Instructions for Form 1099-CAP |
2003 Tax Year |
Instructions for Form 1099-CAP - Main Contents
This is archived information that pertains only to the 2003 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Specific Instructions for Form 1099-CAP
File New 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. New Temporary Regulations section 1.6043-4T(b)
requires you to
report this information to the IRS and to shareholders on Form 1099-CAP. 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.
File Form 1099-CAP with the IRS by March 1, 2004 (March 31, 2004, if filed electronically); file the statement to shareholders
by February 2, 2004
(March 1, 2004, if filed by a broker).
A domestic corporation that undergoes a transaction covered by the temporary regulations is required to report to shareholders
the fair market
value (FMV) of any stock and other consideration received by the shareholders in the transaction. Transactions involving the
acquisition of control
within an affiliated group or involving stock valued at less than $100 million are not required to be reported. The corporation
is also required to
file Form 8806, Statement of Acquisition of Control or Change in Capital Structure, with its income tax return describing these
transactions. See Temporary Regulations section 1.6043-4T(a) for more information. Corporations undergoing transactions covered
under Temporary
Regulations section 1.6043-4T that have properly reported the transactions in accordance with sections 351, 355, 368, or 6043(a)
are not required to
file Form 8806. However, corporations are still subject to the Form 1099-CAP filing requirements. Corporations that must report
such transactions
under section 6043(a) are not required to file Form 8806 or Forms 1099-CAP, provided the corporation properly reports the
transaction under section
6043(a). Corporations do not need to file Form 1099-CAP, if information returns are required to report these amounts under
sections 6042 (Form
1099-DIV) or 6045 (Form 1099-B), unless the corporation knows that such returns were not filed.
Brokers.
Under Regulations section 1.6045-3T, brokers, who as the record holder of the stock receive Form 1099-CAP from a corporation,
must furnish Form
1099-CAP to the actual shareholder.
Combined reporting.
If you are required to file Form 1099-B to report cash proceeds and Form 1099-CAP to report noncash (stock or property)
proceeds for a shareholder
from an acquisition of control or substantial change in capital structure that are from the same transaction, then it is not
necessary to file both
Forms 1099-B and 1099-CAP. You will meet your Form 1099-B filing requirement for the shareholder by reporting all cash and
noncash proceeds from this
transaction on Form 1099-CAP. However, if you file both Forms 1099-B and 1099-CAP, make no Form 1099-B related entries on
Form 1099-CAP.
The corporation is not required to file Form 1099-CAP for the following shareholders:
- Any shareholder who receives only stock for its stock in the corporation if the corporation reasonably determines that the
shareholder is
not required to recognize gain (if any) from the receipt of such stock for U.S. Federal tax purposes.
- Any shareholder whose amount of cash plus the FMV of any stock and other property does not exceed $1,000.
- Any one of the following:
- A tax-exempt organization;
- An individual retirement account (IRA);
- The U.S. government or state;
- A foreign government, an international organization, or a foreign central bank;
- A real estate investment trust (REIT);
- A regulated investment trust (RIC);
- A common trust fund; or
- A corporation defined in section 7701(a)(3), except for a corporation that is a broker or the record holder of stock for the
actual
owner.
- Any foreign person who 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.
Corporations are not relieved of their withholding obligations on nonresident aliens under section 1441 except for a corporation
that is a broker
or the record holder of stock for the actual owner.
An acquisition of control of a corporation (first corporation) occurs if, in a transaction or series of related transactions,
either:
- The stock representing control of the first corporation is distributed by a second corporation to shareholders of the second
corporation and
the FMV of such stock on the date of distribution is $100 million or more; or
- 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 such stock
was acquired is
$100 million or more; and
- The shareholders of the first corporation (determined without applying the constructive ownership rule of section 318(a))
receive cash,
stock, or other property pursuant to the acquisition.
For these purposes, control is defined as the ownership of stock possessing at least 50 percent of the total combined voting
power of all classes
of stock entitled to vote, or a least 50 percent of the total value of shares of all classes of stock.
See Temporary Regulations section 1.6043-4T(c) 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.
Substantial Change in Capital Structure
A change in capital structure occurs if a corporation takes part in one or more of the following transactions:
- Recapitalizes its stock;
- Redeems its stock (including deemed redemptions);
- 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.
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
6652(l) penalty, Form
8806 and 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.
Failure to file Forms 1099-CAP also includes the requirement to file on magnetic media or electronically. For more information
on penalties under
section 6011 and its regulations, see the 2003 General Instructions for Forms 1099, 1098, 5498, and W-2G.
Brokers.
Brokers who fail to meet the reporting requirements are subject to penalties under sections 6721 and 6722. See the
General Instructions for Forms
1099, 1098, 5498, and W-2G for more information.
If required to file Form 1099-CAP, you must provide a statement to the shareholder. For more information about the requirement
to furnish a
statement to the shareholder, see part H in the General Instructions for Forms 1099, 1098, 5498, and W-2G.
Name, Address, Telephone Number, and TIN
Generally, this will be the reporting corporation's information and employer identification number (EIN). However, brokers
who are furnishing the
actual owner with the required statement must enter their own name and TIN, not that of the corporation. Brokers must enter
the reporting
corporation's information in Box 10.
You will not be subject to penalties under section 6652(l) if you are a broker and check the box (see Who Must File on CAP-1).
If you are a broker, you may enter an “X” in this box if you were notified by the IRS twice within 3 calendar years that the payee provided an
incorrect taxpayer identification number (TIN). If you check this box, the IRS will not send you any further notices about
this account.
Check if Shareholder Cannot Take a Loss on Their Tax Return
This box must be checked if the reporting corporation reasonably determines that the exchange is part of a transaction described
in section 367(a)
for which shareholders are required to recognize gain (if any) but are not allowed to claim a loss.
Box 1. Date of Sale or Exchange
Enter the trade date of the sale or exchange, actually or constructively received.
If you are a broker, enter the CUSIP (Committee on Uniform Security Identification Procedures) number of the obligation.
Enter the amount of cash received in exchange for the number of shares exchanged in the reporting corporation. To determine
the cash received
amount, you may take into account commissions and option premiums if this treatment is consistent with your books. You may
not take into account state
and local transfer taxes. Check the applicable box to indicate which amount has been reported to the IRS.
Box 4. Federal Income Tax Withheld
If you are a broker, enter backup withholding. For example, persons who have not furnished their TIN to you in the manner
required are subject to
withholding at a 30% rate on certain amounts required to be reported on this form. See Form W-9, Request for Taxpayer Identification Number
and Certification, for information on backup withholding.
Box 5. No. of Shares Exchanged
Enter the number of shares the shareholder exchanged in the reporting corporation for cash or other property received.
Box 7. Class of Stock Exchanged
Enter the class of stock (e.g., 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.
Box 8. FMV of Stock Received
Enter the FMV of any stock provided to the shareholder in exchange for the reporting corporation's stock if the reporting
corporation reasonably
determines that the shareholder would be required to recognize gain (if any) on the receipt of the stock.
Box 9. FMV of Other Property Received
Enter the FMV of any property (other than stock) provided to the shareholder in exchange for the reporting corporation's stock.
If you are a broker, enter the name and EIN of the reporting corporation. If necessary, abbreviate the name so that it fits
within Box 10.
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