Instructions For Form 1099-Cap - 2006 (Page 4 of 25) in pdf

Corporations are not relieved of their withholding

transferor fails to file Form 1099-CAP, then the transferee

obligations on nonresident aliens under

must meet the filing requirements. If the filing

section 1441.

requirements are not met by either the transferor or

CAUTION

transferee, then both are jointly and severally liable for

the applicable penalties.

Acquisition of Control

An acquisition of control of a corporation (first

Failure to file Forms 1099-CAP also includes the

corporation) occurs if, in a transaction or series of related

requirement to file on magnetic media or electronically.

transactions, before an acquisition of stock of the first

For more information on penalties for failure to file

corporation (directly or indirectly) by a second

electronically/magnetically, see part F in the 2006

corporation, the second corporation does not have

General Instructions for Forms 1099, 1098, 5498, and

control of the first corporation; after the acquisition, the

W-2G.

second corporation has control of the first corporation;

the FMV of the stock acquired in the transaction and in

Statement to Shareholder

any related transactions as of the date or dates on which

the stock was acquired is $100 million or more; the

If required to file Form 1099-CAP, you must provide a

shareholders of the first corporation receive stock or

statement to the shareholder. For more information about

other property pursuant to the acquisition; and, the first

the requirement to furnish a statement to the

corporation or any of its shareholders is required to

shareholder, see part M in the 2006 General Instructions

recognize gain under section 367(a) as a result of the

for Forms 1099, 1098, 5498, and W-2G.

transaction.

Account Number

For these purposes, control is defined as the

The account number is required if you have multiple

ownership of stock possessing at least 50 percent of the

accounts for a recipient for whom you are filing more than

total combined voting power of all classes of stock

one Form 1099-CAP. Additionally, the IRS encourages

entitled to vote, or at least 50 percent of the total value of

you to designate an account number for all Forms

shares of all classes of stock.

1099-CAP that you file. See part L in the 2006 General

Instructions for Forms 1099, 1098, 5498, and W-2G.

See Form 8806 and Regulations section 1.6043-4 for

details and special rules with respect to constructive

ownership of stock.

Name, Address, Telephone Number, and TIN

Generally, this will be the reporting corporation’s

Section 338 election. An acquisition of stock of a

information and employer identification number (EIN).

corporation under which a section 338 election is made is

treated as an acquisition of stock and not as an

Box 1. Date of Sale or Exchange

acquisition of the assets of the corporation.

Enter the trade date of the sale or exchange, actually or

constructively received.

Substantial Change in Capital Structure

A change in capital structure occurs if:

Box 2. Aggregate Amount Received

•

The amount of cash or other property provided to its

Enter the aggregate amount of cash and the fair market

shareholders is $100 million or more and the corporation

value of any stock and other property received in

in a transaction or series of transactions merges,

exchange for the number of shares exchanged in the

consolidates, or otherwise combines with another

reporting corporation.

corporation or transfers all or substantially all of its assets

to one or more corporations;

Box 3. No. of Shares Exchanged

•

Transfers all or part of its assets to another corporation

Enter the number of shares the shareholder exchanged

under bankruptcy proceedings including distributing its

in the reporting corporation for cash or other property

stock or securities;

received.

•

Changes its identity, form, or place of organization;

and

Box 4. Classes of Stock Exchanged

•

The corporation or any of its shareholders is required

Enter the class or classes of stock (for example,

to recognize gain under section 367(a) as a result of the

preferred, common, etc.) exchanged in the reporting

transaction.

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”

Penalties for Failure To File

for other. Also, abbreviate any subclasses.

The penalties under section 6652(l) for failure to file

information returns under section 6043(c) apply. For

Box 6. Check the Box if This Shareholder

purposes of the 6652(l) penalty, Form 8806 and all

Forms 1099-CAP required to be filed are treated as one

Cannot Claim a Loss Based on the Amount

return. Thus, the penalty will not exceed $500 for each

in Box 2

day the failure continues, up to a maximum of $100,000,

This box must be checked if the reporting corporation

for any acquisition of control or any substantial change in

reasonably determines that the exchange is part of a

capital structure. If a corporation (transferor) transfers all

transaction described in section 367(a) for which

or substantially all of its assets to another entity

shareholders are required to recognize gain (if any) but

(transferee) and is required to file Form 1099-CAP, the

are not allowed to claim a loss.

transferor must satisfy the reporting requirements. If the

CAP-2

Instructions For Form 1099-Cap - 2006 Page 4

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