Changes in Corporate Control and Capital Structure

2016

Department of the Treasury
Internal Revenue Service

Instructions for Form
1099-CAP
Changes in Corporate Control and Capital Structure
Section references are to the Internal Revenue Code unless
otherwise noted.

Future Developments

For the latest information about developments related to Form
1099-CAP and its instructions, such as legislation enacted after
they were published, go to www.irs.gov/form1099cap.

Reminder

In addition to these specific instructions, you should also use the
2016 General Instructions for Certain Information Returns.
Those general instructions include information about the
following topics.
Who must file (nominee/middleman).
When and where to file.
Electronic reporting requirements.
Corrected and void returns.
Statements to recipients.
Taxpayer identification numbers.
Backup withholding.
Penalties.
Other general topics.

You can get the general instructions at www.irs.gov/
form1099cap .

Specific Instructions

File Form 1099-CAP, Changes in Corporate Control and Capital
Structure, for shareholders of a corporation if control of the
corporation was acquired or it underwent a substantial change in
capital structure. Form 1099-CAP is furnished to shareholders
who receive cash, stock, or other property from an acquisition of
control or a substantial change in capital structure.

Who Must File
Any broker who holds shares on behalf of a customer in
a corporation that the broker knows or has reason to
know based on readily available information has
engaged in a transaction of acquisition of control or substantial
change in capital structure must file Form 1099-B unless the
customer is an exempt recipient. Readily available information
includes information from a clearing organization, such as the
Depository Trust Company (DTC). Information is also published
on the IRS website. Go to IRS.gov and enter keyword “Form
8806” in the upper right corner.

TIP

A domestic corporation that is required to file Form 8806,
Information Return for Acquisition of Control or Substantial
Change in Capital Structure, must file Form 1099-CAP with the
IRS and furnish a copy to each shareholder who receives cash,
stock, or other property as a result of the acquisition of control or
substantial change in capital structure and who is not an exempt
recipient. However, if the corporation can reasonably determine
that the receipt of such stock would not cause the shareholder to
recognize gain, then the corporation is not required to report the
fair market value of any stock provided to a shareholder.
Corporations do not file Form 1099-CAP under one of the
following conditions.
Apr 10, 2015

The transaction involves the acquisition of control within an
affiliated group or involves stock valued at less than $100
million.
The corporation makes the consent election on Form 8806.
Under the election, the corporation is not required to file Form
1099-CAP with respect to shares held by a clearing organization
because it allows the IRS to publish information necessary for
brokers to meet their reporting obligations.
The corporation properly reports the transaction under section
6043(a).
Information returns are filed under section 6042 (Form
1099-DIV) or section 6045 (Form 1099-B), unless the
corporation knows or has reason to know that such returns were
not filed.

Exempt Recipients
The corporation is not required to file Form 1099-CAP for the
following shareholders including brokers who are also exempt.
Any shareholder who receives only stock for its stock in the
corporation.
Any shareholder whose amount of cash plus the fair market
value (FMV) of any stock and other property does not exceed
$1,000.
Any shareholder from whom the corporation has received a
properly completed exemption certificate.
Any one of the following.
1. A corporation, except a subchapter S corporation.
2. A tax-exempt organization.
3. An individual retirement account (IRA).
4. The U.S. government or a state.
5. A foreign government, an international organization, or a
foreign central bank of issue.
6. A real estate investment trust (REIT).
7. A regulated investment company (RIC).
8. A securities or commodities dealer.
9. An entity registered under the Investment Company Act
of 1940.
10. A common trust fund.
11. A financial institution such as a bank, savings and loan,
credit union, or similar organization.
Any foreign person the corporation associates with a valid
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner
for United States Tax Withholding, or other documentation upon
which the corporation relies in order to treat the shareholder as a
foreign beneficial owner or foreign payee. See Regulations
section 1.6049-5(c) for more information.

!

CAUTION

Cat. No. 35150T

Corporations are not relieved of their withholding
obligations on nonresident aliens under section 1441.

6652(l) penalty, Form 8806 and all Forms 1099-CAP required to
be filed are treated as one return. Thus, the penalty will not
exceed $500 for each day the failure continues, up to a
maximum of $100,000, for any acquisition of control or any
substantial change in capital structure. If a corporation
(transferor) transfers all or substantially all of its assets to
another entity (transferee) and is required to file Form
1099-CAP, the transferor must satisfy the reporting
requirements. If the transferor fails to file Form 1099-CAP, then
the transferee must meet the filing requirements. If the filing
requirements are not met by either the transferor or transferee,
then both are jointly and severally liable for the applicable
penalties.

Acquisition of Control
An acquisition of control of a corporation (first corporation)
occurs if, in a transaction or series of related transactions, before
an acquisition of stock of the first corporation (directly or
indirectly) by a second corporation, the second corporation does
not have control of the first corporation; after the acquisition, the
second corporation has control of the first corporation; the FMV
of the stock acquired in the transaction and in any related
transactions as of the date or dates on which the stock was
acquired is $100 million or more; the shareholders of the first
corporation receive stock or other property pursuant to the
acquisition; and the first corporation or any of its shareholders is
required to recognize gain under section 367(a) as a result of the
transaction.

Failure to file Forms 1099-CAP also includes the requirement
to file electronically. For more information on penalties for failure
to file electronically, see part F in the 2016 General Instructions
for Certain Information Returns.

For these purposes, control is defined as the ownership of
stock possessing at least 50% of the total combined voting
power of all classes of stock entitled to vote, or at least 50% of
the total value of shares of all classes of stock.

Statement to Shareholder

If required to file Form 1099-CAP, you must furnish a statement
to the shareholder. For more information about the requirement
to furnish a statement to the shareholder, see part M in the 2016
General Instructions for Certain Information Returns.

See Form 8806 and Regulations section 1.6043-4 for details
and special rules with respect to constructive ownership of
stock.
Section 338 election. An acquisition of stock of a corporation
under which a section 338 election is made is treated as an
acquisition of stock and not as an acquisition of the assets of the
corporation.

Truncating recipient’s identification number on payee
statements. Pursuant to Treasury Regulations section
301.6109-4, all filers of this form may truncate a recipient’s
identification number (social security number (SSN), individual
taxpayer identification number (ITIN), adoption taxpayer
identification number (ATIN), or employer identification number
(EIN)) on payee statements. Truncation is not allowed on any
documents the filer files with the IRS. See part J in the 2016
General Instructions for Certain Information Returns.

Substantial Change in Capital Structure
A change in capital structure occurs if:
The amount of cash or other property provided to its
shareholders is $100 million or more and the corporation in a
transaction or series of transactions merges, consolidates, or
otherwise combines with another corporation or transfers all or
substantially all of its assets to one or more corporations;
Transfers all or part of its assets to another corporation under
bankruptcy proceedings including distributing its stock or
securities; or
Changes its identity, form, or place of organization; and
The corporation or any of its shareholders is required to
recognize gain under section 367(a) as a result of the
transaction.

Account Number

The account number is required if you have multiple accounts for
a recipient for whom you are filing more than one Form
1099-CAP. Additionally, the IRS encourages you to designate an
account number for all Forms 1099-CAP that you file. See part L
in the 2016 General Instructions for Certain Information Returns.

Name, Address, Telephone Number, and TIN

Generally, this will be the reporting corporation's information and
employer identification number (EIN).

When To File

Box 1. Date of Sale or Exchange

See part C in the 2016 General Instructions for Certain
Information Returns and its Guide to Information Returns for
filing and furnishing dates. But see the separate guidance for
clearing organizations in Special reporting date–clearing
organizations, next.
Special reporting date–clearing organizations. A
corporation must file Form 1099-CAP and furnish a copy to each
of its shareholders who receives any stock or other
consideration in the transaction and who is not an exempt
recipient. A clearing organization, such as the DTC, is not an
exempt recipient. The corporation is therefore required to file
and furnish a copy of Form 1099-CAP to a clearing organization
with respect to shares held by the clearing organization unless it
makes a consent election, as discussed below. Furnish Form
1099-CAP to the clearing organization by January 5, 2017. If you
are furnishing the DTC with Forms 1099-CAP, see Notice
2004-9, 2004-04 I.R.B. 334, available at www.irs.gov/irb/
2004-04_IRB/ar12.html.

Enter the trade date of the sale or exchange, actually or
constructively received.

Box 2. Aggregate Amount Received

Enter the aggregate amount of cash and the fair market value of
any stock and other property received in exchange for the
number of shares exchanged in the reporting corporation.

Box 3. No. of Shares Exchanged

Enter the number of shares the shareholder exchanged in the
reporting corporation for cash or other property received.

Box 4. Classes of Stock Exchanged

Enter the class or classes of stock (for example, preferred,
common, etc.) exchanged in the reporting corporation for cash
or other property received. Abbreviate the class to fit the entry.
For example, you may enter “C” for common stock, “P” for
preferred, or “O” for other. Also, abbreviate any subclasses.

Penalties for Failure To File

The penalties under section 6652(l) for failure to file information
returns under section 6043(c) apply. For purposes of the section

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Instructions for Form 1099-CAP (2016)