Form 1099-CAP: Changes in Corporate Control and Capital Structure (2023)

What Form 1099-CAP Is For

Form 1099-CAP is a tax document that corporations must file when they undergo major structural changes—specifically when control of the company changes hands or when the company experiences a substantial change in its capital structure. Think of it as the IRS's way of tracking what happens to shareholders when companies merge, get acquired, or dramatically restructure themselves.

This form is issued to shareholders who receive cash, stock, or other property as a result of these corporate transactions. If you're a shareholder who received this form, it means you may need to recognize taxable gain from the exchange of your shares. The corporation sends you a copy to help you report this transaction on your tax return, typically on Form 8949 (Sales and Other Dispositions of Capital Assets).

The form captures critical information: the date of the sale or exchange (Box 1), the aggregate amount of cash and fair market value of any stock or property you received (Box 2), the number of shares you exchanged (Box 3), and the class of stock exchanged (Box 4). It's important to note that while you must report any gain, you cannot claim a loss based on the amounts shown on Form 1099-CAP.

When You’d Use Form 1099-CAP (Late/Amended Filings)

Form 1099-CAP follows standard information return deadlines, but understanding the timing is crucial for both corporations and shareholders.

Standard Filing Deadlines

• To the IRS: Paper forms must be filed by March 2, 2026 (for 2023 tax year transactions), or March 31, 2026 if filing electronically
• To Shareholders: Corporations must furnish copies to shareholders by January 31 of the year following the transaction
• Special exception for clearing organizations (like the Depository Trust Company): Forms must be furnished by January 6, 2025 for 2023 transactions

Late or Amended Filings

If you need to file late or correct previously filed information, use Form 8809 to request an automatic 30-day extension. You must file this extension request by the original due date. Under certain hardship conditions, you may apply for an additional 30-day extension. The form can be submitted on paper or electronically through the Filing Information Returns Electronically (FIRE) System.

For corrected returns, mark the “CORRECTED” box on the form and resubmit with accurate information. Both the IRS and the affected shareholders must receive corrected copies. Void returns are handled differently—mark the “VOID” box and submit the voided form to the IRS, but generally, you don't need to send void copies to recipients.

Key Rules or Details for 2023

Several critical rules determine when Form 1099-CAP must be filed:

Threshold Requirements

The $100 million threshold is fundamental. Form 1099-CAP is required only when:

• Acquisition of control: The fair market value of stock acquired is $100 million or more
• Substantial capital structure changes: The cash or other property provided to shareholders totals $100 million or more

Acquisition of Control Defined

An acquisition of control occurs when a second corporation acquires stock in a first corporation, meeting these conditions:

• Before the acquisition, the second corporation did not have control (less than 50% voting power or total value)
• After the acquisition, the second corporation has control (at least 50% voting power or total value)
• The transaction value meets the $100 million threshold
• Shareholders receive stock or other property
• The corporation or shareholders must recognize gain under Section 367(a)

Substantial Change in Capital Structure

This occurs when a corporation:

• Merges, consolidates, or combines with another corporation
• Transfers all or substantially all assets to another corporation
• Transfers assets under bankruptcy proceedings
• Changes its identity, form, or place of organization
• Provides $100 million or more in cash/property to shareholders
• The corporation or shareholders must recognize gain under Section 367(a)

Exempt Recipients

Corporations do not need to file Form 1099-CAP for:

• Shareholders receiving less than $1,000 in cash and property
• Tax-exempt organizations, IRAs, government entities
• Corporations (except S corporations), REITs, and RICs
• Foreign persons with proper documentation (Forms W-8BEN)
• Shareholders in exchanges not subject to gain recognition under Section 367(a)

Electronic Filing Requirement

For 2023 and forward, if you file 10 or more information returns (calculated by aggregating all types), you must file electronically. This threshold was reduced from 250 returns by Treasury Decision 9972, effective January 1, 2024.

Step-by-Step (High Level)

For Corporations

Step 1: Determine If Filing Is Required

• Calculate the fair market value of the transaction (must be $100 million or more)
• Confirm that control was acquired or a substantial capital structure change occurred
• Verify that gain recognition is required under Section 367(a)
• Check if you qualify for any exemptions (like making a consent election on Form 8806)

Step 2: Identify Reportable Shareholders

• Create a list of all shareholders who received cash, stock, or property
• Remove exempt recipients (corporations, tax-exempt entities, foreign persons with proper documentation)
• Exclude shareholders who received less than $1,000 total

Step 3: Gather Required Information

• Collect each shareholder's name, address, and taxpayer identification number (TIN)
• Document the transaction date
• Calculate the aggregate amount each shareholder received (cash plus fair market value of stock/property)
• Determine the number and class of shares each shareholder exchanged

Step 4: Complete the Forms

• Fill out a separate Form 1099-CAP for each shareholder
• Enter your corporation's name, address, phone number, and employer identification number (EIN)
• Complete all required boxes with shareholder-specific information
• For multiple accounts, include account numbers

Step 5: File With the IRS and Furnish to Shareholders

• If filing 10+ returns, use electronic filing (IRIS portal or FIRE System)
• If filing fewer than 10 returns on paper, submit Copy A with Form 1096
• Mail to the appropriate IRS Submission Processing Center based on your location
• Furnish Copy B to shareholders by January 31
• For clearing organizations, furnish by January 6

For Shareholders

Step 1: Receive and Review Form 1099-CAP

• Verify your personal information is correct
• Note the date of the exchange (Box 1)
• Record the aggregate amount received (Box 2)

Step 2: Calculate Your Gain

• Determine your cost basis in the shares you exchanged
• Calculate gain as: (Amount Received from Box 2) minus (Your Cost Basis)
• Remember: You cannot claim a loss based on Form 1099-CAP

Step 3: Report on Your Tax Return

• Report the transaction on Form 8949, Sales and Other Dispositions of Capital Assets
• Transfer the information to Schedule D (Capital Gains and Losses) on Form 1040
• Consult IRS Publication 550 for additional guidance on investment income and expenses

Common Mistakes and How to Avoid Them

Mistake #1: Failing to Meet the Electronic Filing Requirement

With the threshold lowered to 10 returns, many corporations don't realize they must file electronically. Aggregate all information returns you file (1099s, 1098s, etc.)—if the total is 10 or more, you must e-file.
How to avoid: Set up an account with the IRS Information Reporting Intake System (IRIS) well before filing deadlines. IRIS is free and user-friendly. Alternatively, use the FIRE System if you have existing software.

Mistake #2: Incorrectly Identifying Exempt Recipients

Many corporations over-report by filing for exempt shareholders or under-report by missing non-exempt ones.
How to avoid: Maintain a detailed spreadsheet categorizing shareholders. Double-check corporate status (regular corporations are exempt, S corporations are not). Verify foreign person documentation. When in doubt about the $1,000 threshold, calculate the exact fair market value of all consideration received.

Mistake #3: Missing the Clearing Organization Early Deadline

Forms to clearing organizations like DTC are due January 6—much earlier than the January 31 shareholder deadline. Missing this can trigger penalties.
How to avoid: Create a separate deadline tracker for clearing organizations. Prepare these forms first, before year-end if possible. Many clearing organizations have specific submission procedures—contact them early to understand their requirements.

Mistake #4: Not Filing Form 8806 First

Form 8806 (Information Return for Acquisition of Control or Substantial Change in Capital Structure) must be filed with the IRS before Forms 1099-CAP. Some corporations confuse the sequence.
How to avoid: File Form 8806 immediately after the transaction closes. Consider making the consent election on Form 8806, which eliminates the requirement to file Form 1099-CAP for shares held by clearing organizations (the IRS will publish the information for brokers instead).

Mistake #5: Incorrect or Missing TINs

Inaccurate taxpayer identification numbers trigger IRS backup withholding notices and penalties.
How to avoid: Use the IRS TIN Matching system before filing to verify shareholder TINs against IRS records. This e-services product is free and can save significant penalty expenses. Request W-9 forms from shareholders proactively during the year.

Mistake #6: Reporting Fair Market Value Incorrectly

Overvaluing or undervaluing stock and property creates compliance issues and shareholder confusion.
How to avoid: Obtain professional valuation services for non-publicly traded stock or complex property. For publicly traded stock, use the closing price on the transaction date. Document your valuation methodology thoroughly.

Mistake #7: Forgetting Corrected Returns

When errors are discovered, many filers neglect to file corrected returns, assuming the mistake is minor.
How to avoid: Establish a post-filing review process. If errors are found, immediately file corrected returns marking the “CORRECTED” box. Send corrected copies to both the IRS and affected shareholders. The sooner you correct errors, the better your position in penalty abatement requests.

What Happens After You File

For Corporations

IRS Processing (2–3 months): The IRS enters your filing into their systems. They'll cross-reference the information with shareholder tax returns to ensure compliance. If everything matches, you'll hear nothing—which is good news.

Potential IRS Notices:

• CP2100/CP2100A notices: Indicate TIN/name mismatches. You must solicit corrected TINs from shareholders and may need to begin backup withholding on future payments.
• Penalty assessments: If you failed to file timely, filed incorrect information, or didn't file electronically when required. Penalties under Section 6652(l) can reach $500 per day, up to $100,000 per transaction.

Shareholder Inquiries: Expect questions from shareholders about how to report the transaction. Consider preparing a FAQ document or tax guidance memo to send with Form 1099-CAP. Some corporations hold webinars for large shareholder bases.

Successor/Predecessor Considerations: If your corporation transferred assets and ceased operations, ensure reporting obligations are clear. The successor may have joint and several liability for penalties if neither entity files.

For Shareholders

Tax Reporting Obligations: You must report the transaction on your tax return for the year in which the exchange occurred. Even if you didn't sell the new stock you received, the exchange itself may trigger a taxable event.

Calculating Your Basis: Your cost basis in the new stock or property received generally equals the fair market value reported in Box 2 (for taxable exchanges). This becomes important when you eventually sell the new stock.

Payment of Taxes: If the transaction generated a capital gain, you'll owe capital gains tax. The rate depends on your holding period in the original stock:

• Short-term gains (held one year or less): Taxed at ordinary income rates
• Long-term gains (held more than one year): Taxed at preferential capital gains rates (0%, 15%, or 20% depending on income)

Audit Risk: Unreported Form 1099-CAP information creates audit red flags. The IRS computer systems automatically match information returns to tax returns. Discrepancies trigger automated notices and potential audits.

Amended Returns: If you received a corrected Form 1099-CAP after filing your tax return, you may need to file Form 1040-X (Amended U.S. Individual Income Tax Return). You generally have three years from the original filing deadline to amend.

FAQs

1. I received Form 1099-CAP showing $50,000 in Box 2, but I originally paid $60,000 for my shares. Can I claim a $10,000 loss?

No. This is one of the most misunderstood aspects of Form 1099-CAP. The form explicitly states that you cannot claim a loss based on the amount reported. However, the $50,000 becomes your new cost basis in the stock you received. When you eventually sell that stock, you'll calculate gain or loss at that time using the $50,000 basis. The key is that Form 1099-CAP reports the receipt of stock/property, not a sale that allows loss recognition.

2. My company merged, but I didn't receive Form 1099-CAP. Should I report anything?

Possibly. You might not have received Form 1099-CAP for several reasons: the transaction didn't meet the $100 million threshold, you're an exempt recipient (like another corporation), or you received less than $1,000. However, you may still have reporting obligations. Check if you received other forms like Form 1099-B (from your broker) or Form 1099-DIV. Consult the merger documents or contact the corporation's investor relations department. When in doubt, consult a tax professional—failing to report taxable exchanges can result in penalties.

3. I'm a corporation shareholder—why did I receive Form 1099-CAP? I thought corporations were exempt.

Regular C corporations are generally exempt recipients, but there are exceptions. If you're an S corporation shareholder, you're not exempt. Additionally, if the acquiring corporation knows or has reason to believe that gain recognition is required under Section 367(a), they may issue the form. Also check whether you received the form as a nominee/intermediary for beneficial owners who aren't exempt. Review the transaction details or consult your tax advisor to determine your reporting obligations.

4. The deadline has passed and our corporation forgot to file. What should we do?

Act immediately. File Form 1099-CAP as soon as possible, even though it's late. Include a reasonable cause statement explaining the delay (IRS Form 8809 instructions provide guidance on reasonable cause). The penalty structure under Section 6652(l) is severe—$500 per day up to $100,000 per transaction—but the IRS may abate penalties for first-time filers or legitimate hardship. If asset transfers were involved, remember that both predecessor and successor corporations may be jointly liable. Consulting a tax attorney is advisable for significant penalty exposure.

5. We're filing Form 1099-CAP for 12 shareholders. Do we need to file electronically?

It depends on your total information returns, not just Form 1099-CAP. Count all 1099s, 1098s, W-2Gs, and other information returns you'll file for 2023. If the aggregate is 10 or more, you must file electronically. For example: 12 Forms 1099-CAP + 5 Forms 1099-DIV = 17 total, requiring electronic filing. If you're only filing the 12 Forms 1099-CAP and nothing else, electronic filing is required. The IRIS portal (IRS.gov/IRIS) is free and relatively straightforward for smaller volumes.

6. Box 2 shows stock and cash—how do I know how much of each I received?

Box 2 shows the aggregate amount (total cash plus fair market value of stock/property). The form doesn't break down the components. For this detail, refer to your transaction documents: the merger agreement, proxy statement, or letter of transmittal. You can also contact the corporation's investor relations department or transfer agent. This breakdown is important because all-stock exchanges may qualify for different tax treatment than cash-plus-stock transactions. Your tax advisor will need these specifics to properly report the exchange.

7. I'm a foreign shareholder with a valid Form W-8BEN on file. Why am I being asked about Form 1099-CAP?

Generally, foreign persons with proper documentation (Form W-8BEN) are exempt from receiving Form 1099-CAP. However, this doesn't exempt you from withholding obligations under Section 1441. The corporation should have withheld applicable taxes on your payment. Review your transaction documents carefully—you may have received Form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding) instead. If you believe you incorrectly received Form 1099-CAP, contact the corporation's tax department immediately. If you're now a U.S. resident or your foreign status changed, you may legitimately need to receive the form.

Additional Resources

All information in this guide is sourced from official IRS publications available at IRS.gov/Form1099CAP. For detailed technical guidance, consult:

• Instructions for Form 1099-CAP (Publication i1099cap)
• General Instructions for Certain Information Returns (Publication i1099gi)
• Publication 550: Investment Income and Expenses
• IRS Regulations Section 1.6043-4: Information returns relating to certain acquisitions of control and changes in capital structure

For questions about reporting on Form 1099-CAP, call the IRS information reporting customer service at 1-866-455-7438 or 304-263-8700 (not toll-free).

This guide provides general information for educational purposes. For specific tax advice regarding your situation, consult a qualified tax professional or attorney. Tax laws change frequently; verify current requirements at IRS.gov.

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