Instructions for Form 1099-CAP Checklist—2013 Tax
Year
Form 1099-CAP reports changes in corporate control or substantial changes in capital structure
for shareholders who receive cash, stock, or other property from an acquisition of power or a significant change in capital structure. The form applies only to acquisitions of control or substantial changes in capital structure as defined in IRC section 6043(c) and Regulations section 1.6043-4.
Required Filer and Recipient Information
Verify that the filer's Employer Identification Number appears correctly on the form header.
Confirm that the recipient's Taxpayer Identification Number matches Internal Revenue Service records for the shareholder. Ensure the recipient's name and mailing address are current and legible to prevent processing delays or matching notices. The form must generally be furnished to shareholders by January 31 of the following calendar year, while clearing organizations must receive the form by January 6.
Understanding the Four Reporting Boxes
Box 1 shows the date of sale or exchange, which is the trade date when the stock was exchanged for cash, stock, or other property. Box 2 reports the aggregate amount received, representing the total cash plus the fair market value of any stock and other property received in the exchange.
Box 3 shows the number of shares exchanged, indicating how many shares of the corporation's stock were traded in the transaction. Box 4 identifies the classes of stock exchanged in the transaction, such as standard or preferred stock.
Calculating Gain or Loss on Form 8949
Shareholders must determine their own adjusted bases for the shares exchanged, as Form
1099-CAP does not report basis information. You calculate capital gain or capital loss by comparing the aggregate amount received shown in Box 2 against your adjusted basis.
Reporting Transactions and Holding Period
Report the transaction on Form 8949, which then carries to Schedule D for inclusion on Form
1040. Cash payments for fractional interests must be reported as part of the transaction and may result in taxable income depending on your holding period and cost basis.
Corporate Action Classification Requirements
Identify whether the reported transaction stems from an acquisition of control or a substantial change in capital structure under IRC section 6043(c) and related regulations. The specific corporate action type affects how you report the transaction and which tax basis adjustment rules apply.
Shareholder Reporting Obligations
After Copy B of Form 1099-CAP is issued, the transaction must be reported on Form 8949 for the tax year in which it occurred. Amounts listed in Box 2, along with the shareholder’s own investment records, are used to determine adjusted basis and calculate any capital gain or capital loss.
Holding period status—whether short-term or long-term—is determined by the dates the shares were acquired and disposed of. That classification affects how the transaction is taxed, as different capital gains rates apply based on holding period and overall tax liability.
Handling Multiple Forms From Different Transactions
When you receive multiple Form 1099-CAP documents from the same filer or different filers, each form reports a separate corporate action or transaction. You must report all transactions on
Form 8949 under the applicable holding-period category, which then flows to Schedule D.
Duplicate reporting or omitted transactions can trigger matching notices from the Internal
Revenue Service during tax season. The 2013 instructions clarify that filers issue one form per distinct corporate action event rather than one form per shareholder.
Withholding Requirements for Foreign Persons
Corporations are not relieved of their withholding obligations on nonresident aliens under section 1441 or other applicable withholding requirements for foreign persons. Withholding amounts are not reported on Form 1099-CAP but are reported on other appropriate tax forms, such as Form 1042-S for foreign persons.
Filing Corrected Returns When Errors Occur
Filers who discover an error after issuing Form 1099-CAP must prepare a corrected form marked "CORRECTED" in the upper left corner to replace the original. The corrected form should be issued as soon as the error is discovered to allow shareholders adequate time for accurate reporting.
Using Corrected Forms for Amended Returns
You use the corrected form to file an amended return on Form 1040-X if the correction affects your reported gain, loss, or other tax information. The 2013 instructions state that you should disregard the original form and report only the corrected information.
Paper Filing and Form Assembly Procedures
Information returns do not require signatures from corporate officers or authorized agents. When filing paper forms, the filer must submit Form 1099-CAP with Form 1096, which serves as the
Annual Summary and Transmittal of U.S. Information Returns.
An agent may sign Form 1096 on behalf of the payer if authorized under a valid agency agreement under state law. The agent must add the caption "For: (Name of payer)" when signing, and this does not relieve the payer of liability for penalties.
Electronic Filing Thresholds and Specifications
Filers submitting 250 or more Form 1099-CAP documents must file electronically using software that generates files in accordance with the IRS Publication 1220 specifications. Filers may file electronically through the Filing Information Returns Electronically system, which operates continuously throughout the year.
The FIRE system does not provide a fill-in form option, so filers need compliant software to create properly formatted files. Paper filing is permitted only for filers with fewer than 250 forms of each type, and the 250-return threshold applies separately to each form type.
Essential Compliance Points for Accurate Reporting
The shareholder, not the filer, is responsible for determining and tracking the adjusted basis for calculating capital gains and losses. Form 1099-CAP reports the aggregate amount received but does not report or calculate basis, which means you must maintain your own investment records for tax purposes.
Maintaining Records for Basis Calculations
You must use your own basis records to calculate gain or loss based on the aggregate amount received shown in Box 2. The form itself does not provide basic information, so accurate recordkeeping is essential for proper reporting of taxable income and investment income on your return.
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