If your company has bought out a shareholder as part of an acquisition or merger, the IRS says you have to file a 1099-CAP, for Changes in Corporate Control and Capital Structure. Your company sends in one 1099-CAP form to the IRS and another to the stockholder. The stockholder doesn't have to send the IRS her copy. Instead she submits the information on IRS Form 8949.
Filling It Out
When you write up the 1099-CAP, you include your company's name, address, telephone number and taxpayer identification number. Box 1 on the form gives the date the stock was sold. Box 2 gives the total cash involved and the fair market value of any shares exchanged for the stockholder's shares. Box 3 gives the total number of shares the stockholder gave up. The fourth box shows the class of shares, such as preferred or common stock.
Exceptions
If you fall into one of the IRS's exceptions, you can skip filing a 1099-CAP. For example, if the total value of the stock involved in the buyout is less than $100 million, none of the investors needs 1099-CAPs. Also, you don't send out a CAP for any shareholder who receives under $1,000, or who gets only stock -- no cash -- in the buyout. These are some of the exceptions, but not all of them.
The Shareholder
If the shareholder made a gain on the buyout, she reports the gain on Form 8949, which deals with the sale of capital assets. She also reports the gain on Schedule D. If the buyout resulted in a loss, the IRS says, the taxpayer doesn't use either form. A taxpayer can't write off a 1099-CAP loss the way she can other types of capital losses.
