What Form 1099-CAP (2019) Is For
IRS Form 1099-CAP (2019) is an IRS information return used to report changes in corporate control and capital structure. When a corporation undergoes a merger, acquisition, or a substantial shift in equity issuance, shareholders who receive cash, stock, or other property must be reported to the relevant authorities. The form helps the IRS track taxable income and determine whether shareholders must recognize gain from the exchange of capital assets. These transactions often involve large dollar amounts, which can significantly impact how corporations and investors report capital gains and fair market value on their tax returns.
Corporations issue Form 1099-CAP when ownership changes result in shareholders receiving cash, stock, or property due to corporate restructuring or debt financing adjustments. It applies to transactions such as bankruptcy proceedings, bond exchanges, and mergers that alter a company’s control and capital structure. The information reported enables the IRS to verify gain recognition, ensuring that both corporations and shareholders accurately report taxes on investments, sales, or other forms of capital income.
When You’d Use Form 1099-CAP (2019)
Corporations use Form 1099-CAP (2019) when a transaction results in significant changes in corporate control and capital structure. These events often occur during mergers, acquisitions, or equity issuances, where shareholders receive cash, stock, or other property. The form allows the IRS to verify whether shareholders must recognize gain and report any taxable income on their tax return. It also ensures that the dollar amount and fair market value of all capital assets involved in the exchange are accurately recorded.
The form is required when corporations file certain information returns to report transactions that meet the $100 million threshold or involve a substantial change in value. It applies to businesses affected by debt financing, bankruptcy proceedings, or corporate reorganizations. Brokers, companies, and investors use this form to document transactions that affect ownership, dividends, and capital gains, helping maintain transparency in reporting investments, costs, and equity changes across companies and markets.
Key Rules or Details for 2019
For 2019, corporations were required to file IRS Form 1099-CAP when a substantial change occurred in corporate control and capital structure. This included mergers, acquisitions, or equity issuance where shareholders received cash, stock, or other property that might result in capital gains or taxable income. The filing ensured proper gain recognition and compliance with IRS information return rules governing changes in ownership, capital assets, or fair market value.
A corporation must file the form when the total dollar amount of an acquisition reaches at least $100 million or when shareholders recognize gain under Section 367(a). Transactions such as bankruptcy proceedings, debt financing, or barter exchange transactions also qualified if they affected corporate control and capital balance. Certain shareholders—like C corporations and those receiving less than $1,000—were exempt, and the IRS encouraged electronic filing for all 2019 information returns.
For complete details on reporting, withholdings, and tax filings, see our guide for Information Returns & Reporting Forms.
Step-by-Step (High Level)
Filing Form 1099-CAP involves coordination between corporations, brokers, and shareholders. Each step ensures accurate reporting of cash, stock, and other property exchanges.
Step 1: Determine Filing Obligation
Confirm the transaction meets the $100 million threshold and Section 367(a) gain recognition requirements.
Step 2: File Form 8806
Submit Form 8806 to report acquisition or capital structure changes before issuing Forms 1099-CAP.
Step 3: Identify Shareholders
List all shareholders who received cash, property, or stock. Exclude exempt entities.
Step 4: Calculate Amounts
Determine the total dollar amount received by each shareholder, including the fair market value of all assets.
Step 5: Complete Forms
Enter corporation and shareholder details, transaction date, number of shares exchanged, and classes of stock.
Step 6: Provide Copies
Provide Copy B to shareholders by January 31.
Step 7: File with the IRS
Submit Copy A by February 28 (paper) or March 31 (electronic). Include Form 1096 if filing by paper.
Step 8: Shareholder Reporting
Shareholders use the data to report capital gains or losses on Form 8949 and Schedule D.
Common Mistakes and How to Avoid Them
- Failing to apply the $1,000 de minimis exception: Do not file Form 1099-CAP if shareholder proceeds total $1,000 or less. Always calculate total cash and property before filing.
- Miscalculating fair market value: Use verified stock prices or appraisals to ensure accurate valuation for each transaction.
- Using incorrect or missing taxpayer identification numbers: Verify TINs through the IRS TIN Matching Program before submission to avoid penalties.
- Reporting for exempt recipients: Exclude banks, corporations, and other exempt entities from reporting to prevent unnecessary filings.
- Omitting the clearing organization election: Ensure the clearing organization election is filed correctly when intermediaries hold shares.
- Paper-filing when e-filing is required: File electronically when submitting 250 or more information returns to comply with IRS regulations.
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 a corporation files IRS Form 1099-CAP (2019), the IRS reviews the information returns to confirm the accuracy of corporate control and capital structure changes. The agency compares reported data with shareholder tax returns to verify fair market value, capital gains, and taxable income. Shareholders use the form to report transactions involving stock, cash, or other property on their tax return. Corporations must retain documentation of acquisitions, debt financing, and equity issuance to support gaining recognition and compliance with IRS filing requirements.
FAQs
What is IRS Form 1099-CAP (2019) and why is it important?
IRS Form 1099-CAP (2019) reports changes in corporate control and capital structure when shareholders receive cash, stock, or other property. The form ensures that corporations and investors report capital gains, taxable income, and fair market value correctly on their tax returns.
When should a corporation file Form 1099-CAP?
A corporation must file Form 1099-CAP when a merger, acquisition, or equity issuance results in a substantial change in control and capital structure. Filing helps the IRS track gains, recognition, corporate transactions, and compliance with information return requirements.
How does fair market value affect shareholders on Form 1099-CAP?
Fair market value determines the dollar amount shareholders must report when they receive cash, stock, or property. If the fair market value exceeds their cost basis, they must recognize a gain and include the taxable income in their investment reporting.
What transactions are subject to Form 1099-CAP reporting?
Form 1099-CAP applies to corporate transactions, including mergers, debt financing restructurings, acquisitions, and bankruptcy proceedings. It covers distributions of securities, dividends, or other property that affect a corporation’s balance, equity, and capital assets.
Are there exemptions or exceptional cases under Form 1099-CAP rules?
Certain corporations and shareholders are exempt from filing Form 1099-CAP, including C corporations, government agencies, and accounts receiving less than $1,000. Brokers, investors, and companies involved in debt or equity exchanges must still report taxable transactions to the IRS.
