[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 231-236]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Procedure and Administration--Table of Contents
 
Sec.  1.6043-4T  Information returns relating to certain acquisitions 
of control and changes in capital structure (temporary).

    (a) Information returns for an acquisition of control or a 
substantial change in capital structure--(1) General rule. If there is 
an acquisition of control (as defined in paragraph (c) of this section) 
or a substantial change in the capital structure (as defined in 
paragraph (d) of this section) of a domestic corporation (reporting 
corporation), the reporting corporation must file a completed Form 8806, 
``Information Return for Acquisition of Control or Substantial Change in 
Capital Structure'', in accordance with the instructions to that form. 
Form 8806 will request the information required in paragraphs (a)(1)(i) 
through (vi) of this section and any other information specified in the 
instructions.
    (i) Reporting corporation. Provide the name, address, and taxpayer 
identification number (TIN) of the reporting corporation.
    (ii) Common parent, if any, of the reporting corporation. If the 
reporting corporation was a subsidiary member of an affiliated group 
filing a consolidated return immediately prior to the acquisition of 
control or the substantial change in capital structure, provide the 
name, address, and TIN of the common parent of that affiliated group.
    (iii) Acquiring corporation. Provide the name, address and TIN of 
any corporation that acquired control of the reporting corporation 
within the meaning of paragraph (c) of this section or combined with or 
received assets from the reporting corporation pursuant to a substantial 
change in capital structure within the meaning of paragraph (d) of this 
section (acquiring corporation). State whether the acquiring corporation 
is foreign (as defined in section 7701(a)(5)) or is a dual resident 
corporation (as defined in Sec.  1.1503-2(c)(2)). In either case, state 
whether the acquiring corporation was newly formed prior to its 
involvement in the transaction.
    (iv) Common parent, if any, of acquiring corporation. If the 
acquiring corporation named in paragraph (a)(1)(iii) of this section was 
a subsidiary member of an affiliated group filing a consolidated return 
immediately prior to the acquisition of control or the substantial 
change in capital structure, provide the name, address, and TIN of the 
common parent of that affiliated group.
    (v) Information about acquisition of control or substantial change 
in capital structure. Provide--
    (A) A description of the transaction or transactions that gave rise 
to the acquisition of control or the substantial change in capital 
structure of the corporation;
    (B) The date or dates of the transaction or transactions that gave 
rise to the acquisition of control or the substantial change in capital 
structure;
    (C) A description of and a statement of the fair market value of any 
stock provided to the reporting corporation's shareholders in exchange 
for their stock if the reporting corporation reasonably determines that 
the shareholders are not required to recognize gain (if any) from the 
receipt of such stock for U.S. federal income tax purposes; and
    (D) A statement of the amount of cash plus the fair market value of 
any property (including stock if the reporting corporation reasonably 
determines that its shareholders would be required to recognize gain (if 
any) on the receipt of such stock, but excluding stock described in 
paragraph (a)(1)(v)(C) of this section) provided to the reporting 
corporation's shareholders in exchange for each share of their stock.
    (2) Consent election. Form 8806 will provide the reporting 
corporation with the ability to elect to permit the IRS to publish 
information that will inform brokers of the transaction and enable 
brokers to satisfy their reporting obligations under Sec.  1.6045-3T. 
The information to be published, on the IRS website and/or in an IRS 
publication, would be limited to the name and address of the 
corporation, the date of

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the transaction, a description of the shares affected by the 
transaction, and the amount of cash and the fair market value of any 
property (excluding stock described in paragraph (a)(1)(v)(C) of this 
section) provided to each class of shareholders in exchange for a share.
    (3) Time for making return--(i) In general. Form 8806 must be filed 
on or before the 45th day following the acquisition of control or 
substantial change in capital structure of the corporation, or, if 
earlier, on or before January 5th of the year following the calendar 
year in which the acquisition of control or substantial change in 
capital structure occurs.
    (ii) Transition rule. If an acquisition of control or a substantial 
change in capital structure of a corporation occurs after December 31, 
2002, and before December 29, 2003, Form 8806 must be filed on or before 
January 5, 2004.
    (4) Exception where transaction is reported under section 6043(a). 
No reporting is required under paragraph (a) of this section with 
respect to a transaction for which information is required to be 
reported pursuant to section 6043(a), provided the transaction is 
properly reported in accordance with that section.
    (5) Exception where shareholders are exempt recipients. No reporting 
is required under paragraph (a) of this section if the reporting 
corporation reasonably determines that all of its shareholders who 
receive cash, stock or other property pursuant to the acquisition of 
control or substantial change in capital structure are exempt recipients 
under paragraph (b)(5) of this section.
    (b) Information returns regarding shareholders--(1) General rule. A 
corporation that is required to file Form 8806 pursuant to paragraph 
(a)(1) of this section shall file a return of information on Forms 1096, 
``Annual Summary and Transmittal of U.S. Information Returns'', and 
1099-CAP, ``Changes in Corporate Control and Capital Structure'', with 
respect to each shareholder of record in the corporation (before or 
after the acquisition of control or the substantial change in capital 
structure) who receives cash, stock, or other property pursuant to the 
acquisition of control or the substantial change in capital structure 
and who is not an exempt recipient as defined in paragraph (b)(5) of 
this section. A corporation is not required to file a Form 1096 or 1099-
CAP with respect to a clearing organization if the corporation makes the 
election described in paragraph (a)(2) of this section.
    (2) Time for making information returns. Forms 1096 and 1099-CAP 
must be filed on or before February 28 (March 31 if filed 
electronically) of the year following the calendar year in which the 
acquisition of control or the substantial change in capital structure 
occurs.
    (3) Contents of return. A separate Form 1099-CAP must be filed with 
respect to amounts received by each shareholder (who is not an exempt 
recipient as defined in paragraph (b)(5) of this section) showing--
    (i) The name, address, telephone number and TIN of the reporting 
corporation;
    (ii) The name, address and TIN of the shareholder;
    (iii) The number and class of shares in the reporting corporation 
exchanged by the shareholder;
    (iv) The aggregate amount of cash and the fair market value of any 
stock (other than stock described in paragraph (a)(1)(v)(C) of this 
section) or other property provided to the shareholder in exchange for 
its stock; and
    (v) Such other information as may be required by the instructions to 
Form 1099-CAP.
    (4) Furnishing of forms to shareholders. The Form 1099-CAP filed 
with respect to each shareholder must be furnished to such shareholder 
on or before January 31 of the year following the calendar year in which 
the shareholder receives cash, stock, or other property as part of the 
acquisition of control or the substantial change in capital structure. 
The Form 1099-CAP filed with respect to a clearing organization must be 
furnished to the clearing organization on or before January 5th of the 
year following the calendar year in which the acquisition of control or 
substantial change in capital structure occurred. A Form 1099-CAP is not 
required to be furnished to a clearing organization if the reporting 
corporation makes the election described in paragraph (a)(2) of this 
section.

[[Page 233]]

    (5) Exempt recipients. A corporation is not required to file a Form 
1099-CAP pursuant to this paragraph (b) of this section with respect to 
any of the following shareholders that is not a clearing organization:
    (i) Any shareholder who receives solely stock described in paragraph 
(a)(1)(v)(C) of this section in exchange for its stock in the 
corporation.
    (ii) Any shareholder who is required to recognize gain (if any) as a 
result of the receipt of cash, stock, or other property if the 
corporation reasonably determines that the amount of such cash plus the 
fair market value of such stock and other property does not exceed 
$1,000. Stock described in paragraph (a)(1)(v)(C) of this section is not 
taken into account for purposes of this paragraph (b)(5)(ii).
    (iii) Any shareholder described in paragraphs (b)(5)(iii)(A) through 
(M) of this section if the corporation has actual knowledge that the 
shareholder is described in one of paragraphs (b)(5)(iii)(A) through (M) 
of this section or if the corporation has a properly completed exemption 
certificate from the shareholder (as provided in Sec.  31.3406(h)-3 of 
this chapter). The corporation also may treat a shareholder as described 
in paragraphs (b)(5)(iii)(A) through (M) of this section based on the 
applicable indicators described in Sec.  1.6049-4(c)(1)(ii).
    (A) A corporation, as described in Sec.  1.6049-4(c)(1)(ii)(A) 
(except for corporations for which an election under section 1362(a) is 
in effect).
    (B) A tax-exempt organization, as described in Sec.  1.6049-
4(c)(1)(ii)(B)(1).
    (C) An individual retirement plan, as described in Sec.  1.6049-
4(c)(1)(ii)(C).
    (D) The United States, as described in Sec.  1.6049-4(c)(1)(ii)(D).
    (E) A state, as described in Sec.  1.6049-4(c)(1)(ii)(E).
    (F) A foreign government, as described in Sec.  1.6049-
4(c)(1)(ii)(F).
    (G) An international organization, as described in Sec.  1.6049-
4(c)(1)(ii)(G).
    (H) A foreign central bank of issue, as described in Sec.  1.6049-
4(c)(1)(ii)(H).
    (I) A securities or commodities dealer, as described in Sec.  
1.6049-4(c)(1)(ii)(I).
    (J) A real estate investment trust, as described in Sec.  1.6049-
4(c)(1)(ii)(J).
    (K) An entity registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1), as described in Sec.  1.6049-4(c)(1)(ii)(K).
    (L) A common trust fund, as described in Sec.  1.6049-
4(c)(1)(ii)(L).
    (M) A financial institution such as a bank, mutual savings bank, 
savings and loan association, building and loan association, cooperative 
bank, homestead association, credit union, industrial loan association 
or bank, or other similar organization.
    (iv) Any shareholder that the corporation, prior to the transaction, 
associates with documentation upon which the corporation may rely in 
order to treat payments to the shareholder as made to a foreign 
beneficial owner in accordance with Sec.  1.1441-1(e)(1)(ii) or as made 
to a foreign payee in accordance with Sec.  1.6049-5(d)(1) or presumed 
to be made to a foreign payee under Sec.  1.6049-5(d)(2) or (3). For 
purposes of this paragraph (b)(5)(iv), the provisions in Sec.  1.6049-
5(c) (regarding rules applicable to documentation of foreign status and 
definition of U.S. payor and non-U.S. payor) shall apply. The provisions 
of Sec.  1.1441-1 shall apply by using the terms corporation and 
shareholder in place of the terms withholding agent and payee and 
without regard to the fact that the provisions apply only to amounts 
subject to withholding under chapter 3 of the Internal Revenue Code. The 
provisions of Sec.  1.6049-5(d) shall apply by using the terms 
corporation and shareholder in place of the terms payor and payee. 
Nothing in this paragraph (b)(5)(iv) shall be construed to relieve a 
corporation of its withholding obligations under section 1441.
    (v) Any shareholder if, on January 31 of the year following the 
calendar year in which the shareholder receives cash, stock, or other 
property, the corporation did not know and did not have reason to know 
that the shareholder received such cash, stock, or other property in a 
transaction or series of related transactions that would result in an 
acquisition of control or a substantial change in capital structure.
    (6) Coordination with other sections. In general, no reporting is 
required under paragraph (b) of this section with respect to amounts 
that are required to

[[Page 234]]

be reported under section 6042 or section 6045, unless the corporation 
knows or has reason to know that such amounts are not properly reported 
in accordance with those sections. A corporation must satisfy the 
requirements under paragraph (b) of this section with respect to any 
shareholder of record that is a clearing organization.
    (c) Acquisition of control of a corporation--(1) In general. For 
purposes of this section, an acquisition of control of a corporation 
(first corporation) occurs if, in a transaction or series of related 
transactions, either--
    (i) Stock representing control of the first corporation is 
distributed by a second corporation to shareholders of the second 
corporation and the fair market value of such stock on the date of 
distribution is $100,000,000 or more; or
    (ii) (A) 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;
    (B) After the acquisition, the second corporation has control of the 
first corporation;
    (C) The fair market value 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 $100,000,000 or more; and
    (D) 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.
    (2) Control. For purposes of this section, control is determined in 
accordance with the first sentence of section 304(c)(1).
    (3) Constructive ownership. (i) Except as otherwise provided in this 
section, the constructive ownership rules of section 318(a) (except for 
section 318(a)(4), providing for constructive ownership through an 
option to acquire stock), modified as provided in section 304(c)(3)(B), 
shall apply for determining whether there has been an acquisition of 
control.
    (ii) The determination of whether there has been an acquisition of 
control shall be made without regard to whether the person or persons 
from whom control was acquired retain indirect control of the first 
corporation under section 318(a).
    (iii) For purposes of paragraph (c)(1)(ii) of this section, section 
318(a) shall not apply to cause a second corporation to be treated as 
owning, before an acquisition of stock in a first corporation (directly 
or indirectly) by the second corporation, any stock that is acquired in 
the first corporation. For example, if the shareholders of a domestic 
corporation form a new holding company and then transfer their shares in 
the domestic corporation to the new holding company, the new holding 
company shall not be treated as having control of the domestic 
corporation before the acquisition. The new holding company acquires 
control of the domestic corporation as a result of the transfer. 
Similarly, if the shareholders of a domestic parent corporation transfer 
their shares in the parent corporation to a subsidiary of the parent in 
exchange for shares in the subsidiary, the subsidiary shall not be 
treated as having control of the parent before the transaction. The 
subsidiary acquires control of the parent as a result of the transfer.
    (4) Corporation includes group. For purposes of this paragraph (c), 
if two or more corporations act pursuant to a plan or arrangement with 
respect to acquisitions of stock, such corporations will be treated as 
one corporation for purposes of this section. Whether two or more 
corporations act pursuant to a plan or arrangement depends on the facts 
and circumstances.
    (5) Section 338 election. For purposes of this paragraph (c), an 
acquisition of stock of a corporation with respect to which an election 
under section 338 is made is treated as an acquisition of stock (and not 
as an acquisition of the assets of such corporation).
    (d) Substantial change in capital structure of a corporation--(1) In 
general. A corporation has a substantial change in capital structure if 
it has a change in capital structure (as defined in paragraph (d)(2) of 
this section) and the amount of any cash and the fair market value of 
any property (including stock) provided to the shareholders of such 
corporation pursuant to the change in capital structure, as of the

[[Page 235]]

date or dates on which the cash or other property is provided, is 
$100,000,000 or more.
    (2) Change in capital structure. For purposes of this section, a 
corporation has a change in capital structure if the corporation in a 
transaction or series of transactions--
    (i) Undergoes a recapitalization with respect to its stock;
    (ii) Redeems its stock (including deemed redemptions);
    (iii) Merges, consolidates or otherwise combines with another 
corporation or transfers all or substantially all of its assets to one 
or more corporations;
    (iv) Transfers all or part of its assets to another corporation in a 
title 11 or similar case and, in pursuance of the plan, distributes 
stock or securities of that corporation; or
    (v) Changes its identity, form or place of organization.
    (e) Reporting by successor entity. If a corporation (transferor) 
transfers all or substantially all of its assets to another entity 
(transferee) in a transaction that constitutes a substantial change in 
the capital structure of transferor, transferor must satisfy the 
reporting obligations in paragraph (a) or (b) of this section. If 
transferor does not satisfy the reporting obligations in paragraph (a) 
or (b) of this section, then transferee must satisfy those reporting 
obligations. If neither transferor nor transferee satisfies the 
reporting obligations in paragraphs (a) and (b) of this section, then 
transferor and transferee shall be jointly and severally liable for any 
applicable penalties (see paragraph (g) of this section).
    (f) Receipt of property. For purposes of this section, a shareholder 
is treated as receiving property (or as having property provided to it) 
pursuant to an acquisition of control or a substantial change in capital 
structure if a liability of the shareholder is assumed in the 
transaction and, as a result of the transaction, an amount is realized 
by the shareholder from the sale or exchange of stock.
    (g) Penalties for failure to file. For penalties for failure to file 
as required under this section, see section 6652(l). The information 
returns required to be filed under paragraphs (a) and (b) of this 
section shall be treated as one return for purposes of section 6652(l) 
and, accordingly, the penalty shall not exceed $500 for each day the 
failure continues (up to a maximum of $100,000) with respect to any 
acquisition of control or any substantial change in capital structure. 
Failure to file as required under this section also includes the 
requirement to file on magnetic media as required by section 6011(e) and 
Sec.  1.6011-2. In addition, criminal penalties under sections 7203, 
7206 and 7207 may apply in appropriate cases.
    (h) Examples. The following examples illustrate the application of 
the rules of this section. For purposes of these examples, assume the 
transaction is not reported under sections 6042, 6043(a) or 6045, unless 
otherwise specified, and assume that the fair market value of the 
consideration provided to the shareholders exceeds $100,000,000. The 
examples are as follows:

    Example 1. The shareholders of X, a domestic corporation and parent 
of an affiliated group, exchange their X stock for stock in Y, a newly 
formed foreign holding corporation. After the transaction, Y owns all 
the outstanding X stock. The X shareholders must recognize gain (if any) 
on the exchange of their stock as a result of the application of section 
367(a). Because the transaction results in an acquisition of control of 
X, X must comply with the rules in paragraphs (a) and (b) of this 
section. X must file Form 8806 reporting the transaction. X must also 
file a Form 1099-CAP with respect to each shareholder who is not an 
exempt recipient showing the fair market value of the Y stock received 
by that shareholder, and X must furnish a copy of the Form 1099-CAP to 
that shareholder. If X elects on the Form 8806 to permit the IRS to 
publish information regarding the transaction, X is not required to file 
or furnish Forms 1099-CAP with respect to shareholders that are clearing 
organizations.
    Example 2.  C, a domestic corporation, and parent of an affiliated 
group merges into D, an unrelated domestic corporation. Pursuant to the 
transaction, the C shareholders exchange their C stock for D stock or 
for a combination of short term notes and D stock. The transaction does 
not satisfy the requirements of section 368, and the C shareholders must 
recognize gain (if any) on the exchange. Because the transaction results 
in a substantial change in the capital structure of C, C (or D as the 
successor to C) must comply with the rules in paragraphs (a) and (b) of 
this section. C must file Form 8806. C

[[Page 236]]

(or D as the successor to C) also must file a Form 1099-CAP with respect 
to each shareholder who is not an exempt recipient showing the fair 
market value of the short term notes and the fair market value of the D 
stock provided to that shareholder. In addition, C (or D) must furnish a 
copy of the Form 1099-CAP to that shareholder.
    Example 3. (i) The facts are the same as in Example 2, except that C 
reasonably determines that--
    (A) The transaction satisfies the requirements of section 368;
    (B) The C shareholders who exchange their C stock solely for D stock 
will not be required to recognize gain (if any) on the exchange; and
    (C) The C shareholders who exchange their C stock for a combination 
of short term notes and D stock will be required to recognize gain (if 
any) on the exchange solely with respect to the receipt of the short 
term notes.
    (ii) C is required to file Form 8806 under paragraph (a) of this 
section. C (or D as the successor to C) must also comply with the rules 
in paragraph (b) of this section. With respect to each shareholder who 
receives a combination of short term notes and D stock, and who is not 
an exempt recipient, C (or D) must file a Form 1099-CAP showing the fair 
market value of the short term notes provided to the shareholder, and C 
(or D) must furnish a copy of the Form 1099-CAP to that shareholder. The 
Form 1099-CAP should not show the fair market value of the D stock 
provided to the shareholder. C and D are not required to file and 
furnish Forms 1099-CAP with respect to shareholders who receive only D 
stock in exchange for their C stock.
    Example 4. The facts are the same as in Example 3, except C hires a 
transfer agent to effectuate the exchange. The transfer agent is treated 
as a broker under section 6045 and is required to report the fair market 
value of the short term notes provided to C's shareholders under Sec.  
1.6045-3T. Under paragraph (b)(6) of this section, C and D are not 
required to file information returns under paragraph (b) of this section 
with respect to a shareholder of record, unless C or D knows or has 
reason to know that the transfer agent does not satisfy its information 
reporting obligation under Sec.  1.6045-3T with respect to that 
shareholder. Thus, if the transfer agent satisfies its information 
reporting requirements under Sec.  1.6045-3T with respect to shareholder 
I, an individual who receives both D stock and short term notes, C and D 
are not required to file a Form 1099-CAP with respect to I. Conversely, 
if the transfer agent does not have an information reporting obligation 
under Sec.  1.6045-3T with respect to one of C's shareholder's of record 
(for example, a clearing organization that is an exempt recipient under 
Sec.  1.6045-3T(b)(ii)), or if C or D knows or has reason to know that 
the transfer agent has not satisfied its information reporting 
requirement with respect to a shareholder, then C (or D) must provide a 
Form 1099-CAP to that shareholder.

    (i) Effective date. This section applies to any acquisition of 
control and any substantial change in capital structure occurring after 
December 31, 2001, if the reporting corporation or any shareholder is 
required to recognize gain (if any) as a result of the application of 
section 367(a) as a result of the transaction. However, paragraphs (a) 
through (h) of this section apply to acquisitions of control and 
substantial changes in capital structure occurring after December 31, 
2002, if the reporting corporation or any shareholder is required to 
recognize gain (if any) as a result of the application of section 367(a) 
as a result of the transaction. For transactions prior to January 1, 
2003, see Sec.  1.6043-4T as published in 26 CFR part 1 (revised as of 
April 1, 2003). This section expires on November 14, 2005.

[T.D. 9101, 68 FR 75122, Dec. 30, 2003]