Form 1099-CAP: Changes in Corporate Control and Capital Structure (2012)
What Form 1099-CAP Is For
When a company undergoes a major transformation—like a merger, acquisition, or major restructuring—shareholders need to know about the tax implications. That's where Form 1099-CAP comes in. This form tracks changes in corporate control and capital structure, helping both companies and shareholders properly report these significant events to the IRS.
Form 1099-CAP is an information return specifically designed to report major corporate structural changes to the IRS and shareholders. Think of it as a financial heads-up that tells you: "Something big happened to your investment, and you need to know about it for tax purposes."
This form comes into play during two main scenarios. First, when there's an acquisition of control—meaning another corporation acquires at least 50 percent of the voting power or total value of a company's stock, and the transaction involves stock worth $100 million or more. Second, when there's a substantial change in capital structure—such as when a company merges, consolidates, transfers substantially all its assets, reorganizes under bankruptcy, or fundamentally changes its identity or form, and shareholders receive cash or property totaling $100 million or more.
The form reports critical information including the date of the transaction, the aggregate amount of cash and fair market value of stock or property you received, the number of shares you exchanged, and the classes of stock involved. Importantly, while you must report any gains from such transactions, the IRS explicitly states you cannot claim a loss based on the amounts shown on Form 1099-CAP.
When You’d Use Form 1099-CAP (Late or Amended Filing)
Understanding the filing deadlines for Form 1099-CAP is crucial to staying compliant. For the 2012 tax year, corporations must furnish Copy B to shareholders by January 31, 2013. However, there's a special earlier deadline: if the shareholder is a clearing organization like the Depository Trust Company (DTC), the form must be provided by January 7, 2013.
For filing with the IRS, corporations have until February 28, 2013 if filing on paper, or April 1, 2013 if filing electronically. The IRS treats Form 8806 (the related information return about the transaction) and all associated Forms 1099-CAP as a single return for penalty purposes.
If you need to file a corrected or amended Form 1099-CAP, you would check the "CORRECTED" box at the top of the form and follow the correction procedures outlined in the General Instructions for Certain Information Returns. Late filings can trigger penalties under section 6652(l), which won't exceed $500 per day the failure continues, up to a maximum of $100,000 for any single transaction. In cases where a transferor corporation fails to file and transfers substantially all its assets to a transferee, both entities can be held jointly and severally liable for penalties.
Key Rules or Details for 2012
Several important rules governed Form 1099-CAP reporting in 2012. First, identification number truncation was newly permitted—Notice 2011-38 allowed corporations to show only the last four digits of a recipient's Social Security Number or other taxpayer identification number on paper statements for shareholder protection, though the complete number still had to be reported to the IRS.
The $100 million threshold remained a critical benchmark. Both acquisition of control transactions and substantial changes in capital structure only triggered reporting requirements if the fair market value of stock acquired or the amount of cash and property provided to shareholders reached $100 million or more.
Exempt recipients didn't need to receive Form 1099-CAP. These included shareholders receiving only stock (no cash or other property), those whose total cash and fair market value received was $1,000 or less, corporations (except S corporations), tax-exempt organizations, IRAs, government entities, foreign persons with proper documentation, and various financial institutions. However, clearing organizations were notably not exempt unless the corporation made a special consent election.
The section 367(a) requirement was essential—reporting was only required if the corporation or any shareholders had to recognize gain under section 367(a), which typically involves cross-border transactions.
For corporations, there were several exceptions that eliminated the filing requirement: transactions within an affiliated group, those involving stock valued under $100 million, situations where a consent election was made on Form 8806, transactions properly reported under section 6043(a), or cases where information was already filed via Form 1099-DIV or Form 1099-B.
Step-by-Step Filing Process (High Level)
For Corporations
Step 1: Determine Filing Requirement
First, assess whether your corporate transaction meets the threshold criteria. Calculate if the fair market value of stock acquired or cash/property distributed equals or exceeds $100 million, and confirm that section 367(a) gain recognition applies.
Step 2: Complete Form 8806
Before filing any Forms 1099-CAP, file Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) with the IRS to report the overall transaction details.
Step 3: Identify Shareholders
Compile a complete list of all shareholders who received cash, stock, or other property in the transaction, excluding exempt recipients. Verify taxpayer identification numbers and ensure accuracy.
Step 4: Complete Forms 1099-CAP
For each non-exempt shareholder, fill out the form with their identification information, the transaction date (Box 1), aggregate amount received (Box 2), number of shares exchanged (Box 3), and classes of stock (Box 4).
Step 5: Distribute to Shareholders
Provide Copy B to regular shareholders by January 31, 2013, or to clearing organizations by the earlier date of January 7, 2013.
Step 6: File with IRS
Submit Copy A along with Form 1096 (transmittal form) to the IRS by February 28, 2013 for paper filing, or April 1, 2013 if filing electronically.
For Shareholders
Review the form when you receive it by January 31 (or early January if received through a clearing organization). Use the information in Box 2 to calculate your gain from the exchange—your tax basis in the old shares compared to the cash and fair market value of property received. Report any recognized gain on Schedule D (Form 1040), Capital Gains and Losses. Remember: you cannot claim a loss based on this transaction. Keep the form with your tax records, and consult Publication 550, Investment Income and Expenses (Chapter 4), for additional guidance on how corporate reorganizations affect your tax situation.
Common Mistakes and How to Avoid Them
Mistake #1: Failing to Identify All Non-Exempt Shareholders
Corporations sometimes overlook certain shareholders or incorrectly classify them as exempt. To avoid this, carefully review the exempt recipient list in the instructions and when in doubt, file the form. It's better to over-report than face penalties for under-reporting.
Mistake #2: Missing the Special Clearing Organization Deadline
The January 7 deadline for clearing organizations like the DTC is nearly a month earlier than the standard January 31 deadline. Missing it can result in penalties. Mark this special deadline prominently in your compliance calendar if your transaction involves clearing organizations.
Mistake #3: Incorrectly Calculating the $100 Million Threshold
Some filers miscalculate whether they've reached the reporting threshold by failing to aggregate related transactions or using incorrect valuation dates. Always use fair market value as of the actual acquisition dates and include all related transactions in a series.
Mistake #4: Reporting When Not Required
Corporations sometimes file Form 1099-CAP when another form (like Form 1099-DIV or Form 1099-B) has already adequately reported the transaction, or when they qualify for an exception. Review all exceptions carefully, particularly the consent election option and intra-group transaction exception.
Mistake #5: Using Printed IRS Website Forms for Filing
The IRS explicitly states that Forms 1099-CAP printed from their website cannot be filed with the IRS because the forms are scanned during processing. Order official scannable forms from the IRS or use approved electronic filing software.
Mistake #6: Shareholders Claiming Losses
Individual shareholders sometimes attempt to claim a loss on Schedule D based on the amount shown in Box 2. The form clearly states losses cannot be claimed from these transactions. Only report gains if your amount received exceeds your tax basis in the exchanged shares.
What Happens After You File
For Corporations
Once you've filed Form 1099-CAP with the IRS and furnished copies to shareholders, the IRS will process the information and match it against shareholder tax returns. If there are discrepancies—such as a shareholder failing to report gain that the form indicates—the IRS may send a notice to the shareholder questioning the omission. Your filing obligation is generally complete once forms are properly filed and distributed, though you must retain copies for your records.
If you made an error, you'll need to file corrected forms. Check the "CORRECTED" box on the new Form 1099-CAP and provide updated copies to affected shareholders and the IRS. Corrections filed promptly may reduce or eliminate penalties.
The IRS may also review your Form 8806 and associated Forms 1099-CAP as part of an audit. Because these forms are treated as a single return for penalty purposes, ensure consistency between Form 8806 and all individual shareholder forms. If your corporation transferred assets to another entity and failed to file, both the transferor and transferee can be held jointly liable.
For Shareholders
Receiving Form 1099-CAP means you have an IRS-reportable event. Use the information to complete your tax return, specifically reporting any gain on Schedule D. The IRS will receive a copy of your form and will expect to see corresponding reporting on your return. If you don't report the transaction, you may receive an IRS notice, face penalties for negligence, or be subject to additional taxes and interest.
If the information on your Form 1099-CAP appears incorrect—wrong number of shares, incorrect amount received, or wrong class of stock—contact the issuing corporation immediately to request a corrected form. Don't simply ignore errors, as the IRS uses this information for compliance matching.
FAQs
Q1: Do I need to file Form 1099-CAP if shareholders only receive stock in exchange for their old stock?
No. If shareholders receive only stock and no cash or other property, and the corporation can reasonably determine that receiving the stock won't cause shareholders to recognize gain, you don't need to file Form 1099-CAP for those shareholders. This is one of the key exempt recipient categories.
Q2: What's the difference between Form 1099-CAP and Form 8806?
Form 8806 is filed by the corporation to report the overall transaction to the IRS—it describes the acquisition of control or substantial change in capital structure. Form 1099-CAP is then filed for each individual shareholder, showing what that specific shareholder received. Think of Form 8806 as the master transaction report and Forms 1099-CAP as individual shareholder reports.
Q3: What if my corporation made a section 338 election?
A section 338 election is specifically treated as an acquisition of stock, not an acquisition of assets. This distinction is important because it can affect whether Form 1099-CAP filing requirements are triggered. Review the specific circumstances with a tax professional to ensure proper reporting.
Q4: Can I file Form 1099-CAP electronically instead of on paper?
Yes, and you'll get additional time to file—until April 1, 2013 instead of February 28, 2013. However, you must use software that meets the IRS specifications outlined in Publication 1220. The IRS doesn't provide a fill-in electronic form; you need compliant software that generates the proper file format.
Q5: I'm a shareholder who received this form but think the amount is wrong. What should I do?
Contact the issuing corporation immediately and request a corrected Form 1099-CAP. Don't file your tax return with information you believe is incorrect. The corporation has an obligation to provide accurate information and should issue a corrected form with the "CORRECTED" box checked if an error occurred.
Q6: What happens if our corporation qualifies for the consent election on Form 8806?
If you make the consent election on Form 8806, you're not required to file Form 1099-CAP for shares held by clearing organizations. However, you must allow the IRS to publish information necessary for brokers to meet their reporting obligations. This election can significantly reduce your filing burden if clearing organizations hold substantial shares.
Q7: We're a broker holding shares for customers—do we need to file?
Yes, brokers must file Form 1099-B (not Form 1099-CAP) for customers unless the customer is an exempt recipient. You need to know or have reason to know based on readily available information—such as from a clearing organization like the DTC or information published on the IRS website—that a reportable transaction occurred. Check the IRS website using the keyword "Form 8806" for published transaction information.
Additional Resources
- 2012 Instructions for Form 1099-CAP
- 2012 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.
