Instructions for Form 1099-CAP Checklist — 2012 Tax
Year
Domestic corporations must file Form 1099-CAP with the Internal Revenue Service when certain corporate transactions trigger reporting requirements under Internal Revenue Code
Section 6043(c). This form is used to report acquisitions of control or significant changes in
capital structure in which shareholders receive cash, stock, or other property.
The reporting corporation must furnish detailed information about the transaction to both the IRS and the affected shareholders. A clear understanding of these obligations helps ensure compliance with federal tax reporting rules and reduces the risk of penalties.
Understanding Reporting Triggers
Form 1099-CAP applies to two distinct types of corporate events. An acquisition of control occurs when a second corporation acquires at least 50% of the voting power or total value of another corporation's stock in transactions valued at $100 million or more.
A substantial change in capital structure occurs when a corporation consolidates, transfers substantially all of its assets, undergoes bankruptcy or a reorganization, or changes its identity, form, or place of organization, and the cash or property distributed to shareholders totals $100 million or more. Both scenarios require that the corporation or its shareholders recognize gain under Section 367(a) of the Internal Revenue Code.
Preparing Corporate Information
The reporting corporation must verify that its Employer Identification Number matches IRS records exactly as filed on Form SS-4 or the most recent tax return. You must include the complete legal business name, street address, city, state, and ZIP code on all copies of the form.
Identifying Transaction Parties
Enter the complete legal name of the corporation that acquired control or underwent a substantial change in capital structure on the appropriate line of Form 1099-CAP. Report the correct Employer Identification Number assigned by the IRS to this entity.
For the target corporation, provide the full legal name and EIN if the entity maintained a separate federal identification number before the transaction. Document the acquisition date exactly as it appears in the stock purchase agreement or closing documents because this date determines the tax year for reporting and the applicable filing deadlines.
Completing the Four Required Boxes
Form 1099-CAP contains four numbered boxes that capture essential transaction information.
Box 1 requires the date of sale or exchange in the month/day/year format shown on closing statements. Box 2 calls for the aggregate amount of cash plus the fair market value of any stock and other property the shareholder received in the transaction. Box 3 documents the total number of shares the shareholder exchanged in the reporting corporation, while Box 4 identifies the class or classes of stock exchanged, such as common or preferred, using standard abbreviations.
The form does not require or provide space for reporting fair market value on a per-share basis, basis calculations, or liability assumptions. Shareholders use the aggregate amount in Box 2, along with their own basis records, to calculate gains or losses on their individual tax returns.
Reporting Individual Shareholders
You must obtain the full legal name and Taxpayer Identification Number for each shareholder who received stock, cash, or other property in the acquisition or capital structure change.
Exempt recipients include corporations other than S corporations, tax-exempt organizations, individual retirement accounts, governmental entities, real estate investment trusts, regulated investment companies, securities dealers, entities registered under the Investment Company
Act of 1940, common trust funds, and financial institutions such as banks and credit unions.
Any shareholder whose total consideration does not exceed one thousand dollars is also exempt from reporting. Shareholders who receive only stock for their stock in the corporation do not require a Form 1099-CAP if the corporation reasonably determines that the receipt would not cause the shareholder to recognize gain.
Verifying Consideration Components
Report cash payments to shareholders separately from stock consideration when documenting the transaction. Include the fair market value of other property transferred, such as debt obligations or tangible assets distributed as part of the corporate event.
If the transaction involves the assumption of liabilities or other complex tax considerations, consult with tax counsel regarding shareholder-level implications. Form 1099-CAP reports gross consideration received, but does not address basis adjustments or the tax treatment of assumed liabilities on the form itself.
Distributing Required Copies
Form 1099-CAP consists of three copies with distinct purposes. Copy A goes to the Internal
Revenue Service with the required transmittal form, Copy B must be furnished to the shareholder for their records and tax return preparation, and Copy C remains with the reporting corporation for its permanent files. Include complete contact information on shareholder copies so recipients can request clarification if they receive conflicting information from other sources about the transaction.
Meeting Filing Deadlines
The reporting corporation must furnish Copy B to shareholders by January 31, 2013, following the calendar year in which the transaction occurred. Special rules apply to clearing organizations such as the Depository Trust Company, which must receive its copies by January
7, 2013.
File Copy A with the IRS by February 28, 2013, when submitting paper forms. Electronic filing extends the deadline to April 1, 2013, providing corporations additional time to prepare and transmit information returns in accordance with IRS Publication 1220.
Maintaining Supporting Documentation
Retain stock purchase agreements, asset valuations, board resolutions approving the transaction, and documentation supporting the acquisition of control or substantial change determination. Prepare a summary schedule listing all shareholders, their share counts, and aggregate amounts received for internal verification.
The 2012 instructions permit truncating recipient identification numbers on paper payee statements under Notice 2011-38, though the corporation must report complete identification numbers to the IRS. Shareholders use Form 1099-CAP information to report any gain on
Schedule D of Form 1040, but shareholders cannot claim a loss based solely on the amount reported in Box 2.
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