Form 1099-CAP: Changes in Corporate Control and Capital Structure (2018)

What Form 1099-CAP Is For

Form 1099-CAP is a specialized information return that corporations use to report significant changes in ownership or structure to both the IRS and their shareholders. Think of it as a financial announcement that something major has happened to a company you own shares in—either someone has taken control of the corporation, or the company has undergone a fundamental restructuring.

When a corporation experiences an "acquisition of control" (where another corporation gains at least 50% ownership) or a "substantial change in capital structure" (such as a merger, consolidation, or major asset transfer), and shareholders receive cash, stock, or other property valued at $100 million or more, the corporation must file this form. The purpose is straightforward: the IRS needs to track these transactions because shareholders may owe taxes on any gains realized from exchanging their original shares for new consideration.

The form captures essential details including the date of the transaction, the aggregate amount of cash and property each shareholder received, the number and class of shares exchanged, and other information shareholders need to calculate their capital gains or losses. For tax year 2018, this information helps shareholders properly report their transactions on Form 8949 and Schedule D of their individual tax returns. IRS.gov - 2018 Instructions for Form 1099-CAP

When You’d Use Form 1099-CAP (Late Filing and Amended Returns)

Standard Filing Timeline

For calendar year 2018 transactions, corporations must furnish Copy B of Form 1099-CAP to shareholders by January 31, 2019. The corporation must file Copy A with the IRS by February 28, 2019 for paper filers, or April 2, 2019 if filing electronically (which is required when filing 250 or more forms).

There's a special exception for clearing organizations like the Depository Trust Company (DTC). If shares are held by a clearing organization, the corporation must furnish Form 1099-CAP to the clearing organization by the earlier date of January 5, 2019, unless the corporation makes a consent election on Form 8806 that allows the IRS to publish the necessary information directly.

Late Filing

If you miss the filing deadline, you should still file as soon as possible. The penalties for late filing are substantial: under Section 6652(l), corporations face penalties of up to $500 per day the failure continues, with a maximum of $100,000 per acquisition or capital structure change. For perspective, Form 8806 and all associated Forms 1099-CAP are treated as one return for penalty purposes. IRS.gov - 2018 Instructions for Form 1099-CAP

Amended Returns

If you discover errors after filing—such as incorrect dollar amounts, wrong number of shares, or shareholder identification mistakes—you must file a corrected Form 1099-CAP. Mark the checkbox labeled "CORRECTED" at the top of the form, complete all fields correctly, and file it following the same procedures as an original return. Send the corrected statement to affected shareholders and file Copy A with the IRS at the appropriate Submission Processing Center with an accompanying Form 1096. The IRS generally expects corrections within three years of the original filing date. IRS.gov - Instructions for Form 1099-CAP

Key Rules or Details for 2018

The $100 Million Threshold

Two critical situations trigger Form 1099-CAP filing requirements:

Acquisition of Control: When a second corporation acquires enough stock to gain control (at least 50% voting power or 50% total value) of a first corporation, and the fair market value of the acquired stock equals or exceeds $100 million.
Substantial Change in Capital Structure: When a corporation merges, consolidates, combines with another corporation, transfers substantially all its assets, or changes its identity/form/organization, and the cash or other property distributed to shareholders totals $100 million or more.

The Section 367(a) Requirement

An often-overlooked but critical requirement: Form 1099-CAP is only required when the corporation or any of its shareholders must recognize gain under Section 367(a) as a result of the transaction. Section 367(a) generally applies to certain cross-border transactions, preventing tax-free treatment when U.S. persons transfer property to foreign corporations.

Exempt Recipients

Not every shareholder receives a Form 1099-CAP. The corporation doesn't need to file for:

Shareholders receiving only stock (no cash or other property)
Shareholders whose total consideration (cash plus fair market value of stock and property) doesn't exceed $1,000
C corporations (except S corporations), tax-exempt organizations, IRAs, government entities, foreign entities with proper Form W-8BEN documentation, and other institutional holders like REITs, RICs, and financial institutions

Online Fillable Format

Due to low paper volume, the IRS converted Form 1099-CAP to an online fillable format for 2018. You can complete it at IRS.gov/Form1099CAP and print Copy B for recipients. Paper filers submitting fewer than 250 forms may print black-and-white Copy A from the IRS website and mail it with Form 1096. IRS.gov - 2018 Instructions for Form 1099-CAP

Step-by-Step (High Level)

Step 1: Determine Filing Requirement

First, assess whether your corporate transaction meets the filing thresholds. Ask: Did an acquisition of control or substantial capital structure change occur? Does the transaction involve $100 million or more? Is Section 367(a) gain recognition required? If all answers are yes, proceed.

Step 2: File Form 8806

Before filing Forms 1099-CAP, the corporation must file Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) with the IRS. This form provides comprehensive transaction details and determines your reporting obligations. Consider whether to make the consent election on Form 8806, which can simplify reporting for shares held by clearing organizations.

Step 3: Identify Non-Exempt Shareholders

Review your shareholder registry and exclude exempt recipients. Focus on individual shareholders, S corporations, partnerships, and other non-exempt entities who received at least $1,000 in total consideration. Verify you have correct taxpayer identification numbers (TINs) for each recipient.

Step 4: Complete Individual Forms 1099-CAP

For each non-exempt shareholder, complete a separate Form 1099-CAP including:

Box 1: Date of sale or exchange (trade date)
Box 2: Aggregate amount received (total cash plus FMV of stock and other property)
Box 3: Number of shares exchanged
Box 4: Classes of stock exchanged (use abbreviations like "C" for common, "P" for preferred)

Include the corporation's name, address, phone number, and EIN. Add shareholder TIN and account numbers if maintaining multiple accounts for the same shareholder.

Step 5: Furnish Copies to Recipients

Send Copy B to shareholders by January 31, 2019 (or January 5, 2019 for clearing organizations). The statement helps shareholders calculate their capital gains or losses for their personal tax returns.

Step 6: File with the IRS

Submit Copy A to the IRS Submission Processing Center for your area by February 28, 2019 (paper) or April 2, 2019 (electronic). Include Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) if filing paper forms. Electronic filing is mandatory if submitting 250 or more forms. IRS.gov - 2018 Instructions for Form 1099-CAP

Common Mistakes and How to Avoid Them

Mistake #1: Misunderstanding the $100 Million Threshold

Many corporations incorrectly believe the threshold applies per shareholder. It doesn't. The $100 million threshold applies to the total transaction value—the aggregate fair market value of all stock acquired or total consideration distributed. Even if individual shareholders receive less than $1,000 (making them exempt), the corporation must still file for non-exempt shareholders when the overall transaction exceeds $100 million.

How to avoid it: Calculate total transaction value first to determine if Form 1099-CAP applies to your situation, then identify which specific shareholders are exempt from receiving the form.

Mistake #2: Failing to File for Section 367(a) Transactions

Some corporations overlook the Section 367(a) requirement, particularly in cross-border transactions. If shareholders don't have to recognize gain under Section 367(a), Form 1099-CAP may not be required even if other thresholds are met.

How to avoid it: Consult with a tax professional to analyze whether Section 367(a) applies to your transaction. This section involves complex international tax rules that require expert guidance.

Mistake #3: Using Incorrect Taxpayer Identification Numbers

TIN errors are among the most common mistakes across all information returns. Incorrect or missing TINs can trigger backup withholding requirements and penalties.

How to avoid it: Validate shareholder TINs before filing using the IRS TIN Matching service. If you lack a shareholder's TIN, request it in writing before the filing deadline. Never truncate TINs on forms filed with the IRS (truncation is only permitted on shareholder copies).

Mistake #4: Missing Special Clearing Organization Deadlines

Corporations must furnish Form 1099-CAP to clearing organizations by January 5 (nearly a month earlier than the January 31 deadline for individual shareholders), yet many miss this earlier date.

How to avoid it: Identify which shares are held by clearing organizations early in your process. Set internal deadlines of late December to meet the January 5 requirement. Alternatively, make the consent election on Form 8806 to eliminate the need to furnish forms to clearing organizations.

Mistake #5: Reporting Stock-Only Exchanges

If shareholders receive only stock in exchange for their original shares (with no cash or other property), the corporation doesn't need to file Form 1099-CAP for those shareholders, even if the transaction otherwise meets filing requirements.

How to avoid it: Carefully categorize what each shareholder received. Separate stock-only recipients from those who received cash, property, or a combination. IRS.gov - 2018 Instructions for Form 1099-CAP

What Happens After You File

For the Corporation

Once you've filed Forms 1099-CAP with the IRS and furnished copies to shareholders, your primary reporting obligation is complete. However, maintain detailed records of the transaction and your filing for at least four years. The IRS may request documentation during an examination, and shareholders may contact you with questions about their forms.

If you filed Form 8806 with a consent election, the IRS will publish information about the transaction on its website, allowing brokers who hold shares on behalf of customers to meet their reporting obligations under Form 1099-B. This published information typically includes the corporation's name, EIN, transaction date, type of transaction, and consideration details.

Penalty Exposure

If the IRS discovers you failed to file required Forms 1099-CAP, penalties can be severe. Beyond the daily penalty of up to $500 (maximum $100,000 per transaction) for late filing, there are additional penalties for failing to furnish correct statements to shareholders and for failing to meet electronic filing requirements when required.

In situations where a transferor corporation fails to file after transferring substantially all its assets, the transferee corporation becomes responsible for filing. Both entities can be held jointly and severally liable for penalties if neither complies. IRS.gov - 2018 Instructions for Form 1099-CAP

For Shareholders

Shareholders who receive Form 1099-CAP use the information to complete their personal tax returns. They'll transfer data from the form to Form 8949 (Sales and Other Dispositions of Capital Assets) and Schedule D (Capital Gains and Losses) on their Form 1040.

The calculation can be complex. Shareholders must determine their basis in the original shares, then calculate gain or loss based on the fair market value of consideration received. If they received stock in the acquiring company, they'll need to track the basis of the new shares for future dispositions. Some shareholders may recognize a loss, which cannot be reported if the transaction qualifies as a reorganization under certain tax provisions.

The Form 1099-CAP deadline of January 31 aligns with other information return deadlines, giving shareholders the tax information they need before the typical April 15 filing deadline. IRS.gov - About Form 1099-CAP

FAQs

Q1: Do I need to file Form 1099-CAP if our merger was entirely stock-for-stock with no cash consideration?

Generally, no. If shareholders receive only stock in exchange for their original shares and no cash or other property, the corporation doesn't need to file Form 1099-CAP for those shareholders. However, this assumes the corporation can reasonably determine that receiving the stock wouldn't cause shareholders to recognize gain. If any shareholders receive cash in addition to stock (such as cash for fractional shares), you must file for those shareholders if other requirements are met.

Q2: What's the difference between Form 1099-CAP and Form 1099-B?

Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) is filed by brokers and barter exchanges when they facilitate sales of securities or other property. Form 1099-CAP is filed by the corporation itself when it undergoes an acquisition of control or substantial capital structure change. If you make the consent election on Form 8806, brokers will use the published information to file Forms 1099-B for shares they hold, relieving the corporation of having to furnish Forms 1099-CAP to clearing organizations.

Q3: We're a small corporation with a $50 million acquisition. Do we still file?

No. The $100 million threshold must be met for Form 1099-CAP to apply. Your transaction falls below this threshold, so you're not required to file Form 1099-CAP or Form 8806. However, other information reporting requirements may still apply depending on the specific nature of your transaction, so consult Regulations section 1.6043-4 or a tax professional.

Q4: Can we file Form 1099-CAP electronically if we only have 50 shareholders?

Yes, you can choose to file electronically even though you're below the 250-form threshold that mandates electronic filing. Electronic filing extends your deadline from February 28 to April 2 and reduces processing errors. The IRS encourages electronic filing through the Filing Information Returns Electronically (FIRE) system or approved third-party software.

Q5: What if we transferred our assets in bankruptcy proceedings?

Asset transfers in bankruptcy proceedings can trigger Form 1099-CAP requirements if the transaction otherwise meets the definition of a substantial change in capital structure. Specifically, if your corporation transfers all or part of its assets to another corporation under bankruptcy proceedings (including distributing stock or securities), and the $100 million threshold is met with Section 367(a) gain recognition required, you must file. The transferor corporation is primarily responsible, but if it fails to file, the transferee becomes responsible.

Q6: How do foreign shareholders affect our filing requirements?

Foreign shareholders for whom you've received a valid Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) or other proper documentation are exempt recipients. You don't need to file Form 1099-CAP for them. However, this exemption from information reporting doesn't relieve you of withholding obligations under Section 1441 for nonresident aliens. The withholding rules operate separately from the Form 1099-CAP reporting requirements.

Q7: What happens if we discover an error six months after filing?

File a corrected Form 1099-CAP as soon as you discover the error. Mark "CORRECTED" at the top, complete all fields with the correct information (not just the corrected field), and file it with the IRS while simultaneously furnishing a corrected copy to the affected shareholder. While late corrections may still incur penalties, prompt correction demonstrates good faith and may result in penalty relief. The IRS expects corrections within three years of the original filing date, after which the statute of limitations may prevent shareholders from amending their personal returns to claim refunds based on the corrected information. IRS.gov - 2018 Instructions for Form 1099-CAP

Sources

All information in this summary is derived exclusively from official IRS publications: 2018 Instructions for Form 1099-CAP, About Form 1099-CAP, Form 1099-CAP (2018), General Instructions for Certain Information Returns, and related guidance available at IRS.gov.

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