Department of the Treasury 2005 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 What’s New The Taxpayer Advocate independently

What’s New . . . . . . . . . . . . . . . . . . . .1 represents the cooperative’s interests

Photographs of Missing and concerns within the IRS by • The cooperative may be able to

Children protecting its rights and resolving . . . . . . . . . . . . . . . . . . . . .1 deduct a portion of the income from problems that have not been fixed Unresolved Tax Issues . . . . . . . . . . .1 certain qualified domestic production through normal channels. How To Get Forms and activities. See section 199 and Form

Publications . . . . . . . . . . . . . . . . . .2 8903, Domestic Production Activities While Taxpayer Advocates cannot

General Instructions Deduction. Report the deduction on change the tax law or make a technical . . . . . . . . . . . .2

Form 990-C, line 25. Also reduce any tax decision, they can clear up Purpose of Form . . . . . . . . . . . . . . . .2 deduction under section 1382 by the problems that resulted from previous Who Must File . . . . . . . . . . . . . . . . . .2 amount of your section 199 deduction contacts and ensure that the When To File . . . . . . . . . . . . . . . . . .2 allocated to patrons. See the cooperative’s case is given a complete Where To File . . . . . . . . . . . . . . . . . .2 instructions for Schedule H, line 3(e), and impartial review. Who Must Sign . . . . . . . . . . . . . . . . .2 and section 199(d)(3). The cooperative’s assigned personal Paid Preparer Authorization . . . . . . . .3 • The Gulf Opportunity Zone Act of advocate will listen to its point of view Assembling the Return . . . . . . . . . . .3 2005 provides certain tax relief benefits and will work with the cooperative to Accounting Methods for corporations. For details, see Pub. . . . . . . . . . . . . .3 address its concerns. The cooperative Accounting Period 4492, Information for Taxpayers . . . . . . . . . . . . . . .3 can expect the advocate to provide: Affected by Hurricanes Katrina, Rita, Rounding Off to Whole Dollars . . . . .3 • A “fresh look” at a new or ongoing and Wilma. Recordkeeping . . . . . . . . . . . . . . . . .3 problem. • A cooperative can elect to deduct Depository Methods of Tax • Timely acknowledgement. qualified cash contributions made after Payment . . . . . . . . . . . . . . . . . . . .3 • The name and phone number of the August 27, 2005, and before January 1, Estimated Tax Payments individual assigned to its case. . . . . . . . . . .4 2006, for relief efforts related to • Updates on progress. Interest and Penalties . . . . . . . . . . . .4 Hurricane Katrina, Rita, or Wilma • Time frames for action. Other Forms and Statements without regard to the 10% taxable • Speedy resolution. That May Be Required . . . . . . . . . .5 income limit. See Line 19, Charitable • Courteous service. Specific Instructions Contributions. . . . . . . . . . . . .5 • Recent legislation revised and/or When contacting the Taxpayer Period Covered . . . . . . . . . . . . . . . . .5

created several general business Advocate, the cooperative should be Name and Address . . . . . . . . . . . . . .5 credits. See the instructions for prepared to provide the following Business Activity With the Schedule J, line 6, for the credits, form information. Largest Total Receipts . . . . . . . . . .5 numbers, and information concerning • The cooperative’s name, address, Employer Identification allocation of credits to patrons. and employer identification number Number (EIN) . . . . . . . . . . . . . . . .5 (EIN).

Consolidated Return . . . . . . . . . . . . .6 Photographs of Missing • The name and telephone number of

Type of Cooperative . . . . . . . . . . . . .6 an authorized contact person and the

Initial Return, Final Return, Children hours he or she can be reached.

Name Change, Address The Internal Revenue Service is a • The type of tax return and year(s)

Change, or Amended Return proud partner with the National Center involved. . . . . .6

for Missing and Exploited Children. • A detailed description of the problem. Income . . . . . . . . . . . . . . . . . . . . . . .6

Photographs of missing children • Previous attempts to solve the Deductions . . . . . . . . . . . . . . . . . . . .8

selected by the Center may appear in problem and the office that was Schedule A . . . . . . . . . . . . . . . . . . .13 instructions on pages that would contacted. Schedule C . . . . . . . . . . . . . . . . . . .15 otherwise be blank. You can help bring • A description of the hardship the Worksheet for Schedule C . . . . . .16 these children home by looking at the cooperative is facing and verifying Schedule H . . . . . . . . . . . . . . . . . . .16 photographs and calling documentation (if applicable).

Schedule J . . . . . . . . . . . . . . . . . . .18 1-800-THE-LOST (1-800-843-5678) if The cooperative can contact a Worksheet for Members of a you recognize a child. Taxpayer Advocate by calling Controlled Group . . . . . . . . . . .19 1-877-777-4778 (toll free). Persons who Schedule L . . . . . . . . . . . . . . . . . . .21 Unresolved Tax Issues have access to TTY/TDD equipment Schedule M-1 . . . . . . . . . . . . . . . . .21 If the cooperative has attempted to deal can call 1-800-829-4059 and ask for

Schedule N . . . . . . . . . . . . . . . . . . .21 with an IRS problem unsuccessfully, it Taxpayer Advocate assistance. If the

Index . . . . . . . . . . . . . . . . . . . . . . .23 should contact the Taxpayer Advocate. cooperative prefers, it can call, write, or

Cat. No. 11288M
fax the Taxpayer Advocate office in its filing/paying” rule for tax returns and Who Must File area. See Pub. 1546 for a list of payments. These private delivery

addresses and fax numbers. services include only the following. Every farmers’ cooperative must file

Form 990-C whether or not it has • DHL Express (DHL): DHL Same Day

taxable income (Regulations section Service, DHL Next Day 10:30 am, DHL How To Get Forms and 1.6012-2(f)). Next Day 12:00 pm, DHL Next Day

Publications Generally, a farmers’ cooperative is 3:00 pm, and DHL 2nd Day Service.

a farmers, fruit growers, or like • Federal Express (FedEx): FedEx Internet. You can access the IRS association organized and operated on Priority Overnight, FedEx Standard website 24 hours a day, 7 days a week, a cooperative basis to: Overnight, FedEx 2Day, FedEx at www.irs.gov to: International Priority, and FedEx • Download forms, instructions, and 1. Market the products of members International First.

publications; or other producers and return to them • United Parcel Service (UPS): UPS the proceeds of sales, less necessary • Order IRS products online; Next Day Air, UPS Next Day Air Saver, marketing expenses, on the basis of • Research your tax questions online; UPS 2nd Day Air, UPS 2nd Day Air either the quantity or value of their • Search publications online by topic or A.M., UPS Worldwide Express Plus, products; or keyword; and and UPS Worldwide Express. 2. Purchase supplies and • Sign up to receive local and national equipment for the use of members or The private delivery service can tell tax news by email. other persons and turn over the you how to get written proof of the

CD-ROM for tax products. You can supplies and equipment to them at mailing date.

order Pub. 1796, IRS Tax Products CD, actual cost, plus necessary expenses. Private delivery services cannot and obtain: deliver items to P.O. boxes. You • A CD that is released twice so you A member is anyone who shares in CAUTION must use the U.S. Postal

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have the latest products. The first the profits of a cooperative association Service to mail any item to an IRS P.O. release ships in late December and the and is entitled to participate in the box address. management of the association. final release ships in late February;

• Current-year forms, instructions, and A producer is a person who, as Extension of Time to File

publications; owner or tenant, bears the risk of File Form 7004, Application for • Prior-year forms, instructions, and production and receives income based Automatic 6-Month Extension of Time

publications; on farm production rather than fixed To File Certain Business Income Tax, • Tax Map: an electronic research tool compensation. For example, if a Information, and Other Returns, to and finding aid; cooperative leases its land to a tenant request an automatic 6-month • Tax law frequently asked questions farmer who agrees to pay a rental fee extension of time to file. Generally file (FAQs); based on a percentage of the farm Form 7004 by the regular due date of • Tax Topics from the IRS telephone crops produced, both the landowner the return.

response system; and the tenant farmer qualify as

• Fill-in, print, and save features for producers. Where To File most tax forms; Cooperatives organized and File Form 990-C with the Internal • Internal Revenue Bulletins; and operated for purposes other Revenue Service, Ogden, UT • Toll-free and email technical support. CAUTION than those described above 84201-0027.

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Buy the CD-ROM from the National should not file Form 990-C. Instead, file

Technical Information Service (NTIS) at Form 1120, U.S. Corporation Income Who Must Sign

www.irs.gov/cdorders for $25 (no Tax Return, or Form 1120-A, U.S. The return must be signed and dated handling fee) or call 1-877-CDFORMS Corporation Short-Form Income Tax by: (1-877-233-6767) toll free to buy the Return (if applicable). • The president, vice president, CD-ROM for $25 (plus a $5 handling treasurer, assistant treasurer, chief fee). The first release ships in late When To File accounting officer or December and the final release ships in A cooperative may file its income tax • Any other cooperative officer (such late February. return by the 15th day of the 9th month as tax officer) authorized to sign.

By phone and in person. You can If a return is filed on behalf of a after the end of its tax year provided it

meets the requirements of section order forms and publications by calling cooperative by a receiver, trustee, or 6072(d) prior to filing. Any cooperative 1-800-TAX-FORM (1-800-829-3676). assignee, the fiduciary must sign the

You can also get most forms and return, instead of the cooperative not meeting the requirements of section

6072(d) must file its income tax return publications at your local IRS office. officer. Returns and forms signed by a by the 15th day of the 3rd month after receiver or trustee in bankruptcy on the end of its tax year. General Instructions behalf of a cooperative must be

If the due date falls on a Saturday, accompanied by a copy of the order or

Sunday, or legal holiday, the instructions of the court authorizing

Purpose of Form cooperative can file on the next signing of the return or form.

Use Form 990-C, Farmers’ Cooperative business day. If an employee of the cooperative

Association Income Tax Return, to Private delivery services. completes Form 990-C, the paid

report income, gains, losses, Cooperatives can use certain private preparer’s space should remain blank.

deductions, credits, and to figure the delivery services designated by the IRS Anyone who prepares Form 990-C but

income tax liability of the cooperative. to meet the “timely mailing as timely does not charge the cooperative should

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not complete that section. Generally, 5. Additional schedules in Rounding Off to Whole anyone who is paid to prepare the alphabetical order.

return must sign it and fill in the “Paid 6. Additional forms in numerical Dollars

Preparer’s Use Only” area. order. The cooperative can round off cents to The paid preparer must complete whole dollars on its return and Complete every applicable entry the required preparer information and: schedules. If the cooperative does space on Form 990-C. Do not write • Sign the return in the space provided round to whole dollars, it must round all “See Attached” instead of completing for the preparer’s signature. amounts. To round, drop amounts the entry spaces. If more space is • Give a copy of the return to the under 50 cents and increase amounts needed on the forms or schedules, taxpayer. from 50 to 99 cents to the next dollar attach separate sheets, using the same Note. A paid preparer may sign original (for example, $1.39 becomes $1 and size and format as the printed forms. If or amended returns by rubber stamp, $2.50 becomes $3). there are supporting statements and mechanical device, or computer attachments, arrange them in the same If two or more amounts must be

software program. order as the schedules or forms they added to figure the amount to enter on

support and attach them last. Show the a line, include cents when adding the Paid Preparer Authorization totals on the printed forms. Enter the amounts and round off only the total. If the cooperative wants to allow the cooperative’s name and EIN on each IRS to discuss its 2005 tax return with supporting statement or attachment. Recordkeeping the paid preparer who signed it, check Keep the cooperative’s records for as the “Yes” box in the signature area of Accounting Methods long as they may be needed for the the return. This authorization applies Figure taxable income using the administration of any provision of the only to the individual whose signature method of accounting regularly used in Internal Revenue Code. Usually, appears in the “Paid Preparer’s Use keeping the cooperative’s books and records that support an item of income, Only” section of the cooperative’s deduction, or credit on the return must records. In all cases, the method used return. It does not apply to the firm, if must clearly show taxable income. be kept for 3 years from the date the any, shown in that section. Permissible methods include: return is due or filed, whichever is later. If the “Yes” box is checked, the • Cash, Keep records that verify the cooperative is authorizing the IRS to • Accrual, or cooperative’s basis in property for as call the paid preparer to answer any • Any other method authorized by the long as they are needed to figure the questions that may arise during the basis of the original or replacement Internal Revenue Code. processing of its return. The property. See Pub. 538, Accounting Periods cooperative is also authorizing the paid The cooperative should also keep preparer to: and Methods, for more information. copies of all returns. They help in • Give the IRS any information that is Change in accounting method. To preparing future and amended returns. missing from the return, change its method of accounting used

• Call the IRS for information about the to report taxable income (for income as Depository Methods of processing of the return or the status of a whole or for the treatment of any

any related refund or payment(s), and material item), the cooperative must file Tax Payment • Respond to certain IRS notices about Form 3115, Application for Change in The cooperative must pay any tax due math errors, offsets, and return Accounting Method. For more in full no later than the 15th day of the preparation. information, see Form 3115, Pub. 538, 9th month after the end of the tax year. The cooperative is not authorizing Accounting Periods and Methods, and The two methods of depositing taxes Pub. 542, Corporations. the paid preparer to receive any refund are discussed below.

check, bind the cooperative to anything Electronic Deposit Requirement. The (including any additional tax liability), or Accounting Period cooperative must make electronic otherwise represent the cooperative A cooperative must figure its taxable deposits of all depository taxes (such before the IRS. If the cooperative wants income on the basis of a tax year. A tax as employment tax, excise tax, and to expand the paid preparer’s year is the annual accounting period a corporate income tax) using the authorization, see Pub. 947, Practice cooperative uses to keep its records Electronic Federal Tax Payment Before the IRS and Power of Attorney. and report its income and expenses. System (EFTPS) in 2006 if:

The authorization will automatically Generally, cooperatives can use a • The total deposits of such taxes in

end no later than the due date calendar year or a fiscal year. 2004 were more than $200,000 or

(excluding extensions) for filing the Change of tax year. Generally, a • The cooperative was required to use

cooperative’s 2006 tax return. cooperative must get the consent of the EFTPS in 2005.

IRS before changing its tax year by If the cooperative is required to use Assembling the Return filing Form 1128, Application to Adopt, EFTPS and fails to do so, it may be

To ensure that the cooperative’s tax Change, or Retain a Tax Year. subject to a 10% penalty. If the

return is correctly processed, attach all However, under certain conditions, a cooperative is not required to use

schedules and other forms after page cooperative can change its tax year EFTPS, it can participate voluntarily. To

5, Form 990-C, in the following order. without getting a consent. enroll in or get more information about

1. Form 8302. For more information about EFTPS, call 1-800-555-4477. To enroll

2. Form 4136. accounting periods, tax year, and online, visit www.eftps.gov.

3. Form 4626. change of tax year, see Form 1128 and Depositing on time. For EFTPS

4. Form 851. Pub. 538. deposits to be made timely, the

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cooperative must initiate the transaction on a Saturday, Sunday, or legal figured at a rate determined under

at least 1 business day before the date holiday, the installment is due on the section 6621.

the deposit is due. next regular business day. Penalty for late filing of return. A • Use Form 1120-W, Estimated Tax for Deposit with Form 8109. If the cooperative that does not file its tax Corporations, as a worksheet to cooperative does not use EFTPS, return by the due date, including compute estimated tax. deposit cooperative income tax extensions, may be penalized 5% of • If the cooperative does not use payments (and estimated tax the unpaid tax for each month or part of EFTPS, use the deposit coupons payments) with Form 8109, Federal a month the return is late, up to a (Forms 8109) to make deposits of Tax Deposit Coupon. If you do not have maximum of 25% of the unpaid tax. estimated tax. a preprinted Form 8109, use Form The minimum penalty for a return that 8109-B to make deposits. You can get • If the cooperative overpaid estimated is over 60 days late is the smaller of the this form by calling 1-800-829-4933 or tax, it may be able to get a quick refund tax due or $100. The penalty will not be visiting an IRS taxpayer assistance by filing Form 4466, Corporation imposed if the cooperative can show center. Have your EIN ready when you Application for Quick Refund of

Overpayment of Estimated Tax. that the failure to file on time was due call or visit. to reasonable cause. Cooperatives that

Do not send deposits directly to an See the instructions for lines 32b file late should attach a statement

IRS office; otherwise, the cooperative and 32c, Form 990-C. explaining the reasonable cause.

may have to pay a penalty. Mail or Estimated tax penalty. A cooperative deliver the completed Form 8109 with Penalty for late payment of tax. A

that does not make estimated tax cooperative that does not pay the tax the payment to an authorized payments when due may be subject to depositary (a commercial bank or other when due generally may be penalized an underpayment penalty for the period 1 financial institution authorized to accept /2 of 1% of the unpaid tax for each of underpayment. Generally, a month or part of a month the tax is not federal tax deposits). Make checks or corporation is subject to the penalty if money orders payable to the paid, up to a maximum of 25% of the its tax liability is $500 or more and it did depositary. unpaid tax. The penalty will not be not timely pay the smaller of: imposed if the cooperative can show If the cooperative prefers, it may mail • Its tax liability for 2005, or that the failure to pay on time was due the coupon and payment to: Financial • Its prior year’s tax. to reasonable cause.

Agent, Federal Tax Deposit Processing, See section 6655 for details and

P.O. Box 970030, St. Louis, MO 63197. exceptions, including special rules for Trust fund recovery penalty. This

Make the check or money order large corporations. penalty may apply if certain excise,

payable to “Financial Agent.” income, social security, and Medicare Use Form 2220, Underpayment of taxes that must be collected or withheld To help ensure proper crediting, Estimated Tax by Corporations, to see are not collected or withheld, or these enter the cooperative’s EIN, the tax if the cooperative owes a penalty and to taxes are not paid. These taxes are period to which the deposit applies, and figure the amount of the penalty. generally reported on: “Form 990-C” on the check or money Generally, the cooperative does not order. Darken the “990-C” box under • Form 720, Quarterly Federal Excise have to file this form because the IRS Tax Return; “Type of Tax” and the appropriate can figure the amount of any penalty “Quarter” box under “Tax Period” on the and bill the cooperative for it. However, • Form 941, Employer’s Quarterly

coupon. Records of these deposits will even if the cooperative does not owe Federal Tax Return;

be sent to the IRS. For more the penalty, complete and attach Form • Form 943, Employer’s Annual

information, see “Marking the Proper 2220 if: Federal Tax Return for Agricultural

Tax Period” in the instructions for Form • The annualized income or adjusted Employees; or

8109. seasonal installment method is used, or • Form 945, Annual Return of Withheld

• The cooperative is a large Federal Income Tax. If the cooperative owes tax corporation computing its first required The trust fund recovery penalty may be when it files Form 990-C, do not installment based on the prior year’s imposed on all persons who are CAUTION include the payment with the tax

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tax. See the Instructions for Form 2220 determined by the IRS to have been return. Instead, mail or deliver the for the definition of a large corporation. responsible for collecting, accounting payment with Form 8109 to an Also, see the instructions for line 33, for, and paying over these taxes, and authorized depositary or use EFTPS, if Form 990-C. who acted willfully in not doing so. The applicable. penalty is equal to the unpaid trust fund

tax. See the Instructions for Form 720, Estimated Tax Payments Interest and Penalties Pub. 15 (Circular E), Employer’s Tax

Generally, the following rules apply to Interest. Interest is charged on taxes Guide, or Pub. 51 (Circular A),

the cooperative’s payments of paid late even if an extension of time to Agricultural Employer’s Tax Guide, for

estimated tax. file is granted. Interest is also charged details, including the definition of • The cooperative must make on penalties imposed for failure to file, responsible persons.

installment payments of estimated tax if negligence, fraud, substantial valuation

it expects its total tax for the year (less misstatements, substantial Other penalties. Other penalties can

applicable credits) to be $500 or more. understatements of tax, and reportable be imposed for negligence, substantial

• The installments are due by the 15th transaction understatements from the understatement of tax, reportable

day of the 4th, 6th, 9th, and 12th due date (including extensions) to the transaction understatements, and fraud.

months of the tax year. If any date falls date of payment. The interest charge is See sections 6662, 6662A, and 6663.

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provided in Notice 2004-80, 2004-50 • The cooperative has a tax year of Other Forms and I.R.B. 963; Notice 2005-17, 2005-8 less than 12 months that begins and

Statements That May Be I.R.B. 606; and Notice 2005-22, ends in 2006, and

2005-12 I.R.B. 756. • The 2006 Form 1120-C is not Required Transfers to a cooperative controlled available at the time the cooperative is

by the transferor. required to file its return. Reportable transaction disclosure If a person receives

statement. Disclose information for stock of a cooperative in exchange for The cooperative must show its 2006

each reportable transaction in which the property, and no gain or loss is tax year on the 2005 Form 990-C and

cooperative participated. Form 8886, recognized under section 351, the take into account any tax law changes

Reportable Transaction Disclosure person (transferor) and the transferee that are effective for tax years

Statement, must be filed for each tax must each attach to their tax returns the beginning after December 31, 2005.

year that the federal income tax liability information required by Regulations

of the cooperative is affected by its section 1.351-3. Name and Address participation in the transaction. The Dual consolidated losses. If a

Enter the cooperative’s true name (as cooperative may have to pay a penalty domestic cooperative incurs a dual set forth in the charter or other legal if it is required to file Form 8886 and consolidated loss (as defined in

does not do so. The following are Regulations section 1.1503-2(c)(5)), the document creating it), address, and EIN

reportable transactions. on the appropriate lines. Include the cooperative (or consolidated group)

may need to attach an elective relief suite, room, or other unit number after 1. Any listed transaction, which is a the street address. If the Post Office agreement and/or an annual transaction that is the same as or does not deliver mail to the street substantially similar to tax avoidance certification as provided in Temporary

Regulations section 1.1503-2T(g)(2). address and the cooperative has a P.O. transactions identified by the IRS. box, show the box number. 2. Any transaction offered under Election to reduce basis under

conditions of confidentiality for which section 362(e)(2)(C). The transferor If the cooperative receives its mail in

the cooperative paid an advisor a fee of and transferee in certain section 351 care of a third party (such as an

at least $250,000. transactions can make a joint election accountant or an attorney), enter on the

3. Certain transactions for which the under section 362(e)(2)(C) to limit the street address line “C/O” followed by

cooperative has contractual protection transferor’s basis in the stock received the third party’s name and street

against disallowance of the tax benefits. instead of the transferee’s basis in the address or P.O. box.

4. Certain transactions resulting in a transferred property. The transferor and If the cooperative received a Form loss of at least $10 million in any single transferee may make the election by 990-C tax package, use the preprinted year or $20 million in any combination attaching the statement as provided in label. Cross out any errors and print the of years. Notice 2005-70, 2005-41 I.R.B. 694, to correct information on the label. 5. Certain transactions resulting in a their tax returns filed by the due date

book-tax difference of more than $10 (including extensions) for the tax year in

million on a gross basis. which the transaction occurred. Once Item A. Business Activity

6. Certain transactions resulting in a made, the election is irrevocable. See With the Largest Total tax credit of more than $250,000, if the section 362(e)(2)(C) and Notice

cooperative held the asset generating 2005-70. Receipts the credit for 45 days or less. Other forms and statements. See Identify the business activity from which Pub. 542 for a list of other forms and the cooperative receives the largest Penalties. The cooperative may statements that the cooperative may total receipts (that is, wholesale have to pay a penalty if it is required to need to file in addition to the forms and marketing of meat, drying fruit, grain disclose a reportable transaction under statements discussed throughout these storage, wholesale purchasing of section 6011 and fails to properly instructions. fertilizers, cattle breeding, etc.). complete and file Form 8886. The

penalty is $50,000 ($200,000 if the

reportable transaction is a listed Item B. Employer

transaction) for each failure to file Form Specific Instructions Identification Number 8886 with its return or for failure to

provide a copy of Form 8886 to the Period Covered (EIN) Office of Tax Shelter Analysis (OTSA). File the 2005 return for calendar year Enter the cooperative’s EIN. If the Other penalties, such as an 2005 and fiscal years that begin in cooperative does not have an EIN, it accuracy-related penalty under section 2005 and end in 2006. For a fiscal or must apply for one. An EIN can be 6662A, may also apply. See the short tax year return, fill in the tax year applied for: Instructions for Form 8886 for details. space at the top of the form. • Online–Click on the EIN link at

Reportable transactions by material www.irs.gov/businesses/small. The EIN

Effective for tax years ending on advisors. Until further guidance is is issued immediately once the or after December 31, 2006, all issued, material advisors who provide application information is validated. CAUTION subchapter T cooperatives will

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material aid, assistance, or advice with • By telephone at 1-800-829-4933 from be required to file Form 1120-C, U.S. respect to any reportable transaction, 8:00 a.m. to 8:00 p.m. in the

must use Form 8264, Application for cooperative’s local time zone. Income Tax Return for Cooperative

Registration of a Tax Shelter, to Associations. • By mailing or faxing Form SS-4,

disclose reportable transactions in The 2005 Form 990-C can also be Application for Employer Identification

accordance with interim guidance used if: Number.

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 If the cooperative has not received “Name change” box. Generally, a Line 1. Gross Receipts or its EIN by the time the return is due, cooperative also must have amended Sales enter “Applied for” in the space for the its articles of incorporation and filed the

EIN. For more details, see Pub. 583. amendment with the state in which it Enter gross receipts or sales from all

was incorporated. business operations except those that The online application process is must be reported on lines 4a through not yet available for cooperatives with • If the cooperative has changed its 10. In general, advance payments are addresses in foreign countries or address since it last filed a return

reported in the year of receipt. To Puerto Rico. (including a change to an “in care of” report income from long-term contracts, address), check the “Address change” see section 460. For special rules for box. Item C. Consolidated reporting certain advance payments for • If the cooperative must change their Return goods and long-term contracts, see originally filed return for any year, it Regulations section 1.451-5. For Cooperatives filing a consolidated should file a new return including any permissible methods for reporting return must attach Form 851, required attachments. Use the revision certain advance payments for services Affiliations Schedule, and other of Form 990-C applicable to the year by an accrual method cooperative, see supporting statements to the return. being amended. The amended return Rev. Proc. 2004-34, 2004-22 I.R.B. The first year a subsidiary cooperative must provide all the information called 991. for by the form and instructions, not just is being included in a consolidated the new or corrected information. return attach Form 1122, Authorization Allocation of patronage and

and Consent of Subsidiary Corporation Check the “Amended return” box. nonpatronage income and

To Be Included in a Consolidated deductions (Form 8817). Certain Note. If a change in address occurs Income Tax Return, to the parent’s cooperatives that have gross receipts of after the return is filed, use Form 8822, consolidated return. Attach a separate $10 million or more and have Change of Address, to notify the IRS of Form 1122 for each subsidiary being patronage and nonpatronage source the new address. included in the consolidated return. If income and deductions must complete

you check the “Tax exempt” box in Item and attach Form 8817, Allocation of

D, you cannot file a consolidated return. Income Patronage and Nonpatronage Income

Except as otherwise provided in the and Deductions, to their return.

Item D. Type of Internal Revenue Code, gross income Installment sales. Generally, the includes all income from whatever Cooperative installment method cannot be used for source derived. dealer dispositions of property. A Check the “Tax exempt” (section 521) Extraterritorial income. Gross income “dealer disposition” is any disposition box if the cooperative is a tax-exempt generally does not include of: (a) personal property by a person farmers’, fruit growers’, or like extraterritorial income that is qualifying who regularly sells or otherwise association, organized and operated on foreign trade income. The disposes of personal property of the a cooperative basis and is described in extraterritorial income exclusion is same type on the installment plan or (b) section 521. reduced by 20% for transactions in real property held for sale to customers If the cooperative has submitted 2005 (40% for transactions in 2006), in the ordinary course of the taxpayer’s Form 1028, Application for Recognition unless made under a binding contract trade or business.

of Exemption, but has not received a with an unrelated person in effect on

determination letter from the IRS, check These restrictions on using the September 17, 2003, and at all times

the “Tax exempt” box, and enter installment method do not apply to thereafter. Use Form 8873, dispositions of property used or “Application Pending” on Form 990-C, Extraterritorial Income Exclusion, to

at the top of page 1. produced in a farming business or sales figure the exclusion. Include the of timeshares and residential lots for Farmers’ cooperatives without exclusion in the total for Other

which the cooperative elects to pay section 521 exempt status, organized deductions on line 26, Form 990-C. interest under section 453(I)(3). and operated as described under Who Income from qualifying shipping Must File on page 2 of the instructions, For sales of timeshares and activities. Gross income does not should check the “Nonexempt” box. residential lots reported under the include income from qualifying shipping installment method, the cooperative’s activities if the cooperative makes an Item E. Initial Return, income tax is increased by the interest election under section 1354 to be taxed

payable under section 453(l)(3). To on its notional shipping income (as Final Return, Name report this addition to tax, see the defined in section 1353) at the highest instructions for Schedule J, line 9, on Change, Address corporate rate (35%). If the election is

made, the cooperative generally may page 20.

Change, or Amended not claim any loss, deduction, or credit Enter on line 1 (and carry to line 3), with respect to qualifying shipping Return the gross profit on collections from activities. A cooperative making this installment sales for any of the • If this is the cooperative’s first return, election also may elect to defer gain on following: check the “Initial return” box. the disposition of a qualifying vessel. • If the cooperative ceases to exist, file • Dealer dispositions of property before

Form 990-C and check the “Final Use Form 8902, Alternative Tax on March 1, 1986.

return” box. Qualifying Shipping Activities, to figure • Dispositions of property used or

• If the cooperative changed its name the tax. Include the alternative tax on produced in the trade or business of

since it last filed a return, check the Schedule J, line 9. farming.

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• Certain dispositions of timeshares nonqualified written notices of patronage dividend deduction may not

and residential lots reported under the allocation. be allowable.

installment method. Generally, patronage dividends from

purchases of capital assets or Line 10. Other Income Attach a schedule showing the depreciable property are not includible Enter any other taxable income not following information for the current and

the 3 preceding years: (a) gross sales, in income but must be used to reduce reported on lines 1 through 9. List the

(b) cost of goods sold, (c) gross profits, the basis of the assets. See section type and amount of income on an

(d) percentage of gross profits to gross 1385(b) and the related regulations. attached schedule. If the cooperative

5. Amounts received (or the stated has only one item of other income, sales, (e) amount collected, and (f)

gross profit on the amount collected. dollar value of qualified per-unit retain describe it in parentheses on line 10.

certificates received) from the sale or Examples of other income to report on Nonaccrual experience method. redemption of nonqualified per-unit line 10 are:

Cooperatives that qualify to use the retain certificates. 1. Recoveries of bad debts nonaccrual experience method should 6. Per-unit retain allocations deducted in prior years under the attach a schedule showing total gross received (except nonqualified per-unit specific charge-off method. receipts, the amount not accrued as a retain certificates). See section 1385. 2. The amount included in income result of the application of section from Form 6478, Credit for Alcohol 448(d)(5), and the net amount accrued. Payments from the Commodity Used as Fuel. Enter the net amount on line 1a. Credit Corporation to a farmers’ 3. The amount included in income cooperative for certain expenses of the from Form 8864, Biodiesel and Line 2. Cost of Goods Sold co-op’s farmers-producers under a Renewable Diesel Fuels Credit. “reseal” program of the U.S. Enter the cost of goods sold on line 2, Department of Agriculture are 4. Refunds of taxes deducted in page 1. Before making this entry, prior years to the extent they reduced patronage-source income that may give complete Form 990-C, Schedule A, on income subject to tax in the year rise to patronage dividends under page 2. See the Schedule A deducted (see section 111). Do not section 1382(b)(1). See Rev. Rul. instructions. offset current year taxes against any 89-97, 1989-2 C.B. 217, for more tax refunds. information. Line 4a. Income from 5. Any recapture amount under Patronage Dividends and Line 4b. Dividends section 179A for certain clean-fuel

Per-unit Retain Allocations See the instructions for Schedule C, vehicle property (or clean-fuel vehicle

then complete Schedule C and enter on refueling property) that ceases to Attach a schedule listing the name of line 4b, the amount from Schedule C, qualify. See Regulations section each declaring association from which 1.179A-1 for details. line 17. the cooperative received income from 6. For cooperatives described in patronage dividends and per-unit retain Line 5. Interest section 1381 that are shareholders in a allocations, and the total amount

Enter taxable interest on U.S. foreign sales corporation (FSC), include received from each association.

obligations and on loans, notes, the nonexempt portion of foreign trade

Include the items listed below: mortgages, bonds, bank deposits, income from the sale or other

1. Patronage dividends received in: corporate bonds, tax refunds, etc. Do disposition of agricultural or horticultural

• Money, not offset interest expense against products by the FSC for the tax year

• Qualified written notices of interest income. Special rules apply to that includes the last day of the FSC’s

allocation, or tax year, even though the FSC is not interest income from certain

• Other property (except below-market rate loans. See section required to distribute such income until

nonqualified written notices of 7872 for more information. the due date of its income tax return.

allocation). 7. Ordinary income from trade or Interest income is generally 2. Nonpatronage distributions business activities of a partnership nonpatronage income to nonexempt received on a patronage basis from (from Schedule K-1 (Form 1065 or cooperatives (Regulations section tax-exempt farmers’ cooperatives in: 1065-B)). Do not offset ordinary losses 1.1382-3(c)(2)). As such, a patronage • Money, against ordinary income. Instead, dividend deduction may not be • Qualified written notices of include the losses on Form 990-C, line allowable.

allocation, or 26. Show the partnership’s name, Note. Report tax-exempt interest • Other property (except address, and EIN on a separate income on Schedule N, item 15. Also, if nonqualified written notices of statement attached to this return. If the

required, include the same amount on allocation), based on earnings of that amount entered is from more than one

Schedule M-1, line 7. cooperative either from business done partnership, identify the amount from

with or for the United States or any of each partnership. Line 6. Gross Rents its agencies (or from sources other than 8. Any net positive section 481(a)

patronage, such as investment adjustment. The cooperative may have Enter the gross amount received from

the rental of property. Deduct expenses income). to make an adjustment under section such as repairs, interest, taxes, and 3. Qualified written notices of 481(a) to prevent amounts of income or depreciation on the applicable lines. allocation at their stated dollar amounts expense from being duplicated or

and property at its fair market value Generally, gross rents are omitted. The section 481(a) adjustment

(FMV). considered nonpatronage income to period is generally 1 year for a net

4. Amounts received on the nonexempt cooperatives (Regulations negative adjustment and 4 years for a

redemption, sale, or other disposition of section 1.1382(c)(2)). As such, a net positive adjustment. However, a

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cooperative can elect to use a 1-year more details, see Regulations sections section 280G and Regulations section

adjustment period if the net section 1.263A-8 through 1.263A-15. 1.280G-1.

481(a) adjustment for the change is The costs required to be capitalized Business start-up and organizational less than $25,000. The cooperative under section 263A are not deductible costs. Business start-up and must complete the appropriate lines of until the property (to which the costs organizational costs must be capitalized Form 3115 to make the election. If the relate) is sold, used, or otherwise unless an election is made to deduct or net section 481(a) adjustment is disposed of by the cooperative. amortize them. The cooperative can negative, report it on Form 990-C, line Exceptions. Section 263A does not elect to amortize costs paid or incurred 26.

apply to: before October 23, 2004, over a period

• Personal property acquired for resale of 60 months or more. For costs paid

Deductions if the cooperative’s average annual after October 22, 2004, the following

gross receipts for the 3 prior tax years rules apply separately to each category

were $10 million or less. of costs. Limitations on Deductions • Timber. • The cooperative can elect to deduct

Section 263A uniform capitalization • Most property produced under a up to $5,000 of such costs for the year

rules. The uniform capitalization long-term contract. the cooperative begins business

(UNICAP) rules of section 263A • Certain property produced in a operations.

generally require cooperatives to farming business. • The $5,000 deduction is reduced (but

capitalize, or include in inventory, • Research and experimental costs not below zero) by the amount the total

certain costs incurred in connection under section 174. cost exceeds $50,000. If the total costs

with: • Geological and geophysical costs are $55,000 or more, the deduction is • The production of real property and amortized under section 167(h). reduced to zero.

tangible personal property held in • Intangible drilling costs for oil, gas, • If the election is made, any costs that inventory or held for sale in the ordinary and geothermal property. are not deductible must be amortized

course of business. • Mining exploration and development ratably over a 180-month period. • Real property or personal property costs.

(tangible and intangible) acquired for • Inventoriable items accounted for in In all cases, the amortization period

resale. the same manner as materials and begins the month the cooperative

• The production of real property and supplies that are not incidental. See begins business operations. For more

tangible personal property by a Cost of Goods Sold details on the election for business for details.

cooperative for use in its trade or start-up and organizational costs, see For more details on the uniform business or in an activity engaged in for Pub. 535. capitalization rules, see Regulations profit. sections 1.263A-1 through 1.263A-3. Attach any statement required by

Cooperatives subject to the UNICAP See Regulations section 1.263A-4 and Regulations section 1.195-1(b) or

rules are required to capitalize not only Pub. 225, Farmer’s Tax Guide, for rules 1.248-1(c). Report the deductible

direct costs but an allocable part of for property produced in a farming amount of these costs and any

most indirect costs (including taxes) business. amortization on line 26. For

that (a) benefit the assets produced or amortization that begins during the Transactions between related

acquired for resale or (b) are incurred 2005 tax year, complete and attach taxpayers. Generally, an accrual basis by reason of the performance of Form 4562. taxpayer can only deduct business production or resale activities. expenses and interest owed to a Passive activity limitations.

For inventory, some of the indirect related party in the year payment is Limitations on passive activity losses

expenses that must be capitalized are: included in the income of the related and credits under section 469 apply to party. See sections 163(e)(3), 163(j), • Administration expenses; closely held cooperatives. and 267 for the limitations on • Taxes; deductions for unpaid interest and A cooperative is a “closely held • Depreciation; expenses. cooperative” (as defined at section • Insurance; 469(j)(1)) if at any time during the last • Compensation paid to officers Section 291 limitations. Cooperatives half of the tax year more than 50% in attributable to services; may be required to adjust deductions value of its outstanding stock is owned, • Rework labor; and for depletion of iron ore and coal, directly or indirectly, by or for not more • Contributions to pension, stock intangible drilling, exploration and than 5 individuals. Certain bonus, and certain profit-sharing, development costs, and the amortizable organizations are treated as individuals annuity, or deferred compensation basis of pollution control facilities. See for purposes of this test. See section plans. section 291 to determine the amount of 542(a)(2). For rules of determining the adjustment. Also, see section 43. Regulations section 1.263A-1(e)(3) stock ownership, see section 544 (as

specifies other indirect costs that relate Golden parachute payments. A modified by section 465(a)(3)). portion of the payments made by a to production or resale activities that cooperative to key personnel that Generally, the two kinds of passive must be capitalized, and those that may exceeds their usual compensation may activities are: be currently deductible. not be deductible. This occurs when the • Trade or business activities in which

Interest expense paid or incurred cooperative has an agreement (golden the cooperative did not materially

during the production period of parachute) with these key employees to participate, and

designated property must be capitalized pay them these excess amounts if • Rental activities, regardless of its

and is governed by special rules. For control of the cooperative changes. See participation.

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For exceptions, see Form 8810, appreciably prolong its life. New Line 12. Compensation of Corporate Passive Activity Loss and buildings, machinery, or permanent Officers Credit Limitations. improvements that increase the value

Enter deductible officer’s compensation of the property are not deductible here. Cooperatives subject to the passive on line 12. Before entering an amount They must be depreciated or amortized. activity limitations must complete Form on line 12, complete Schedule E if the 8810 to compute their allowable cooperative’s total receipts (line 1a plus Line 15. Bad Debts passive activity loss and credit. Before lines 4 through 10, page 1) are Enter the total debts that became completing Form 8810, see Temporary $500,000 or more. Do not include worthless in whole or in part during the Regulations section 1.163-8T, which compensation deductible elsewhere on tax year. A cash method taxpayer provides rules for allocating interest the return, such as amounts included in cannot claim a bad debt deduction expense among activities. If a passive cost of goods sold, elective unless the amount was previously activity is also subject to the earnings contributions to a section 401(k) cash included in income. stripping rules of section 163(j), the or deferred arrangement, or amounts at-risk rules of section 465, or the contributed under a salary reduction tax-exempt use loss rules of section Line 16. Rents SEP agreement or a SIMPLE IRA plan. 470, those rules apply before the If the cooperative rented or leased a Include only the deductible part of passive loss rules. vehicle, enter the total annual rent or each officer’s compensation on lease expense paid or incurred during For more information, see section Schedule E. Complete Schedule E, line the year. Also complete Form 4562, 469, the related regulations, and Pub. 1, columns (a) through (f), for all Depreciation and Amortization, Part V. 925, Passive Activity and At-Risk officers. The cooperative determines If the cooperative leased a vehicle for a Rules. who is an officer under the laws of the term of 30 days or more, the deduction state where it is incorporated. Reducing certain expenses for which for vehicle lease expense may have to

If a consolidated return is filed, each be reduced by an amount called the credits are allowable. For each credit

member of an affiliated group must inclusion amount. The cooperative may listed below, the cooperative must furnish this information. have an inclusion amount if: reduce the otherwise allowable

deductions for expenses used to figure Line 13. Salaries and Wages And the vehicle’s FMV on the credit. The lease term the first day of the lease Enter the salaries and wages paid for • Employment credits. See the began: exceeded:

the tax year, reduced by the total instructions for line 13.

amount claimed on: After 12/31/04 but before 1/1/06 $15,200 • Research credit. • Form 5884, Work Opportunity Credit, • Orphan drug credit. After 12/31/03 but before 1/1/05 $17,500 line 2; • Disabled access credit. After 12/31/02 but before 1/1/04 $18,000 • Form 5884-A, Credits for Employers • Enhanced oil recovery credit. If the lease term began before January 1, 2003, see Pub. Affected by Hurricane Katrina, Rita, or 463, Travel, Entertainment, Gift, and Car Expenses, to • Employer credit for social security Wilma, line 2; find out if the cooperative has an inclusion amount. The

and Medicare taxes paid on certain • Form 8844, Empowerment Zone and inclusion amount for lease terms beginning in 2006 will be

published in the Internal Revenue Bulletin in early 2006. employee tips. Renewal Community Employment

• Credit for small employer pension Credit, line 2;

plan start-up costs. • Form 8845, Indian Employment See Pub. 463 for instructions on

• Credit for employer-provided Credit, line 4; and figuring the inclusion amount.

childcare facilities and services. • Form 8861, Welfare-to-Work Credit,

• Low sulfur diesel fuel production line 2. Line 17. Taxes and Licenses

credit. Do not include salaries and wages Enter taxes paid or accrued during the

deductible elsewhere on the return, tax year, except the following. If the cooperative has any of these such as amounts included in cost of • Federal income taxes. credits, figure each current year credit goods sold, elective contributions to a • Foreign or U.S. possession income before figuring the deduction for the section 401(k) cash or deferred taxes if a tax credit is claimed expenses on which the credit is based. arrangement, or amounts contributed (however, see the Instructions for Form See the instructions for the applicable under a salary reduction SEP 5735 for special rules for possession form used to figure the credit. agreement or a SIMPLE IRA plan. income taxes).

Limitations on deductions related to • Taxes not imposed on the If the cooperative provided property leased to tax-exempt cooperative. taxable fringe benefits to its entities. If a cooperative leases • Taxes, including state or local sales CAUTION employees, such as personal

!

property to a governmental or other taxes, that are paid or incurred in use of a car, do not deduct as wages tax-exempt entity, the cooperative can connection with an acquisition or the amount allocated for depreciation, not claim deductions related to the disposition of property (these taxes are and other expenses claimed on lines 20 property to the extent that they exceed treated as part of the cost of the and 26. the cooperative’s income from the lease acquired property, or in the case of a

payments (tax-exempt use loss). disposition, as a reduction in the Line 14. Repairs and Amounts disallowed may be carried amount realized on the disposition).

over to the next tax year and treated as Maintenance • Taxes assessed against local

a deduction with respect to the property Enter the cost of incidental repairs, benefits that increase the value of the

for that tax year. See section 470 for such as labor and supplies, that do not property assessed (such as for paving,

more details and exceptions. add to the value of the property or etc.).

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• Taxes deducted elsewhere on the Cooperatives reporting taxable To figure the amount of any

return, such as those reflected in cost income on the accrual method can remaining NOL carryover to later years,

of goods sold. elect to treat as paid during the tax year taxable income must be modified (see

any contributions paid by the 15th day sections 172(b)). To the extent that See section 164(d) for the rule on of the 3rd month after the end of the tax contributions are used to reduce apportionment of taxes on real property year if the contributions were taxable income for this purpose and between the seller and purchaser. authorized by the board of directors increase an NOL carryover, a

Line 18. Interest during the tax year. Attach a contributions carryover is not allowed.

Do not offset interest income against declaration to the return stating that the See section 170(d)(2)(B).

resolution authorizing the contributions interest expense. Substantiation requirements. was adopted by the board of directors Do not deduct the following: Generally, no deduction is allowed for during the current tax year. The • Interest on indebtedness incurred or any contribution of $250 or more unless declaration must include the date the continued to purchase or carry the cooperative gets a written resolution was adopted. obligations if the interest is wholly acknowledgment from the donee

exempt from income tax. For Limitation on deduction. The total organization that shows the amount of

exceptions, see section 265(b). amount claimed may not be more than cash contributed, describes any

• For cash basis taxpayers, prepaid 10% of taxable income (line 30) property contributed, and either gives a

computed without regard to the description and a good faith estimate of interest allocable to years following the

current tax year. For example, a cash following. the value of any goods or services

basis calendar year taxpayer who in • Any deduction for contributions. provided in return for the contribution or

2005 prepaid interest allocable to any • The special deductions on line 29b, states that no goods or services were

period after 2005 can deduct only the Form 990-C. provided in return for the contribution.

amount allocable to 2005. • The deduction allowed under section The acknowledgment must be obtained

• 249. by the due date (including extensions) Interest and carrying charges on

straddles. Generally, these amounts • The deduction allowed under section of the cooperative’s return, or, if earlier,

must be capitalized. See section 199. the date the return is filed. Do not

263(g). • Any net operating loss (NOL) attach the acknowledgment to the tax

• Interest paid or incurred on any carryback to the tax year under section return, but keep it with the

portion of an underpayment of tax that 172. cooperative’s records. These rules

is attributable to an understatement • Any capital loss carryback to the tax apply in addition to the filing

arising from an undisclosed listed year under section 1212(a)(1). requirements for Form 8283, Noncash

Temporary suspension of 10% Charitable Contributions. transaction or an undisclosed

reportable avoidance transaction (other limitation. A cooperative may elect to Contributions of property other than than a listed transaction) entered into in deduct qualified cash contributions cash. If a cooperative contributes tax years beginning after October 22, without regard to the general 10% limit property other than cash and claims

2004. if the contributions were made after over a $500 deduction for the property, August 27, 2005, and before January 1, Special rules apply to: it must attach a schedule to the return

• Interest on which no tax is imposed 2006, to a qualified charitable describing the kind of property

(see section 163(j)). organization (other than certain private contributed and the method used to

• Forgone interest on certain foundations described in section determine its fair market value (FMV).

below-market-rate loans (see section 509(a)(3)), for Hurricane Katrina, Rita, Complete and attach Form 8283 for

7872). or Wilma relief efforts. The total amount contributions of property (other than

• Original issue discount on certain claimed cannot be more than taxable money) if the total claimed deduction

high yield discount obligations (see income as computed above substituting for all property contributed was more

section 163(e) to figure the disqualified “100%” for “10%.” Excess qualified than $5,000. Special rules apply to the

portion). contributions are carried over to the contribution of certain property. See the next 5 years. Attach a statement • Interest which is allocable to Instructions for Form 8283.

substantiating that the contributions are unborrowed policy cash values of life Larger deduction. A larger for Hurricane Katrina, Rita, or Wilma insurance, endowment, or annuity deduction is allowed for certain relief efforts and indicating the amount contracts issued after June 8, 1997. contributions of:

See section 264(f). Attach a statement of qualified contributions for which the • Inventory and other property to election is made. For more information, showing the computation of the certain organizations for use in the care see section 1400S. deduction. of the ill, needy, or infants (section Carryover. Charitable contributions 170(e)(3)) including contributions made Line 19. Charitable over the 10% limitation cannot be after August 27, 2005, and before Contributions deducted for the current tax year but January 1, 2006, of “apparently may be carried over to the next 5 tax Enter contributions or gifts actually paid wholesome food” (section 170(e)(3)(C))

within the tax year to or for the use of and qualified book contributions years.

charitable and governmental Special rules apply if the cooperative (section 170(e)(3)(D));

organizations described in section has an NOL carryover to the tax year. • Scientific equipment used for

170(c), and any unused contributions In figuring the charitable contributions research to institutions of higher

carried over from prior years. Special deduction for the tax year, the 10% limit learning or to certain scientific research

rules and limits apply to contributions to is applied using the taxable income organizations (other than by personal

organizations conducting lobbying after taking into account any deduction holding companies and service

activities. See section 170(f)(9). for the NOL. organizations (section 170(e)(4)); and

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• Computer technology and equipment owner and his or her spouse) owns the after December 31, 2005. See section

for educational purposes (section entire business. 179D.

170(e)(6). • Dividends paid in cash on stock held Line 24. Employee Benefit by an employee stock ownership plan. For more information on charitable

contributions, including substantiation Programs See section 404(k) for more details

and recordkeeping requirements, see Enter the contributions to employee and the limitation on certain dividends.

section 170, the related regulations, benefit programs not claimed Do not deduct:

and Pub. 526, Charitable Contributions. elsewhere on the return (that is, • Fines or penalties paid to a

For special rules that apply to insurance, health and welfare government for violating any law.

corporations, see Pub. 542. programs, etc.) that are not an • Any amount allocable to a class of

incidental part of a pension, exempt income. See section 265(b) for

Line 20a. Depreciation profit-sharing, etc., plan included on line exceptions.

23. Include on line 20a depreciation and Special rules the cost of certain property that the Line 26. Other Deductions cooperative elected to expense under Travel, meals, and entertainment.

section 179. See Form 4562 and its Attach a schedule, listing by type and Subject to limitations and restrictions

instructions. amount, all allowable deductions that discussed below, a cooperative can

are not deductible elsewhere. deduct ordinary and necessary travel,

Line 21. Depletion See Special rules meals, and entertainment expenses , later, for limits on paid or incurred in its trade or business. See sections 613 and 613A for certain other deductions. Also, see Pub.

percentage depletion rates applicable 535 for details on other deductions that Special rules that apply to

to natural deposits. Also, see section may apply to cooperatives. deductions for gifts, skybox rentals,

291(a)(2) for the limitation on the Examples of other deductions luxury water travel, convention

depletion deduction for iron ore and expenses, and entertainment tickets. include the following. coal (including lignite). See section 274 and Pub. 463. • Amortization (see Form 4562).

Attach Form T (Timber), Forest • Certain business start-up and Travel. The cooperative cannot

Activities Schedule, if a deduction for organizational costs the cooperative deduct travel expenses of any

depletion of timber is taken. elects to deduct. See Business start-up individual accompanying a cooperative

and organizational costs under officer or employee, including a spouse Foreign intangible drilling costs and Deductions. or dependent of the officer or foreign exploration and development • Reforestation costs. The cooperative employee, unless: costs must either be added to the can elect to deduct up to $10,000 of • That individual is an employee of the cooperative’s basis for cost depletion qualifying reforestation expenses for cooperative, and purposes or be deducted ratably over a each qualified timber property. The • His or her travel is for a bona fide 10-year period. See sections 263(i), cooperative can elect to amortize over business purpose that would otherwise 616, and 617 for details. See Pub. 535 84 months any amount not deducted. be deductible by that individual. for more information on depletion. See Pub. 535. Meals and entertainment. • Insurance premiums. Line 23. Pension, Generally, the cooperative can deduct • Legal and professional fees. only 50% of the amount otherwise Profit-sharing, etc., Plans • Supplies used and consumed in the allowable for meals and entertainment

Enter the deduction for contributions to business. expenses paid or incurred in its trade or

qualified pension, profit-sharing, or • Utilities. business. In addition (subject to

other funded deferred compensation • Ordinary losses from trade or exceptions under section 274(k)(2)):

plans. Employers who maintain such a business activities of a partnership • Meals must not be lavish or

plan generally must file one of the (from Schedule K-1 (Form 1065 or extravagant;

forms listed below, even if the plan is 1065-B)). Do not offset ordinary losses • A bona fide business discussion

not a qualified plan under the Internal against ordinary income. Instead, must occur during, immediately before, Revenue Code. The filing requirement include the income on line 10. Show or immediately after the meal; and

applies even if the cooperative does not the partnership’s name, address, and • An employee of the cooperative must

claim a deduction for the current tax EIN on a separate statement attached be present at the meal.

year. There are penalties for failure to to this return. If the amount entered is

See section 274(n)(3) for a special from more than one partnership, file these forms timely and for rule that applies to meal expenses for overstating the pension plan deduction. identify the amount from each individuals subject to the hours of See sections 6652(e) and 6662(f). partnership. service limits of the Department of • Extraterritorial income exclusion Form 5500, Annual Return/Report of Transportation. (from Form 8873, line 54). Employee Benefit Plan. File this form • Deduction for clean-fuel vehicle and Membership dues. The for a plan that is not a one-participant certain refueling property placed in cooperative can deduct amounts paid plan (see below). service before January 1, 2006. See or incurred for membership dues in

Form 5500-EZ, Annual Return of Pub. 535. civic or public service organizations,

One-Participant (Owners and Their • Any negative net section 481(a) professional organizations, business

Spouses) Retirement Plan. File this adjustment. See the instructions for line leagues, trade associations, chambers

form for a plan that only covers the 10. of commerce, boards of trade, and real

owner (or the owner and his or her • Deduction for certain energy efficient estate boards, unless a principal

spouse) but only if the owner (or the commercial property placed in service purpose of the organization is to

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entertain or provide entertainment cooperatives may have to adjust the section 444 to have a tax year other

facilities for members or their guest. amount on line 28. than a required tax year applies.

• A corporate equity reduction interest Cooperatives may not deduct A taxpayer is generally considered loss may not be carried back to a tax membership dues in any club organized “at-risk” for an amount equal to his or year preceding the year of the equity for business, pleasure, recreation, or her investment in the entity. That reduction transaction (see section other social purpose. This includes investment consists of money and other 172(b)(1)(E)). country clubs, golf and athletic clubs, property contributed to the entity and • If an ownership change occurs, the airline and hotel clubs, and clubs amounts borrowed on behalf of the amount of the taxable income of a loss operated to provide meals under entity. corporation that may be offset by the conditions favorable to business The at-risk rules do not apply to: pre-change NOL carryovers may be discussion. • Holding real property placed in limited (see section 382 and the related Entertainment facilities. The service by the cooperative before 1987; regulations). A loss corporation must cooperative cannot deduct an expense • Equipment leasing under sections file an information statement with its

paid or incurred for use of a facility 465(c)(4), (5), and (6); and income tax return for each tax year that (such as a yacht or hunting lodge) for • Any qualifying business of a qualified certain ownership shifts occur (see an activity that is usually considered cooperative under section 465(c)(7). Temporary Regulations section entertainment, amusement, or The at-risk rules do apply to the 1.382-2T(a)(2)(ii) for details). See recreation. holding of mineral property. Regulations section 1.382-6(b) for

Travel, meals, and entertainment details on how to make the If the at-risk rules apply, complete treated as compensation. Generally, closing-of-the-books election. Form 6198, At-Risk Limitations, then the cooperative may be able to deduct • If a cooperative acquires control of adjust the amount on line 28 for any otherwise nondeductible entertainment, another cooperative (or acquires its section 465(d) losses. These losses are amusement, or recreation expenses if assets in a reorganization), the amount limited to the amount for which the the amounts are treated as of pre-acquisition losses that may offset cooperative is at risk for each separate compensation to the recipient and recognized built-in gain may be limited activity at the close of the tax year. If reported on Form W-2 for an employee (see section 384). the cooperative is involved in one or or on Form 1099-MISC for an • If a cooperative elects the alternative more activities, any of which incurs a independent contractor. tax on qualifying shipping activities loss for the year, report the losses for under section 1354, no deduction is However, if the recipient is an officer, each activity separately. Attach Form allowed for an NOL attributable to the director, or beneficial owner (directly or 6198 showing the amount at risk and qualifying shipping activities to the indirectly) of more than 10% of any gross income and deductions for the extent that the loss is carried forward class of stock, the deductible expense activities with the losses. from a tax year preceding the first tax is limited. See section 274(e)(2) and If the cooperative sells or otherwise year for which the alternative tax Notice 2005-45, 2005-24 I.R.B. 1228. disposes of an asset or its interest election was made. See section

Lobbying expenses. Generally, (either total or partial) in an activity to 1358(b)(2). lobbying expenses are not deductible. which the at-risk rules apply, determine For details on the NOL deduction, These expenses include amounts paid the net profit or loss from the activity by

or incurred in connection with: see Pub. 542, section 172, and Form combining the gain or loss on the sale 1139, Corporation Application for • Influencing federal or state legislation or disposition with the profit or loss from Tentative Refund. (but not local legislation), or the activity. If the cooperative has a net • Any communication with certain loss, the loss may be limited because Line 30. Taxable Income federal executive branch officials in an of the at-risk rules.

attempt to influence the official actions Certain cooperatives may need to file Treat any loss from an activity not or positions of the officials. See Form 8817. If so, taxable income allowed for the current tax year as a Regulations section 1.162-29 for the reported on line 30 may not exceed the deduction allocable to the activity in the definition of “influencing legislation.” combined taxable income shown on

next tax year. line 30, Form 8817. Attach Form 8817 Dues and other similar amounts paid to Form 990-C. to certain tax-exempt organizations Line 29a. Net Operating Loss

may not be deductible. See section Deduction Patronage source losses cannot 162(e)(3). If certain in-house A cooperative can use the net be used to offset nonpatronage expenditures do not exceed $2,000, CAUTION income. See Form 8817.

!

operating loss incurred in one tax year they are deductible. See section to reduce its taxable income in another 162(e)(5)(B). Minimum taxable income. The year. Enter the total NOL carryovers cooperative’s taxable income cannot be

Line 28. Taxable Income from other tax years on line 29a, but do less than the largest of the following not enter more than the cooperative’s Before NOL Deduction and amounts. taxable income (after special • The amount of nondeductible CFC Special Deductions deductions). Attach a schedule showing dividends under section 965. This the computation of the deduction. Also At-risk rules. Special at-risk rules amount is equal to the difference complete item 20 on Schedule N. under section 465 generally apply to between columns (a) and (c) of Form

closely held cooperatives (see Passive The following special rules apply. 990-C, Schedule C, line 11.

activity limitations on page 8) engaged • A personal service corporation may • The inversion gain of the cooperative

in any activity as a trade or business or not carry back an NOL to or from any for the tax year, if the cooperative is an

for the production of income. These tax year to which an election under expatriated entity or a partner in an

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expatriated entity. For details, see issue years’ taxes on this line. Attach a If Form 2220 is attached, check the

section 7874. schedule showing how the credit was box on line 33, and enter the amount of

Net operating loss. figured. This credit is treated as a any penalty on this line. If line 30 (figured

without regard to the minimum taxable payment, and any amount that is more Line 36. Direct Deposit of than the tax on line 31 will be refunded. income rule stated above) is zero or

less, the cooperative can have an NOL Refund

Line 32g. Credits that can be carried back or forward as a If the cooperative has a refund of $1

deduction to other tax years. Generally, Credit for federal tax on fuels. Enter million or more and wants it directly

a cooperative first carries an NOL back any credit from Form 4136, Credit for deposited into its checking or savings

2 tax years. However, the cooperative Federal Tax Paid on Fuels. Attach account at any U.S. bank or other

can elect to waive the carryback period Form 4136 to Form 990-C. financial institution instead of having a

and instead carry the NOL forward to check sent to the cooperative, complete Credit for tax on ozone-depleting future tax years. To make the election, Form 8302 and attach it to the chemicals. Include on line 32g any see the instructions for Schedule N, cooperative’s tax return. credit the cooperative is claiming under item 19. section 4682(g)(2) for tax on

See Form 1139 for details, including ozone-depleting chemicals. Enter

other elections that may be available, “ODC” next to the entry space. Schedule A

which must be made no later than 6

months after the due date (excluding Line 32h. Total Payments Cost of Goods Sold

extensions) of the cooperative’s return. Add the amounts on lines 32d through Generally, inventories are required at

32g and enter the total on line 32h. the beginning and end of each tax year Line 32b. Estimated Tax if the production, purchase, or sale of Backup withholding. If the Payments merchandise is an income-producing cooperative had federal income tax Enter any estimated tax payments the factor. See Regulations section withheld from any payments it received, 1.471-1. cooperative made for the tax year. because, for example, it failed to give

Beneficiaries of trusts. the payer its correct EIN, include the However, if the cooperative is a If the

amount withheld in the total for line qualifying taxpayer, or a qualifying cooperative is the beneficiary of a trust,

32h. Enter the amount withheld and the small business taxpayer (defined and the trust makes a section 643(g)

words “Backup withholding” in the blank below), it can adopt or change its election to credit its estimated tax

space above line 32h. accounting method to account for payments to its beneficiaries, include inventoriable items in the same manner the cooperative’s share of the payment Line 33. Estimated Tax as materials and supplies that are not in the total for line 32b. Enter “T” and

incidental (unless its business is a tax the amount of the payment in the blank Penalty shelter as defined in section 448(d)(3)). space below line 31. A cooperative that does not make A “qualifying taxpayer” is a taxpayer estimated tax payments when due may Line 32c. Overpaid Estimated that, for each prior tax year ending after be subject to an underpayment penalty Tax December 16, 1998, has average for the period of underpayment. annual gross receipts of $1 million or If the cooperative overpaid estimated Generally, a cooperative is subject to less for the 3-tax-year period ending tax, it may be able to get a quick refund the penalty if its tax liability is $500 or

more and it did not timely pay the with that prior tax year. by filing Form 4466, Corporation

Application for Quick Refund of smaller of: A “qualifying small business

Overpayment of Estimated Tax. The • Its tax liability for 2005, or taxpayer” is a taxpayer (a) that, for

overpayment must be at least 10% of • Its prior year’s tax. each prior tax year ending on or after

the expected income tax liability and be See section 6655 for details and December 31, 2000, has average

at least $500. File Form 4466 after the exceptions including special rules for annual gross receipts of $10 million or

end of the cooperative’s tax year, and large cooperatives. less for the 3-tax-year period ending

no later than the 15th day of the third with that prior tax year and (b) whose Use Form 2220, Underpayment of month after the end of the tax year. principal business activity is not an Estimated Tax by Corporations, to see Form 4466 must be filed before the ineligible activity. if the cooperative owes a penalty and to cooperative files its tax return. Under this accounting method, figure the amount of the penalty.

Generally, the cooperative does not inventory costs for raw materials Line 32f. Credit from purchased for use in producing finished have to file this form because the IRS Refiguring Tax goods, and merchandise purchased for can figure the amount of any penalty resale, are deductible in the year the If the cooperative would pay less total and bill the cooperative for it. However, finished goods or merchandise are sold tax by claiming the deduction for the even if the cooperative does not owe (but not before the year the cooperative redemption of nonqualified written the penalty, complete and attach Form pays for the raw materials or notices of allocation or nonqualified 2220 if: merchandise if it is also using the cash per-unit retain certificates in the issue • The annualized income or adjusted method). For additional guidance on year versus the current tax year, seasonal installment method is used, or this method of accounting for refigure the tax for the years the • The cooperative is a large inventoriable items, see Pub. 538 and nonqualified written notices or corporation computing its first required the Instructions for Form 3115. certificates were originally issued installment based on the prior year’s

(deducting them in the issue year), then tax. (See the Instructions for Form 2220 Enter amounts paid for all raw

enter the amount of the reduction in the for the definition of a large corporation.) materials and merchandise on line 2.

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The amount the cooperative can deduct of the applicable regulations cited Line 6a. Additional Section

for the tax year is figured on line 9. below. 263A Costs

All filers not using the cash method The cooperative is required to use An entry is required on this line only by of accounting should see Section 263A cost if it is using the cash method of cooperatives electing a simplified uniform capitalization rules on page 8 accounting. method of accounting. before completing Schedule A. Cooperatives that account for For cooperatives that have elected inventory in the same manner as Line 1. Inventory at the simplified production method, materials and supplies that are not additional section 263A costs are Beginning of Year incidental may currently deduct generally those costs, other than

Beginning inventory will generally equal expenditures for direct labor and all interest, that were not capitalized under

ending inventory from last year’s return. indirect costs that would otherwise be the cooperative’s method of accounting included in inventory costs. If this is your initial year, do not make immediately prior to the effective date

an entry on line 1. of section 263A but are now required to The average cost (rolling average)

be capitalized under section 263A. For method of valuing inventories generally If the cooperative is changing its

method of accounting for the current details, see Regulations section does not conform to the requirements

1.263A-2(b). of the regulations. See Rev. Rul. tax year, it must refigure last year’s 71-234, 1971-1 C.B. 148. closing inventory using its new method For cooperatives that have elected

of accounting and enter the result on the simplified resale method, additional Cooperatives that use erroneous

line 1. If there is a difference between section 263A costs are generally those valuation methods must change to a

last year’s closing inventory and the costs incurred with respect to the method permitted for federal income tax

refigured amount, attach an following categories: purposes. Use Form 3115 to make this

explanation. Take the difference into • Off-site storage or warehousing. change.

account when figuring the cooperative’s • Purchasing; handling, such as On line 10a, check the method(s) section 481(a) adjustment. processing, assembly, repackaging, used for valuing inventories. Under and transporting. lower of cost or market, the term Line 4a. Per-unit Retain • General and administrative costs “market” (for normal goods) means the Allocations paid in Qualified (mixed service costs). current bid price prevailing on the

Per-unit Retain Certificates For details, see Regulations section inventory valuation date for the

Qualified per-unit retain certificates are 1.263A-3(d). particular merchandise in the volume

usually purchased by the taxpayer. For issued to patrons who have agreed to Enter on line 6a the balance of a manufacturer, market applies to the include the stated dollar amount on the section 263A costs paid or incurred basic elements of cost—raw materials, certificate in current income. during the tax year not includable on labor, and burden. If section 263A lines 2, 3, and 6b. applies to the taxpayer, the basic Line 5. Per-unit Retain

Line 6b. Other Costs elements of cost must reflect the Allocations paid in Money or current bid price of all direct costs and

Other Properties (except Enter on line 6b any costs paid or all indirect costs properly allocable to incurred during the tax year not entered Nonqualified Per-unit goods on hand at the inventory date. on lines 2 through 6a.

Certificates) Inventory may be valued below cost

Line 8. Inventory at End of when the merchandise is unsalable at Enter the amount paid in money or

Year normal prices or unsalable in the other property (except per-unit retain normal way because the goods are certificates) to patrons to redeem See Regulations sections 1.263A-1 subnormal due to damage, nonqualified per-unit retain certificates. through 1.263A-3 for details on figuring imperfections, shop wear, etc., within No deduction is allowed at the time of the amount of additional section 263A the meaning of Regulations section issuance for a nonqualified per-unit costs to be included in ending 1.471-2(c). The goods may be valued retain certificate. However, the inventory. at a current bona fide selling price, cooperative may take a deduction in If the cooperative accounts for minus direct cost of disposition (but not the year the certificate is redeemed, inventoriable items in the same manner less than scrap value) if such a price subject to the stated dollar amount of as materials and supplies that are not can be established. the certificate. incidental, enter on line 8 the portion of If this is the first year the Last-in, The cooperative can also choose to its raw materials and merchandise First-out (LIFO) inventory method was deduct the amount paid to redeem the purchased for resale that is included on either adopted or extended to inventory certificate in the prior year if redemption line 7 and was not sold during the year. goods not previously valued under the occurs within the payment period for LIFO method provided for in section that preceding year. See section Lines 10a through 10f. 472, attach Form 970, Application To 1382(b). Inventory Valuation Methods Use LIFO Inventory Method, or a

See section 1383 and the Inventories can be valued at: statement with the information required

instructions for line 32f on page 13 for a • Cost, by Form 970. Also check the LIFO box

special rule for figuring the • Cost or market value (whichever is on line 10c. On line 10d, enter the

cooperative’s tax in the year of lower), or amount or the percent of total closing

redemption of a nonqualified per-unit • Any other method approved by the inventories covered under section 472.

retain certificate. IRS that conforms to the requirements Estimates are acceptable.

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If the cooperative changed or Line 2. Column (a) Line 6. Column (a) extended its inventory to LIFO and had Enter: Enter the U.S.-source portion of to write up its opening inventory to cost • Dividends (except those received on dividends that: in the year of election, report the effect debt-financed stock acquired after July • Are received from of this write-up as income (line 10, 18, 1984) that are received from less-than-20%-owned foreign page 1) proportionately over a 3-year 20%-or-more-owned domestic corporations, and period beginning with the year of the • Qualify for the 70% deduction under LIFO election (section 472(d)). corporations subject to income tax and section 245(a). that are subject to the 80% deduction For more information on inventory To qualify for the 70% deduction, the under section 243(c), and valuation methods, see Pub. 538. cooperative must own at least 10% of • Taxable distributions from an the stock of the foreign corporation by IC-DISC or former DISC that are vote and value. considered eligible for the 80%

Schedule C deduction. Also include dividends received

from a less-than-20%-owned FSC that:

• Are attributable to income treated as Dividends and Special Line 3. Column (a) effectively connected with the conduct Deductions Enter dividends that are: of a trade or business within the United

For purposes of the 20% ownership • Received on debt-financed stock States (excluding foreign trade income),

test on lines 1 through 7, the acquired after July 18, 1984, that are and

percentage of stock owned by the received from domestic and foreign • Qualify for the 70% deduction

cooperative is based on voting power corporations subject to income tax that provided in section 245(c)(1)(B).

and value of the common stock. would otherwise be subject to the

Preferred stock described in section dividends-received deduction under Line 7. Column (a)

1504(a)(4) is not taken into account. sections 243(a)(1), 243(c), or 245(a). Enter the U.S.-source portion of

Cooperatives filing a consolidated • Received from a RIC on dividends that:

return should see Regulations sections debt-financed stock. The amount of • Are received from

1.1502-13, 1.1502-26, and 1.1502-27 dividends eligible for the 20%-or-more-owned foreign

before completing Schedule C. dividends-received deduction is limited corporations, and

by section 854(b). The cooperative • Qualify for the 80% deduction under

Line 1. Column (a) should receive a notice from the RIC section 245(a).

Enter dividends (except those received specifying the amount of dividends that Also include dividends received from a

qualify for the deduction. 20%-or-more-owned FSC that: on debt-financed stock acquired after • Are attributable to income treated as July 18, 1984–see section 246A) that effectively connected with the conduct are: Line 3. Columns (b) and (c) of a trade or business within the United • Received from less-than-20%-owned Dividends received on debt-financed States (excluding foreign trade income), domestic corporations subject to stock acquired after July 18, 1984, are and income tax, and not entitled to the full 70% or 80% • Qualify for the 80% deduction under • Qualified for the 70% deduction dividends-received deduction. The 70% section 245(c)(1)(B). under section 243(a)(1). or 80% deduction is reduced by a

Also include on line 1: percentage that is related to the Line 8. Column (a) • Taxable distributions from an amount of debt incurred to acquire the Enter dividends received from wholly IC-DISC or former DISC that are stock. See section 246A. Also see owned foreign subsidiaries that are designated as eligible for the 70% section 245(a) before making this eligible for the 100% deduction under deduction, and certain dividends of computation for an additional limitation section 245(b). Federal Home Loan Banks. See section that applies to dividends received from In general, the deduction under 246(a)(2). foreign corporations. Attach a schedule section 245(b) applies to dividends paid • Dividends (except those received on to Form 990-C showing how the out of the earnings and profits of a debt-financed stock acquired after July amount on line 3, column (c), was foreign corporation for a tax year during 18, 1984) from a regulated investment figured. which: company (RIC). The amount of • All of its outstanding stock is directly dividends eligible for the Line 4. Column (a) or indirectly owned by the domestic dividends-received deduction under

Enter dividends received on preferred cooperative receiving the dividends, section 243 is limited by section 854(b). and The cooperative should receive a notice stock of a less-than-20%-owned public • All of its gross income from all from the RIC specifying the amount of utility that is subject to income tax and sources is effectively connected with dividends that qualify for the deduction. is allowed the deduction provided in the conduct of a trade or business Generally, debt-financed stock is stock section 247 for dividends paid. within the United States. that the cooperative acquired by

incurring a debt (e.g., it borrowed Line 5. Column (a) Line 9. Column (c) money to buy the stock). Enter dividends received on preferred Generally, line 9, column (c), cannot

Report so-called dividends or exceed the amount from the worksheet stock of a 20%-or-more-owned public

earnings received from mutual savings below. However, in a year in which an utility that is subject to income tax and

banks, etc., as interest income. Do not NOL occurs, this limitation does not is allowed the deduction provided in

treat them as dividends. apply even if the loss is created by the section 247 for dividends paid.

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dividends-received deduction. See days before the ex-dividend date. When Line 12. Column (a) sections 172(d) and 246(b). counting the number of days the Enter foreign dividends not reportable cooperative held the stock, you cannot on lines 3, 6, 7, 8, 10, or 11 of column Worksheet for Schedule C, line 9 count certain days during which the (a). Include on line 12 the cooperative’s (keep for your records) cooperative’s risk of loss was share of the ordinary earnings of a diminished. See section 246(c)(4) and qualified electing fund from line 1c of 1. Refigure line 28, page 1, Form Regulations section 1.246-5 for more 990-C, without any adjustment Form 8621, Return by a Shareholder of details.

under section 1059 and without a Passive Foreign Investment b. Dividends attributable to periods any capital loss carryback to the Company or Qualified Electing Fund. totaling more than 366 days that the tax year under section Exclude distributions of amounts cooperative received on any share of 1212(a)(1) .............. constructively taxed in the current year 2. Enter the amount from line 10, preferred stock held for less than 91 or in prior years under subpart F column (c) .............. days during the 181-day period that (sections 951 through 964). 3. Subtract line 2 from line 1 .... began 90 days before the ex-dividend

4. Multiply line 3 by 80% ....... Line 13. Column (a) date. When counting the number of

5. Add lines 2, 5, 7, and 8, column days the cooperative held the stock,

(c) and the part of the deduction Include income constructively received you cannot count certain days during on line 3, column (c) that is from CFCs under subpart F. This which the cooperative’s risk of loss was attributable to dividends amount should equal the total subpart F diminished. See section 264(c)(4) and received from income reported on Schedule I, Form Regulations section 1.264-5 for more 20%-or-more-owned 5471, Information Return of U.S.

corporations ............. details. Preferred dividends attributable Persons With Respect To Certain 6. Enter the smaller of line 4 or line to periods totaling less than 367 days Foreign Corporations. 5. If line 5 is greater than line 4, are subject to the 46-day holding period

stop here; enter the amount Line 14. Column (a) above.

from line 6 on line 9, column (c). c. Dividends on any share of stock Do not complete the rest of this Include gross-up for taxes deemed paid to the extent the cooperative is under worksheet .............. under sections 902 and 960. an obligation (including a short sale) to 7. Enter the total amount of Line 15. Column (a) make related payments with respect to dividends received from positions in substantially similar or 20%-or-more-owned Enter taxable distributions from an related property. corporations that are included IC-DISC or former DISC that are on lines 2, 3, 5, 7, and 8, 5. Any other taxable dividend designated as not eligible for a column (a) .............. income not properly reported above dividends-received deduction. 8. Subtract line 7 from line 3 .... (including distributions under section

9. Multiply line 8 by 70% ....... No deduction is allowed under 936(h)(4)).

10. Subtract line 5 from line 9, section 243 for a dividend from an

column (c) .............. IC-DISC or former DISC (as defined in 11. Enter the smaller of line 9 or line section 992(a)) to the extent the 10 . . . . . . . . . . . . . . . . . . . . dividend: Schedule H

12. Dividends-received deduction

after limitation (section 246(b)). 1. Is paid out of the cooperative’s

Add lines 6 and 11. Enter the accumulated IC-DISC income or Deductions and Adjustments

result here and on line 9, previously taxed income, or Under Section 1382

column (c) .............. 2. Is a deemed distribution under Cooperatives may, under section section 995(b)(1). 1388(j)(1), use losses from one or more

allocation units to offset earnings of one Line 10. Columns (a) and (c) Line 16. Column (a) or more other allocation units, as Enter dividends from FSCs that are Include the following: permitted by their bylaws, but only to attributable to foreign trade income and the extent that the earnings and losses 1. Dividends (other than capital gain that are eligible for the 100% deduction are from business done with or for distributions reported on Schedule D provided in section 245(c)(1)(A). patrons. If a cooperative exercises this (Form 1120) and exempt-interest option, it must provide the information dividends) that are received from RICs Enter dividends that qualify under specified in section 1388(j)(3) by written and that are not subject to the 70% section 243(b) for the 100% notice to its patrons. deduction. dividends-received deduction described 2. Dividends from tax-exempt Special rules also apply if a in section 243(a)(3). Cooperatives organizations. cooperative has acquired the assets of taking this deduction are subject to the 3. Dividends (other than capital gain another cooperative under a section provisions of section 1561. The 100% distributions) received from a REIT that, 381(a) transaction. See section 1388(j) deduction does not apply to affiliated for the tax year of the trust in which the for more information. Cooperatives may group members that are joining in the dividends are paid, qualifies under net earnings and losses under section filing of a consolidated return. sections 856 through 860. 1388(j) and still be eligible for

4. Dividends not eligible for a tax-exempt treatment. See section

Line 11. Columns (a) and (c) dividends-received deduction, which 521(b)(6).

Enter qualifying dividends from Form If the cooperative sells qualifying include the following.

8895, One-Time Dividends Received a. Dividends received on any share foreign trade property, no deduction is

Deduction for Certain Cash Dividends of stock held for less than 46 days allowed for patronage dividends,

from Controlled Foreign Corporations. during the 91-day period beginning 45 per-unit retain allocations, and

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nonpatronage distributions related to • Income from business done with or at least 20% of the patronage dividend,

foreign trade income. For details, see for the U.S. Government, or any of its and

section 941(b)(2). agencies. • One of the following conditions is

met: Any patronage dividends or per-unit See the line 3 instructions, below, for

retain allocations that are allocated to a definition of “qualified written notice of 1. The patron must have at least 90

qualifying foreign trade income of the allocation.” See section 1382(c)(2)(B) days from the date the written notice of

cooperative may be treated as for deductibility of amounts paid in allocation is paid to redeem it in cash,

qualifying foreign trade income of the redemption of nonqualified written and must receive written notice of the

patron. In order to qualify, the amount notices of allocation. See section 1388 right of redemption at the time the

must be designated by the cooperative (d) for a definition of a nonqualified patron receives the allocation; or

in a written notice mailed to its patrons written notice of allocation. 2. The patron must agree to have

not later than the 15th day of the 9th the allocation treated as constructively

month following the close of the tax Line 3. Patronage Dividends received and reinvested in the

year. For more details, see section To be deductible, patronage dividends cooperative. See section 1388(c)(2)

943(g). must be paid during the payment period and the related regulations for

that begins on the first day of the tax information on how this consent must Lines 1 and 2 apply only to section year in which the patronage occurs and be made. 521 cooperatives. ends on the 15th day of the 9th month

Line 1. Dividends Paid on after the end of that tax year. If a written notice of allocation does

Capital Stock (Section 521 See sections 1382(e) and (f) for not qualify, no deduction is allowable at

the time it is issued. However, the special rules for the time when Cooperatives Only) cooperative is entitled to a deduction or patronage occurs if products are Enter the amount actually or marketed under a pooling arrangement, refund of tax when the nonqualified

constructively paid as dividends during written notice of allocation is finally or if earnings are includible in the gross the tax year on: redeemed, if that notice was paid as a income of the cooperative for a tax year • Common stock (whether voting or patronage dividend during the payment after the year in which the patronage nonvoting), period for the tax year during which the occurred. • Preferred stock, patronage occurred. The deduction or Patronage dividends include any • Capital retain certificates, refund is allowed, but only to the extent amount paid to a patron by a • Revolving fund certificates, that amounts paid to redeem the cooperative based on the quantity or • Letters of advice, or nonqualified written notices of allocation value of business done with or for that • Other documentary evidence of a are paid in money or other property patron under a pre-existing obligation to proprietary interest in the cooperative (other than written notices of allocation) pay that amount. The amount is association. which do not exceed the stated dollar determined by reference to the net See Regulations section 1.1382-3(b) amounts of the nonqualified written earnings of the organization from notices of allocation. See section for more information. business done with or for its patrons. 1382(b), Regulations section 1.1382-2,

Line 2. Nonpatronage Note. Net earnings are not reduced by and section 1383.

dividends paid on capital stock of the Income Allocated to Patrons organization if there is a legally See Rev. Rul. 81-103, 1981-1 C.B.

(Section 521 Cooperatives enforceable agreement that such 447, for the redemption of nonqualified

Only) dividends are in addition to amounts written notices of allocation issued to

otherwise payable to patrons derived patrons by a payment of cash and a Enter nonpatronage income allocated from business done with or for patrons. crediting of accounts receivable due to patrons. Payment may be in: from patrons. • Money, Patronage dividends may be paid in:

• Qualified written notices of allocation, • Money, See section 1383 for special rules

or • Qualified written notices of allocation, for figuring the cooperative’s tax in the

• Other property (except nonqualified or year nonqualified written notices of

written notices of allocation). • Other property (except nonqualified allocation are redeemed. The

written notices of allocation). cooperative is entitled to: The amounts must be paid during

the payment period that begins on the A written notice of allocation means: 1. A deduction in the tax year the

first day of the tax year and ends on the • Any capital stock, nonqualified written notices of allocation

15th day of the 9th month after the end • Revolving fund certificate, are redeemed (if permitted under

of the tax year in which the income was • Retain certificate, section 1382(b)(2) or (4) or section

earned. • Certificate of indebtedness, 1382(c)(2)(B), or

• Letter of advice, or 2. A tax credit based on a Nonpatronage income. • Other written notice, which states the recomputation of tax for the year(s) the Nonpatronage income includes dollar amount allocated to the patron by nonqualified written notices of allocation incidental income from sources not

the cooperative and the part, if any, were issued. See the instructions for directly related to: which is a patronage dividend. line 32f. • Marketing,

• Purchasing, In general, a qualified written notice Amounts paid to patrons are not • Service activities of the cooperative of allocation is a written notice of patronage dividends if paid: (such as income from the lease of allocation that is:

premises, investments, or from the sale • Paid as part of a patronage dividend, 1. Out of earnings not from

or exchange of capital assets), or in money or by qualified check equal to business done with or for patrons;

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2. Out of earnings from business or fewer persons who are individuals, • $25,000 (one-half of $50,000) on line

done with or for other patrons to whom estates, or trusts directly or indirectly 2a(1),

no amounts or smaller amounts are own stock possessing: • $12,500 (one-half of $25,000) on line

paid for substantially identical • At least 80% of the total combined 2a(2), and

transactions; voting power of all classes of stock • $4,962,500 (one-half of $9,925,000)

3. To redeem capital stock, entitled to vote or at least 80% of the on line 2a(3).

certificates of indebtedness, revolving total value of shares of all classes of Unequal apportionment plan. fund certificates, retain certificates, the stock of each corporation, and Members of a controlled group can letters of advice, or other similar • More than 50% of the total combined elect an unequal apportionment plan documents; or voting power of all classes of stock and divide the taxable income brackets 4. Without reference to the net entitled to vote or more than 50% of the as they want. There is no need for earnings of the cooperative total value of shares of all classes of consistency among taxable income organization from business done with or stock of each corporation, taking into brackets. Any member may be entitled for its patrons. account the stock ownership of each to all, some, or none of the taxable such person only to the extent such Line 3(e). Other. An agricultural or income bracket. However, the total stock ownership is identical with horticultural cooperative must reduce its amount for all members cannot exceed respect to each such corporation. section 1382 deduction for that portion the total amount in each taxable

of its section 199 deduction entered on The definition of brother-sister group income bracket.

Form 8903 that is allocated to patrons. does not include the first bullet above

Enter this amount on line 3(e) as a for purposes of the taxable income Line 2b. Enter Cooperative’s

negative amount. brackets, alternative minimum tax Share exemption amounts, and accumulated Members of a controlled group are earnings credit. treated as one group to figure the Schedule J Combined group. A combined group applicability of the additional 5% tax

is three or more corporations each of and the additional 3% tax. If an

Tax Computation which is a member of a additional tax applies, each member will

parent-subsidiary group or a pay that tax based on the part of the

Line 1. Members of a brother-sister group, and one of which amount used in each taxable income

Controlled Group is: bracket to reduce that member’s tax. • A common parent corporation See section 1561(a). If an additional tax A member of a controlled group, as included in a group of corporations in a applies, attach a schedule showing the defined in section 1563, must check the parent-subsidiary group, and also taxable income of the entire group and box on line 1 and complete lines 2a and • Included in a group of corporations in how the cooperative figured its share of 2b, as applicable. The term “controlled a brother-sister group. the additional tax. group” means any parent-subsidiary

group, brother-sister group, or For more details on controlled Line 2b(1). Enter the cooperative’s

combined group. See the definitions groups, see section 1563. share of the additional 5% tax on line

below. 2b(1). Line 2a. Income Brackets Parent-subsidiary group. A Line 2b(2). Enter the cooperative’s parent-subsidiary group is one or more Members of a controlled group are share of the additional 3% tax on line

chains of corporations connected entitled to share one $50,000, one 2b(2). through stock ownership with a $25,000, and one $9,925,000 taxable

common parent corporation if: income bracket amount (in that order). Line 3. Income Tax • Stock possessing at least 80% of the When a controlled group adopts or Most cooperatives figure their tax by total combined voting power of all later amends an apportionment plan, using the Tax Rate Schedule next. classes of stock entitled to vote or at each member must attach to its tax Exceptions apply to members of a least 80% of the total value of shares of return a copy of its consent to this plan. controlled group (see the worksheet). all classes of stock of each of the

corporations, except the common The copy (or an attached statement) Tax Rate Schedule

parent corporation, is directly or must show the part of the amount in

each taxable income bracket If taxable income on Form 990-C, line 30, is: indirectly owned by one or more of the

other corporations; and apportioned to that member. See Of the • The common parent corporation Regulations section 1.1561-3(b) for But not amount

directly or indirectly owns stock other requirements and for the time and Over — over — Tax is: over —

possessing at least 80% of the total manner of making the consent.

$0 $50,000 15% $0 combined voting power of all classes of Equal apportionment plan. If no 50,000 75,000 $ 7,500 + 25% 50,000 stock entitled to vote or at least 80% of apportionment plan is adopted, 75,000 100,000 13,750 + 34% 75,000 the total value of shares of all classes members of a controlled group must 100,000 335,000 22,250 + 39% 100,000

of stock of at least one of the other divide the amount in each taxable 335,000 10,000,000 113,900 + 34% 335,000

corporations, excluding, in computing 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 income bracket equally among such voting power or value, stock 15,000,000 18,333,333 5,150,000 + 38% 15,000,000 themselves. For example, Controlled 18,333,333 - - - - - 35% 0 owned directly by such other Group AB consists of Cooperative A corporation. and Cooperative B. They do not elect

Brother-sister group. A brother-sister an apportionment plan. Therefore, each Members of a controlled group must

group is two or more corporations if 5 cooperative is entitled to: attach to Form 990-C a statement

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showing the computation of the tax the bottom margin of page 1, Form Note. For tax years ending after

entered on Schedule J, line 3. 990-C, and enter “Section 1291 December 31, 2005, the

interest.” If the cooperative has a tax nonconventional source fuel credit is a Tax Computation Worksheet for due, include the interest due in the general business credit included on Members of a Controlled Group payment. If you would otherwise Form 3800. (keep for your records) receive a refund, reduce the refund by

the interest due. For details, see Form Line 6c. General Business

Note. Each member of a controlled group must 8621. Credit compute its tax using this worksheet.

The following credits are not reported 1. Enter taxable income (line 30, Line 4. Alternative Minimum on Form 3800. Check the “Form(s)” page 1) ................. Tax (AMT) box, enter the form number in the 2. Enter line 1 or the cooperative’s Unless the cooperative is treated as a space provided, and include the share of the $50,000 taxable small corporation exempt from the allowable credit on line 6c, if the income bracket, whichever is

AMT, it may owe AMT if it has any of cooperative is filing: less ................... • Credit for Alcohol Used as Fuel the adjustments and tax preference 3. Subtract line 2 from line 1 .... (Form 6478 (see Allocation to patrons items listed on Form 4626, Alternative

4. Enter line 3 or the cooperative’s Minimum Tax–Corporations. The below)),

share of the $25,000 taxable • Empowerment Zone and Renewal cooperative must file Form 4626 if its income bracket, whichever is taxable income (or loss) before the Community Employment Credit (Form less ................... NOL deduction combined with these 8844), or

5. Subtract line 4 from line 3 .... adjustments and tax preference items is • Renewable Electricity, Refined Coal,

more than the lesser of: and Indian Coal Production Credit 6. Enter line 5 or the cooperative’s

• $40,000, or (Form 8835, Section B only (see share of the $9,925,000 taxable Allocation to patrons below)) . income bracket, whichever is • The cooperative’s allowable

less ................... exemption amount (from Form 4626). If the cooperative is required to file

7. Subtract line 6 from line 5 .... Form 3800, General Business Credit, Exemption for small corporations. A check the “Form 3800” box and include 8. Multiply line 2 by 15% ....... cooperative is treated as a small the allowable credit on line 6c. See the corporation exempt from the AMT for its 9. Multiply line 4 by 25% ....... Instructions for Form 3800. tax year beginning in 2005 if that year

10. Multiply line 6 by 34% ....... is the cooperative’s first tax year in If the cooperative is not required to

11. Multiply line 7 by 35% ....... existence (regardless of its gross file Form 3800, check the “Form(s)”

receipts) or: box, enter the form number (from the 12. If the taxable income of the list below) in the space provided, and controlled group exceeds 1. It was treated as a small

include on line 6c the allowable credit $100,000, enter this member’s corporation exempt from the AMT for all

share of the smaller of: 5% of from the applicable form listed below. prior tax years beginning after 1997,

the taxable income in excess of • Investment Credit (Form 3468). and

$100,000, or $11,750. See 2. Its average annual gross receipts • Work Opportunity Credit (Form

instructions for line 2b ....... 5884). for the 3-tax-year period (or portion • Welfare-to-Work Credit (Form 8861). 13. If the taxable income of the thereof during which the cooperative

controlled group exceeds $15 was in existence) ending before its tax • Credit for Increasing Research

million, enter this member’s Activities (Form 6765). year beginning in 2005 did not exceed share of the smaller of: 3% of $7.5 million ($5 million if the • Low-Income Housing Credit (Form

the taxable income in excess of 8586). cooperative had only 1 prior tax year). $15 million, or $100,000. See • Enhanced Oil Recovery Credit (Form instructions for line 2b ....... 8830). For more information, see the 14. Add lines 8 through 13. Enter • Disabled Access Credit (Form 8826). Instructions for Form 4626. here and on Schedule J, line 3. • Renewable electricity production

credit (Form 8835, Section A only (see Line 6a. Foreign Tax Credit Allocation to patrons below)). To find out when a cooperative can • Indian Employment Credit (Form Deferred tax under section 1291. If take the credit for payment of income 8845). the cooperative was a shareholder in a tax to a foreign country or U.S. • Credit for Employer Social Security passive foreign investment company possession, see Form 1118, Foreign and Medicare Taxes Paid on Certain (PFIC), and the cooperative received Tax Credit–Corporations. Employee Tips (Form 8846). an excess distribution or disposed of its • Orphan Drug Credit (Form 8820). investment in the PFIC during the year, Line 6b. Other Credits • New Markets Credit (Form 8874). it must include the total increase in Claim these credits in the following • Credit for Small Employer Pension taxes due under section 1291(c)(2) in order: Plan Startup Costs (Form 8881). the amount entered on line 3, Schedule • Form 5735, Possessions Corporation • Credit for Employer-Provided J. On the dotted line next to line 3, Tax Credit; Childcare Facilities and Services (Form Schedule J, enter “Section 1291” and • Form 8907, Nonconventional Source 8882). the amount. Fuel Credit (line 23 for calendar year • Qualified Railroad Track

Do not include on line 3 any interest filers only); and Maintenance Credit (Form 8900).

due under section 1291(c)(3). Instead, • Form 8834, Qualified Electric Vehicle • Biodiesel and Renewable Diesel

show the amount of interest owed in Credit. Fuels Credit (Form 8864).

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• Low Sulfur Diesel Fuel Production Line 9. Other Taxes • Interest due on deferred gain (section

Credit (Form 8896). 1260(b)). Include any of the following taxes and • Distilled Spirits Credit (Form 8906). • For tax years beginning after October interest in the total on line 9. Check the • Nonconventional Source Fuel Credit 22, 2004, tax on income from notional appropriate box(es) for the form, if any, (Form 8907). shipping income. See Income from used to compute the total. • Energy Efficient Home Credit (Form qualifying shipping activities on page 6.

8908). Alternative tax on qualifying Report the section 1352(a) tax on

• Alternative Motor Vehicle Credit Schedule J, line 3, and report the shipping activities. Enter any

(Form 8910). alternative tax on qualifying shipping section 1352(2) tax on Schedule J, line

• Alternative Fuel Vehicle Refueling 10, and check the box for Form 8902. activities from Form 8902. Check the

Property Credit (Form 8911). box for Form 8902. Recapture of allocation of credit • Credit for Contributions to Selected Recapture of investment credit. If the to patrons. If the amount of credit Community Development Corporations cooperative disposed of investment apportioned to any patron is decreased, (Form 8847). credit property or changed its use there is a tax imposed on the • Credit for Employers Affected by before the end of its useful life or cooperative, not the patron. Hurricane Katrina, Rita, or Wilma (Form recovery period, see Form 4255, • Recapture of allocation of small 5884-A). Recapture of Investment Credit, for ethanol producer credit to patrons

Allocations to patrons of subchapter details. (Form 6478). See section

T cooperatives. The cooperative may Recapture of low-income housing 40(g)(6)(B)(iii) for how to figure the tax.

elect to allocate any or all of certain • Recapture of credit for renewable credit. If the cooperative disposed of credits (Forms 6478, 8835 (Section A electricity, refined coal, and Indian coal property (or there was a reduction in or Section B), 8864, or 8896) among (Form 8835). See section 45(e)(11)(C) the qualified basis of the property) for the patrons based on the quantity or which it took the low-income housing for how to figure the tax.

value of business done with or for such • Recapture of credit for biodiesel and credit, it may owe a tax. See Form patrons. For the allocation to take renewable diesel fuels (Form 8864). 8611, Recapture of Low-Income effect, the cooperative must designate Housing Credit. See section 40A(e)(6)(B)(iii) on how to

the apportionment in a written notice figure the tax.

mailed to its patrons before the due Other. Additional taxes and interest • Recapture of allocation of low sulfur amounts can be included in the total date of the cooperative’s return. The diesel fuel production credit to patrons entered on line 9. Check the box for credit amount allocated to patrons (Form 8896). See section 45H(g)(3) for “Other” if the cooperative includes any cannot be included on line 6c. Once how to figure the tax.

made, the election cannot be revoked. additional taxes and interest such as

the items discussed below. See How to How to report. If the cooperative For more information, see the report, below, for details on reporting checked the “Other” box, attach a instructions for Forms 6478, 8835, schedule showing the computation of these amounts on an attached 8864, or 8896. For tax associated with schedule. each item included in the total for line 9, a decrease in the credit allocated to • Recapture of the qualified electric identify the applicable Code section and patrons, see Other Taxes below.

vehicle (QEV) credit. The cooperative the type of tax or interest.

Any excess investment credit, must recapture part of the QEV credit

work opportunity credit, Indian claimed in a prior year if, within 3 years Line 10. Total Tax

CAUTION employment credit, of the date the vehicle was placed in Include any deferred tax on the

!

empowerment zone or renewal service, it ceases to qualify for the termination of a section 1294 election

community employment credit, credit. See Regulations section 1.30-1 applicable to shareholders in a qualified

welfare-to-work credit, or new markets for details on how to figure the electing fund in the amount entered on

credit not used by the cooperative recapture. line 10. See Form 8621, Part V and

(because of the tax liability limitation) • Recapture of the Indian employment How to report, below.

must be passed through to the patrons. credit. Generally, if an employer Subtract any deferred tax on the These credits cannot be carried back or terminates the employment of a cooperative’s share of undistributed over by the cooperative. See Forms qualified employee less than 1 year earnings of a qualified electing fund 8844, 3468, 8845, 8861, and 8874 for after the date of initial employment, any (see Form 8621, Part II). details. Indian employment credit allowed for a

prior tax year because of wages paid or How to report. If deferring tax, attach

Line 6d. Credit for Prior Year incurred to that employee must be a schedule showing the computation of

Minimum Tax recaptured. For details, see Form 8845 each item included in, or subtracted

and section 45A. from, the total for line 10. On the dotted To figure the minimum tax credit and • Recapture of new markets credit (see line next to line 10, specify (a) the any carryforward of that credit, use Form 8874). applicable Code section, (b) the type of Form 8827, Credit for Prior Year • Recapture of employer-provided tax, and (c) the amount of tax. Minimum Tax–Corporations. childcare facilities and services credit

Also see Form 8827 if any of the (see Form 8882).

cooperative’s 2004 nonconventional • Interest on deferred tax attributable Schedule L source fuel credit, orphan drug credit, to (a) installment sales of certain

or qualified electric vehicle credit was timeshares and residential lots (section

disallowed solely because of the 453(l)(3)) and (b) certain nondealer Balance Sheets per Books

tentative minimum tax limitation. See installment obligations (section The balance sheet should agree with

section 53(d). 453A(c)). the cooperative’s books and records.

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Include certificates of deposit as cash • Expenses for travel as a form of • It directly or indirectly transferred

on line 1, Schedule L. education. money or property to a foreign trust.

• Other nondeductible expenses for For this purpose, any U.S. person who

Line 5. Tax-exempt travel and entertainment. created a foreign trust is considered a

Securities transferor. For more information, see Pub. 542. • It is treated as the owner of any part Include on this line: of the assets of a foreign trust under • State and local government Line 7. Tax-exempt Interest the grantor trust rules. obligations, the interest on which is Show any tax-exempt interest received • It received a distribution from a excludable from gross income under or accrued including any foreign trust. section 103(a), and exempt-interest dividends received as a

• Stock in a mutual fund or other shareholder in a mutual fund or RIC. For more information, see the

Regulated Investment Companies Also report this same amount on Instructions for Form 3520.

(RIC) that distributed exempt-interest Schedule N, item 15. An owner of a foreign trust must dividends during the tax year of the ensure that the trust files an annual

cooperative. information return on Form 3520-A,

Schedule N Annual Information Return of Foreign Line 24. Adjustments to Trust with a U.S. Owner. For details,

Shareholders’ Equity see Form 3520-A. Other Information

Some examples of items to report on The following instructions apply to Form Item 15 this line include: 990-C, page 5, Schedule N. Complete Show any tax-exempt interest income • Unrealized gains and losses on all items that apply to the cooperative. received or accrued. Include any securities held “available for sale.”

exempt-interest dividends received as a • Foreign currency translation Question 13 shareholder in a mutual fund or RIC. adjustments. Foreign financial account. Check the Also, if required, include the same • The excess of additional pension “Yes” box if either 1 or 2 below applies amount on Schedule M-1, line 7. liability over unrecognized prior service

cost. to the cooperative. Otherwise, check

the “No” box. Question 17 • Guarantees of employee stock Check the “Yes” box if: (ESOP) debt. 1. At any time during the 2005

• Compensation related to employee calendar year, the cooperative had an 1. The cooperative is a subsidiary in

stock award plans. interest in or signature or other an affiliated group (defined below), but

authority over a bank, securities, or is not filing a consolidated return for the If the total adjustment to be entered other financial account in a foreign tax year with that group, or on line 24 is a negative amount, enter it country (see Form TD F 90-22.1, 2. The cooperative is a subsidiary in in parentheses. Report of Foreign Bank and Financial a parent-subsidiary controlled group

Accounts), and (defined below).

a. The combined value of the Any cooperative that meets either of Schedule M-1 accounts was more than $10,000 at the above requirements should check any time during the calendar year, and the “Yes” box. This applies even if the Reconciliation of Income b. The account was not with a U.S.

military banking facility operated by a cooperative is a subsidiary member of (Loss) per Books With one group and the parent corporation of U.S. financial institution. Income per Return another. 2. The cooperative owns more than

50% of the stock in any corporation that If the cooperative is an “excluded

Line 5c. Travel and would answer “Yes” to item 1 above. member” of a controlled group (see

Entertainment If “Yes” is checked for this question: section 1563(b)(2)), it is still considered

a member of a controlled group for this Include on line 5c any of the following: a. Enter the name(s) of the foreign purpose. • Meals and entertainment not country or countries. Attach a separate

sheet if more space is needed. Affiliated group. The term “affiliated deductible under section 274(n).

b. File Form TD F 90-22.1 by June group” means one or more chains of • Expenses for the use of an

30, 2006, with the Department of the includible corporations (section entertainment facility.

Treasury at the address shown on the 1504(a)) connected through stock • The part of business gifts over $25. ownership with a common parent • Expenses of an individual in excess form. Do not file it with Form 990-C.

corporation. The common parent must of $2,000, which are allocable to

You can order Form TD F 90-22.1 by be an includible corporation and the conventions on cruise ships.

calling 1-800-TAX-FORM following requirements must be met: • Employee achievement awards over

$400. (1-800-829-3676) or you can download 1. The common parent must directly

• The cost of entertainment tickets own stock that represents at least 80% it from the IRS website at www.irs.gov.

over their face value (also subject to of the total voting power and at least

the 50% limit under section 274(n)). 80% of the total value of the stock of at Question 14

• The cost of skyboxes over the face The cooperative may be required to file least one of the other includible

value of nonluxury box seat tickets. Form 3520, Annual Return To Report corporations, and

• The part of luxury water travel not Transactions with Foreign Trusts and 2. Stock that represents at least

deductible under section 274(m). Receipt of Certain Foreign Gifts, if: 80% of the total voting power and at

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least 80% of the total value of the stock See section 1563(d)(1) for the you are complying with these laws and

of each of the other corporations definition of “stock” for purposes of to allow us to figure and collect the right

(except for the common parent) must determining stock ownership above. amount of tax. Section 6109 requires

be owned directly by one or more of the return preparers to provide their

other includible corporations. Item 19 identifying numbers on the return.

If the cooperative has an NOL for its

2005 tax year, it may elect, under You are not required to provide the For this purpose, stock generally information requested on a form that is section 172(b)(3), to waive the entire does not include any stock that (a) is subject to the Paperwork Reduction Act carryback period for the NOL and nonvoting, (b) is nonconvertible, (c) is instead carry the NOL forward to future unless the form displays a valid OMB

limited and preferred as to dividends control number. Books or records tax years. To do so, check the box in and does not participate significantly in relating to a form or its instructions item 19 and file the return by its due corporate growth, and (d) has date, including extensions (do not must be retained as long as their

redemption and liquidation rights that attach the statement described in contents may become material in the

do not exceed the issue price of the Temporary Regulations section administration of any Internal Revenue

stock (except for a reasonable 301.9100-12T). Once made, the law. Generally, tax returns and return

redemption or liquidation premium). election is irrevocable. See Pub. 542, information are confidential, as required

See section 1504(a)(4). by section 6103. section 172, and Form 1139 for more

details. Parent-subsidiary controlled group. The time needed to complete and

The term “parent-subsidiary controlled Cooperatives filing a consolidated file this form will vary depending on

group” means one or more chains of return must check the box and attach individual circumstances. The

the statement required by Temporary estimated average time is: corporations connected through stock Regulations section 1.1502-21T(b)(3)(i) ownership (section 1563(a)(1)). Both of or (ii). Recordkeeping . . . . . . . . 75 hr., 34 min. the following requirements must be Learning about the law or met: Item 20 the form . . . . . . . . . . . . . 27 hr., 19 min.

1. At least 80% of the total Enter the amount of the NOL carryover Preparing the form . . . . . . 45 hr., 34 min.

combined voting power of all classes of Copying, assembling, and to the tax year from prior years, even if sending the form to the IRS 4 hr., 33 min. voting stock or at least 80% of the total some of the loss is used to offset

value of all classes of stock of each income on this return. The amount to

corporation in the group (except the enter is the total of all NOLs generated If you have comments concerning

the accuracy of these time estimates or parent) must be owned by one or more in prior years but not used to offset

of the other corporations in the group, income (either as a carryback or suggestions for making this form

simpler, we would be happy to hear and carryover) in a tax year prior to 2005.

Do not reduce the amount by any NOL from you. You can write to the Internal 2. The common parent must own at deduction reported on line 29a. Revenue Service, Tax Products least 80% of the total combined voting Coordinating Committee, power of all classes of stock entitled to SE:W:CAR:MP:T:T:SP, 1111 vote or at least 80% of the total value of Privacy Act and Paperwork Constitution Ave. NW, IR-6406, all classes of stock of one or more of Reduction Act Notice. We ask for the Washington, DC 20224. Do not send the other corporations in the group. information on this form to carry out the the tax form to this office. Instead, see Stock owned directly by other members Internal Revenue laws of the United Where To File on page 2. of the group is not counted when States. You are required to give us the

computing the voting power or value. information. We need it to ensure that

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Index

AELR

Accounting methods ........3 Electronic Federal Tax Limitations on deductions: Reconciliation of income (Sch

Accounting period ..........3 Payment System Section 263A uniform M-1). . . . . . . . . . . . . . . . . . . . . 21

Address change ............6 (EFTPS) .................3 capitalization rules .....8 Recordkeeping .............3

Affiliated group . . . . . . . . . . . . 21 Employee benefit Lobbying expenses . . . . . . . . 12 Related taxpayer

 Alternative minimum programs . . . . . . . . . . . . . . . . 11 transactions ..............8

tax . . . . . . . . . . . . . . . . . . . . . . 19 Employer identification N Rents (expense) ............9

Amended return ............6 number (EIN) .............5 Name change ..............6 Repairs and

Assembling the return ......3 Estimated tax: Net operating loss maintenance .............9 . . . . . . . . . 12

 Estimated tax Nonpatronage income . . . . . 17 payments . . . . . . . . . . . . . . . 13 B S

Estimated tax penalty .......4 Backup withholding . . . . . . . . 13 O Salaries and wages .........9

 Estimated tax, Bad debts Schedule: ..................9 Organizational costs, overpaid . . . . . . . . . . . . . . . . . 13 Business start-up and A . . . . . . . . . . . . . . . . . . . . . . . . 13 Balance sheets . . . . . . . . . . . . 20 ....8 Extraterritorial income .......6 Other deductions C . . . . . . . . . . . . . . . . . . . . . . . . 15 Brother-sister group . . . . . . . . 18 . . . . . . . . . . 11 H . . . . . . . . . . . . . . . . . . . . . . . . 16 Business start-up and Other income ...............7 F J . . . . . . . . . . . . . . . . . . . . . . . . 18 organizational costs ......8 Other taxes: Final return .................6 L . . . . . . . . . . . . . . . . . . . . . . . . 20 Recapture . . . . . . . . . . . . . . . 20 M-1 . . . . . . . . . . . . . . . . . . . . . 21 Foreign financial C N . . . . . . . . . . . . . . . . . . . . . . . . 21 account . . . . . . . . . . . . . . . . . 21 Charitable P Signature ...................2 Foreign tax credit . . . . . . . . . . 19 contributions . . . . . . . . . . . . 10 Paid preparer Forms and publications, How Combined group . . . . . . . . . . . 18 authorization .............3 to get . . . . . . . . . . . . . . . . . . . . 2 T

 Compensation of Parent-subsidiary controlled Tax computation . . . . . . . . . . . 18 officers ...................9 group . . . . . . . . . . . . . . . . . . . 22

G Tax issues, unresolved .....1 Controlled group: Parent-subsidiary General business Tax rate schedule . . . . . . . . . 18 Member of . . . . . . . . . . . . . . 18 group . . . . . . . . . . . . . . . . . . . 18

credit . . . . . . . . . . . . . . . . . . . . 19 Taxes and licenses .........9 Cost of goods sold . . . . . . . . . 13 Passive activity Golden parachute Taxpayer Advocate .........1 Credit, general limitations ................8

payments ................8 Travel and business . . . . . . . . . . . . . . . . 19 Patronage dividends . . . . . . . 17

Gross receipts ..............6 entertainment . . . . . . . . . . . 21 Credits . . . . . . . . . . . . . 9, 13, 19 Payment, Depository methods Gross rents .................7 Travel, meals, and Credits, recapture of . . . . . . . 20 of . . . . . . . . . . . . . . . . . . . . . . . . 3 entertainment . . . . . . . . . . . 11 Penalty:

I Estimated tax . . . . . . . . . . . 13 D

Income .....................6 Late filing.................4 W Deductions .................8 Income from qualifying Late payment ............4 When to file ................2 Deductions and adjustments shipping activities .........6 Pension, profit-sharing, etc., Where to file ................2 under section 1382 . . . . . . 16 Initial return .................6 plans . . . . . . . . . . . . . . . . . . . . 11 Who must file ...............2 Depletion . . . . . . . . . . . . . . . . . . 11

Installment sales ............6 Preparer, tax return .........2 Who must sign .............2 Depository methods of tax Interest: Private delivery services ....2 Worksheet: payment ..................3 Income ...................7 Schedule C. . . . . . . . . . . . . . 16 Depreciation . . . . . . . . . . . . . . . 11 Tax-exempt . . . . . . . . . . . . . 21 Q Schedule J . . . . . . . . . . . . . . 19 Direct deposit of refund . . . . 13 Interest and penalties .......4 Qualified written notice of Written notice of Disclosure statement, Interest expense . . . . . . . . . . . 10 allocation . . . . . . . . . . . . . . . . 17 allocation . . . . . . . . . . . . . . . . 17 reportable transaction ....5 Inventory: Qualifying shipping activities, Dividends ...................7 ■ Valuation methods . . . . . . . 14 Income from ..............6 Dividends and special

deductions . . . . . . . . . . . . . . 15

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