About 1099-CAP Forms
Acquisition of Control, and Substantial Change in Capital Structure, are two major developments in a company’s fiscal condition that require reporting for tax purposes. An Acquisition of Control occurs when, subsequent to a transaction or series of transactions, one corporation ends up with more than 50% ownership of stock (in all stock classes) in another corporation. A change in capital structure involves the transfer of assets from one corporation to another due to bankruptcy, or otherwise, a consolidation or merging of the assets of two companies. A change in corporate identity, form or place of organization can also be considered a change in capital structure.
When a company undergoes changes in control or capital structure it is necessary for it to file a 1099-CAP form with the IRS. Copies of the form are then distributed to shareholders who receive cash or property benefits from the new structure. Many shareholders are exempt from this requirement, including most corporations, tax-exempt organizations, IRA’s, regulated investment companies, and banking organizations. Companies whose shareholders are entirely made up of exempt entities are not required to file 1099-CAP forms.
Any broker who knows or has decisive grounds to infer that a company whose shares they administer on behalf of a client has undergone significant capital restructuring, is required to file a 1099-CAP form. This is not the case only if their client is an exempt recipient. United States corporations must file 1099-CAP in the case of restructuring unless the rearrangement involves stock of less than 100 million dollars, or if the corporation enables information pursuant to their restructuring to be reported through other legally prescribed means.
Failure to file or lateness in filing can lead to a penalty of up to $500 a day, and up to a maximum of $100,000 total.
A 1099-CAP form lists the account numbers of the shareholders involved, the corporation’s EIN number and contact information, the number of shares exchanged, the Aggregate Amount of cash and shares received and the Classes of Stock Exchanged.