Instructions for Form 1099-CAP Checklist—2010 Tax
Year
Form 1099-CAP reports changes in corporate control and capital structure to shareholders who
receive cash, stock, or other property from these transactions. Corporations must file it with the
IRS when control of the corporation was acquired or when a substantial change in capital structure occurred during the 2010 tax year.
The filing deadline is February 28, 2011, for paper submissions or March 31, 2011, if you file electronically through the FIRE system. You must also file Form 8806, Information Return for
Acquisition of Control or Substantial Change in Capital Structure, to provide the aggregate transaction information to the IRS.
Understanding Form 1099-CAP Requirements
An acquisition of control is defined as a transaction in which one corporation obtains at least 50 percent of the total combined voting power or total value of another corporation’s stock. A substantial change in capital structure generally occurs when a corporation merges, consolidates, or makes distributions of $100 million or more in cash or other property to its shareholders.
Form 1099-CAP is not required for every corporate transaction. The filing obligation does not apply to acquisitions of control that occur within an affiliated group or to transactions involving stock with a total value below $100 million.
Corporations are also excluded from filing when a consent election is made using Form 8806 or when the transaction is reported adequately under section 6043(a). In addition, reporting is not required if the transaction is already disclosed through information returns filed under section
6042 using Form 1099-DIV or under section 6045 using Form 1099-B.
Identifying Shareholders and Exempt Recipients
You must furnish Form 1099-CAP to each shareholder who receives cash, stock, or other property and who is not an exempt recipient. Exempt recipients include shareholders who received only stock for their stock in the corporation and shareholders whose aggregate amount of cash plus the fair market value of stock and other property does not exceed $1,000.
Corporations, except S corporations, qualify as exempt recipients, along with tax-exempt organizations, individual retirement accounts, government entities, and foreign persons who provided valid Form W-8BEN documentation. Additional exempt categories include real estate investment trusts, regulated investment companies, securities or commodities dealers, entities registered under the Investment Company Act of 1940, common trust funds, and financial institutions such as banks, savings and loan associations, and credit unions.
You must obtain proper documentation to support exempt recipient status for each shareholder you exclude from reporting. Shareholders who provided a valid exemption certificate also qualify as exempt recipients under the IRS regulations.
Completing and Filing Form 1099-CAP
Form 1099-CAP requires specific information for each non-exempt shareholder. Enter the date of sale or exchange in Box 1, which represents the trade date of the transaction.
Report the aggregate amount of cash and the fair market value of any stock and other property received in Box 2. Record the number of shares the shareholder exchanged in the reporting corporation in Box 3, and document the class or classes of stock exchanged in Box 4 using abbreviations such as "C" for common stock or "P" for preferred stock.
You must include the reporting corporation's name, address, telephone number, and employer identification number on each form. Each shareholder's taxpayer identification number, which may be a Social Security number, individual taxpayer identification number, or adoption taxpayer identification number, must appear on the form.
Furnishing Statements and Meeting Deadlines
A copy of Form 1099-CAP must be furnished to each non-exempt shareholder no later than
January 31, 2011. The statement is required to report the acquisition date, the aggregate amount received, the number of shares exchanged, and the class or classes of stock involved.
Different deadlines apply when the recipient is a clearing organization, such as the Depository
Trust and Clearing Corporation. In those cases, Form 1099-CAP must be furnished by January
5, 2011, unless a consent election is made on Form 8806.
Separate reporting rules apply to brokers who hold shares for customers. When a broker knows or has reason to know—based on readily available information—that a corporation completed an acquisition of control or a substantial change in capital structure, the broker is required to file
Form 1099-B rather than Form 1099-CAP, unless the customer qualifies as an exempt recipient.
Readily available information includes data from clearing organizations and information published by the IRS.
Filing Procedures and Documentation Requirements
Electronic filing through the FIRE system is available for this form for the 2010 tax year, with a deadline of March 31, 2011. Paper forms must be filed by February 28, 2011, and when filing on paper, you must submit Form 1096, Annual Summary and Transmittal of U.S. Information
Returns, as the transmittal document.
You must retain copies of all Forms 1099-CAP filed with the IRS and furnished to shareholders for at least three years from the filing deadline. Maintain transaction agreements, shareholder records, and all correspondence that support the information reported.
These documents demonstrate compliance with reporting requirements and support the accuracy of reported amounts. The 2010 instructions allow you to truncate the shareholder's identification number on paper payee statements under Notice 2009-93.
Penalties and Amended Returns
For penalty purposes under section 6652(l), the IRS treats Form 8806 and all required Forms
1099-CAP as a single return. When a filing failure occurs, a penalty of up to $500 per day may be assessed for as long as the failure continues, with a maximum penalty of $100,000 for each acquisition of control or substantial change in capital structure.
Post-closing adjustments that change the aggregate amount received by shareholders may require corrective reporting. When those adjustments materially affect the amounts previously reported, an amended Form 1099-CAP must be filed. Affected shareholders must receive the amended form, and the IRS filing should include a clear explanation describing both the nature of the adjustment and the revised amounts.
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