Department of the Treasury 2002 Internal Revenue Service

Instructions for Form 990-C

Farmers’ Cooperative Association Income Tax Return

Section references are to the Internal Revenue Code unless otherwise noted.

Contents Page • Guidance has been issued regarding • Updates on progress.

Changes To Note ................ 1 the nonaccrual experience method of • Timeframes for action.

Photographs of Missing Children . . . . 1 accounting. See page 4. • Speedy resolution.

Unresolved Tax Issues • Additional guidance has been issued • Courteous service. ............ 1

How To Get Forms and regarding the rules for adopting, When contacting the Taxpayer

Publications changing, and retaining an accounting Advocate, the cooperative should provide .................. 1

General Instructions period. See Regulations sections 1.441 the following information: ............. 2 and 1.442. • The cooperative’s name, address, and Purpose of Form ................ 2 • New procedures for certain employer identification number (EIN). Who Must File .................. 2 cooperatives to obtain automatic approval • The name and telephone number of an When To File ................... 2 to adopt, change, or retain an accounting authorized contact person and the hours Who Must Sign ................. 2 period have been issued. See Rev. Proc. he or she can be reached. Paid Preparer Authorization ........ 2 2002-37, 2002-22 I.R.B. 1030; Rev. Proc. • The type of tax return and year(s) Where To File .................. 2 2002-38, 2002-22 I.R.B. 1037; and Rev. involved.

Other Forms, Returns, Proc. 2002-39, 2002-22 I.R.B. 1046. • A detailed description of the problem. Schedules and Statements • The cooperative must file a disclosure • Previous attempts to solve the problem

That May Be Required . . . . . . . . . 2-3 statement for each reportable tax shelter and the office that had been contacted.

Statements .................... 3 transaction in which it participated, • A description of the hardship the

Assembling the Return ............ 4 directly or indirectly, if the transaction cooperative is facing (if applicable).

Accounting Methods .............. 4 affects the cooperative’s Federal tax The cooperative may contact a

Accounting Periods liability. See Tax shelter disclosure Taxpayer Advocate by calling (toll free) .............. 5

Rounding Off to Whole Dollars . . . . . . 5 statement on page 4 for more details. 1-877-777-4778. Persons who have

Recordkeeping access to TTY/TDD equipment may call .................. 5 Photographs of Missing 1-800-829-4059 and ask for Taxpayer Depository Method of Tax Children Advocate assistance. If the cooperative Payment .................... 5 prefers, it may call, write, or fax the Estimated Tax Payments .......... 5 The Internal Revenue Service is a proud Taxpayer Advocate office in its area. See partner with the National Center for Interest and Penalties ............. 5

Missing and Exploited Children. Pub. 1546, The Taxpayer Advocate Specific Instructions ............ 6 Service of the IRS, for a list of addresses Period Covered Photographs of missing children selected ................. 6 and fax numbers. by the Center may appear in instructions Address ....................... 6 on pages that would otherwise be blank. Business Activity With the

Largest Total Receipts .......... 6 You can help bring these children home How To Get Forms and

by looking at the photographs and calling Employer Identification Number 1-800-THE-LOST (1-800-843-5678) if you Publications

(EIN) ....................... 6 recognize a child. Personal computer. You can access the Consolidated Return .............. 6 IRS web site 24 hours a day, 7 days a Type of Cooperative .............. 6 Unresolved Tax Issues week, at www.irs.gov to: Initial Return, Final Return, If the cooperative has attempted to deal • Download forms, instructions, and Name Change, Address with an IRS problem unsuccessfully, it publications. Change, or Amended Return . . . . . . 6 should contact the Taxpayer Advocate. • Order IRS products on-line. Income . . . . . . . . . . . . . . . . . . . . . . 6-7 The Taxpayer Advocate independently • See answers to frequently asked tax Deductions .................. 7-12 represents the cooperative’s interests and questions.

Schedule A . . . . . . . . . . . . . . . . . . . 12 concerns within the IRS by protecting its • Search publications on-line by topic or

Schedule C and Worksheet for rights and resolving problems that have keyword.

Schedule C ............... 13-14 not been fixed through normal channels. • Send us comments or request help by

Schedule H ................. 14-15 While Taxpayer Advocates cannot e-mail.

Schedule J and Worksheet for • Sign up to receive local and national change the tax law or make a technical Members of a Controlled tax news by e-mail. tax decision, they can clear up problems Group ................... 15-17 You can also reach us using file that resulted from previous contacts and

Schedule L transfer protocol at ftp.irs.gov. . . . . . . . . . . . . . . . . . . . 17 ensure that the cooperative’s case is

Schedule M-1 . . . . . . . . . . . . . . . . . 17 given a complete and impartial review. CD-ROM. Order Pub. 1796, Federal Tax

Schedule N ................. 17-18 The cooperative’s assigned personal Products on CD-ROM, and get: Index . . . . . . . . . . . . . . . . . . . . . . . . 19 advocate will listen to its point of view and • Current year forms, instructions, and

will work with the cooperative to address publications.

Changes To Note its concerns. The cooperative can expect • Prior year forms, instructions, and

the advocate to provide: publications.

• Additional guidance has been issued • A “fresh look” at a new or on-going • Frequently requested tax forms that

allowing qualifying small businesses to problem. may be filled in electronically, printed out

adopt or change to the cash method of • Timely acknowledgement. for submission, and saved for

accounting. For details, see Cost of • The name and phone number of the recordkeeping.

Goods Sold on page 12. individual assigned to its case. • The Internal Revenue Bulletin.

Cat. No. 11288M
Buy the CD-ROM on the Internet at was published by the IRS in September • Call the IRS for information about the

www.irs.gov/cdorders from the National 2002. The list includes only the following: processing of the return or the status of

Technical Information Service (NTIS) for • Airborne Express (Airborne): Overnight any related refund or payment(s), and

$22 (no handling fee), or call Air Express Service, Next Afternoon • Respond to certain IRS notices that the

1-877-CDFORMS (1-877-233-6767) toll Service, Second Day Service. cooperative has shared with the preparer

free to buy the CD-ROM for $22 (plus a • DHL Worldwide Express (DHL): DHL about math errors, offsets, and return

$5 handling fee). “Same Day” Service, DHL USA preparation. The notices will not be sent

By phone and in person. You can order Overnight. to the preparer.

• Federal Express (FedEx): FedEx The cooperative is not authorizing the forms and publications 24 hours a day, 7 Priority Overnight, FedEx Standard paid preparer to receive any refund days a week, by calling Overnight, FedEx 2Day, FedEx check, bind the cooperative to anything 1-800-TAX-FORM (1-800-829-3676). You International Priority, and FedEx (including any additional tax liability), or can also get most forms and publications International First. otherwise represent the cooperative at your local IRS office. • United Parcel Service (UPS): UPS Next before the IRS. If the cooperative wants

Day Air, UPS Next Day Air Saver, UPS to expand the paid preparer’s General Instructions 2nd Day Air, UPS 2nd Day Air A.M., UPS authorization, see Pub. 947, Practice

Worldwide Express Plus, and UPS Before the IRS and Power of Attorney.

Purpose of Form Worldwide Express. The authorization cannot be revoked.

Use The private delivery service can tell However, the authorization will Form 990-C, Farmers’ Cooperative

Association Income Tax Return, to report you how to get written proof of the mailing automatically end no later than the due

income, gains, losses, deductions, date. date (excluding extensions) for filing the

credits, and to figure the income tax Extension. File Form 7004, Application cooperative’s 2003 tax return.

liability of the cooperative. for Automatic Extension of Time To File

Corporation Income Tax Return, to Where To File

Who Must File request a 6-month extension of time to File Form 990-C with the Internal

Every farmers’ cooperative association file. Revenue Service, Ogden, UT

must file Form 990-C whether or not the 84201-0027.

association has taxable income Who Must Sign (Regulations section 1.6012-2(f)). Other Forms, Returns, The return must be signed and dated by:

Generally, a farmers’ cooperative is • The president, vice president, Schedules and Statements

a farmers, fruit growers, or like treasurer, assistant treasurer, chief

association organized and operated on a accounting officer or That May Be Required

cooperative basis to: • Any other cooperative officer (such as Forms 1. Market the products of members or tax officer) authorized to sign.

Receivers, trustees, or assignees also The cooperative may have to file some of other producers and return to them the must sign and date any return filed on the following forms. See the form for more proceeds of sales, less necessary

marketing expenses, on the basis of behalf of a cooperative. information.

If an employee of the cooperative • Form W-2, Wage and Tax Statement, either the quantity or value of their completes Form 990-C, the paid and Form W-3, Transmittal of Wage and products; or

preparer’s space should remain blank. In Tax Statements. Use these forms to 2. Purchase supplies and equipment addition, anyone who prepares Form report wages, tips, and other for the use of members or other persons 990-C but does not charge the compensation, and withheld income, and turn over the supplies and equipment cooperative should not complete that social security, and Medicare taxes for to them at actual cost, plus necessary section. Generally, anyone who is paid to employees. expenses. prepare the return must sign it and fill in • Form 720, Quarterly Federal Excise

A member is anyone who shares in the “Paid Preparer’s Use Only” area. Tax Return. Use this form to report and the profits of a cooperative association pay luxury tax on passenger vehicles, and is entitled to participate in the The paid preparer must complete the environmental taxes, communications

management of the association. required preparer information and— and air transportation taxes, fuel taxes,

A producer • Sign the return, by hand, in the space manufacturers taxes, ship passenger is a person who, as owner provided for the preparer’s signature. or tenant, bears the risk of production and taxes, and certain other excise taxes. (Signature stamps and labels are not receives income based on farm • Form 851, Affiliations Schedule. The acceptable.) production rather than fixed parent corporation of an affiliated group of • Give a copy of the return to the compensation. For example, if a corporations must attach this form to its taxpayer. cooperative leases its land to a tenant consolidated return. If this is the first year

farmer who agrees to pay a rental fee one or more subsidiaries are being Paid Preparer Authorization based on a percentage of the farm crops included in a consolidated return, also

produced, both the landowner and the If the cooperative wants to allow the IRS see Form 1122, Authorization and

tenant farmer qualify as producers. to discuss its 2002 tax return with the paid Consent of Subsidiary Corporation To Be preparer who signed it, check the “Yes” Included in a Consolidated Income Tax

When To File box in the signature area of the return. Return, on page 3. This authorization applies only to the • Form 926, Return by a U.S. Transferor Generally, a cooperative must file its individual whose signature appears in the of Property to a Foreign Corporation. Use income tax return by the 15th day of the “Paid Preparer’s Use Only” section of the this form to report certain transfers to 9th month after the end of its tax year. cooperative’s return. It does not apply to foreign corporations under section 6038B. the firm, if any, shown in that section. If the due date falls on a Saturday, • Form 940 or Form 940-EZ, Employer’s

Sunday, or legal holiday, the cooperative Annual Federal Unemployment (FUTA) If the “Yes” box is checked, the may file on the next business day. cooperative is authorizing the IRS to call Tax Return. The cooperative may be

Private delivery services. Cooperatives the paid preparer to answer any liable for FUTA tax and may have to file

Form 940 or Form 940-EZ if it either: can use certain private delivery services questions that may arise during the

designated by the IRS to meet the “timely processing of its return. The cooperative 1. Paid wages of $1,500 or more in

mailing as timely filing/paying” rule for tax is also authorizing the paid preparer to: any calendar quarter in 2001 or 2002 or

returns and payments. The most recent • Give the IRS any information that is 2. Had one or more employees who

list of designated private delivery services missing from the return, worked for the cooperative for at least

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some part of a day in any 20 or more determinable income (see section 6041) must be filed to request a direct deposit of

different weeks in 2001 or 20 or more totaling $600 or more to any one person a tax refund of $1 million or more.

different weeks in 2002. in the course of its trade or business • Form 8594, Asset Acquisition

• Form 941, Employer’s Quarterly during the calendar year. Statement. Cooperatives file this form to

Federal Tax Return or Form 943, 6. Form 1099-OID, Original Issue report the purchase or sale of a group of

Employer’s Annual Tax Return for assets that constitute a trade or business Discount.

Agricultural Employees. Employers must if goodwill or going concern value could 7. Form 1099-PATR, Taxable

file these forms to report income tax attach to the assets. Distributions Received from

withheld, and employer and employee Cooperatives. • Form 8810, Corporate Passive Activity

social security and Medicare taxes. Also, Loss and Credit Limitations. Closely held 8. Form 1099-R, Distributions From

see Trust fund recovery penalty on cooperatives must use this form to Pensions, Annuities, Retirement or page 6. Profit-Sharing Plans, IRAs, Insurance compute the passive activity loss and

• Form 945, Annual Return of Withheld credit allowed under section 469. Contracts, etc. Federal Income Tax. File Form 945 to • Form 8842, Election To Use Different • Form 1122, Authorization and Consent report income tax withheld from Annualization Periods for Corporate

nonpayroll distributions or payments, Estimated Tax. Cooperatives use Form of Subsidiary Corporation To Be Included

in a Consolidated Income Tax Return. For including pensions, annuities, IRAs, 8842 for each year they want to elect one

gambling winnings, and backup of the annualization periods in section the first year a subsidiary corporation is

withholding. being included in a consolidated return, 6655(e)(2)(C) for figuring estimated tax

See Trust fund recovery penalty on attach the completed form to the parent’s payments under the annualized income

page 6. consolidated return. Attach a separate installment method.

• Form 966, Corporate Dissolution or Form 1122 for each subsidiary being • Form 8849, Claim for Refund of Excise

Liquidation. Use this form to report the included in the consolidated return. Taxes. Cooperatives use this form to

adoption of a resolution or plan to • Form 5452, Corporate Report of claim a refund of certain excise taxes.

dissolve the cooperative or liquidate any Nondividend Distributions. Use this form • Form 8865, Return of U.S. Persons

of its stock. to report nondividend distributions. With Respect to Certain Foreign

• Form 1042, Annual Withholding Tax • Form 5471, Information Return of U.S. Partnerships. A cooperative may have to

Return for U.S. Source Income of Foreign Persons With Respect to Certain Foreign file Form 8865 if it:

Corporations. This form is required if the Persons, and 1. Controlled a foreign partnership cooperative controls a foreign • Form 1042-S, Foreign Person’s U.S. (i.e., owned more than a 50% direct or corporation; acquires, disposes of, or Source Income Subject to Withholding. indirect interest in the partnership). owns 10% or more in value or vote of the Use these forms to report and send 2. Owned at least a 10% direct or outstanding stock of a foreign corporation; withheld tax on payments or distributions indirect interest in a foreign partnership or had control of a foreign corporation for made to nonresident alien individuals, while U.S. persons controlled that an uninterrupted period of at least 30 foreign partnerships, or foreign partnership. days during the annual accounting period corporations to the extent these payments 3. Had an acquisition, disposition, or of the foreign corporation. constitute gross income from sources change in proportional interest in a • Form 5713, International Boycott within the United States (see sections 861 foreign partnership that: Report. Cooperatives that have through 865). a. Increased its direct interest to at operations in, or related to, certain • Form 1042-T, Annual Summary and least 10% or reduced its direct interest of “boycotting” countries file Form 5713. Transmittal of Forms 1042-S. Use Form at least 10% to less than 10%. • Form 8264, Application for Registration 1042-T to transmit paper forms 1042-S to b. Changed its direct interest by at of a Tax Shelter. Tax shelter organizers the IRS. least a 10% interest. use this form to receive a tax shelter Also see Pub. 515, Withholding of Tax 4. Contributed property to a foreign registration number from the IRS. on Nonresident Aliens and Foreign partnership in exchange for a partnership • Form 8271, Investor Reporting of Tax Entities, and sections 1441 and 1442. interest if: Shelter Registration Number. • Form 1096, Annual Summary and Cooperatives which have acquired an a. Immediately after the contribution, Transmittal of U.S. Information Returns. the cooperative owned, directly or interest in a tax shelter that is required to • Form 1098, Mortgage Interest indirectly, at least a 10% interest in the be registered, use this form to report the Statement. Use this form to report the foreign partnership or tax shelter’s registration number. Attach receipt from any individual of $600 or Form 8271 to any tax return (including an b. The fair market value of the

more of mortgage interest (including property the cooperative contributed to application for tentative refund (Form points) in the course of the cooperative’s the foreign partnership, when added to 1139) and an amended return) on which a trade or business and reimbursements of other contributions of property made to deduction, credit, loss, or other tax benefit overpaid interest. the foreign partnership during the attributable to a tax shelter is taken or any • Forms 1099. Use these information preceding 12-month period, exceeds income attributable to a tax shelter is returns to report the following: $100,000. reported. 1. Form 1099-A, Acquisition or Also, the cooperative may have to file • Form 8275, Disclosure Statement, and Abandonment of Secured Property. Form 8865 to report certain dispositions Form 8275-R, Regulation Disclosure 2. Form 1099-B, Proceeds From by a foreign partnership of property it Statement. Disclose items or positions Broker and Barter Exchange previously contributed to that partnership taken on a tax return that are not Transactions. if it was a partner at the time of the otherwise adequately disclosed on a tax 3. Form 1099-DIV, Dividends and disposition. For more details, including return or that are contrary to Treasury Distributions. penalties for failing to file Form 8865, see regulations (to avoid parts of the 4. Form 1099-INT, Interest Income. Form 8865 and its separate instructions. accuracy-related penalty or certain 5. Form 1099-MISC, Miscellaneous preparer penalties). Income. See this form to report payment: Statements • Form 8300, Report of Cash Payments to certain fishing boat crew members; to Over $10,000 Received in a Trade or Consolidated return. File supporting providers of health and medical services; Business. Use this form to report the statements for each corporation included of rent or royalties; nonemployee receipt of more than $10,000 in cash or in the consolidated return. Do not use compensation, etc. foreign currency in one transaction or a Form 990-C as a supporting statement.

Note. Every cooperative must file Form series of related transactions. On the supporting statement, use

1099-MISC if it makes payments of rents, • Form 8302, Direct Deposit of Tax columns to show the following (both

commissions, or other fixed or Refund of $1 Million or More. This form before and after adjustments):

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• Items of gross income and deductions. 5. Additional schedules in alphabetical including recurring expenses. See section

• A computation of taxable income. order. 461(h) and the related regulations for the

• Balance sheets as of the beginning and 6. Additional forms in numerical order. rules for determining when economic

end of the tax year. performance takes place. Complete every applicable entry space • A reconciliation of income per books on Form 990-C. Do not write “See Nonaccrual-experience method. with income per return. Attached” instead of completing the entry Accrual-method cooperatives whose • A reconciliation of retained earnings. spaces. If more space is needed on the average annual gross receipts for the 3 Enter the totals for the consolidated prior tax years do not exceed $5 million, forms or schedules, attach separate group on Form 990-C. Attach sheets, using the same size and format are not required to accrue certain consolidated balance sheets and a as the printed forms. If there are amounts to be received from the

reconciliation of consolidated retained performance of services that, on the basis supporting statements and attachments, earnings. For more information on arrange them in the same order as the of experience, will not be collected. This consolidated returns, see the regulations provision does not apply to any amount if schedules or forms they support and under section 1502. attach them last. Show the totals on the interest is required to be paid on the

printed forms. Also, be sure to enter the amount or if there is any penalty for Tax shelter disclosure statement. For

cooperative’s name and EIN on each failure to timely pay the amount. For more each reportable transaction in which the supporting statement or attachment. information, see section 448(d)(5). See cooperative participated, directly or the instructions on page 7 for reporting indirectly, it must attach a disclosure Accounting Methods requirements. statement to its return for each tax year Percentage-of-completion method. that the Federal income tax liability of the An accounting method is a set of rules cooperative is affected by its participation Long-term contracts (except for certain used to determine when and how income real property construction contracts) must in the transaction. In addition, for the first and expenses are reported. Figure tax year a disclosure statement is generally be accounted for using the taxable income using the method of attached to its return, the cooperative percentage-of-completion method accounting regularly used in keeping the must send a copy of the statement to the described in section 460. See section 460 cooperative’s books and records. In all and the underlying regulations for general Internal Revenue Service, cases, the method used must clearly LM:PFTG:OTSA, Large & Mid-Size rules on long-term contracts. show taxable income. Permissible

Business Division, 1111 Constitution methods include: Change in accounting method. Ave., N.W., Washington, DC 20224. If a • Cash, Generally, the cooperative must get IRS

transaction becomes a reportable • Accrual, or consent to change the method of transaction after the cooperative files its • Any other method authorized by the accounting used to report taxable income

return, it must attach the statement to the Internal Revenue Code. (for income as a whole or for any material following year’s return (whether or not its Accrual method. Generally, a item). To do so, it must file Form 3115,

tax liability is affected for that year). The Application for Change in Accounting cooperative must use the accrual method cooperative is considered to have of accounting if its average annual gross Method. For more information, see Form

indirectly participated if it participated as a 3115 and Pub. 538, Accounting Periods receipts exceed $5 million. See section partner in a partnership or if it knows or and Methods. 448(c). Generally, a cooperative engaged has reason to know that the tax benefits in farming operations also must use the However, there are new procedures claimed were derived from a reportable accrual method. For exceptions, see under which a cooperative may obtain transaction. section 447. automatic consent for certain changes in

accounting methods. See Rev. Proc. Disclosure is required for a reportable If inventories are required, the accrual 2002-9, 2002-3 I.R.B. 327, as modified by transaction that is a listed transaction. A method generally must be used for sales Rev. Proc. 2002-19, 2002-13 I.R.B. 696 transaction is a listed transaction if it is and purchases of merchandise. However, and Rev. Proc. 2002-54, 2002-35 I.R.B. the same as or substantially similar to a qualifying taxpayers and eligible 432. transaction that the IRS has determined businesses of qualifying small business

to be a tax avoidance transaction and has Certain qualifying taxpayers or taxpayers are excepted from using the

identified as a listed transaction by notice, qualifying small business taxpayers accrual method and may account for

regulation, or other published guidance. (described on page 12) that want to use inventoriable items as materials and

See Notice 2001-51, 2001-34 I.R.B. 190, the cash method for an eligible trade or supplies that are not incidental. For

for transactions identified by the IRS as business may get an automatic consent details, see Cost of Goods Sold on page

listed transactions. The listed transactions to change their method of accounting. For 12.

identified in this notice will be updated in details, see Rev. Proc. 2001-10, 2001-2 Under the accrual method, an amount future published guidance. I.R.B. 272, Rev. Proc. 2002-28, 2002-18 is includible in income when: I.R.B. 815, and Form 3115. • All the events have occurred that fix the See Temporary Regulations section right to receive the income, which is the The cooperative may also have to 1.6011-4T for more details, including: earliest of the date: (a) the required make an adjustment to prevent amounts 1. Definitions of reportable performance takes place, (b) payment is of income or expense from being transaction, listed transaction, and due, or (c) payment is received and duplicated or omitted. This is called a substantially similar. • The amount can be determined with section 481(a) adjustment, which 2. Form and content of the disclosure reasonable accuracy. cooperatives generally must take into statement. See Regulations section 1.451-1(a) for account in the year of change. 3. Filing requirements for the details. Example. A cooperative changes to disclosure statement. Generally, an accrual basis taxpayer the cash method of accounting. It accrued

can deduct accrued expenses in the tax sales in 2001 for which it received Assembling the Return year when: payment in 2002. It must report those

To ensure that the cooperative’s tax • All events that determine the liability sales in both years as a result of

return is correctly processed, attach all have occurred, changing its accounting method and must

schedules and other forms after page 5, • The amount of the liability can be make a section 481(a) adjustment to

Form 990-C, in the following order. figured with reasonable accuracy, and prevent duplication of income.

1. Form 8302. • Economic performance takes place See Rev. Proc. 2002-9 to figure the

2. Form 4136. with respect to the expense. amount of this adjustment. Include any

3. Form 4626. There are exceptions to the economic net positive section 481(a) adjustment on

4. Form 851. performance rule for certain items, page 1, line 10. If the net section 481(a)

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adjustment is negative, report it on page Depository Method of Tax Form 8109 to an authorized depositary or

1, line 26. use EFTPS, if applicable. Payment Completed crop pool method of

accounting. Cooperatives may be able The cooperative must pay the tax due in Estimated Tax Payments

to use the completed crop pool method of full no later than the 15th day of the 9th Generally, the following rules apply to the accounting for crop pools opened before month after the end of the tax year. The cooperative’s payments of estimated tax. March 1, 1978. See section 1382(g) for two methods of depositing cooperative • The cooperative must make installment more information. income taxes are discussed below. payments of estimated tax if it expects its

Electronic Deposit Requirement. The total tax for the year (less applicable Accounting Periods cooperative must make electronic credits) to be $500 or more.

A cooperative must figure its taxable deposits of all depository taxes (such as • The installments are due by the 15th

income on the basis of a tax year. The tax employment tax, excise tax, and day of the 4th, 6th, 9th, and 12th months

year is the annual accounting period the corporate income tax) using the of the tax year. If any date falls on a

cooperative uses to keep its records and Electronic Federal Tax Payment System Saturday, Sunday, or legal holiday, the

report its income and expenses. (EFTPS) in 2003 if: installment is due on the next regular

Generally, cooperatives can use a • The total deposits of such taxes in business day.

calendar year or a fiscal year. 2001 were more than $200,000 or • Use Form 1120-W, Estimated Tax for

• The cooperative was required to use Corporations, as a worksheet to compute For more information about accounting EFTPS in 2002. estimated tax. periods, see Pub. 538. If the cooperative is required to use • If the cooperative does not use EFTPS, Calendar year. If the calendar year is EFTPS and fails to do so, it may be use the deposit coupons (Form 8109) to adopted as the annual accounting period, subject to a 10% penalty. If the make deposits of estimated tax. the cooperative must maintain its books cooperative is not required to use EFTPS, For more information on estimated tax and records and report its income and it may participate voluntarily. To enroll in payments, including penalties that apply if expenses for the period from January 1 or get more information about EFTPS, the cooperative fails to make required through December 31 of each year. call 1-800-555-4477 or 1-800-945-8400. payments, see the instructions for line 33 Fiscal year. A fiscal year is 12 To enroll online, visit www.eftps.gov. on page 12. consecutive months ending on the last Depositing on time. For EFTPS Overpaid estimated tax. If the day of any month except December. A deposits to be made timely, the cooperative overpaid estimated tax, it 52–53-week year is a fiscal year that cooperative must initiate the transaction may be able to get a quick refund by filing varies from 52 to 53 weeks. at least 1 business day before the date Form 4466, Corporation Application for Adoption of tax year. A cooperative the deposit is due. Quick Refund of Overpayment of adopts a tax year when it files its first Deposits with Form 8109. Estimated Tax. The overpayment must be If the income tax return. It must adopt a tax at least 10% of expected income tax cooperative does not use EFTPS, deposit year by the due date (not including cooperative income tax payments (and liability and be at least $500. File Form extensions) of its first income tax return. 4466 after the end of the cooperative’s estimated tax payments) with Form 8109, Change in tax year. Generally, a Federal Tax Deposit Coupon. If you do tax year, and no later than the 15th day of

cooperative must get the consent of the the third month after the end of the tax not have a preprinted Form 8109, use IRS before changing its tax year by filing Form 8109-B to make deposits. You can year. Form 4466 must be filed before the

Form 1128, Application To Adopt, cooperative files its tax return. get this form by calling 1-800-829-4933. Change, or Retain a Tax Year. However, Be sure to have your EIN ready when you under certain conditions, a cooperative call. Interest and Penalties

may change its tax year without getting Do not send deposits directly to an IRS Interest. Interest is charged on taxes consent. For more information on change

in tax year, see Form 1128, Regulations office; otherwise, the cooperative may paid late even if an extension of time to

section 1.442-1, Pub. 538 and Rev. have to pay a penalty. Mail or deliver the file is granted. Interest is also charged on

Procs. 2002-37 and 2002-39. completed Form 8109 with the payment penalties imposed for failure to file,

to an authorized depositary, i.e., a negligence, fraud, gross valuation

Rounding Off to Whole commercial bank or other financial overstatements, and substantial

institution authorized to accept Federal understatements of tax from the due date Dollars tax deposits. Make checks or money (including extensions) to the date of

The cooperative may show amounts on orders payable to the depositary. payment. The interest charge is figured at

a rate determined under section 6621. the return and accompanying schedules If the cooperative prefers, it may mail as whole dollars. To do so, drop any the coupon and payment to: Financial Penalty for late filing of return. A

amount less than 50 cents and increase Agent, Federal Tax Deposit Processing, cooperative that does not file its tax return any amount from 50 cents through 99 P.O. Box 970030, St. Louis, MO 63197. by the due date, including extensions, cents to the next higher dollar. Make the check or money order payable may be penalized 5% of the unpaid tax

to “Financial Agent.” for each month or part of a month the Recordkeeping return is late, up to a maximum of 25% of To help ensure proper crediting, write Keep the cooperative’s records for as the unpaid tax. The minimum penalty for the cooperative’s EIN, the tax period to long as they may be needed for the a return that is over 60 days late is the which the deposit applies, and “Form administration of any provision of the smaller of the tax due or $100. The 990-C” on the check or money order. Be Internal Revenue Code. Usually, records penalty will not be imposed if the sure to darken the “990-C” box on the

that support an item of income, deduction, cooperative can show that the failure to coupon. Records of these deposits will be or credit on the return must be kept for 3 file on time was due to reasonable cause. sent to the IRS.

years from the date the return is due or Cooperatives that file late must attach a For more information on deposits, see filed, whichever is later. Keep records that statement explaining the reasonable the instructions in the coupon booklet verify the cooperative’s basis in property cause.

(Form 8109) and Pub. 583, Starting a for as long as they are needed to figure Penalty for late payment of tax. A Business and Keeping Records. the basis of the original or replacement cooperative that does not pay the tax property. If the cooperative owes tax when it when due generally may be penalized 1

/2

The cooperative should also keep files Form 990-C, do not include of 1% of the unpaid tax for each month or

copies of all returns. They help in CAUTION the payment with the tax return. part of a month the tax is not paid, up to a

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preparing future and amended returns. Instead, mail or deliver the payment with maximum of 25% of the unpaid tax. The

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penalty will not be imposed if the wholesale purchasing of fertilizers, cattle • If the cooperative has changed its

cooperative can show that the failure to breeding, etc.). address since it last filed a return, check

pay on time was due to reasonable the box for “Address change.”

cause. Item B—Employer Note. If a change in address occurs after

Trust fund recovery penalty. This the return is filed, use Form 8822, Identification Number (EIN) penalty may apply if certain excise, Change of Address, to notify the IRS of

income, social security, and Medicare Enter the cooperative’s EIN. If the the new address.

cooperative does not have an EIN, it must taxes that must be collected or withheld

are not collected or withheld, or these apply for one on Form SS-4, Application Income

taxes are not paid to the IRS. These for Employer Identification Number. If the

cooperative has not received its EIN by Except as otherwise provided in the taxes are generally reported on Forms the time the return is due, write “Applied Internal Revenue Code, gross income 720, 941, 943, or 945 (see Other Forms, for” in the space for the EIN. See Pub. includes all income from whatever source Returns, Schedules and Statements 583 for details. derived. Gross income, however, does That May Be Required on page 2). The not include extraterritorial income that is trust fund recovery penalty may be qualifying foreign trade income. Use imposed on all persons who are Item C—Consolidated Form 8873, Extraterritorial Income determined by the IRS to have been Return Exclusion, to figure the exclusion. Include responsible for collecting, accounting for, Cooperatives filing a consolidated return the exclusion in the total for “Other and paying over these taxes, and who must attach Form 851 and other Deductions” on line 26. acted willfully in not doing so. The penalty supporting statements to the return. For Line 1. Gross receipts or sales. Enter is equal to the unpaid trust fund tax. See

the instructions for Form 720, Pub. 15 details, see “Other Forms, Returns, gross receipts or sales from all business

(Circular E), Employer’s Tax Guide, or Schedules and Statements That May Be operations except items of income

Pub. 51 (Circular A), Agricultural Required,” on page 2. Do not check this required to be reported on lines 4a

Employer’s Tax Guide, for details, box if the “Section 521” box is checked in through 10. In general, advance

Item D. payments are reported in the year of including the definition of responsible

persons. receipt. For how to report income from

Item D—Type of long-term contracts, see section 460. For Other penalties. Other penalties can be special rules for reporting certain advance imposed for negligence, substantial Cooperative payments for goods and long-term understatement of tax, and fraud. See Check the “Tax exempt” (section 521) box contracts, see Regulations section sections 6662 and 6663. if the cooperative is a tax-exempt 1.451-5. For permissible methods for

farmers’, fruit growers’, or like reporting certain advance payments for

association, organized and operated on a services by an accrual method Specific Instructions cooperative basis and is described in cooperative, see Rev. Proc. 71-21,

section 521. 1971-2 C.B. 549.

Period Covered If the cooperative has submitted Form Installment sales. Generally, the

1028, Application for Recognition of installment method cannot be used for File the 2002 return for calendar year Exemption, but has not received a dealers dispositions of property. A “dealer 2002 and fiscal years that begin in 2002 determination letter from the IRS, check disposition” is: (a) any disposition of and end in 2003. For a fiscal year return, the “Tax exempt” (section 521) box, and personal property by a person who fill in the tax year space at the top of the write “Application Pending” at the top of regularly sells or otherwise disposes of form. page 1 of Form 990-C. personal property of the same type on the Note. The 2002 Form 990-C may also be installment plan or (b) any disposition of used if: All other farmers’, etc., cooperatives real property held for sale to customers in • The cooperative has a tax year of less organized and operated as described the ordinary course of the taxpayer’s than 12 months that begins and ends in under “Who Must File” on page 2 of the trade or business. 2003 and instructions should check the

“Nonexempt” box. These restrictions on using the • The 2003 Form 990-C is not available installment method do not apply to at the time the cooperative is required to Cooperatives organized and operated dispositions of property used or produced file its return. for purposes other than those described in a farming business or sales of The cooperative must show its 2003 in section 521 should not file Form timeshares and residential lots for which tax year on the 2002 Form 990-C and 990-C. See the instructions for Form the cooperative elects to pay interest take into account any tax law changes 1120, U.S. Corporation Income Tax under section 453(I)(3). that are effective for tax years beginning Return, for information about filing For sales of timeshares and residential after December 31, 2002. requirements. lots reported under the installment

method, the cooperative’s income tax is Address Item E—Initial Return, increased by the interest payable under Include the suite, room, or other unit Final Return, Name section 453(l)(3). To report this addition to number after the street address. If a Change, Address Change, tax, see the instructions for line 9, preaddressed label is used, include this Schedule J. information on the label. or Amended Return Enter on line 1 (and carry to line 3), the If the Post Office does not deliver mail • If this is the cooperative’s first return, gross profit on collections from installment to the street address and the cooperative check the “Initial return” box. sales for any of the following: has a P.O. box, show the box number. • If the cooperative ceases to exist, file • Dealer dispositions of property before

Form 990-C and check the “Final return” March 1, 1986. Item A—Business Activity box. • Dispositions of property used or

With the Largest Total • If the cooperative changed its name produced in the trade or business of

since it last filed a return, check the box farming. Receipts for “Name change.” Generally, a • Certain dispositions of timeshares and

Identify the business activity from which cooperative also must have amended its residential lots reported under the

the cooperative receives the largest total articles of incorporation and filed the installment method.

receipts (e.g., wholesale marketing of amendment with the state in which it was Attach a schedule showing the

meat, drying fruit, grain storage, incorporated. following information for the current and

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the 3 preceding years: (a) gross sales, (b) 6. Per-unit retain allocations is subject to recapture. The cooperative

cost of goods sold, (c) gross profits, (d) received (except nonqualified per-unit must recapture the benefit of any

percentage of gross profits to gross sales, retain certificates). See section 1385. allowable deduction for clean-fuel vehicle

(e) amount collected, and (f) gross profit property (or clean-fuel vehicle refueling

on the amount collected. property), if, within 3 years of the date the Note. Payments from the Commodity

Nonaccrual experience method. Credit Corporation to a farmers’ property was placed in service, it ceases

Cooperatives that qualify to use the cooperative for certain expenses of the to qualify. See Regulations section co-op’s farmers-producers under a 1.179A-1 for details. nonaccrual experience method (explained “reseal” program of the U.S. Department on page 4) should attach a schedule • For cooperatives described in section of Agriculture are patronage-source showing total gross receipts, the amount 1381 that are shareholders in an FSC, income that may give rise to patronage not accrued as a result of the application include the nonexempt portion of foreign dividends under section 1382(b)(1). See of section 448(d)(5), and the net amount trade income from the sale or other Rev. Rul. 89-97, 1989-2 C.B. 217, for accrued. Enter the net amount on line 1a. disposition of agricultural or horticultural more information. products by the FSC for the tax year that Note. Certain cooperatives that have Line 4b. Dividends. See the instructions includes the last day of the FSC’s tax gross receipts of $10 million or more and for Schedule C on page 13, then year, even though the FSC is not required have patronage and nonpatronage source complete Schedule C and enter on line to distribute such income until the due

income and deductions, must complete 4b, the amount from Schedule C, line 17. date of its income tax return.

and attach Form 8817, Allocation of Line 5. Interest. Enter taxable interest • Ordinary income from trade or business Patronage and Nonpatronage Income on U.S. obligations and on loans, notes, activities of a partnership (from Schedule and Deductions, to their return. mortgages, bonds, bank deposits, K-1 (Form 1065 or 1065-B)). Do not offset

Line 2. Cost of goods sold. Enter the corporate bonds, tax refunds, etc. ordinary losses against ordinary income.

cost of goods sold on line 2, page 1. Instead, include the losses on line 26, Do not offset interest expense against Before making this entry, complete Form 990-C. Show the partnership’s interest income. Schedule A on page 2 of Form 990-C. name, address, and EIN on a separate

See the Schedule A instructions on page Special rules apply to interest income statement attached to this return. If the from certain below-market rate loans. See 12. amount entered is from more than one section 7872 for more information. Line 4a. Income from patronage partnership, identify the amount from

dividends and per-unit retain Note. Interest income is generally each partnership.

nonpatronage income to nonexempt allocations. Attach a schedule listing the cooperatives (Regulations section name of each declaring association from Deductions

which the cooperative received income 1.1382-3(c)(2)). As such, a patronage

dividend deduction may not be allowable. from patronage dividends and per-unit Limitations on deductions

retain allocations, and the total amount Line 6. Gross rents. Enter the gross Section 263A uniform capitalization received from each association. amount received from the rental of rules. The uniform capitalization property. Deduct expenses such as Include the items listed below: (UNICAP) rules of section 263A require repairs, interest, taxes, and depreciation 1. Patronage dividends received in: cooperatives to capitalize, or include in on the applicable lines. • Money, inventory, certain costs incurred in Note. Generally, gross rents are • Qualified written notices of connection with: considered nonpatronage income to allocation, or • The production of real property and nonexempt cooperatives (Regulations • Other property (except nonqualified tangible personal property held in written notices of allocation). section 1.1382-3(c)(2)). As such, a inventory or held for sale in the ordinary patronage dividend deduction may not be 2. Nonpatronage distributions course of business. allowable. received on a patronage basis from • Real property or personal property tax-exempt farmers’ cooperatives in: Line 8. Capital gain net income. Every (tangible and intangible) acquired for • Money, sale or exchange of a capital asset must resale. • Qualified written notices of be reported in detail on Schedule D • The production of real property and allocation, or (Form 1120), Capital Gains and Losses, tangible personal property by a • Other property (except nonqualified even if there is no gain or loss. Generally, cooperative for use in its trade or written notices of allocation), based on capital gains and losses are considered business or in an activity engaged in for earnings of that cooperative either from nonpatronage source. profit. business done with or for the United Line 10. Other income. Enter any other Tangible personal property States or any of its agencies (or from taxable income not reported on lines 1 produced by a cooperative includes a sources other than patronage, such as through 9. List the type and amount of film, sound recording, videotape, book, or investment income). income on an attached schedule. If the similar property. 3. Qualified written notices of cooperative has only one item of other allocation at their stated dollar amounts income, describe it in parentheses on line Cooperatives subject to the UNICAP and property at its fair market value 10. Examples of other income to report on rules are required to capitalize not only (FMV). line 10 are: direct costs but an allocable part of most

4. Amounts received on the • Recoveries of bad debts deducted in indirect costs (including taxes) that (a) redemption, sale, or other disposition of prior years under the specific charge-off benefit the assets produced or acquired

nonqualified written notices of method. for resale or (b) are incurred by reason of allocation. • The amount of credit for alcohol used the performance of production or resale

Generally, patronage dividends from as fuel (determined without regard to the activities.

purchases of capital assets or limitation based on tax) that was entered For inventory, some of the indirect depreciable property are not includible in on Form 6478, Credit for Alcohol Used as

expenses that must be capitalized are: income but must be used to reduce the Fuel. • Administration expenses. basis of the assets. See section 1385(b) • Refunds of taxes deducted in prior • Taxes. and the related regulations. years to the extent they reduced income

5. Amounts received (or the stated subject to tax in the year deducted (see • Depreciation.

dollar value of qualified per-unit retain section 111). Do not offset current year • Insurance.

certificates received) from the sale or taxes against tax refunds. • Compensation paid to officers

redemption of nonqualified per-unit • The amount of any deduction attributable to services.

retain certificates. previously taken under section 179A that • Reworked labor.

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• Contributions to pension, stock bonus, Business start-up expenses. Business • New York Liberty Zone business

and certain profit-sharing, annuity, or start-up expenses must be capitalized employee credit.

deferred compensation plans. unless an election is made to amortize If the cooperative has any of these

Regulations section 1.263A-1(e)(3) them over a period of 60 months. See credits, first figure each current year

specifies other indirect costs that relate to section 195 and Regulations section credit, then figure the remaining

production or resale activities that must 1.195-1. deduction for the expense upon which the

be capitalized and those that may be credit is based. Passive activity limitations. Limitations

currently deductible. on passive activity losses and credits Line 12. Compensation of officers.

Interest expense paid or incurred under section 469 apply to closely held Enter deductible officer’s compensation

during the production period of cooperatives. on line 12. Before entering an amount on

designated property must be capitalized A cooperative is a closely held line 12, complete Schedule E if the

and is governed by special rules. For cooperative cooperative’s total receipts (line 1a plus if at any time during the last more details, see Regulations sections half of the tax year more than 50% in lines 4 through 10, page 1) are $500,000

1.263A-8 through 1.263A-15. value of its outstanding stock is owned, or more. Do not include compensation

directly or indirectly, by or for not more deductible elsewhere on the return, such The costs required to be capitalized as amounts included in cost of goods under section 263A are not deductible than 5 individuals. Certain organizations

are treated as individuals for purposes of sold, elective contributions to a section until the property (to which the costs 401(k) cash or deferred arrangement, or relate) is sold, used, or otherwise this test. See section 542(a)(2). For rules

of determining stock ownership, see amounts contributed under a salary disposed of by the cooperative. section 544 (as modified by section reduction SEP agreement or a SIMPLE

465(a)(3)). IRA plan. Exceptions. Section 263A does not

Generally, the two kinds of passive Include only the deductible part of apply to: activities are: each officers’ compensation on Schedule • Personal property acquired for resale if • Trade or business activities in which E. Complete Schedule E, line 1, columns the cooperative’s average annual gross the cooperative did not materially (a) through (f), for all officers. The receipts for the 3 prior tax years were $10 participate and cooperative determines who is an officer million or less. • Rental activities, regardless of its under the laws of the state where it is • Timber. participation. incorporated. • Most property produced under a For exceptions, see Form 8810. If a consolidated return is filed, each long-term contract. member of an affiliated group must An activity is a trade or business • Certain property produced in a farming activity if it is not a rental activity and furnish this information. business. • The activity involves the conduct of a Disallowance of deduction for • Research and experimental costs trade or business (i.e., deductions from employee compensation in excess of under section 174. the activity would be allowable under $1 million. Publicly held cooperatives • Intangible drilling costs for oil, gas, and section 162 if other limitations, such as may not deduct compensation to a geothermal property. the passive loss rules, did not apply) or “covered employee” to the extent that the • Mining exploration and development • The activity involves research and compensation exceeds $1 million. costs.

• Inventoriable items accounted for in the experimental costs that are deductible For details, see section 162(m) and

same manner as materials and supplies under section 174 (or would be deductible Regulations section 1.162-27. if the cooperative chose to deduct rather that are not incidental. See Cost of Line 13. Salaries and wages. Enter the

Goods Sold than capitalize them). on page 12 for details. amount of salaries and wages paid for the Cooperatives subject to the passive For more details on the UNICAP rules, tax year, reduced by: see Regulations sections 1.263A-1 activity limitations must complete Form • Any work opportunity credit from Form 8810 to compute their allowable passive through 1.263A-3. See Regulations 5884, activity loss and credit. Before completing section 1.263A-4 and Pub. 225, Farmer’s • Any empowerment zone and renewal Form 8810, see Temporary Regulations Tax Guide, for rules for property produced community employment credit from Form section 1.163-8T, which provides rules for in a farming business. 8844, allocating interest expense among Transactions between related • Any Indian employment credit from activities. If a passive activity is also taxpayers. Generally, an accrual basis Form 8845, subject to the earnings stripping rules of taxpayer may only deduct business • Any welfare-to-work credit from Form section 163(j) or the at-risk rules of expenses and interest owed to a related 8861, and section 465, those rules apply before the party in the year payment is included in • Any New York Liberty Zone business passive loss rules. For more information, employee credit from Form 8884. income of the related party. See sections see section 469, the related regulations, 163(e)(3), 163(j), and 267 for the See the instructions for these forms for and Pub. 925, Passive Activity and limitations on deductions for unpaid more information. Do not include salaries At-Risk Rules. interest and expenses. and wages deductible elsewhere on the Reducing certain expenses for which return, such as amounts included in cost Section 291 limitations. Cooperatives credits are allowable. For each credit of goods sold, elective contributions to a may be required to adjust deductions for listed below, the cooperative must reduce section 401(k) cash or deferred depletion of iron ore and coal, intangible the otherwise allowable deductions for arrangement, or amounts contributed drilling, exploration and development expenses used to figure the credit by the under a salary reduction SEP agreement costs, and the amortizable basis of amount of the current year credit. or a SIMPLE IRA plan. pollution control facilities. See section 291 • Work opportunity credit. to determine the amount of the • Research credit. If the cooperative provided taxable

adjustment. Also see section 43. • Enhanced oil recovery credit. fringe benefits to its employees,

Golden parachute payments. A portion • Disabled access credit. CAUTION such as personal use of a car, do

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of the payments made by a cooperative to • Empowerment zone and renewal not deduct as wages the amount

key personnel that exceeds their usual community employment credit. allocated for depreciation and other

compensation may not be deductible. • expenses claimed on lines 20 and 26. Indian employment credit.

This occurs when the cooperative has an • The employer credit for social security Line 14. Repairs and maintenance.

agreement (golden parachute) with these and Medicare taxes paid on certain Enter the cost of incidental repairs, such

key employees to pay them these excess employee tips. as labor and supplies, that do not add to

amounts if control of the cooperative • Orphan drug credit. the value of the property or appreciably

changes. See section 280G. • Welfare-to-work credit. prolong its life. New buildings, machinery,

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or permanent improvements that increase • Interest on which no tax is imposed the return is filed. Do not attach the

the value of the property are not (see section 163(j)). acknowledgment to the tax return, but

deductible here. They must be • Forgone interest on certain keep it with the cooperative’s records.

depreciated or amortized. below-market-rate loans (see section These rules apply in addition to the filing

7872). requirements for Form 8283, Noncash Line 15. Bad debts. Enter the total debts • Original issue discount on certain high Charitable Contributions, described later that became worthless in whole or in part yield discount obligations (see section under Contributions of property other than during the tax year. A cash method 163(e) to figure the disqualified portion). cash. taxpayer may not claim a bad debt

deduction unless the amount was Line 19. Charitable contributions. For more information on substantiation

previously included in income. Enter contributions or gifts actually paid in and recordkeeping requirements, see the

the tax year to or for the use of charitable regulations under section 170 and Pub. Line 17. Taxes and licenses. Enter and governmental organizations 526, Charitable Contributions. taxes paid or accrued during the tax year, described in section 170(c) and any but do not include the following. Contributions to organizations unused contributions carried over from • Federal income taxes. conducting lobbying activities. prior years. • Foreign or U.S. possession income Contributions made to an organization Cooperatives reporting taxable income that conducts lobbying activities are not taxes if a tax credit is claimed (however,

see the Instructions for Form 5735 for on the accrual method may elect to treat deductible if:

special rules for possession income any contributions paid by the 15th day of • The lobbying activities relate to matters

taxes). the 3rd month after the end of the tax of direct financial interest to the donor’s

• Taxes not imposed on the cooperative. year as paid during the current tax year if trade or business and

• Taxes, including state or local sales the contributions were authorized by the • The principal purpose of the

taxes, that are paid or incurred in board of directors during the current tax contribution was to avoid Federal income

connection with an acquisition or year. Attach a declaration to the return, tax by obtaining a deduction for activities

disposition of property (these taxes are signed by an officer, stating that the that would have been nondeductible

resolution authorizing the contributions under the lobbying expense rules if treated as part of the cost of the acquired

property, or in the case of a disposition, was adopted by the board of directors conducted directly by the donor.

during the current tax year. Also, attach a as a reduction in the amount realized on Contributions of property other than copy of the resolution. the disposition). cash. If a cooperative contributes • Taxes assessed against local benefits Limitation on deduction. The total property other than cash and claims over that increase the value of the property amount claimed may not be more than a $500 deduction for the property, it must assessed (such as for paving, etc.). 10% of taxable income (line 30) attach a schedule to the return describing • Taxes deducted elsewhere on the computed without regard to the following: the kind of property contributed and the return, such as those reflected in cost of • Any deduction for contributions; method used to determine its FMV.

goods sold. • The special deductions on line 29b, Generally, cooperatives must complete See section 164(d) for apportionment Form 990-C; and attach Form 8283 to their returns for

of taxes on real property between the • Any net operating loss (NOL) carryback all contributions of property (other than seller and purchaser. to the tax year under section 172; money) if the total claimed deduction for • Any capital loss carryback to the tax all property contributed was more than Line 18. Interest. year under section 1212(a)(1); and $5,000. Note. The deduction for interest is limited • The deduction allowed under section If the cooperative made a “qualified when the cooperative is a policyholder or 249. conservation contribution” under section beneficiary with respect to a life Carryover. Charitable contributions 170(h), also include the FMV of the insurance, endowment, or annuity over the 10% limitation may not be underlying property before and after the contract issued after June 8, 1997. For deducted for the current tax year but may donation, as well as the type of legal details, see section 264(f). Attach a be carried over to the next 5 tax years. interest contributed, and describe the statement showing the computation of the Special rules apply if the cooperative conservation purpose benefited by the deduction.

has an NOL carryover to the tax year. In donation.

Do not deduct the following: figuring the charitable contributions If a contribution carryover was • Interest on indebtedness incurred or deduction for an NOL year, the 10% limit included, show the amount and how it continued to purchase or carry obligations is applied using the taxable income after was determined. the interest on which is wholly exempt taking into account any deduction for the from income tax. For exceptions, see Reduced deduction for NOL. section 265(b). contributions of certain property. For a

To figure the amount of any remaining • For cash basis taxpayers, prepaid charitable contribution of property, the NOL carryover to later years, taxable interest allocable to years following the cooperative must reduce the contribution income must be modified (see sections current tax year (e.g., a cash basis by the sum of: 172(b) and (d)). To the extent that calendar year taxpayer who in 2002 • The ordinary income and short-term contributions are used to reduce taxable prepaid interest allocable to any period capital gain that would have resulted if the income for this purpose and increase an after 2002 can deduct only the amount property were sold at its FMV and NOL carryover, a contributions carryover allocable to 2002). • For certain contributions, the long-term is not allowed. See section 170(d)(2)(B). • Interest and carrying charges on capital gain that would have resulted if the

straddles. Generally, these amounts must Substantiation requirements. property were sold at its FMV.

be capitalized. See section 263(g). Generally, no deduction is allowed for any The reduction for the long-term capital

• Interest on debt allocable to the contribution of $250 or more unless the gain applies to:

production of designated property by a cooperative gets a written • Contributions of tangible personal

cooperative for its own use or for sale. acknowledgment from the donee property for use by an exempt

This interest must be capitalized. A organization that shows the amount of organization for a purpose or function

cooperative must also capitalize any cash contributed, describes any property unrelated to the basis for its exemption

interest on debt allocable to an asset contributed and gives an estimate of the and

used to produce the above property. See value of any goods or services provided • Contributions of any property to or for

section 263A(f) and Regulations sections in return for the contribution. The the use of certain private foundations,

1.263A-8 through 1.263A-15 for acknowledgment must be obtained by the except for stock, for which market

definitions and more information. due date (including extensions) of the quotations are readily available (section

Special rules apply to: cooperative’s return, or, if earlier, the date 170(e)(5)).

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Larger deduction. A larger deduction • For contributions of property reacquired • Amortization of pollution control

is allowed for certain contributions of: by the manufacturer of the property, the facilities, organization expenses, etc. See

• Inventory and other property to certain 3-year period begins on the date that the Form 4562.

organizations for use in the care of the ill, original construction of the property was • Insurance premiums.

needy, or infants (see section 170(e)(3) substantially completed. Also, the original • Legal and professional fees.

and Regulations section 1.170A-4A); use of the property may be by someone • Supplies used and consumed in the

• Scientific equipment used for research other than the donor or the donee. business.

to institutions of higher learning or to • Utilities. Line 20. Depreciation. Besides certain scientific research organizations • Ordinary losses from trade or business depreciation, include on line 20 the part of (other than by personal holding activities of a partnership (from Schedule the cost that the cooperative elected to companies and service organizations) K-1 (Form 1065 or 1065-B)). Do not offset expense under section 179 for certain (see section 170(e)(4)); and ordinary losses against ordinary income. tangible property placed in service during • Computer technology and equipment Instead, include the income on line 10. tax year 2002 or carried over from 2001. for educational purposes. Show the partnership’s name, address, See Form 4562, Depreciation and

Contributions of computer and EIN on a separate statement Amortization, and its instructions. attached to this return. If the amount technology and equipment for Line 22. Depletion. See sections 613 entered is from more than one educational purposes. A cooperative

may take an increased deduction under and 613A for percentage depletion rates partnership, identify the amount from applicable to natural deposits. Also, see each partnership. section 170(e)(6) for qualified

contributions of computer technology or section 291(a)(2) for the limitation on the • Extraterritorial income exclusion (from depletion deduction for iron ore and coal Form 8873, line 55). equipment for educational purposes. (including lignite). Computer technology or equipment

means computer software, computer or Attach Form T (Timber), Forest Do not deduct:

Activities Schedule, if a deduction for • Fines or penalties paid to a government peripheral equipment, and fiber optic for violating any law. cable related to computer use. A depletion of timber is taken. • Any amount that is allocable to a class contribution is a qualified contribution if: Foreign intangible drilling costs and of exempt income. See section 265(b) for • It is made to an eligible donee (see foreign exploration and development exceptions. below); costs must either be added to the • Substantially all of the donee property’s cooperative’s basis for cost depletion Special rules apply to the following use is: purposes or be deducted ratably over a expenses. 1. Related to the purpose or function 10-year period. See sections 263(i), 616, of the donee, and 617 for details. Travel, meals, and entertainment.

2. For use within the United States, Subject to limitations and restrictions Line 24. Pension, profit-sharing, etc., and discussed below, a cooperative can plans. Enter the deduction for 3. For educational purposes. deduct ordinary and necessary travel, contributions to qualified pension, • The contribution is made not later than meals, and entertainment expenses paid profit-sharing, or other funded deferred 3 years after the date the taxpayer or incurred in its trade or business. compensation plans. Employers who acquired or substantially completed the maintain such a plan generally must file Also, special rules apply to deductions construction of the property; one of the forms listed below, even if the for gifts, skybox rentals, luxury water • The original use of the property is by plan is not a qualified plan under the travel, convention expenses, and the donor or the donee; Internal Revenue Code. The filing entertainment tickets. For details, see • The property is not transferred by the requirement applies even if the section 274 and Pub. 463, Travel, donee for money, services, or other cooperative does not claim a deduction Entertainment, Gift, and Car Expenses. property, except for shipping, transfer, for the current tax year. There are and installation costs; Travel. The cooperative cannot penalties for failure to file these forms on • The property fits productively into the deduct travel expenses of any individual time and for overstating the pension plan donee’s education plan; and accompanying a cooperative officer or deduction. See sections 6652(e) and • The property meets standards, if any, employee, including a spouse or 6662(f). that may be prescribed by future dependent of the officer or employee,

regulations, to assure it meets minimum Form 5500, Annual Return/Report of unless:

functionality and suitability for educational Employee Benefit Plan. File this form for • That individual is an employee of the

purposes. a plan that is not a one-participant plan cooperative and

Eligible donee. The term “eligible (see below). • His or her travel is for a bona fide

donee” means: Form 5500-EZ, Annual Return of business purpose and would otherwise be

• An educational organization that One-Participant (Owners and Their deductible by that individual.

normally maintains a regular faculty and Spouses) Retirement Plan. File this form Meals and entertainment. Generally, curriculum and has a regularly enrolled for a plan that only covers the owner (or the cooperative can deduct only 50% of body of pupils in attendance at the place the owner and his or her spouse) but only the amount otherwise allowable for meals

where its educational activities are if the owner (or the owner and his or her and entertainment expenses paid or regularly conducted, spouse) owns the entire business. incurred in its trade or business. In • A section 501(c)(3) entity organized Line 25. Employee benefit programs. addition (subject to exceptions under primarily for purposes of supporting Enter the contributions to employee section 274(k)(2)): elementary and secondary education, or benefit programs not claimed elsewhere • Meals must not be lavish or • A public library (as described in section on the return (e.g., insurance, health and extravagant; 170(e)(6)(B)(i)(III)). welfare programs, etc.) that are not an • A bona fide business discussion must

Exceptions. The following exceptions occur during, immediately before, or incidental part of a pension, profit-sharing, apply to the above rules for computer immediately after the meal; and etc., plan included on line 24. technology and equipment: • An employee must be present at the Line 26. Other deductions. Attach a • Contributions to private foundations meal. schedule, listing by type and amount, all may qualify if the foundation contributes See section 274(n)(3) for a special rule allowable deductions that are not the property to an eligible donee within 30 that applies to meal expenses for deductible elsewhere on Form 990-C. days after the contribution and notifies the individuals subject to the hours of service

donor of the contribution. For details, see Examples of amounts to include on limits of the Department of

section 170(e)(6)(C). line 26: Transportation.

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Membership dues. The cooperative may have to adjust the amount on line 28, assets in a reorganization), the amount of

may deduct amounts paid or incurred for Form 990-C. pre-acquisition losses that may offset

membership dues in civic or public recognized built-in gain may be limited A taxpayer is generally considered service organizations, professional (see sections 384 and 1388(j)(2)). “at-risk” for an amount equal to his or her organizations, business leagues, trade For details on the NOL deduction, see investment in the entity. That investment associations, chambers of commerce, Pub. 542, Corporations, section 172, and consists of money and other property boards of trade, and real estate boards, Form 1139, Corporation Application for contributed to the entity and amounts unless a principal purpose of the Tentative Refund. borrowed on behalf of the entity. organization is to entertain or provide Line 30. Taxable income. Certain The at-risk rules do not apply to the entertainment facilities for members or cooperatives may need to file Form 8817. following: their guest. In addition, cooperatives may If so, taxable income reported on line 30 • Holding real property placed in service not deduct membership dues in any club may not exceed the combined taxable by the cooperative before 1987; organized for business, pleasure, income shown on line 30, Form 8817. • Equipment leasing under sections recreation, or other social purpose. This Attach Form 8817 to the cooperative’s tax 465(c)(4), (5), and (6); and includes country clubs, golf and athletic return. • Any qualifying business of a qualified clubs, airline and hotel clubs, and clubs cooperative under section 465(c)(7). Net operating loss. If line 30 is zero operated to provide meals under However, the at-risk rules do apply to or less, the cooperative may have an conditions favorable to business the holding of mineral property. NOL that can be carried back or forward discussion. as a deduction to other tax years. If the at-risk rules apply, complete Entertainment facilities. The Generally, a cooperative first carries back Form 6198, At-Risk Limitations, then cooperative cannot deduct an expense an NOL 2 tax years (5 tax years for NOLs adjust the amount on this line for any paid or incurred for a facility (such as a incurred in tax years ending in 2001 or section 465(d) losses. These losses are yacht or hunting lodge) used for an 2002). However, the cooperative may limited to the amount for which the activity that is usually considered elect to waive the carryback period and cooperative is at risk for each separate entertainment, amusement, or recreation. instead carry the NOL forward to future activity at the close of the tax year. If the tax years. To make the election, see the Note. The cooperative may be able to cooperative is involved in one or more instructions for Schedule N, item 19, on deduct the otherwise nondeductible activities, any of which incurs a loss for page 18. See Form 1139 for details, expense if the amount is treated as the year, report the losses for each including other elections that may be compensation and reported on Form W-2 activity separately. Attach Form 6198 available, which must be made no later for an employee or on Form 1099-MISC showing the amount at risk and gross than 6 months after the due date for an independent contractor. income and deductions for the activities (excluding extensions) of the Deduction for clean-fuel vehicles and with the losses. cooperative’s return. certain refueling property. Section If the cooperative sells or otherwise

179A allows a deduction for part of the Patronage source losses cannot disposes of an asset or its interest (either

cost of qualified clean-fuel vehicle be used to offset nonpatronage total or partial) in an activity to which the CAUTION income.

!

property and qualified clean-fuel vehicle at-risk rules apply, determine the net

refueling property placed in service during profit or loss from the activity by Line 32b. Estimated tax payments. the tax year. For more information, see combining the gain or loss on the sale or Enter any estimated tax payments the Pub. 535, Business Expenses. disposition with the profit or loss from the cooperative made for the tax year. activity. If the cooperative has a net loss, Lobbying expenses. Generally, Beneficiaries of trusts. If the the loss may be limited because of the lobbying expenses are not deductible. cooperative is the beneficiary of a trust, at-risk rules. These expenses include: and the trust makes a section 643(g)

• Amounts paid or incurred in connection Treat any loss from an activity not election to credit its estimated tax

with influencing Federal or state allowed for the tax year as a deduction payments to its beneficiaries, include the

legislation (but not local legislation) or allocable to the activity in the next tax cooperative’s share of the estimated tax

• Amounts paid or incurred in connection year. payment in the total amount entered on

with any communication with certain Line 29a. Net operating loss deduction. line 32b. Write “T” and the amount of the

Federal executive branch officials in an A cooperative may use the net operating payment in the blank space to the right of

attempt to influence the official actions or the entry space. loss incurred in one tax year to reduce its positions of the officials. See Regulations taxable income in another year. Enter the Line 32f. Credit from refiguring tax for section 1.162-29 for the definition of total NOL carryovers from other tax years years in which nonqualified per-unit “influencing legislation.” on line 29a, but do not enter more than retain certificates or nonqualified Dues and other similar amounts paid the cooperative’s taxable income (after written notices of allocation (redeemed to certain tax-exempt organizations may special deductions). Attach a schedule this year) were issued. If the

not be deductible. See section 162(e)(3). showing the computation of the NOL cooperative would pay less total tax by If certain in-house expenditures do not deduction. Also complete item 20 on claiming the deduction for the redemption exceed $2,000, they are deductible. See Schedule N. of nonqualified written notices of section 162(e)(5)(B). For information on The following special rules apply. allocation or nonqualified per-unit retain contributions to charitable organizations • If an ownership change occurs, the certificates in the issue year versus the that conduct lobbying activities, see the amount of taxable income of a loss current tax year, refigure the tax for the instructions for line 19. For more cooperative that may be offset by the years the nonqualified written notices or information on lobbying expenses, see pre-change NOL carryovers may be certificates were originally issued, then section 162(e). limited (see section 382 and the related enter the amount of the reduction in the

regulations). A loss cooperative must file issue years’ taxes on this line. Attach a Line 28 an information statement with its income schedule showing how the credit was Taxable income before NOL tax return for each tax year that certain figured. This credit is treated as a deduction and special deductions ownership shifts occur (see Temporary payment, and any amount that is more

At-risk rules. Special at-risk rules under Regulations section 1.382-2T(a)(2)(ii) for than the tax on line 31 will be refunded.

section 465 generally apply to closely details). See Regulations section Line 32g. Credit for federal tax on

held cooperatives (see Passive activity 1.382-6(b) for details on how to make the fuels. Enter the credit from Form 4136,

limitations on page 8) engaged in any closing-of-the-books election. Credit for Federal Tax Paid on Fuels, if

activity as a trade or business or for the • If a cooperative acquires control of the cooperative qualifies to take this

production of income. These cooperatives another cooperative (or acquires its credit. Attach Form 4136 to Form 990-C.

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Line 32h. Total payments. Add the A qualifying taxpayer is a taxpayer redemption of a nonqualified per-unit

amounts on lines 32d through 32g and (a) whose average annual gross receipts retain certificate.

enter the total on line 32h. for the 3 prior tax years are $1 million or Line 6a. An entry is required on this line less and (b) whose business is not a tax Backup withholding. only for cooperatives electing a simplified If the cooperative shelter (as defined in section 448(d)(3)). method of accounting. had income tax withheld from any A qualifying small business taxpayer payments it received, because, for For cooperatives that have elected the includes a cooperative whose average example, it failed to give the payer its simplified production method, annual gross receipts for the 3 prior tax correct EIN, include the amount withheld additional section 263A costs are years are more than $1 million but not in the total for line 32h. This type of more than $10 million and that is not generally those costs, other than interest,

withholding is called backup withholding. that were not capitalized under the prohibited from using the cash method Show the amount withheld in the blank cooperative’s method of accounting under section 448. space in the right-hand column between immediately prior to the effective date of Under this accounting method, lines 31 and 32h, and write “Backup section 263A that are now required to be

Withholding.” inventory costs for raw materials capitalized under section 263A. For purchased for use in producing finished details, see Regulations section Line 33. Estimated tax penalty. A goods, and merchandise purchased for 1.263A-2(b). cooperative that does not make estimated resale, are deductible in the year the

tax payments when due may be subject For cooperatives that have elected the finished goods or merchandise are sold simplified resale method, additional to an underpayment penalty for the period (but not before the year the cooperative

of underpayment. Generally, a section 263A costs are generally those pays for the raw materials or merchandise

cooperative is subject to the penalty if its costs incurred with respect to the if it is also using the cash method). Enter following categories: tax liability is $500 or more and it did not amounts paid for all raw materials and • Off-site storage or warehousing. timely pay the smaller of: merchandise during the tax year on line 2. • Its tax liability for 2002 or The amount the cooperative can deduct • Purchasing; handling, such as

• Its prior year’s tax. processing, assembly, repackaging, and for the tax year is figured on line 9. For

See section 6655 for details and transporting. additional guidance on this method of

exceptions including special rules for • General and administrative costs accounting for inventoriable items, see (mixed service costs). large cooperatives. Rev. Proc. 2001-10 if the cooperative is a

Use Form 2220, Underpayment of For details, see Regulations section qualifying taxpayer, or Rev. Proc.

Estimated Tax by Corporations, to see if 1.263A-3(d). 2002-28 if it is a qualifying small business

the cooperative owes a penalty and to taxpayer. Enter on line 6a the balance of section

figure the amount of the penalty. All filers not using the cash method of 263A costs paid or incurred during the tax Generally, the cooperative does not have accounting should see Section 263A year not includable on lines 2, 3, and 6b. to file this form because the IRS can uniform capitalization rules on page 7 Line 6b. Enter on line 6b any costs paid figure the amount of any penalty and bill before completing Schedule A. or incurred during the tax year not the cooperative for it. However, even if Line 1. Inventory at beginning of year. entered on lines 2 through 6a. the cooperative does not owe the penalty, Beginning inventory will generally equal Line 8. See Regulations sections complete and attach Form 2220 if:

• The annualized income or adjusted ending inventory for last year’s return. If 1.263A-1 through 1.263A-3 for details on

seasonal installment method is used or this is your initial year, do not make an figuring the amount of additional section

• The cooperative is a large cooperative entry on line 1. 263A costs to be included in ending

If the cooperative is changing its inventory. computing its first required installment

based on the prior year’s tax. (See the method of accounting for the current tax If the cooperative accounts for

Instructions for Form 2220 for the year, it must refigure last year’s closing inventoriable items in the same manner

definition of a large corporation.) inventory using the new method of as materials and supplies that are not accounting and enter the result on line 1. If Form 2220 is attached, check the incidental, enter on line 8 the portion of its

box on line 33, and enter the amount of If there is a difference between last year’s raw materials and merchandise

any penalty on this line. closing inventory and the refigured purchased for resale that are included on amount, attach an explanation and take it line 7 and were not sold during the year. Line 36. Direct deposit of refund. If the into account when figuring the cooperative has a refund of $1 million or cooperative’s section 481(a) adjustment Lines 10a through 10f more and wants it directly deposited into explained on page 4. Inventory valuation methods. its checking or savings account at any Line 4a. Qualified per-unit retain Inventories can be valued at: U.S. bank or other financial institution certificates are issued to patrons who • Cost, instead of having a check sent to the have agreed to include the stated dollar • Cost or market value (whichever is cooperative, complete Form 8302 and amount in current income. lower), or attach it to the cooperative’s tax return. Line 5. Enter the amount paid in money • Any other method approved by the IRS

or other property (except per-unit retain that conforms to the requirements of the

certificates) to patrons to redeem applicable regulations cited below. Schedule A nonqualified per-unit retain certificates. However, the cooperative is required

No deduction is allowed at the time of to use cost if it is using the cash method Cost of Goods Sold issuance for a nonqualified per-unit retain of accounting.

Generally, inventories are required at the certificate. However, the cooperative may Cooperatives that account for beginning and end of each tax year if the take a deduction in the year the inventory in the same manner as production, purchase, or sale of certificate is redeemed, subject to the materials and supplies that are not merchandise is an income-producing stated dollar amount of the certificate. incidental may currently deduct factor. See Regulations section 1.471-1. The cooperative may also choose to expenditures for direct labor and all

deduct the amount paid to redeem the indirect costs that would otherwise be However, if the cooperative is a certificate in the prior year if redemption included in inventory costs. qualifying taxpayer, or a qualifying small occurs within the payment period for that business taxpayer, it may adopt or The average cost (rolling average) preceding year. See section 1382(b). change its accounting method to account method of valuing inventories generally

for inventoriable items in the same See section 1383 and the instructions does not conform to the requirements of

manner as materials and supplies that are for line 32f for a special rule for figuring the regulations. See Rev. Rul. 71-234,

not incidental. the cooperative’s tax in the year of 1971-1 C.B. 148.

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Cooperatives that use erroneous stock acquired after July 18, 1984—see Line 4, Column (a). Enter dividends

valuation methods must change to a section 246A) that: received on the preferred stock of a

method permitted for Federal income tax less-than-20%-owned public utility that is • Are received from

purposes. To make this change, use subject to income tax and is allowed the less-than-20%-owned domestic

Form 3115. corporations subject to income tax and deduction provided in section 247 for

On line 10a, check the method(s) used • Qualify for the 70% deduction under dividends paid.

for valuing inventories. Under lower of section 243(a)(1). Line 5, Column (a). Enter dividends cost or market, the term “market” (for Also include on line 1: received on preferred stock of a normal goods) means the current bid • Taxable distributions from an IC-DISC 20%-or-more-owned public utility that is price prevailing on the inventory valuation or former DISC that are designated as subject to income tax and is allowed the date for the particular merchandise in the eligible for the 70% deduction and certain deduction provided in section 247 for volume usually purchased by the dividends of Federal Home Loan Banks. dividends paid. taxpayer. For a manufacturer, market See section 246(a)(2). applies to the basic elements of cost— Line 6, Column (a). Enter the • Dividends (except those received on raw materials, labor, and burden. If U.S.-source portion of dividends that: debt-financed stock acquired after July section 263A applies to the taxpayer, the 18, 1984) from a regulated investment • Are received from

basic elements of cost must reflect the less-than-20%-owned foreign company (RIC). The amount of dividends current bid price of all direct costs and all corporations and eligible for the dividends-received indirect costs properly allocable to goods • Qualify for the 70% deduction under deduction under section 243 is limited by on hand at the inventory date. section 245(a). section 854(b). The cooperative should

Inventory may be valued below cost To qualify for the 70% deduction, the receive a notice from the RIC specifying

when the merchandise is unsalable at cooperative must own at least 10% of the the amount of dividends that qualify for

normal prices or unsalable in the normal stock of the foreign corporation by vote the deduction.

way because the goods are subnormal and value. Report so-called dividends or earnings due to damage, imperfections, shop wear, received from mutual savings banks, etc., Also include dividends received from

etc., within the meaning of Regulations a less-than-20%-owned FSC that: as interest. Do not treat them as

section 1.471-2(c). The goods may be • Are attributable to income treated as dividends.

valued at a current bona fide selling price, effectively connected with the conduct of

minus direct cost of disposition (but not Line 2, Column (a). Enter on line 2: a trade or business within the United

• Dividends (except those received on States (excluding foreign trade income) less than scrap value) if such a price can

be established. debt-financed stock acquired after July and

18, 1984) that are received from • Qualify for the 70% deduction provided If this is the first year the Last-in, 20%-or-more-owned domestic in section 245(c)(1)(B). First-out (LIFO) inventory method was corporations subject to income tax and either adopted or extended to inventory Line 7, Column (a). Enter the that are subject to the 80% deduction goods not previously valued under the U.S.-source portion of dividends that are under section 243(c) and LIFO method provided for in section 472, received from 20%-or-more-owned

attach Form 970, Application To Use • Taxable distributions from an IC-DISC foreign corporations and that qualify for LIFO Inventory Method, or a statement or former DISC that are considered the 80% deduction under section 245(a). with the information required by Form eligible for the 80% deduction. Also include dividends received from a

970. Also check the LIFO box on line 10c. Line 3, Column (a). Enter dividends that 20%-or-more-owned FSC that:

On line 10d, enter the amount or the are: • Are attributable to income treated as

percent of total closing inventories effectively connected with the conduct of • Received on debt-financed stock covered under section 472. Estimates are a trade or business within the United acquired after July 18, 1984, that are acceptable. States (excluding foreign trade income) received from domestic and foreign If the cooperative changed or and corporations subject to income tax and extended its inventory to LIFO and had to that would otherwise be subject to the • Qualify for the 80% deduction provided

write up its opening inventory to cost in dividends-received deduction under in section 245(c)(1)(B).

the year of election, report the effect of sections 243(a)(1), 243(c), or 245(a). Line 8, Column (a). Enter dividends that this write-up as income (line 10, page 1) Generally, debt-financed stock is stock are received from wholly owned foreign proportionately over a 3-year period that that the cooperative acquired by incurring subsidiaries and that are eligible for the begins with the year of the LIFO election a debt (e.g., it borrowed money to buy the 100% deduction provided in section (section 472(d)). stock). 245(b). For more information on inventory • Received from a RIC on debt-financed

valuation methods, see Pub. 538. stock. The amount of dividends eligible In general, the deduction under section

for the dividends-received deduction is 245(b) applies to dividends paid out of the

limited by section 854(b). The cooperative earnings and profits of a foreign

Schedule C should receive a notice from the RIC corporation for a tax year during which:

specifying the amount of dividends that • All of its outstanding stock is owned

Dividends and Special qualify for the deduction. (directly or indirectly) by the domestic

Deductions cooperative receiving the dividends and Line 3, Columns (b) and (c). Dividends • All of its gross income from all sources For purposes of the 20% ownership test received on debt-financed stock acquired is effectively connected with the conduct on lines 1 through 7, the percentage of after July 18, 1984, are not entitled to the of a trade or business within the United stock owned by the cooperative is based full 70% or 80% dividends-received States. on voting power and value of the common deduction. The 70% or 80% deduction is

stock. Preferred stock described in reduced by a percentage that is related to Line 9, Column (c)—Limitation on section 1504(a)(4) is not taken into the amount of debt incurred to acquire the dividends-received deduction.

account. Cooperatives filing a stock. See section 246A. Also see section Generally, line 9, column (c), may not consolidated return should see 245(a) before making this computation for exceed the amount from the worksheet

Regulations sections 1.1502-13, an additional limitation that applies to below. However, in a year in which an 1.1502-26, and 1.1502-27 before dividends received from foreign NOL occurs, this limitation does not apply completing Schedule C. corporations. Attach a schedule to Form even if the loss is created by the

Line 1, Column (a). Enter dividends 990-C showing how the amount on line 3, dividends-received deduction. See

(except those received on debt-financed column (c), was figured. sections 172(d) and 246(b).

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Line 15, Column (a). Enter taxable If the cooperative sells qualifying Worksheet for Schedule C, line 9 distributions from an IC-DISC or former foreign trade property, no deduction is (keep for your records) DISC that are designated as not eligible allowed for patronage dividends, per-unit

for a dividends-received deduction. retain allocations, and nonpatronage 1. Refigure line 28, page 1, Form No deduction is allowed under section distributions related to foreign trade 990-C, without any adjustment income. For details, see section under section 1059 and without 243 for a dividend from an IC-DISC or 941(b)(2). any capital loss carryback to the former DISC (as defined in section

tax year under section 992(a)) to the extent the dividend: Any patronage dividends or per-unit 1212(a)(1) .............. 1. Is paid out of the cooperative’s retain allocations that are allocated to 2. Complete lines 10 and 11, accumulated IC-DISC income or qualifying foreign trade income of the column (c) and enter the total previously taxed income or cooperative may be treated as qualifying here .................. 2. Is a deemed distribution under foreign trade income of the patron. In 3. Subtract line 2 from line 1 .... section 995(b)(1). order to qualify, the amount must be 4. Multiply line 3 by 80% ....... designated by the cooperative in a written 5. Add lines 2, 5, 7, and 8, column Line 16, Column (a). Include the notice mailed to its patrons not later than (c) and the part of the deduction following: on line 3, column (c) that is the 15th day of the 9th month following

attributable to dividends 1. Dividends (other than capital gain the close of the tax year. For more

distributions reported on Schedule D details, see section 943(g). received from

20%-or-more-owned (1120) and exempt-interest dividends) Note. Lines 1 and 2 apply only to section corporations ............. that are received from RICs that are not 521 cooperatives. 6. Enter the smaller of line 4 or line subject to the 70% deduction.

5. If line 5 is greater than line 4, 2. Dividends from tax-exempt Line 1. Enter the amount actually or

stop here; enter the amount organizations. constructively paid as dividends during

from line 6 on line 9, column (c). 3. Dividends (other than capital gain the tax year on:

Do not complete the rest of this dividends) received from a REIT that, for • Common stock (whether voting or

worksheet .............. the tax year of the trust in which the nonvoting),

7. Enter the total amount of dividends are paid, qualifies under • Preferred stock,

dividends received from sections 856 through 860. • Capital retain certificates, 20%-or-more-owned 4. Dividends not eligible for a • Revolving fund certificates, corporations that are included dividends-received deduction because of • Letters of advice, or on lines 2, 3, 5, 7, and 8, the holding period of the stock or an • Other documentary evidence of a column (a) .............. obligation to make corresponding proprietary interest in the cooperative 8. Subtract line 7 from line 3 .... payments with respect to similar stock. association. 9. Multiply line 8 by 70% ....... See Regulations section 1.1382-3(b) 10. Subtract line 5 from line 9, Two situations in which the for more information. column (c) .............. dividends-received deduction will not be

11. Enter the smaller of line 9 or line allowed on any share of stock are: Line 2. Enter amounts paid on a 10 . . . . . . . . . . . . . . . . . . . . • If the cooperative held it for less patronage basis to patrons from 12. Dividends-received deduction than 46 days during the 90-day period nonpatronage income. Payment may be after limitation (section beginning 45 days before the stock in: 246(b)). Add lines 6 and 11. became ex-dividend with respect to the • Money, Enter the result here and on line dividend (see section 246(c)(1)(A)) or • Qualified written notices of allocation, 9, column (c) ............. • To the extent the cooperative is or

under an obligation to make related • Other property (except nonqualified Line 10, Column (a). Enter dividends payments for substantially similar or written notices of allocation). from FSCs that are attributable to foreign related property. The amounts must be paid during the trade income and that are eligible for the 5. Any other taxable dividend income payment period that begins on the first 100% deduction provided in section not properly reported above (including day of the tax year and ends on the 15th 245(c)(1)(A). distributions under section 936(h)(4)). day of the 9th month after the end of the Line 11, Columns (a) and (c). Enter only tax year in which the income was earned. those dividends that qualify under section

243(b) for the 100% dividends-received Nonpatronage income includes

deduction described in section 243(a)(3). Schedule H incidental income from sources not

Cooperatives taking this deduction are directly related to:

subject to the provisions of section 1561. Deductions and Adjustments • Marketing,

Under Section 1382 • Purchasing, The 100% deduction does not apply to Cooperatives may, under section • Service activities of the cooperative affiliated group members that are joining 1388(j)(1), use losses from one or more (such as income from the lease of in the filing of a consolidated return. allocation units to offset earnings of one premises, investments, or from the sale or Line 12, Column (a). Enter foreign or more other allocation units, as exchange of capital assets), or dividends not reportable on lines 3, 6, 7, permitted by their bylaws, but only to the • Income from business done with or for

8, or 10 of column (a). Include on line 12 extent that the earnings and losses are the U.S. Government, or any of its the cooperative’s share of the ordinary agencies. from business done with or for patrons. If earnings of a qualified electing fund from a cooperative exercises this option, it See Patronage dividends below for a

Form 8621, Return by a Shareholder of a must provide the information specified in definition of “qualified written notice of Passive Foreign Investment Company or section 1388(j)(3) by written notice to its allocation.” See section 1382(c)(2)(B) for Qualified Electing Fund, line 1c. patrons. deductibility of amounts paid in

Line 13, Column (a). Include income redemption of nonqualified written notices Special rules also apply if a constructively received from controlled of allocation. cooperative has acquired the assets of foreign corporations under subpart F. This another cooperative under a section Line 3. To be deductible, patronage amount should equal the total of amounts 381(a) transaction. See section 1388(j) dividends must be paid during the reported on Schedule I, Form 5471. for more information. Cooperatives may payment period that begins on the first

Line 14, Column (a). Include gross-up net earnings and losses under section day of the tax year in which the patronage

for taxes deemed paid under sections 902 1388(j) and still be eligible for tax-exempt occurs and ends on the 15th day of the

and 960. treatment. See section 521(b)(6). 9th month after the end of that tax year.

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See sections 1382(e) and (f) for written notices of allocation issued to • $12,500 (one-half of $25,000) on line

special rules for the time when patronage patrons by a payment of cash and a 2a(2), and

occurs if products are marketed under a crediting of accounts receivable due from • $4,962,500 (one-half of $9,925,000) on

pooling arrangement, or if earnings are patrons. line 2a(3).

includible in the gross income of the Note. See section 1383 for special rules Unequal apportionment plan. Members cooperative for a tax year after the year in for figuring the cooperative’s tax in the of a controlled group may elect an which the patronage occurred. year nonqualified written notices of unequal apportionment plan and divide

Patronage dividends include any allocation are redeemed. The cooperative the taxable income brackets as they want.

amount paid to a patron by a cooperative is entitled to: There is no need for consistency among

based on the quantity or value of (a) A deduction in the tax year the taxable income brackets. Any member

business done with or for that patron nonqualified written notices of allocation may be entitled to all, some, or none of

under a pre-existing obligation of the are redeemed (if permitted under section the taxable income bracket. However, the

cooperative to pay that amount. The 1382(b)(2) or (4) or section 1382(c)(2)(B)) total amount for all members cannot be

amount is determined by reference to the or more than the total amount in each

net earnings of the organization from taxable income bracket. (b) A tax credit based on a business done with or for its patrons. recomputation of tax for the year(s) the Line 2b. Members of a controlled group

Patronage dividends may be in: nonqualified written notices of allocation are treated as one group to figure the • Money, were issued. See instructions for line 32f. applicability of the additional 5% tax and • Qualified written notices of allocation, Amounts paid to patrons are not the additional 3% tax. If an additional tax

or patronage dividends if paid: applies, each member will pay that tax • Other property (except nonqualified based on the part of the amount used in 1. Out of earnings not from business written notices of allocation). each taxable income bracket to reduce done with or for patrons; A written notice of allocation means: that member’s tax. See section 1561(a). If 2. Out of earnings from business done • Any capital stock, an additional tax applies, attach a with or for other patrons to whom no • Revolving fund certificate, schedule showing the taxable income of amounts or smaller amounts are paid for • Retain certificate, the entire group and how the cooperative substantially identical transactions; • Certificate of indebtedness, figured its share of the additional tax. 3. To redeem capital stock, • Letter of advice, or certificates of indebtedness, revolving Line 2b(1). Enter the cooperative’s • Other written notice, which states the fund certificates, retain certificates, letters share of the additional 5% tax on line dollar amount allocated to the patron by of advice, or other similar documents; or 2b(1). the cooperative and the part, if any, which 4. Without reference to the net is a patronage dividend. Line 2b(2). Enter the cooperative’s earnings of the cooperative organization In general, a qualified written notice share of the additional 3% tax on line from business done with or for its patrons. of allocation is a written notice of 2b(2).

allocation that is:

• Paid as part of a patronage dividend in Line 3

money or by qualified check equal to at Schedule J

least 20% of the patronage dividend and Tax Computation Worksheet for • One of the following conditions is met: Tax Computation Members of a Controlled Group 1. The patron must have at least 90 Lines 1 and 2 (keep for your records) days from the date the written notice of

allocation is paid to redeem it in cash, Members of a controlled group. A Note. Each member of a controlled group must

and member of a controlled group, as defined compute its tax using this worksheet. must receive written notice of the

right of redemption at the time the patron in section 1563, must check the box on

1. Enter taxable income (line 30, receives the allocation; or line 1 and complete lines 2a and 2b of

Schedule J. page 1) ................. 2. The patron must agree to have the

allocation treated as constructively Line 2a. Members of a controlled group 2. Enter line 1 or the cooperative’s received and reinvested in the are entitled to share one $50,000, one share of the $50,000 taxable cooperative. See section 1388(c)(2) and $25,000, and one $9,925,000 taxable income bracket, whichever is the related regulations for information on income bracket amount (in that order) on less ................... how the consent must be made. line 2a.

When a controlled group adopts or 3. Subtract line 2 from line 1 .... If a written notice of allocation does not

qualify, no deduction is allowable at the later amends an apportionment plan, 4. Enter line 3 or the cooperative’s time it is issued. However, the each member must attach to its tax return share of the $25,000 taxable cooperative is entitled to a deduction or a copy of its consent to this plan. income bracket, whichever is refund of tax when the nonqualified The copy (or an attached statement) less ................... written notice of allocation is finally must show the part of the amount in each redeemed, if that notice was paid as a taxable income bracket apportioned to 5. Subtract line 4 from line 3 .... patronage dividend during the payment that member. See Regulations section period for the tax year during which the 1.1561-3(b) for other requirements and 6. Enter line 5 or the cooperative’s

patronage occurred. The deduction or share of the $9,925,000 taxable for the time and manner of making the refund is allowed, but only to the extent income bracket, whichever is consent.

that amounts paid to redeem the less ................... Equal apportionment plan. If no nonqualified written notice of allocation apportionment plan is adopted, members are paid in money or other property (other 7. Subtract line 6 from line 5 .... of a controlled group must divide the than written notices of allocation). They amount in each taxable income bracket 8. Multiply line 2 by 15% ....... cannot be more than the stated dollar equally among themselves. For example, amounts of the nonqualified written notice Controlled Group AB consists of 9. Multiply line 4 by 25% ....... of allocation. See section 1382(b) and Cooperative A and Cooperative B. They related regulations. See also section do not elect an apportionment plan. 10. Multiply line 6 by 34% ....... 1383. Therefore, each cooperative is entitled to: 11. Multiply line 7 by 35% ....... See Rev. Rul. 81-103, 1981-1 C.B. • $25,000 (one-half of $50,000) on line

447, for the redemption of nonqualified 2a(1),

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• $40,000 or Note. Any excess energy investment 12. If the taxable income of the • The cooperative’s allowable exemption credit, work opportunity credit, Indian controlled group exceeds amount (from Form 4626). employment credit, empowerment zone $100,000, enter this member’s See Form 4626 for details. or renewal community credit, employment share of the smaller of: 5% of

the taxable income in excess of Exemption for small corporations. credit, welfare-to-work credit, or new

$100,000, or $11,750. See markets credit not used by the A cooperative is treated as a small instructions for line 2b ....... cooperative (because of the tax liability corporation exempt from the AMT for its limitation) must be passed through to the tax year beginning in 2002 if that year is 13. If the taxable income of the patrons. These credits cannot be the cooperative’s first tax year in controlled group exceeds $15 carried back or over by the existence (regardless of its gross million, enter this member’s cooperative. See Forms 3468, 5884, receipts) or: share of the smaller of: 3% of 8844, 8845, 8861, and 8874 for details. 1. It was treated as a small the taxable income in excess of

corporation exempt from the AMT for all • Investment Credit (Form 3468). $15 million, or $100,000. See

prior tax years beginning after 1997 and • Work Opportunity Credit (Form 5884). instructions for line 2b .......

2. Its average annual gross receipts • Credit for Alcohol Used as Fuel (Form

14. Add lines 8 through 13. Enter 6478). for the 3-tax-year period (or portion

here and on Schedule J, line 3. thereof during which the cooperative was • Credit for Increasing Research

Activities (Form 6765). in existence) ending before its tax year Note. Members of a controlled group beginning in 2002 did not exceed $7.5 • Low-Income Housing Credit (Form must attach to form 990-C a statement million ($5 million if the cooperative had 8586).

showing the computation of the tax only 1 prior tax year). • Orphan Drug Credit (Form 8820).

entered on line 3. • Disabled Access Credit (Form 8826). For more details, see the Instructions Most cooperatives figure their tax by • Enhanced Oil Recovery Credit (Form for Form 4626. using the Tax Rate Schedule below. 8830).

Exceptions apply to members of a Line 6a. Foreign tax credit. To find out • Renewable Electricity Production Credit

when a cooperative can take the credit for (Form 8835). controlled group (see the worksheet

above). payment of income tax to a foreign • Indian Employment Credit (Form 8845).

country or U.S. possession, see Form • Credit for Employer Social Security and

Tax Rate Schedule 1118, Foreign Tax Credit—Corporations. Medicare Taxes Paid on Certain

Employee Tips (Form 8846). If taxable income on line 30, page 1, Line 6b. Other Credits Form 990-C is: • Credit for Contributions to Selected

Possessions tax credit. The Small Community Development Corporations

Over — But not Tax is: Of the Business Job Protection Act of 1996 (Form 8847). over — amount repealed the possessions credit. • Welfare-to-Work Credit (Form 8861). over — However, existing credit claimants may • New Markets Credit (Form 8874).

$0 $50,000 15% $0 qualify for a credit under the transitional • Credit for Small Employer Pension Plan

50,000 75,000 $ 7,500 + 25% 50,000 rules. See Form 5735, Possessions Startup Costs (Form 8881).

75,000 100,000 13,750 + 34% 75,000 Corporation Tax Credit (Under Sections • Credit for Employer-Provided Child

100,000 335,000 22,250 + 39% 100,000 936 and 30A). Care Facilities and Services (Form 8882).

335,000 10,000,000 113,900 + 34% 335,000 Nonconventional source fuel credit. A Line 6d. Credit for prior year minimum

10,000,000 15,000,000 3,400,000 + 35% 10,000,000 credit is allowed for the sale of qualified tax. To figure the minimum tax credit and

15,000,000 18,333,333 5,150,000 + 38% 15,000,000 fuels produced from a nonconventional any carryforward of that credit, use Form

18,333,333 - - - - - 35% 0 source. Section 29 contains a definition of 8827, Credit for Prior Year Minimum

qualified fuels, provisions for figuring the Tax—Corporations.

Deferred tax under section 1291. credit, and other special rules. Attach a Also see Form 8827 if any of the If the separate schedule to the return showing cooperative’s 2001 nonconventional cooperative was a shareholder in a the computation of the credit. source fuel credit, orphan drug credit, or passive foreign investment company

Qualified electric vehicle (QEV) credit. qualified electric vehicle credit was (PFIC), and the cooperative received an disallowed solely because of the tentative excess distribution or disposed of its Include on line 6b any credit from Form minimum tax limitation. See section 53(d). investment in the PFIC during the year, it 8834, Qualified Electric Vehicle Credit.

must include the total increase in taxes Vehicles that qualify for this credit are not Line 9. Other Taxes

due under section 1291(c)(2) in the eligible for the deduction for clean-fuel Include any of the following taxes and amount entered on line 3, Schedule J. On vehicles under section 179A. interest in the total on line 9. Check the the dotted line next to line 3, Schedule J, Line 6c. General business credit. Enter appropriate box(es) for the form, if any, write “Section 1291” and the amount. on line 6c the cooperative’s total general used to compute the total.

Do not include on line 3 any interest business credit. Recapture of investment credit. If the

due under section 1291(c)(3). Instead, If the cooperative is filing Form 8844, cooperative disposed of investment credit

show the amount of interest owed in the Empowerment Zone and Renewal property or changed its use before the

bottom margin of page 1, Form 990-C, Community Employment Credit, or Form end of its useful life or recovery period,

and write “Section 1291 interest.” For 8884, New York Liberty Zone Business see Form 4255, Recapture of Investment

details, see Form 8621. Employee Credit, check the “Form(s)” Credit, for details.

Line 4. Alternative minimum tax (AMT). box, write the form number in the space Recapture of low-income housing

Unless the cooperative is treated as a provided, and include the allowable credit credit. If the cooperative disposed of

small corporation exempt from the AMT, it on line 6c. property (or there was a reduction in the

may owe AMT if it has any of the If the cooperative is required to file qualified basis of the property) for which it

adjustments and tax preference items Form 3800, General Business Credit, took the low-income housing credit, it may

owe a tax. See Form 8611, Recapture of listed on Form 4626, Alternative Minimum check the “Form 3800” box and include

Tax—Corporations. The cooperative the allowable credit on line 6c. If the Low-Income Housing Credit.

must file Form 4626 if its taxable income cooperative is not required to file Form Other. Additional taxes and interest

(or loss) before the NOL deduction 3800, check the “Form(s)” box, write the amounts may be included in the total

combined with these adjustments and tax form number in the space provided, and entered on line 9. Check the box for

preference items is more than the lesser include on line 6c the allowable credit “Other” if the cooperative includes any of

of: from the applicable form listed below. the taxes and interest discussed below.

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See How to report, below, for details on Line 24. Adjustments to shareholders’ TD F 90–22.1, Report of Foreign Bank

reporting these amounts on an attached equity. Some examples of adjustments to and Financial Accounts); and

schedule. report on this line include: • The combined value of the accounts

• Recapture of the qualified electric • Unrealized gains and losses on was more than $10,000 at any time

vehicle (QEV) credit. The cooperative securities held “available for sale.” during the calendar year and

must recapture part of the QEV credit • Foreign currency translation • The account was not with a U.S.

claimed in a prior year, if, within 3 years adjustments. military banking facility operated by a U.S.

of the date the vehicle was placed in • The excess of additional pension financial institution.

service, it ceases to qualify for the credit. liability over unrecognized prior service 2. The cooperative owns more than

See Regulations section 1.30-1 for details cost. 50% of the stock in any corporation that

on how to figure the recapture. • Guarantees of employee stock (ESOP) would answer “Yes” to item 1 above.

debt. • Recapture of the Indian employment If “Yes” is checked for this question: • Compensation related to employee credit. Generally, if an employer • Enter the name(s) of the foreign stock award plans. terminates the employment of a qualified country or countries. Attach a separate If the total adjustment to be entered on employee less than 1 year after the date sheet if more space is needed. line 24 is a negative amount, enter the of initial employment, any Indian • File Form TD F 90-22.1 by June 30, amount in parentheses. employment credit allowed for a prior tax 2003, with the Department of the year because of wages paid or incurred to Treasury at the address shown on the that employee must be recaptured. For form. Do not file it with Form 990-C.

details, see Form 8845 and section 45A. Schedule M-1 You can order Form TD F 90-22.1 by

• Recapture of new markets credit (see calling 1-800-TAX-FORM

Form 8874). Reconciliation of Income (Loss) (1-800-829-3676) or you can download it

• per Books With Income per from the IRS web site at www.irs.gov. Interest on deferred tax attributable to

(a) installment sales of certain timeshares Return Question 14 and residential lots (section 453(l)(3)) and Line 5c. Travel and entertainment. The cooperative may be required to file (b) certain nondealer installment Include on line 5c any of the following: Form 3520, Annual Return To Report obligations (section 453A(c)). • Meals and entertainment not deductible Transactions with Foreign Trusts and • Interest due on deferred gain (section under section 274(n). Receipt of Certain Foreign Gifts, if: 1260(b)). • Expenses for the use of an • It directly or indirectly transferred How to report. entertainment facility. If the cooperative money or property to a foreign trust. For • The part of business gifts over $25. checked the “Other” box, attach a this purpose, any U.S. person who • Expenses of an individual in excess of schedule showing the computation of created a foreign trust is considered a $2,000, which are allocable to each item included in the total for line 9, transferor. conventions on cruise ships. identify the applicable Code section and • It is treated as the owner of any part of • Employee achievement awards over the type of tax or interest. the assets of a foreign trust under the $400. grantor trust rules. Line 10. Total Tax. Include any deferred • The cost of entertainment tickets over • It received a distribution from a foreign tax on the termination of a section 1294 their face value (also subject to 50% limit trust. election applicable to shareholders in a under section 274(n)). For more information, see the qualified electing fund in the amount • The cost of skyboxes over the face Instructions for Form 3520. entered on line 10. See Form 8621, Part value of nonluxury box seat tickets.

V and How to report below. • The part of luxury water travel not Note. An owner of a foreign trust must

deductible under section 274(m). ensure that the trust files an annual Subtract any deferred tax on the • Expenses for travel as a form of information return on Form 3520-A, cooperative’s share of undistributed education. Annual Information Return of Foreign earnings of a qualified electing fund (see • Other nondeductible expenses for Trust with a U.S. Owner. For details, see Form 8621, Part II). travel and entertainment. Form 3520-A.

How to report. For more information, see Pub. 542. If deferring tax, attach Item 15 a schedule showing the computation of Line 7. Tax-exempt interest. Include as Show any tax-exempt interest income each item included in, or subtracted from, interest on line 7, any exempt-interest received or accrued. Include any the total for line 10. On the dotted line dividends received as a shareholder in a exempt-interest dividends received as a next to line 10, specify (a) the applicable mutual fund or other RIC. shareholder in a mutual fund or other Code section, (b) the type of tax, and (c) RIC. the amount of tax.

Question 17 Schedule N

Check the “Yes” box if: Schedule L Other Information 1. The cooperative is a subsidiary in

The following instructions apply to Form an affiliated group (defined below), but is Balance Sheets per Books 990-C, page 5, Schedule N. Be sure to not filing a consolidated return for the tax The balance sheet should agree with the complete all the items that apply to the year with that group or cooperative’s books and records. Include cooperative. 2. The cooperative is a subsidiary in a certificates of deposit as cash on line 1, parent-subsidiary controlled group Schedule L. Question 13 (defined below).

Line 5. Tax-exempt securities. Include Foreign financial account. Check the Any cooperative that meets either of

on this line: “Yes” box if either 1 or 2 below applies to the requirements above should check the

1. State and local government the cooperative. Otherwise, check the “Yes” box. This applies even if the

obligations, the interest on which is “No” box. cooperative is a subsidiary member of

excludable from gross income under one group and the parent corporation of 1. At any time during the 2002 section 103(a) and another. calendar year, the cooperative had an

2. Stock in a mutual fund or other RIC interest in or signature or other authority Note. If the cooperative is an “excluded

that distributed exempt-interest dividends over a bank, securities, or other financial member” of a controlled group (see

during the tax year of the cooperative. account in a foreign country (see Form section 1563(b)(2)), it is still considered a

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member of a controlled group for this owned by one or more of the other

purpose. cooperatives in the group and Paperwork Reduction Act Notice. We

Affiliated group. 2. The common parent must own at ask for the information on this form to The term “affiliated least 80% of the total combined voting carry out the Internal Revenue laws of the group” means one or more chains of power of all classes of stock entitled to United States. You are required to give us includible corporations (section 1504(a)) vote or at least 80% of the total value of the information. We need it to ensure that connected through stock ownership with a all classes of stock of one or more of the you are complying with these laws and to common parent corporation. The common other cooperatives in the group. Stock allow us to figure and collect the right parent must be an includible corporation owned directly by other members of the amount of tax. and the following requirements must be

met: group is not counted when computing the You are not required to provide the voting power or value. 1. The common parent must directly information requested on a form that is own stock that represents at least 80% of See section 1563(d)(1) for the subject to the Paperwork Reduction Act the total voting power and at least 80% of definition of “stock” for purposes of unless the form displays a valid OMB the total value of the stock of at least one determining stock ownership above. control number. Books or records relating of the other includible cooperatives and to a form or its instructions must be Item 19 2. Stock that represents at least 80% retained as long as their contents may of the total voting power and at least 80% If the cooperative has an NOL for its 2002 become material in the administration of

of the total value of the stock of each of tax year, it may elect under section any Internal Revenue law. Generally, tax the other corporations (except for the 172(b)(3) to waive the entire carryback returns and return information are

common parent) must be owned directly period for the NOL and instead carry the confidential, as required by section 6103. by one or more of the other includible NOL forward to future tax years. To do

corporations. so, check the box in item 19 and file the The time needed to complete and file

return by its due date, including this form will vary depending on individual For this purpose, stock generally does extensions (do not attach the statement circumstances. The estimated average not include any stock that (a) is described in Temporary Regulations time is: nonvoting, (b) is nonconvertible, (c) is section 301.9100-12T). Once made, the limited and preferred as to dividends and election is irrevocable. See Pub. 542, Recordkeeping . . . . . . . . 75 hr., 34 min. does not participate significantly in section 172, and Form 1139 for more Learning about the law or corporate growth, and (d) has redemption details. the form . . . . . . . . . . . . . 24 hr., 55 min.

and liquidation rights that do not exceed Preparing the form . . . . . . 43 hr., 5 min. Cooperatives filing a consolidated the issue price of the stock (except for a Copying, assembling, and return must check the box and attach the reasonable redemption or liquidation sending the form to the IRS 4 hr., 33 min. statement required by Regulations premium). See section 1504(a)(4). section 1.1502-21(b)(3)(i) or (ii). Parent-subsidiary controlled group. If you have comments concerning the

The term “parent-subsidiary controlled Item 20 accuracy of these time estimates or

group” means one or more chains of suggestions for making this form simpler, Enter the amount of the NOL carryover to cooperatives connected through stock we would be happy to hear from you. You the tax year from prior years, even if ownership (section 1563(a)(1)). Both of can write to the Tax Forms Committee, some of the loss is used to offset income

the following requirements must be met: Western Area Distribution Center, on this return. The amount to enter is the Rancho Cordova, CA 95743-0001. 1. At least 80% of the total combined total of all NOLs generated in prior years

voting power of all classes of voting stock but not used to offset income (either as a Do not send the tax form to this office. or at least 80% of the total value of all carryback or carryover) in a tax year prior Instead, see Where To File on page 2. classes of stock of each cooperative in to 2002. Do not reduce the amount by

the group (except the parent) must be any NOL deduction reported on line 29a.

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Index

AEL Rents (income) .........7

Accounting methods ......4 Electronic Federal Tax Limitations on Repairs and

Accounting periods ......5 Payment System deductions ...........7 maintenance .........8

Address change .........6 (EFTPS) ............5 Lobbying expenses . . . . . 11

Affiliated group Employee benefit . . . . . . . . 18 S

Alternative minimum programs . . . . . . . . . . . 10 N Salaries and wages ......8

tax . . . . . . . . . . . . . . . . 16 Employer identification Name change ..........6 Schedule:

Amended return number (EIN) .........6 .........6 Net operating loss . . . . . . 11 A . . . . . . . . . . . . . . . . . 12

Assembling the return . . . . 4 Estimated tax: Nonaccrual-experience C . . . . . . . . . . . . . . . . . 13

Overpaid ............5 method .............4 H . . . . . . . . . . . . . . . . . 14

Payments ............5 Nonpatronage income . . . 14 J . . . . . . . . . . . . . . . . . 15 B L . . . . . . . . . . . . . . . . . 17 Backup withholding . . . . . 12 F M-1 . . . . . . . . . . . . . . . 17 Bad debts .............9 O Final return ............6 N . . . . . . . . . . . . . . . . . 17

Balance sheets . . . . . . . . 17 Other deductions . . . . . . . 10 Foreign financial Business start-up Other income ...........7 account . . . . . . . . . . . . 17 T

expenses ............8 Foreign tax credit . . . . . . . 16 Tax Computation . . . . . . . 15

P Forms and publications, Tax issues, unresolved . . . . 1 C Paid preparer how to get ...........1 Tax rate schedule . . . . . . 16 Capital gain net income . . . 7 authorization .........2 Tax shelter disclosure Charitable contributions . . . 9 Passive activity G statement ............4

Closely held cooperative . . . 8 limitations ............8 General business Taxes and licenses ......9

Compensation of Patronage dividends . . . . 15 credit . . . . . . . . . . . . . . 16 Travel, meals, and officers ..............8 Penalties ..............5 Golden parachute entertainment . . . . . . . . 10

Consolidated return ......3 Penalty: payments ............8

Controlled group: Estimated tax . . . . . . . . 12 Gross receipts ..........6 W Member of . . . . . . . . . . 15 Pension, profit-sharing, When to file ............2 Cost of goods sold . . . . . . 12 etc., plans . . . . . . . . . . 10

I Where to file ...........2 Possessions tax credit . . . 16

Income ...............6 Who must file ..........2 D Private delivery services . . . 2 Initial return ............6 Who must sign ..........2 Deductions ............7 Interest due: Worksheet: Depletion . . . . . . . . . . . . . 10 Q Late payment of tax . . . . 5 Schedule C . . . . . . . . . 13

Depository method of tax Qualified written notice of Interest expense ........9 Worksheets: payment .............5 allocation . . . . . . . . . . . 15 Interest income: Controlled group Depreciation . . . . . . . . . . 10 Taxable .............7 members, tax

Direct deposit of refund . . 12 Inventory: R computation . . . . . . . 15

Dividend income ........7 Section 263A uniform Recapture taxes . . . . . . . 16 Written notice of

Dividends– received Reconciliation of income capitalization allocation . . . . . . . . . . . 15

deduction . . . . . . . . . . . 13 rules . . . . . . . . . . . 7, 12 (Sch M-1) . . . . . . . . . . . 17 ■ Valuation methods . . . . 12 Recordkeeping .........5

Related party

transactions ..........8

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