to each shareholder by January 31. For clearing organizations like DTC, the deadline is January 5 (or January 6 for 2025). You may truncate the shareholder's taxpayer identification number on their copy (showing only the last four digits of their SSN or EIN) for privacy protection, but you must include the full TIN on forms filed with the IRS.

Common Mistakes and How to Avoid Them

Mistake #1: Failing to Identify Exempt Recipients

Many filers waste time and money preparing Forms 1099-CAP for shareholders who are actually exempt. Before filing, carefully review your shareholder list and exclude corporations, tax-exempt organizations, IRAs, government entities, REITs, regulated investment companies, and foreign persons with valid Forms W-8BEN. Also exclude any shareholder whose aggregate amount received was less than $1,000.

Mistake #2: Incorrectly Calculating Box 2 (Aggregate Amount Received)

Box 2 must include the total value of everything the shareholder received—cash plus the fair market value of all stock and other property. According to the IRS instructions, you must "enter the aggregate amount of cash and the FMV of any stock and other property received in exchange for the number of shares exchanged in the reporting corporation." A common error is reporting only the cash received or only the stock value. Use the fair market value as of the transaction date, not the book value or the value at some other time.

Mistake #3: Missing the Clearing Organization Deadline

While the standard shareholder deadline is January 31, clearing organizations must receive their forms by January 5 (or the next business day if that falls on a weekend or holiday). Missing this earlier deadline can result in penalties. If your company has brokerage-held shares, consider making the consent election on Form 8806 to avoid this requirement entirely.

Mistake #4: Not Aggregating Returns for the 10-Form E-Filing Threshold

The 10-return electronic filing threshold applies to all information returns combined—not just Form 1099-CAP. If you're filing 3 Forms 1099-CAP, 4 Forms 1099-DIV, and 5 Forms 1099-INT, that's 12 returns total, and you must file electronically. Track all your information returns across all types to determine if you meet this threshold.

Mistake #5: Using Outdated Shareholder Information

Many corporations file Forms 1099-CAP with incorrect or outdated taxpayer identification numbers, resulting in IRS notices and potential backup withholding requirements. Always collect current Forms W-9 from shareholders before the transaction closes. Validate TINs using the IRS TIN Matching service if available to your organization.

Mistake #6: Forgetting to File Form 8806

Form 1099-CAP cannot stand alone—it must be accompanied by Form 8806, which describes the overall transaction. The IRS uses Form 8806 to understand the context of individual shareholder reporting. Filing Forms 1099-CAP without Form 8806 is considered incomplete reporting.

What Happens After You File

Once you file Form 1099-CAP with the IRS and furnish copies to shareholders, several things occur. The IRS processes the forms and matches the information against shareholder tax returns. When shareholders file their individual returns, they must report the transaction on Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses).

According to the shareholder instructions on the official form, shareholders must "report any gain from the exchange on Form 8949. However, you cannot claim a loss on Form 8949 as a result of this exchange." Shareholders use the aggregate amount from Box 2 as their sales proceeds when calculating gain. They'll subtract their adjusted cost basis (what they originally paid for the shares plus any adjustments) from this amount to determine if they have a taxable gain.

As explained by the IRS on Form 8949, this form is used "to reconcile amounts that were reported to you and the IRS on Form 1099-B or 1099-S (or substitute statement) with the amounts you report on your return. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated in aggregate."

If you made the consent election on Form 8806, the IRS publishes transaction details so that brokers can file Forms 1099-B for their customers' shares. This shifts the reporting responsibility from your corporation to the brokers, significantly reducing your administrative burden for brokerage-held shares.

The IRS may also send notices if it detects discrepancies, such as mismatched taxpayer identification numbers, missing forms, or amounts that don't reconcile with shareholder returns. Respond promptly to any IRS correspondence and be prepared to provide supporting documentation about the transaction.

Penalties for non-compliance are substantial. According to the official instructions, Form 8806 and all related Forms 1099-CAP are treated as one return for penalty purposes. Penalties can reach $500 per day the failure continues, up to a maximum of $100,000 per transaction. Both the transferor (original corporation) and transferee (acquiring entity) can be held jointly and severally liable if neither satisfies the filing requirements.

FAQs

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

Form 1099-CAP reports major corporate restructuring events affecting all shareholders, while Form 1099-B reports individual securities transactions through brokers. When a corporation makes the consent election on Form 8806, brokers must file Forms 1099-B for their customers' shares instead of the corporation filing Forms 1099-CAP for brokerage-held shares. Both forms ultimately help shareholders report capital gains and losses, but they cover different types of transactions.

2. Do I need to file if the transaction was non-taxable?

Generally, no. One of the filing requirements is that the corporation or shareholders must recognize gain under Section 367(a). If the transaction qualifies as a tax-free reorganization and no gain recognition is required, Form 1099-CAP is typically not necessary. However, always consult with a tax professional to ensure your specific transaction qualifies for this exception.

3. What if I discover an error after filing?

File a corrected Form 1099-CAP as soon as possible. Check the "CORRECTED" box at the top of the form, complete all boxes with the correct information (not just the changed items), and submit it to both the IRS and the affected shareholder. File corrected returns electronically if you're required to e-file. The sooner you correct the error, the better—it minimizes confusion for shareholders and potential IRS matching problems.

4. Can foreign shareholders be exempt from Form 1099-CAP?

Yes, but only if they've provided valid documentation of their foreign status, such as Form W-8BEN. The corporation must have this documentation on file before the transaction date. Note that while foreign shareholders may be exempt from Form 1099-CAP reporting, the corporation may still have withholding obligations under Section 1441 for nonresident aliens. These are separate requirements as noted in the IRS instructions.

5. How do I make the consent election to avoid filing for clearing organization shares?

Complete Form 8806 and check the box indicating you elect to consent to IRS publication of transaction information. This election means the IRS will post details about your transaction online, allowing brokers and clearing organizations to fulfill their reporting obligations. You must still file Forms 1099-CAP for all direct shareholders who aren't exempt and aren't holding shares through a clearing organization.

6. What if my corporation was acquired and no longer exists—who files the form?

The transferor (original corporation) has the primary responsibility to file. However, if the transferor fails to file or cannot file because it no longer exists, the transferee (acquiring entity) must satisfy the filing requirements. Both entities can be held jointly and severally liable for penalties, so it's crucial to clarify filing responsibilities in the acquisition agreement.

7. Is there a minimum number of shareholders that triggers the filing requirement?

No, there's no minimum shareholder count. Even if only one non-exempt shareholder received at least $1,000 in value from a qualifying $100 million+ transaction, you must file. However, the 10-return e-filing threshold means that if you're filing fewer than 10 total information returns across all types, you have the option to file on paper (though electronic filing is still encouraged).

For more information and the most current forms and instructions, visit the official IRS Form 1099-CAP page at IRS.gov/Form1099CAP and review the General Instructions for Certain Information Returns at IRS.gov/1099GeneralInstructions.

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