What Form 1099-CAP (2017) Is For
Corporations use IRS Form 1099-CAP (2017) to report changes in corporate control and capital structure after a merger, acquisition, or substantial change in ownership. When shareholders receive cash, stock, or other property as a result of a corporate action, the form reports the fair market value of the assets exchanged. It helps many investors determine capital gains, recognize gains, and report proceeds correctly on their tax return for the applicable tax year.
Corporations must file electronically or submit paper information returns to the IRS and furnish copies to shareholders who received $1,000 or more in total value. Exempt shareholders, including banks, IRAs, and government entities, are not required to accept this form. Accurate filing ensures that all fair market amounts, cost basis, and aggregate transaction data are correct, helping corporations maintain compliance while giving shareholders maximum flexibility to report gains or other income properly.
When You’d Use Form 1099-CAP (2017)
Corporations file IRS Form 1099-CAP (2017) when a corporate action results in significant changes in corporate control and capital structure. These transactions may include an acquisition, merger, or substantial change where shareholders receive cash, stock, or other property. The form reports the fair market value of proceeds and helps many investors determine their gain recognition for the tax year.
Shareholders use the form to report capital gains or losses on their tax return. Corporations must file electronically or submit paper information returns by the required date. Brokers, banks, and other companies involved in investments must ensure all shareholder data, Social Security numbers, and aggregate amounts are correct before sending copies to the IRS.
Key Rules or Details for 2017
For the 2017 tax year, Form 1099-CAP applied to corporations involved in changes in corporate control and capital structure exceeding $100 million in value. Only shareholders who received cash or other property valued at $1,000 or more were required to obtain a form. Exempt shareholders, such as corporations, government entities, and certain retirement accounts, were not required to file or receive this form.
Corporations must recognize gains when distributing assets or securities that result in taxable capital gains. They must accurately determine fair market value and maintain accurate information for all investors. Filing electronically offers more flexibility and reduces penalties for errors or late submissions, helping companies maintain compliance with IRS reporting requirements.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Step-by-Step (High Level)
Step 1: Determine if filing is required
Corporations must confirm whether an acquisition or a substantial change in capital structure has occurred. The event should be valued at a minimum of $100 million. Shareholders must verify whether they received cash, stock, or other property during the tax year.
Step 2: File Form 8806 first
Corporations should file Form 8806 with the IRS before preparing individual Forms 1099-CAP. This filing reports the transaction’s date, type, and fair market value. It helps maintain proper records for changes in corporate control and capital structure.
Step 3: Identify reportable shareholders
Corporations must list shareholders who received $1,000 or more in cash, stock, or other property. Each record must include the recipient’s name, address, and Social Security number or EIN. Accurate information ensures correct information returns and reduces penalties.
Step 4: Exclude exempt shareholders
Corporations must exclude exempt shareholders such as government entities, IRAs, and other corporations. These shareholders are not required to recognize gain or report certain information returns. Verifying exemption helps maintain compliance with IRS reporting standards.
Step 5: Complete Form 1099-CAP
Each corporation must complete a separate form for every shareholder. The form must include the date of exchange, aggregate amount received, and class of stock. Every form should reflect the correct fair market value and other property received.
Step 6: File and furnish copies
Corporations must file electronically or by mail according to IRS deadlines. Shareholders should review the received forms for accuracy. Proper e-filing provides maximum flexibility and ensures both parties report capital gains and taxes correctly.
Step 7: Review and retain records
Corporations must maintain copies of all forms, filings, and related brokerage information. Shareholders should keep their forms, brokerage statements, and cost basis records. Accurate records help determine gain recognition and ensure proper reporting for the next tax year.
Common Mistakes and How to Avoid Them
Corporations and shareholders often make avoidable errors that lead to processing delays or IRS penalties. The most common mistakes include:
- Filing below the reporting threshold: Do not file Form 1099-CAP when the total transaction value does not meet the $100 million threshold.
- Reporting Inaccurate Values: Ensure that aggregate amounts and fair market values are verified and consistent with supporting documentation.
- Failing to issue corrected forms: Promptly file corrected copies when errors or omissions are identified to avoid penalties.
- Ignoring e-filing requirements: Corporations filing 250 or more information returns are required to submit them electronically, as per IRS regulations.
Avoiding these errors helps corporations maintain compliance, prevent costly penalties, and ensure accurate reporting for both shareholders and investors.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After corporations file IRS Form 1099-CAP (2017), the IRS reviews information returns to confirm that shareholders correctly report capital gains, proceeds, and fair market value on their tax return. If discrepancies occur, corporations may face penalties or be required to file corrected forms. Shareholders who received cash, stock, or other property must verify amounts, recognize gain accurately, and maintain account records for the tax year. Proper e-file submission ensures compliance, accurate tax reporting, and greater flexibility for both corporations and investors.
FAQs
What is IRS Form 1099-CAP (2017), and why is it essential for shareholders?
IRS Form 1099-CAP (2017) reports changes in corporate control and capital structure. When corporations distribute cash, stock, or other property during a corporate action or acquisition, shareholders must recognize the gain, determine their cost basis, and include the capital gain on their tax return.
How do corporations file Form 1099-CAP and related information returns?
Corporations must file electronically or use approved forms to report aggregate amounts from substantial change transactions. Each company provides the IRS with accurate shareholder data, Social Security numbers, and fair market value details to ensure correct reporting of gain recognition and proceeds.
Who are exempt shareholders under Form 1099-CAP requirements?
Exempt shareholders include corporations, government entities, retirement accounts, and certain brokerage or bank-held investments. These companies and accounts are excluded from certain information returns because they do not recognize gain from barter exchange transactions or other property distributions within the same corporate structure.
What happens when shareholders receive cash or other property from a corporate action?
When shareholders receive cash, stocks, bonds, or other property due to changes in corporate control, they must calculate the fair market value and cost basis of these assets. Many investors report capital gains, income, and proceeds on their e-filed tax return for the applicable tax year.
What penalties apply if corporations fail to file correctly or late?
If corporations or brokers fail to file Form 1099-CAP or certain information returns on time, the IRS may impose penalties. Businesses must maintain accurate accounts, verify every date and Social Security number, and ensure all control and capital structure details are correct to avoid paying fines.
