Cat. No. 11288M

Instructions for Form 990-C

Farmers’ Cooperative Association Income Tax Return

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

Department of the Treasury

Internal Revenue Service

Paperwork Reduction Act Notice.—We

ask for the information on this form to

carry out the Internal Revenue laws of

the United States. You are required to

give us the information. We need it to

ensure that you are complying with

these laws and to allow us to figure and

collect the right amount of tax.

The time needed to complete and file

this form will vary depending on

individual circumstances. The estimated

average times are:

Recordkeeping 77 hr., 15 min.

Learning about the

law or the form 24 hr., 52 min.

Preparing the form 42 hr., 7 min.

Copying, assembling,

and sending the form

to the IRS 4 hr., 17 min.

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form

simpler, we would be happy to hear

from you. You can write to the Tax

Forms Committee, Western Area

Distribution Center, Rancho Cordova,

CA 95743-0001.

DO NOT send the tax form to this

office. Instead, see Where To File

below.

Changes To Note

● Cooperatives that had total deposits

of withheld income, social security, and

Medicare taxes during calendar year

1993 or 1994 in excess of $47 million

are required to use the electronic funds

transfer (EFT) system for depository

taxes due in 1996. Cooperatives

required to use the EFT system in 1995

must continue to use the EFT system in

1996. For details, see Depository

Method of Tax Payment on page 2.

Final regulations have been issued on

the capitalization of interest expense

paid or incurred during the production

period of certain property. For details,

see Regulations section 1.263A-8

through 1.263A-15. These regulations,

which generally are effective for tax

years beginning after 1994, may require

a change in accounting method. Any

such change must be made under Rev.

Proc. 95-19, 1995-12 I.R.B. 6.

If you subscribe to an on-line service,

ask if IRS information is available and if

so, how to access it.

You can also get information through

IRIS, the Internal Revenue Information

Services, on FedWorld, a government

bulletin board. Tax forms, instructions,

publications, and other IRS information,

are available through IRIS.

IRIS is accessible directly by calling

703-321-8020. On the Internet, you can

telnet to fedworld.gov. or, for file transfer

protocol services, connect to

ftp.fedworld.gov. If you are using the

World Wide Web, connect to

http://www.ustreas.gov/treasury.

FedWorld’s help desk offers technical

assistance on accessing IRIS (not tax

help) during regular business hours at

703-487-4608. The IRIS menus offer

information on available file formats and

software needed to read and print files.

You must print the forms to use them;

the forms are not designed to be filled

out on-screen.

Tax forms, instructions, and

publications are also available on

CD-ROM, including prior-year forms

starting with the 1991 tax year. For

ordering information and software

requirements, contact the Government

Printing Office’s Superintendent of

Documents (202-512-1800) or Federal

Bulletin Board (202-512-1387).

General Instructions

Note: You can get the forms and

publications listed throughout these

instructions at most IRS offices. To order

publications and forms, call

1-800-TAX-FORM (1-800-829-3676).

Purpose of Form

Use Form 990-C, Farmers’ Cooperative

Association Income Tax Return to report

income, gains, losses, deductions,

credits, and to figure the income tax

liability of the cooperative.

Who Must File

Every farmers’ cooperative association

must file Form 990-C whether or not the

association has taxable income

(Regulations section 1.6012-2(f)).

Generally, a farmers’ cooperative is a

farmers’, fruit growers’, or like

association organized and operated on a

cooperative basis to:

1. Market the products of members or

other producers and return to them the

proceeds of sales, less necessary

marketing expenses, on the basis of

either the quantity or value of their

products; OR

2. Purchase supplies and equipment

for the use of members or other persons

and turn over the supplies and

equipment to them at actual cost, plus

necessary expenses.

A member is anyone who shares in

the profits of a cooperative association

and is entitled to participate in the

management of the association.

A producer is a person who, as

owner or tenant, bears the risk of

production and receives income based

on farm production rather than fixed

compensation. For example, if a

cooperative leases its land to a tenant

farmer who agrees to pay a rental fee

based on a percentage of the farm

crops produced, both the landowner and

the tenant farmer qualify as producers.

When To File

In general, a cooperative must file its

income tax return by the 15th day of the

9th month after the end of its tax year.

If the due date falls on a Saturday,

Sunday, or legal holiday, the cooperative

may file on the next business day.

Extension.—File Form 7004, Application

for Automatic Extension of Time To File

Corporation Income Tax Return, to

request a 6-month extension of time to

file.

Where To File

If the principal

office of the

cooperative

is located in

Use the following

Internal Revenue

Service Center

address

Ä Ä

Alabama, Arkansas, Florida,

Georgia, Louisiana,

Mississippi, North Carolina,

South Carolina, Tennessee

Atlanta, GA 39901

Arizona, Colorado, Kansas,

New Mexico, Oklahoma,

Texas, Utah, Wyoming

Austin, TX 73301

Indiana, Kentucky,

Michigan, Ohio, West

Virginia

Cincinnati, OH 45999

Alaska, California, Hawaii,

Idaho, Nevada, Oregon,

Washington

Fresno, CA 93888
Page 2

Connecticut, Maine,

Massachusetts, New

Hampshire, New York,

Rhode Island, Vermont

Holtsville, NY 00501

Illinois, Iowa, Minnesota,

Missouri, Montana,

Nebraska, North Dakota,

South Dakota, Wisconsin

Kansas City, MO 64999

Delaware, District of

Columbia, Maryland, New

Jersey, Pennsylvania,

Virginia, any U.S.

possession, or foreign

country

Philadelphia, PA 19255

A group of cooperatives located in

several service center regions will often

keep all the books and records at the

principal office of the managing

cooperative. In this case, the income tax

returns of the cooperative may be filed

with the service center for the region in

which the principal office is located.

Who Must Sign

The return must be signed and dated by

the president, vice president, treasurer,

assistant treasurer, chief accounting

officer, or any other officer (such as tax

officer) authorized to sign. Receivers,

trustees, or assignees also must sign

and date any return filed on behalf of a

cooperative.

If a cooperative officer completes

Form 990-C, the Paid Preparer’s space

should remain blank. Anyone who

prepares Form 990-C but does not

charge the cooperative should not sign

the return. Generally, anyone who is

paid to prepare the return must sign it

and fill in the other blanks in the Paid

Preparer’s Use Only area.

The paid preparer must complete the

required preparer information and:

● Sign the return, by hand, in the space

provided for the preparer’s signature.

(Signature stamps and labels are not

acceptable.)

● Give a copy of the return to the

taxpayer.

Accounting Methods

Figure taxable income using the method

of accounting regularly used in keeping

the cooperative’s books and records.

Permissible methods include the cash,

accrual, or any other method authorized

by the Internal Revenue Code. In all

cases, the method used must clearly

show taxable income.

Generally, a cooperative must use the

accrual method of accounting if its

average annual gross receipts exceed

$5 million. See section 448(c).

Under the accrual method, an amount

is includible in income when all the

events have occurred that fix the right to

receive the income and the amount can

be determined with reasonable

accuracy. See Regulations section

1.451-1(a) for details.

An accrual basis taxpayer can deduct

accrued expenses in the tax year in

which: (1) all events that determine the

liability have occurred, (2) the amount of

the liability can be figured with

reasonable accuracy, and (3) economic

performance takes place with respect to

the expense. There are exceptions to

the economic performance rule for

certain items, including recurring

expenses. See section 461(h) and the

related regulations for the rules for

determining when economic

performance takes place.

Long-term contracts (except for

certain real property construction

contracts) must generally be accounted

for using the percentage of completion

method described in section 460. See

section 460 for general rules on

long-term contracts.

Generally, the cooperative may

change the method of accounting used

to report taxable income (for income as

a whole or for any material item) only by

getting consent on Form 3115,

Application for Change in Accounting

Method. For more information, get Pub.

538, Accounting Periods and Methods.

Completed Crop Pool Method of

Accounting.—Cooperatives may use the

completed crop pool method of

accounting for crop pools open before

March 1, 1978. See section 1382(g) for

more information.

Change in Accounting

Period

Generally, before changing an

accounting period, the Commissioner’s

approval must be obtained (Regulations

section 1.442-1) by filing Form 1128,

Application To Adopt, Change, or Retain

a Tax Year. Also see Pub. 538.

Rounding Off to Whole

Dollars

The cooperative may show amounts on

the return and accompanying schedules

as whole dollars. To do so, drop any

amount less than 50 cents and increase

any amount from 50 cents through 99

cents to the next higher dollar.

Recordkeeping

Keep the cooperative’s records for as

long as they may be needed for the

administration of any provision of the

Internal Revenue Code. Usually, records

that support an item of income,

deduction, or credit on the return must

be kept for 3 years from the date the

return is due or filed, whichever is later.

Keep records that verify the

cooperative’s basis in property for as

long as they are needed to figure the

basis of the original or replacement

property.

The cooperative should also keep

copies of any returns it has filed. They

help in preparing future returns and in

making computations when filing an

amended return.

Depository Method of Tax

Payment

The cooperative must pay the tax due in

full no later than the 15th day of the 9th

month after the end of the tax year. If

the cooperative does not use the

electronic funds transfer (EFT) system,

deposit cooperative income tax

payments (and estimated tax payments)

with Form 8109, Federal Tax Deposit

Coupon. Do not send deposits directly

to an IRS office. Mail or deliver the

completed Form 8109 with the payment

to a qualified depository for Federal

taxes or to the Federal Reserve Bank

(FRB) servicing the cooperative’s

geographic area. Make checks or money

orders payable to that depository or

FRB.

To help ensure proper crediting, write

the cooperative’s employer identification

number, the tax period to which the

deposit applies, and “Form 990-C” on

the check or money order. Be sure to

darken the “990-C” box on the coupon.

Records of these deposits will be sent to

the IRS.

A penalty may be imposed if the

deposits are mailed or delivered to an

IRS office rather than to an authorized

depository or FRB.

For more information on deposits, see

the instructions in the coupon booklet

(Form 8109) and Pub. 583, Starting a

Business and Keeping Records.

Caution: If the cooperative owes tax

when it files Form 990-C, do not include

the payment with the tax return. Instead,

mail or deliver the payment with Form

8109 to a qualified depository or FRB, or

use the EFT system, if applicable.

Generally, cooperatives that had total

deposits of withheld income, social

security, and Medicare taxes during

calendar year 1993 or 1994 that

exceeded $47 million are required to

deposit all depository taxes due in 1996

by EFT. TAXLINK, an electronic

remittance processing system, must be

used to make deposits by EFT.

Cooperatives that are not required to

make deposits by EFT may voluntarily

participate in TAXLINK. For more details

on TAXLINK, call the TAXLINK

HELPLINE at 1-800-329-5469 (for

TAXLINK information only), or write to:

Internal Revenue Service,

Cash Management Office,

P.O. Box 47669, Stop 295,

Doraville, GA 30362.

Estimated Tax Payments

Generally, a cooperative must make

installment payments of estimated tax if
Page 3

it expects its estimated tax (income tax

minus credits) to be $500 or more. For a

calendar or fiscal year cooperative, the

installments are due by the 15th day of

the 4th, 6th, 9th, and 12th months of the

tax year. If any date falls on a Saturday,

Sunday, or legal holiday, the installment

is due on the next regular business day.

Use Form 1120-W, Estimated Tax for

Corporations, as a worksheet to

compute estimated tax. Use the deposit

coupons (Form 8109) to make deposits

of estimated tax. For more information

on estimated tax payments, including

penalties that apply if the cooperative

fails to make required payments, see the

instructions for line 33 on page 10.

If the cooperative overpaid estimated

tax, it may be able to get a quick refund

by filing Form 4466, Corporation

Application for Quick Refund of

Overpayment of Estimated Tax. The

overpayment must be at least 10% of

expected income tax liability and at

least $500. To apply for a quick refund,

file Form 4466 before the 16th day of

the 3rd month after the end of the tax

year, but before the cooperative files its

tax return. Do not file Form 4466 before

the end of the cooperative’s tax year.

Interest and Penalties

Interest.—Interest is charged on taxes

paid late even if an extension of time to

file is granted. Interest is also charged

on penalties imposed for failure to file,

negligence, fraud, gross valuation

overstatements, and substantial

understatements of tax from the due

date (including extensions) to the date of

payment. The interest charge is figured

at a rate determined under section 6621.

Penalty for late filing of return.—A

cooperative that does not file its tax

return by the due date, including

extensions, may be penalized 5% of the

unpaid tax for each month or part of a

month the return is late, up to a

maximum of 25% of the unpaid tax. The

minimum penalty for a return that is over

60 days late is the smaller of the tax due

or $100. The penalty will not be imposed

if the cooperative can show that the

failure to file on time was due to

reasonable cause. Cooperatives that file

late must attach a statement explaining

the reasonable cause.

Penalty for late payment of tax.—A

cooperative that does not pay the tax

when due may have to pay a penalty of

1⁄2 of 1% of the unpaid tax for each

month or part of a month the tax is not

paid, up to a maximum of 25% of the

unpaid tax. The penalty will not be

imposed if the cooperative can show

that the failure to pay on time was due

to reasonable cause.

Other penalties.—Other penalties can

be imposed for negligence, substantial

understatement of tax, and fraud. See

sections 6662 and 6663.

Unresolved Tax Problems

The IRS has a Problem Resolution

Program for taxpayers who have been

unable to resolve their problems with the

IRS. If the cooperative has a tax

problem it has been unable to resolve

through normal channels, write to the

cooperative’s local IRS district director

or call the cooperative’s local IRS office

and ask for Problem Resolution

Assistance. Hearing-impaired persons

who have access to TDD equipment

may call 1-800-829-4059 to ask for help.

The Problem Resolution office will

ensure that your problem receives

proper attention. Although the office

cannot change the tax law or make

technical decisions, it can help clear up

problems that may have resulted from

previous contacts.

Other Forms, Returns,

Schedules, and Statements

That May Be Required

Form W-2, Wage and Tax Statement,

and Form W-3, Transmittal of Income

and Tax Statements.

Form 940 or Form 940-EZ, Employer’s

Annual Federal Unemployment (FUTA)

Tax Return. The cooperative may be

liable for FUTA tax and may have to file

Form 940 or 940-EZ if it paid wages of

$1,500 or more in any calendar quarter

during the calendar year (or the

preceding calendar year) or one or more

employees worked for the cooperative

for some part of a day in any 20

different weeks during the calendar year

(or the preceding calendar year).

Form 941, Employer’s Quarterly Federal

Tax Return. Employers must file this

form quarterly to report income tax

withheld and employer and employee

social security and Medicare taxes.

Agricultural employers must file Form

943, Employer’s Annual Tax Return for

Agricultural Employees, instead of Form

941, to report income tax withheld and

employer and employee social security

and Medicare taxes for farmworkers.

Caution: See Trust fund recovery

penalty on page 4.

Form 945, Annual Return of Withheld

Federal Income Tax. Form 945 is used

to report income tax withholding from

nonpayroll distributions or payments.

Nonpayroll payments include pensions,

annuities, IRAs, military retirement,

gambling winnings, Indian gaming

profits, and backup withholding.

Caution: See Trust fund recovery

penalty on page 4.

Form 966, Corporate Dissolution or

Liquidation.

Form 1042, Annual Withholding Tax

Return for U.S. Source Income of

Foreign Persons, and Form 1042S,

Foreign Person’s U.S. Source Income

Subject to Withholding. Use these forms

to report and transmit withheld tax on

payments or distributions made to

nonresident alien individuals, foreign

partnerships, or foreign corporations to

the extent such payments or

distributions constitute gross income

from sources within the U.S. (see

sections 861 through 865). For more

information, see sections 1441 and

1442, and Pub. 515, Withholding of Tax

on Nonresident Aliens and Foreign

Corporations.

Form 1096, Annual Summary and

Transmittal of U.S. Information Returns.

Form 1098, Mortgage Interest

Statement. This form is used to report

the receipt from any individual of $600

or more of mortgage interest and points

in the course of the cooperative’s trade

or business for any calendar year.

Forms 1099-A, B, C, DIV, INT, MISC,

OID, PATR, R, and S. Use these

information returns to report

abandonments, acquisitions through

foreclosure, proceeds from broker and

barter exchange transactions,

discharges of indebtedness, certain

dividends and distributions, interest

payments, payments for certain fishing

boat crew members, medical and dental

health care payments, direct sales of

consumer goods for resale,

miscellaneous income payments,

nonemployee compensation, original

issue discount, patronage dividends,

distributions from profit-sharing plans,

retirement plans, individual retirement

arrangements, insurance contracts, etc.,

and proceeds from real estate

transactions. Also use these returns to

report amounts received as a nominee

for another person.

For more information, see the

instructions for Forms 1099, 1098, 5498,

and W-2G.

Note: Every cooperative must file Form

1099-MISC if, in the course of its trade

or business, it makes payments of rents,

commissions, or other fixed or

determinable income (see section 6041)

totaling $600 or more to any one person

during the calendar year.

Form 5452, Corporate Report of

Nondividend Distributions.

Form 5498, Individual Retirement

Arrangement Information. Use this form

to report contributions (including rollover

contributions) to an individual retirement

arrangement (IRA) and the value of an

IRA or simplified employee pension

(SEP) account.

Form 5713, International Boycott

Report, for persons having operations in

or related to “boycotting” countries.

Also, persons who participate in or

cooperate with an international boycott

may have to complete Schedule A or B

and Schedule C of Form 5713 to

compute their loss of the following

items: the foreign tax credit, the deferral

of earnings of a controlled foreign
Page 4

corporation, IC-DISC benefits, and FSC

benefits.

Form 8264, Application for Registration

of a Tax Shelter. Tax shelter organizers

use Form 8264 to register tax shelters

with the IRS to get a tax shelter

registration number.

Form 8271, Investor Reporting of Tax

Shelter Registration Number. Taxpayers

who have acquired an interest in a tax

shelter, which is required to be

registered, use this form to report the

tax shelter’s registration number. Form

8271 must be attached to any tax return

(including an application for tentative

refund (Form 1139) and an amended

return) on which a deduction, credit,

loss, or other tax benefit attributable to a

tax shelter is taken or any income

attributable to a tax shelter is reported.

Form 8275, Disclosure Statement.

Taxpayers and income tax return

preparers file Form 8275 to disclose

items or positions, except those contrary

to a regulation (see Form 8275-R below),

that are not otherwise adequately

disclosed on a tax return. The disclosure

is made to avoid parts of the

accuracy-related penalty imposed for

disregard of rules or substantial

understatement of tax. Form 8275 is

also used for disclosures relating to

preparer penalties for understatement

due to unrealistic positions or disregard

of rules.

Form 8275-R, Regulation Disclosure

Statement, is used to disclose any item

on a tax return for which a position has

been taken that is contrary to Treasury

Regulations.

Form 8300, Report of Cash Payments

Over $10,000 Received in a Trade or

Business. File this form to report the

receipt of more than $10,000 in cash or

foreign currency in one transaction or in

a series of related transactions.

Cashier’s checks, bank drafts, and

money orders with face amounts of

$10,000 or less are considered cash

under certain circumstances. For more

information, see Form 8300 and

Regulations section 1.6050I-1(c).

Form 8594, Asset Acquisition Statement

under Section 1060, must be filed by

both the purchaser and seller of a group

of assets constituting a trade or

business if section 197 intangibles

attach to such assets and the

purchaser’s basis in the assets is

determined only by the amount paid for

the assets.

Form 8718, User Fee for Exempt

Organization Ruling and Determination

Requests. The Service is required to

collect a fee from any organization

seeking an IRS determination of its

exempt status as an organization

described in section 501(c), 501(d), or

521 of the Internal Revenue Code. A fee

will also be imposed in connection with

any exempt organization request for a

private-letter ruling. The nonrefundable

fee must be submitted with the

application or ruling request. Otherwise,

the request will be returned to the

submitter without any action being taken

on it. The fees imposed are reflected in

Form 8718, which is used to transmit

both the appropriate fee and the

exemption application.

Form 8810, Corporate Passive Activity

Loss and Credit Limitations. Closely held

cooperatives that are subject to the

passive activity limitations of section 469

use this form to compute their allowable

passive activity loss and credit.

Form 8842, Election To Use Different

Annualization Periods for Corporate

Estimated Tax. Corporations use Form

8842 for each year they want to elect

one of the annualization periods in

section 6655(e)(2)(C) for figuring

estimated tax payments under the

annualized income installment method.

Form 8849, Claim for Refund of Excise

Taxes. Use this form in the first three

quarters of the tax year to claim a

refund of excise taxes paid on Form

720, Form 730, or Form 2290. See the

instructions to Form 8849 and Pub. 378,

Fuel Tax Credits and Refunds for more

information.

Trust fund recovery penalty.—This

penalty may apply if certain excise,

income, social security, and Medicare

taxes that must be collected or withheld

are not collected or withheld, or these

taxes are not paid to the IRS. These

taxes are generally reported on Forms

720, 941, 943, or 945. The trust fund

recovery penalty may be imposed on all

persons who are determined by the IRS

to have been responsible for collecting,

accounting for, and paying over these

taxes, and who acted willfully in not

doing so. The penalty is equal to the

unpaid trust fund tax. See the

instructions for Form 720, Pub. 15

(Circular E), Employer’s Tax Guide, or

Pub. 51 (Circular A), Agricultural

Employer’s Tax Guide, for details,

including the definition of responsible

persons.

Consolidated Return

The nonexempt parent of an affiliated

group of corporations must attach Form

851, Affiliations Schedule, to the

consolidated return. For the first year a

consolidated return is filed, each

subsidiary must attach Form 1122,

Authorization and Consent of Subsidiary

Corporation to be Included in a

Consolidated Income Tax Return.

File supporting statements for each

corporation included in the consolidated

return. Do not use Form 990-C as a

supporting statement. On the supporting

statement use columns to show the

following, both before and after

adjustments:

● Items of gross income and

deductions.

● A computation of taxable income.

● Balance sheets as of the beginning

and end of tax year.

● A reconciliation of retained earnings.

● A reconciliation of income per books

with income per return.

Enter the totals for the consolidated

group on Form 990-C. Attach

consolidated balance sheets and a

reconciliation of consolidated retained

earnings.

For more information on consolidated

returns, see the regulations under

section 1502.

Attachments

Attach Form 4136, Credit for Federal

Tax on Fuels, after page 5, Form 990-C.

Attach schedules in alphabetical order

and other forms in numerical order after

Form 4136.

To help us in processing the return,

complete every applicable entry space

on Form 990-C. Do not write “See

attached” instead of completing the

entry spaces. If you need more space

on the forms or schedules, attach

separate sheets. Use the same size and

format as on the printed forms. But

show the cooperative’s totals on the

printed forms. Attach these separate

sheets after all the forms and schedules.

Be sure to put the cooperative’s name

and EIN on each sheet.

Specific Instructions

Period Covered.—File the 1995 return

for calendar year 1995 and fiscal years

that begin in 1995 and end in 1996. For

a fiscal year, fill in the tax year space at

the top of the form.

Address and Employer

Identification Number (EIN)

Address.—Include the suite, room, or

other unit number after the street

address.

If the Post Office does not deliver mail

to the street address and the

cooperative has a P.O. box, show the

box number instead of the street

address.

Note: If a change in address occurs after

the return is filed, use Form 8822,

Change of Address, to notify the IRS of

the new address.

Item A.—Identify the business activity

from which the cooperative receives the

largest total receipts (e.g., wholesale

marketing of meat; drying fruit; grain

storage; wholesale purchasing of

fertilizers; cattle breeding; etc.).

Item B.—Employer identification

number (EIN).—Show the correct EIN in

item B. If the cooperative does not have

an EIN, it should apply for one on Form

SS-4, Application for Employer

Identification Number. Form SS-4 can

be obtained at most IRS and Social
Page 5

Security Administration (SSA) offices.

Send Form SS-4 to the same Internal

Revenue Service Center to which Form

990-C is mailed. If the cooperative has

not received its EIN by the time the

return is due, write “Applied for” in the

space for the EIN. See Pub. 583 for

more information.

Item C.—Do not check this box if the

“Section 521” box is checked in Item D.

Item D.—Type of Cooperative.—Check

the “Tax exempt (Section 521)” box if

the cooperative is a tax-exempt

farmers’, fruit growers’, or like

association, organized and operated on

a cooperative basis and is described in

section 521. If the cooperative has

submitted Form 1028, Application for

Recognition of Exemption, but has not

received a determination letter from the

IRS, check the “Tax exempt (Section

521)” box. Write “Application Pending”

at the top of page 1 of Form 990-C.

All other farmers’, etc., cooperatives

organized and operated as described

under “Who Must File” on page 1 of the

instructions should check the

“Nonexempt” box. Cooperatives

organized and operated for purposes

other than those described, such as to

purchase food for members, should not

file Form 990-C. See the instructions for

Form 1120, U.S. Corporation Income

Tax Return, for information about filing

requirements.

Item E.—Initial return, final return, and

change of address, or amended

return.—Indicate by checking the

applicable box if this is the cooperative’s

first return, or if the cooperative has

ceased to exist, it has had a change of

address, or is amending its return.

Income

Note: Generally, income from all

sources, whether U.S. or foreign, must

be included.

Line 1. Gross receipts or sales.—Enter

gross receipts or sales from all business

operations except those required to be

reported on lines 4a through 10. For

reporting advance payments, see

Regulations section 1.451-5.

Accrual method taxpayers need not

accrue certain amounts to be received

from the performance of services that,

on the basis of their experience, will not

be collected (section 448(d)(5)). This

provision does not apply to any amount

if interest is required to be paid on the

amount or if there is any penalty for

failure to timely pay the amount.

Cooperatives that fall under this

provision should attach a schedule

showing total gross receipts, the amount

not accrued as a result of the

application of section 448(d)(5), and the

net amount accrued. Enter the net

amount on line 1a. For more information

and guidelines on this “non-accrual

experience method,” see Temporary

Regulations section 1.448-2T.

Note: Certain cooperatives that have

gross receipts of $10 million or more and

have patronage and nonpatronage

source income and deductions, must

complete and attach Form 8817,

Allocation of Patronage and

Nonpatronage Income and Deductions,

to their return.

Line 4a. Income from patronage

dividends and per-unit retain

allocations.—Attach a schedule listing

the name of each declaring association

from whom the cooperative received

income from patronage dividends and

per-unit retain allocations. Show the

total amount received from each

association.

Include patronage dividends received

in money, qualified written notices of

allocation, or other property (except

nonqualified written notices of

allocation). Also include the total amount

of nonpatronage distributions received

on a patronage basis from tax-exempt

farmers’ cooperatives in money, qualified

written notices of allocation, or other

property (except nonqualified written

notices of allocation), based on earnings

of that cooperative either from business

done with or for the United States or

any of its agencies (or from sources

other than patronage, such as

investment income). Include qualified

written notices of allocation at their

stated dollar amounts and property at its

fair market value. Also include amounts

received on the redemption, sale, or

other disposition of nonqualified written

notices of allocation.

Generally, patronage dividends from

purchases of capital assets or

depreciable property are not includible in

income but must be used to reduce the

basis of the assets. See section 1385(b)

and the related regulations.

Include the amounts received (or the

stated dollar value of qualified per-unit

retain certificates received) from the sale

or redemption of nonqualified per-unit

retain certificates.

Also include per-unit retain allocations

received (except nonqualified per-unit

retain certificates). See section 1385.

Note: Payments from the Commodity

Credit Corporation to a farmers’

cooperative for certain expenses of the

co-op’s farmers-producers under a

“reseal” program of the U.S. Department

of Agriculture are patronage-source

income that may give rise to patronage

dividends under section 1382(b)(1). See

Rev. Rul. 89-97, 1989-2 C.B. 217, for

more information.

Line 5. Interest.—Enter taxable interest

on U.S. obligations and on loans, notes,

mortgages, bonds, bank deposits,

corporate bonds, tax refunds, etc.

Do not offset interest expense against

interest income.

Special rules apply to interest income

from certain below-market rate loans.

See section 7872 for more information.

Note: Interest income is generally

nonpatronage income to nonexempt

cooperatives (Regulations section

1.1382-3(c)(2)). As such, a patronage

dividend deduction may not be

deductible from interest expense.

Line 6. Gross rents.—Enter the gross

amount received for the rent of property.

Deduct expenses such as repairs,

interest, taxes, and depreciation on the

proper lines for deductions.

Generally, gross rents are considered

nonpatronage income to nonexempt

cooperatives (Regulations section

1.1382-3(c)(2)). As such, a patronage

dividend deduction may not be

deductible from rental expense.

Line 8. Capital gain net income.—

Every sale or exchange of a capital

asset must be reported in detail on

Schedule D (Form 1120), Capital Gains

and Losses, even though no gain or loss

is indicated. Generally, capital gains and

losses are considered nonpatronage

source.

Line 10. Other income.—Enter any

other taxable income not reported on

lines 1 through 9. List the type and

amount of income on an attached

schedule. If the cooperative has only

one item of other income, describe it in

parentheses on line 10. Examples of

other income to report on line 10 are:

● Any adjustment under section 481(a)

required to be included in income during

the current tax year due to a change in

a method of accounting.

● Recoveries of bad debts deducted in

prior years under the specific charge-off

method.

● The amount of credit for alcohol used

as fuel (determined without regard to the

limitation based on tax) that was entered

on Form 6478, Credit for Alcohol Used

as Fuel.

● Refunds of taxes deducted in prior

years to the extent they reduced income

subject to tax in the year deducted (see

section 111). Do not offset current year

taxes against tax refunds.

● The amount of any deduction

previously taken under section 179A that

is subject to recapture. The cooperative

must recapture the benefit of any

allowable deduction for clean-fuel

vehicle property (or clean-fuel vehicle

refueling property), if, within 3 years of

the date the property was placed in

service, it ceases to qualify. See

Regulations section 1.179A-1 for details,

including how to figure the recapture.

● For cooperatives described in section

1381 that are shareholders in a FSC,

include the non-exempt portion of

foreign trade income from the sale or

other disposition of agricultural or

horticultural products by the FSC for the

tax year that includes the last day of the
Page 6

FSC’s tax year, even though the FSC is

not required to distribute such income

until the due date of its income tax

return.

● Ordinary income from trade or

business activities of a partnership (from

Schedule K-1 (Form 1065), line 1).

Deductions

Limitations on deductions

Section 263A uniform capitalization

rules.—These rules require cooperatives

to capitalize or include in inventory

certain costs incurred in connection with

the production of real and tangible

personal property held in inventory or

held for sale in the ordinary course of

business. The rules also apply to

personal property (tangible and

intangible) acquired for resale.

Cooperatives subject to the rules are

required to capitalize not only direct

costs but a portion of most indirect

costs (including taxes) that relate to the

assets produced or acquired for resale.

Interest expense paid or incurred during

the production period of certain property

must be capitalized and is governed by

special rules. For more information, see

Regulations sections 1.263A-8 through

1.263A-15. The uniform capitalization

rules also apply to the production of

property constructed or improved by a

cooperative for use in its trade or

business or in an activity engaged in for

profit.

Section 263A does not apply to

personal property acquired for resale if

the cooperative’s annual average gross

receipts are $10 million or less. It does

not apply to timber or to most property

produced under a long-term contract.

Special rules apply to farmers. The rules

do not apply to property produced for

use by the cooperative if substantial

construction had occurred before March

1, 1986.

In the case of inventory, some of the

indirect costs that must be capitalized

are administration expenses; taxes;

depreciation; insurance; compensation

paid to officers attributable to services;

rework labor; and contributions to

pension, stock bonus, and certain

profit-sharing, annuity, or deferred

compensation plans.

The costs that must be capitalized

under section 263A are not deductible

until the property to which the costs

relate is sold, used, or otherwise

disposed of by the cooperative.

Current deductions may still be

claimed for research and experimental

costs under section 174, intangible

drilling costs for oil and gas and

geothermal property, and mining and

exploration and development costs.

Regulations section 1.263A-1(e)(3)

specifies indirect costs that may be

currently deducted and those that must

be capitalized with respect to production

or resale activities. For more information,

see Regulations sections 1.263A-1

through 1.263A-3.

Transactions between related

taxpayers.—Generally, an accrual basis

taxpayer may only deduct business

expenses and interest owed to a related

party in the year payment is included in

income of the related party. See

sections 163(e)(3), 163(j), and 267 for the

limitations on deductions for unpaid

interest and expenses.

Section 291 limitations.— Cooperatives

may be required to adjust deductions for

depletion of iron ore and coal, intangible

drilling, exploration and development

costs, and the amortizable basis of

pollution control facilities. See section

291 to determine the amount of the

adjustment. Also see section 43.

Golden parachute payments.—A

portion of the payments made by a

cooperative to key personnel that

exceeds their usual compensation may

not be deductible. This occurs when the

cooperative has an agreement (golden

parachute) with these key employees to

pay them these excessive amounts if

control of the cooperative changes. See

section 280G.

Business startup expenses.— Business

startup expenses must be capitalized

unless an election is made to amortize

them over a period of 60 months. See

section 195.

Passive activity limitations.—

Limitations on passive activity losses

and credits under section 469 apply to

closely held cooperatives.

For this purpose, a cooperative is a

closely held cooperative if at any time

during the last half of the tax year more

than 50% in value of its outstanding

stock is owned, directly or indirectly, by

or for not more than 5 individuals, and

the cooperative is not a personal service

corporation. Certain organizations are

treated as individuals for purposes of

this test. See section 542(a)(2). For rules

of determining stock ownership, see

section 544 (as modified by section

465(a)(3)).

Generally, there are two kinds of

passive activities: trade or business

activities in which the cooperative did

not materially participate (see Temporary

Regulations section 1.469-1T(g)(3)) for

the tax year, and rental activities

regardless of its participation. For

exceptions, see Form 8810. An activity

is a trade or business activity if the

activity involves the conduct of a trade

or business (i.e., deductions from the

activity would be allowable under

section 162 if other limitations, such as

the passive loss rules, did not apply), or

the activity involves research and

experimental costs that are deductible

under section 174 (or would be

deductible if the cooperative chose to

deduct rather than capitalize them), and

the activity is not a rental activity.

Cooperatives subject to the passive

activity limitations must complete Form

8810 to compute their allowable passive

activity loss and credit. Before

completing Form 8810, see Temporary

Regulations section 1.163-8T, which

provides rules for allocating interest

expense among activities. If a passive

activity is also subject to the at-risk rules

of section 465, the at-risk rules apply

before the passive loss rules. For more

information, see section 469, the related

regulations, and Pub. 925, Passive

Activity and At-Risk Rules.

Reducing certain expenses for which

credits are allowable.—For each credit

listed below, the cooperative must

reduce the otherwise allowable

deductions for expenses used to figure

the credit by the amount of the current

year credit:

1. The credit for increasing research

activities.

2. The enhanced oil recovery credit.

3. The disabled access credit.

4. The jobs credit.

5. The employer credit for social

security and Medicare taxes paid on

tips.

6. The empowerment zone

employment credit.

7. The indian employment credit.

If the cooperative has any of these

credits, be sure to figure each current

year credit before figuring the deduction

for expenses on which the credit is

based.

Line 12. Compensation of officers.—

Enter deductible officers’ compensation

on line 12. Before entering an amount

on line 12, complete Schedule E if their

total receipts (line 1a plus lines 4

through 10, page 1) are $500,000 or

more. Do not include compensation

deductible elsewhere on the return, such

as amounts included in cost of goods

sold, elective contributions to a section

401(k) cash or deferred arrangement, or

amounts contributed under a salary

reduction SEP agreement.

Include only the deductible part of

officers’ compensation on Schedule E.

(See Disallowance of deduction for

employee compensation in excess of

$1 million below.) Complete Schedule E,

line 1, columns (a) through (f), for all

officers. The cooperative determines

who is an officer under the laws of the

state where organized.

If a consolidated return is filed, each

member of an affiliated group must

furnish this information.

Disallowance of deduction for

employee compensation in excess of

$1 million.—Publicly held corporations

may not deduct compensation to a

“covered employee” to the extent that
Page 7

the compensation exceeds $1 million.

Generally, a covered employee is:

● The chief executive officer of the

cooperative (or an individual acting in

that capacity) as of the end of the tax

year, or

● An employee whose total

compensation must be reported to

shareholders under the Securities

Exchange Act of 1934 because the

employee is among the four highest

compensated officers for that tax year

(other than the chief executive officer).

For this purpose, compensation does

not include the following:

● Income from certain employee trusts,

annuity plans, or pensions;

● Any benefit paid to an employee that

is excluded from the employee’s

income.

The deduction limit does not apply to:

● Commissions based on individual

performance;

● Qualified performance-based

compensation; and

● Income payable under a written,

binding contract in effect on February

17, 1993.

The $1 million limit is reduced by

amounts disallowed as excess

parachute payments under section

280G.

For details, see section 162(m) and

Notice 94-68, 1994-1 C.B. 376.

Line 13. Salaries and wages.—Enter

the amount of salaries and wages paid

for the tax year, less the amount of any

jobs credit from Form 5884,

empowerment zone credit from Form

8844, and Indian employment credit

from Form 8845. See the instructions for

these forms for more information. Do not

include salaries and wages deductible

elsewhere on the return, such as

amounts included in cost of goods sold,

elective contributions to a section 401(k)

cash or deferred arrangement, or

amounts contributed under a salary

reduction SEP agreement.

Caution: If the cooperative provided

taxable fringe benefits to its employees,

such as personal use of a car, do not

deduct as wages the amount allocated

for depreciation and other expenses

claimed on lines 20 and 26.

Line 14. Repairs and maintenance.—

Enter the cost of incidental repairs, such

as labor and supplies, that do not add to

the value of the property or appreciably

prolong its life. New buildings,

machinery, or permanent improvements

that increase the value of the property

are not deductible. They must be

depreciated or amortized.

Line 15. Bad debts.—Enter the total

debts that became worthless in whole or

in part during the tax year.

Caution: A cash method taxpayer may

not claim a bad debt deduction unless

the amount was previously included in

income.

Line 17. Taxes and licenses.—Enter

taxes paid or accrued during the tax

year, but do not include the following:

● Federal income taxes (except the

environmental tax under section 59A).

● Foreign or U.S. possession income

taxes if a tax credit is claimed (however,

see the instructions for Form 5735 for

special rules for possession income

taxes).

● Taxes not imposed on the

cooperative.

● Taxes, including state or local sales

taxes, that are paid or incurred in

connection with an acquisition or

disposition of property (these taxes must

be treated as part of the cost of the

acquired property, or in the case of a

disposition, as a reduction in the amount

realized on the disposition).

● Taxes assessed against local benefits

that increase the value of the property

assessed (such as for paving, etc.).

● Taxes deducted elsewhere on the

return, such as those reflected in cost of

goods sold.

See section 164(d) for apportionment

of taxes on real property between the

seller and purchaser.

If the cooperative is liable for

environmental tax under section 59A,

get Form 4626, Alternative Minimum

Tax—Corporations, for computation of

the environment tax deduction.

Line 18. Interest.—Do not include

interest on indebtedness incurred or

continued to purchase or carry

obligations if the interest is wholly

exempt from income tax. For

exceptions, see section 265(b).

Generally, a cash basis taxpayer

cannot deduct prepaid interest allocable

to years following the current tax year.

For example, a cash basis calendar year

taxpayer who in 1995 prepaid interest

allocable to any period after 1995 can

deduct only the amount allocable to

1995.

Generally, the interest and carrying

charges on straddles cannot be

deducted and must be capitalized. See

section 263(g).

See section 163(e)(5) for special rules

for the disqualified portion of original

issue discount on a high yield discount

obligation.

Certain interest paid or accrued by the

cooperative (directly or indirectly) to a

related person may be limited if tax is

not imposed on that interest. See

section 163(j) for more information.

Do not deduct interest on debt

allocable to the production of qualified

property. Interest that is allocable to

certain property produced by a

cooperative for its own use or for sale

must be capitalized. A cooperative must

also capitalize any interest on debt

allocable to an asset used to produce

the above property. See section 263A

and Regulations sections 1.263A-8

through 1.263A-15 for definitions and

more information.

See section 7872 for special rules on

the deductibility of foregone interest on

certain below-market-rate loans.

Line 19. Charitable contributions.—

Enter contributions or gifts actually paid

in the tax year to or for the use of

charitable and governmental

organizations described in section 170(c)

and any unused contributions carried

over from prior years.

The total amount claimed may not be

more than 10% of taxable income (line

30) computed without regard to the

following:

● Any deduction for contributions;

● The special deductions on line 29b,

Form 990-C;

● Any net operating loss (NOL)

carryback to the tax year under section

172;

● Any capital loss carryback to the tax

year under section 1212(a)(1); and

● The deduction allowed under section

249.

Charitable contributions over the 10%

limitation may not be deducted for the

tax year but may be carried over to the

next 5 tax years.

Special rules apply if the cooperative

has an NOL carryover to the tax year. In

figuring the charitable contributions

deduction for the tax year, the 10% limit

is applied using the taxable income after

the deduction for the NOL.

To figure the amount of any remaining

NOL carryover to later years, taxable

income must be modified (see section

172(b)). To the extent that contributions

are used to reduce taxable income for

this purpose and increase an NOL

carryover, a contributions carryover is

not allowed. See section 170(d)(2)(B).

Cooperatives on the accrual basis

may elect to deduct contributions paid

by the 15th day of the 3rd month after

the end of the tax year if the

contributions are authorized by the

board of directors during the tax year.

Attach a declaration to the return,

signed by an officer, stating that the

resolution authorizing the contributions

was adopted by the board of directors

during the tax year. Also, attach a copy

of the resolution.

Substantiation requirements.—

Generally, no deduction is allowed for

any contribution of $250 or more unless

the cooperative gets a written

acknowledgment from the donee

organization that shows the amount of

cash contributed, describes any property

contributed, and gives an estimate of

the value of any goods or services

provided in return for the contribution.

The acknowledgment must be obtained
Page 8

by the due date (including extensions) of

the cooperative’s return, or if earlier, the

date the return is filed. Do not attach the

acknowledgment to the tax return, but

keep it with the cooperative’s records.

These rules apply in addition to the filing

requirements for Form 8283 described

below.

For more information on substatiation

and recordkeeping requirements, see the

regulations under section 170 and Pub.

526, Charitable Contributions.

Contributions of property other than

cash.—If a cooperative contributes

property other than cash and claims a

$500 deduction for the property, it must

attach a schedule to the return

describing the kind of property

contributed and the method used to

determine its fair market value.

Generally, cooperatives must complete

and attach Form 8283, Noncash

Charitable Contributions, to their returns

for all contributions of property other

than money if the total claimed

deduction for all property contributed

was more than $5,000.

If the cooperative made a “qualified

conservation contribution” under section

170(h), also include the fair market value

of the underlying property before and

after the donation, as well as the type of

legal interest contributed, and describe

the conservation purpose benefited by

the donation.

If a contribution carryover was

included, show the amount and how it

was determined.

Special rule for contributions of

certain property.—For a charitable

contribution of property, the cooperative

must reduce the contribution by the sum

of:

1. The ordinary income, short-term

capital gain that would have resulted if

the property were sold at its fair market

value; and

2. For certain contributions, all of the

long-term capital gain that would have

resulted if the property were sold at its

fair market value.

The reduction for the long-term capital

gain applies to:

● Contributions of tangible personal

property for use by an exempt

organization for a purpose or function

unrelated to the basis for its exemption,

and

● Contributions of any property (except

for stock for which market quotations

are readily available—see section

170(e)(5)) to or for the use of certain

private foundations. See section 170(e)

and Regulations section 1.170A-4.

For special rules for contributions of

inventory and other property to certain

organizations, see section 170(e)(3) and

Regulations section 1.170A-4A.

Charitable contributions of scientific

property used for research.—A

cooperative can receive a larger

deduction for contributing scientific

property used for research to an

institution of higher education. For more

details, see section 170(e).

Contributions to organizations

conducting lobbying activities.—

Contributions made to an organization

that conducts lobbying activities are not

deductible if:

● The lobbying activities relate to

matters of direct financial interest to the

donor’s trade or business, and

● The principal purpose of the

contribution was to avoid Federal

income tax by obtaining a deduction for

activities that would have been

nondeductible under the lobbying

expense rules if conducted directly by

the donor.

Line 20. Depreciation.—Besides

depreciation, include on line 20 the part

of the cost that the cooperative elected

to expense under section 179 for certain

tangible property placed in service

during tax year 1995 or carried over

from 1994. See Form 4562,

Depreciation and Amortization, and its

instructions.

Line 22. Depletion.—See sections 613

and 613A for percentage depletion rates

applicable to natural deposits. Also, see

section 291 for the limitation on the

depletion deduction for iron ore and coal

(including lignite).

Foreign intangible drilling costs and

foreign exploration and development

costs must either be added to the

cooperative’s basis for cost depletion

purposes or be deducted ratably over a

10-year period. See sections 263(i), 616,

and 617 for details.

Attach Form T (Timber), Forest

Activities Schedules, if a deduction for

depletion of timber is taken.

Line 24. Pension, profit-sharing, etc.,

plans.—Enter the deduction for

contributions to qualified pension,

profit-sharing, or other funded deferred

compensation plans. Employers who

maintain such a plan generally must file

one of the forms listed below, even if the

plan is not a qualified plan under the

Internal Revenue Code. The filing

requirement applies even if the

cooperative does not claim a deduction

for the current tax year. There are

penalties for failure to file these forms on

time and for overstating the pension

plan deduction. See sections 6652(e)

and 6662(f).

Form 5500.—File this form for each plan

with 100 or more participants.

Form 5500-C/R.—File this form for each

plan with fewer than 100 participants.

Form 5500-EZ.—File this form for a

one-participant plan. The term

“one-participant plan” also means a plan

that covers the owners and their

spouses or a plan that covers partners

in a business partnership (or the

partners and their spouses).

Line 25. Employee benefit programs.—

Enter the contributions to employee

benefit programs not claimed elsewhere

on the return (e.g., insurance, health and

welfare programs) that are not an

incidental part of a pension,

profit-sharing, etc., plan included on line

24.

Line 26. Other deductions

Note: Do not deduct fines or penalties

paid to a government for violating any

law.

Attach a schedule, listing by type and

amount all allowable deductions that are

not deductible elsewhere on Form

990-C.

Include on this line the deduction for

amortization of pollution control facilities,

organization expenses, etc. See Form

4562.

Also include ordinary losses from

trade or business activities of a

partnership (from Schedule K-1 (Form

1065), line 1).

Generally, a deduction may not be

taken for any amount that is allocable to

a class of exempt income. See section

265(b) for exceptions.

Meals, travel, and entertainment.—

Generally, the cooperative can deduct

only 50% of the amount otherwise

allowable for meals and entertainment

expenses paid or incurred in its trade or

business. Also, meals must not be lavish

or extravagant; a bona fide business

discussion must occur during,

immediately before, or immediately after

the meal; and your employee must be

present at the meal. See section

274(k)(2) for exceptions. If the

cooperative claims a deduction for

unallowable meal expenses, it may have

to pay a penalty.

Additional limitations apply to

deductions for gifts, skybox rentals,

luxury water travel, convention

expenses, and entertainment tickets. For

details, see section 274 and Pub. 463,

Travel, Entertainment, and Gift

Expenses.

No deduction is allowed for dues paid

or incurred for membership in any club

organized for business, pleasure,

recreation, or other social purpose. This

includes country clubs, golf and athletic

clubs, airline and hotel clubs, and clubs

operated to provide meals under

conditions favorable to business

discussion. But it does not include civic

or public service organizations,

professional organizations (such as bar

or medical associations), business

leagues, trade associations, chambers of

commerce, boards of trade, and real

estate boards, unless a principal

purpose of the organization is to

entertain or provide entertainment

facilities for members or their guests.
Page 9

Also, no deduction is allowed for

travel expenses paid or incurred for a

spouse, dependent, or other individual

accompanying an officer or employee of

the cooperative on business travel,

unless that spouse, dependent, or other

individual is an employee of the

cooperative and the travel is for a bona

fide business purpose and would

otherwise be deductible by that person.

Generally, a cooperative can deduct

all other ordinary and necessary travel

and entertainment expenses paid or

incurred in its trade or business.

However, it cannot deduct an expense

paid or incurred for a facility (such as a

yacht or hunting lodge) used for an

activity that is usually considered

entertainment, amusement, or

recreation.

Note: The cooperative may be able to

deduct the expense if the amount is

treated as compensation and reported

on Form W-2 for an employee or on

Form 1099-MISC for an independent

contractor.

Lobbying expenses.—Generally,

lobbying expenses are not deductible.

These expenses include amounts paid

or incurred in connection with

influencing Federal or state legislation

(but not local legislation), or amounts

paid or incurred in connection with any

communication with certain Federal

executive branch officials in an attempt

to influence the official actions or

positions of the officials. See

Regulations section 1.162-29 for the

definition of “influencing legislation.” If

certain in-house expenditures do not

exceed $2,000, they are deductible.

Dues and other similar amounts paid to

certain tax-exempt organizations may

not be deductible. See section 162(e)(3).

For information on contributions to

charitable organizations that conduct

lobbying activities, see the instructions

for line 19. For more information on

lobbying expenses, see section 162(e).

Line 28

Taxable income before NOL deduction

and special deductions

At-risk rules.—Special at-risk rules

under section 465 generally apply to

closely held cooperatives (defined in

Passive activity limitations on page 6)

engaged in any activity as a trade or

business or for the production of

income. These cooperatives may have to

adjust the amount on line 28, Form

990-C. But, the at-risk rules do not

apply to the following:

● Holding real property placed in service

by the cooperative before 1987;

● Equipment leasing under sections

465(c)(4), (5), and (6); and

● Any qualifying business of a qualified

cooperative under section 465(c)(7).

However, the at-risk rules do apply to

the holding of mineral property.

If the at-risk rules apply, adjust the

amount on this line for any section

465(d) losses. These losses are limited

to the amount for which the cooperative

is at-risk for each separate activity at the

close of the tax year. If the cooperative

is involved in one or more activities, any

of which incurs a loss for the year,

report the losses for each activity

separately. Attach Form 6198, At-Risk

Limitations, showing the amount at-risk

and gross income and deductions for

the activities with the losses.

If the cooperative sells or otherwise

disposes of an asset or its interest

(either total or partial) in an activity to

which the at-risk rules apply, determine

the net profit or loss from the activity by

combining the gain or loss on the sale or

disposition with the profit or loss from

the activity. If the cooperative has a net

loss, it may be limited because of the

at-risk rules.

Treat any loss from an activity not

allowed for the tax year as a deduction

allocable to the activity in the next tax

year.

Line 29a. NOL deduction.—A

cooperative may use the net operating

loss (NOL) incurred in one tax year to

reduce its taxable income in another

year. Generally, a cooperative may carry

an NOL back to each of the 3 years

preceding the year of the loss and then

carry any remaining amount over to

each of the 15 years following the year

of the loss (but see Exceptions to

carryback rules, below). Enter on line

29a, the total NOL carryovers from prior

tax years, but do not enter more than

the cooperative’s taxable income (after

special deductions). An NOL deduction

cannot be taken in a year in which the

cooperative has negative taxable

income. Attach a schedule showing the

computation of the NOL deduction.

Also complete question 20 on

Schedule N.

For more information about NOLs and

the NOL deduction, get Pub. 536, Net

Operating Losses.

Carryback and carryover rules.—

Generally, an NOL first must be carried

back to the third year preceding the year

of the loss. To carry back the loss and

obtain a quick refund of taxes, use

Form 1139, Corporation Application for

Tentative Refund. Form 1139 must be

filed within 12 months after the close of

the tax year of the loss. See section

6411 for details. Do not attach Form

1139 to the cooperative’s income tax

return. Mail it in a separate envelope to

the service center where the cooperative

files its income tax return.

For carryback claims filed later than

12 months after the close of the tax year

of the loss, file an amended Form

990-C, instead of Form 1139.

After the cooperative has applied the

NOL to the first tax year to which it may

be carried, the taxable income of that

year is modified (as described in section

172(b)) to determine how much of the

remaining loss may be carried to other

years. See section 172(b) and the

related regulations for details.

Special rules apply when an

ownership change occurs (i.e., for any

tax year ending after a post-1986

ownership change, the amount of the

taxable income of a loss corporation

that can be offset by prechange NOL

carryovers is limited). See section 382

and the related regulations.

Also see Temporary Regulations

section 1.382-2T(a)(2)(ii), which requires

that a loss corporation file an

information statement with its income

tax return for each tax year that it is a

loss corporation and certain shifts in

ownership occurred. Also see

Regulations section 1.382-6(b) for details

on how to make the

closing-of-the-books election.

See section 384 for the limitation on

the use of preacquistion losses of one

corporation to offset recognized built-in

gains of another corporation.

Exceptions to carryback rules.—A

cooperative may make an irrevocable

election to forego the carryback period

and instead carry the NOL over to each

of the 15 years following the year of the

loss. To make this election, check the

box in question 19 on Schedule N. The

return must be timely filed (including

extensions).

Different carryback periods apply for

certain losses. The part of an NOL that

is attributable to a specified liability loss,

including a product liability loss, may be

carried back 10 years (section

172(b)(1)(C)).

Line 30. Taxable income.—For

coopertives required to file Form 8817,

taxable income reported on line 30 may

not exceed the combined taxable

income shown on line 30, Form 8817.

Attach Form 8817 to the cooperative’s

tax return. See Form 8817 for more

details.

Caution: Patronage source losses

cannot be used to offset nonpatronage

income. See section 1388(j) for more

information.

Line 32b. Estimated tax payments.—

Enter any estimated tax payments the

cooperative made for the tax year.

Beneficiaries of Trusts.—If the

cooperative is the beneficiary of a trust,

and the trust makes a section 643(g)

election to credit its estimated tax

payments to its beneficiaries, include the

cooperative’s share of the estimated tax

payment in the total amount entered on

line 32b. Write “T” and the amount of

the payment in the blank space to the

right of the entry space.

Line 32f. Credit from refiguring tax for

years in which nonqualified per-unit

retain certificates or nonqualified
Page 10

written notices of allocation

(redeemed this year) were issued.—If

the cooperative paid less total tax by not

claiming the deduction for the

redemption of nonqualified written

notices of allocation or nonqualified

per-unit retain certificates in the current

tax year, and instead the cooperative

refigured the tax for the years the

nonqualified written notices or

certificates were originally issued, enter

the amount of the reduction in the issue

years’ taxes on this line. Attach a

schedule showing how the credit was

figured. This credit is treated as a

payment, and any amount that is more

than the tax on line 31 will be refunded.

Line 32g. Credit for federal tax on

fuels.—Complete Form 4136 if the

cooperative qualifies to take this credit.

Attach Form 4136 after page 5, Form

990-C.

Line 32h. Total Payments.—Add the

amounts on lines 32d through 32g and

enter the total on line 32h.

Backup withholding.—If the

cooperative had income tax withheld

from any payments it received, because,

for example, it failed to give the payer its

correct EIN, include the amount withheld

in the total for line 32h. This type of

withholding is called backup withholding.

Show the amount withheld in the blank

space in the right-hand column between

lines 31 and 32h, and write “backup

withholding.”

Line 33. Estimated Tax Penalty.—A

cooperative that does not make

estimated tax payments when due may

be subject to an underpayment penalty

for the period of underpayment.

Generally, a cooperative is subject to the

penalty if its tax liability is $500 or more,

and it did not timely pay the smaller of

(a) 100% of its tax liability for 1995, or

(b) 100% of its prior year’s tax. See

section 6655 for details and exceptions

including special rules for large

cooperatives.

Form 2220, Underpayment of

Estimated Tax by Corporations, is used

to see if the cooperative owes a penalty

and to figure the amount of the penalty.

Generally, the cooperative does not have

to file this form because the IRS can

figure the amount of any penalty and bill

the cooperative for it. However, even if

the cooperative does not owe a penalty

you must complete and attach Form

2220, if either of the following apply:

The annualized income or adjusted

seasonal installment method is used.

The cooperative is a large cooperative

computing its first required installment

based on the prior year’s tax. (See the

Form 2220 instructions for the definition

of a large corporation.) If you attach

Form 2220, check the box on line 33,

and enter the amount of any penalty on

this line.

Schedule A

Cost of Goods Sold

Inventories are required at the beginning

and end of each tax year if the

production, purchase, or sale of

merchandise is an income-producing

factor. See Regulations section 1.471-1.

If inventories are not used, enter zero on

lines 1 and 8.

Note: All filers should see Section 263A

uniform capitalization rules on page 6

before completing Schedule A.

Line 4a.—Qualified per-unit retain

certificates are issued to patrons who

have agreed to include the stated dollar

amount in current income.

Line 5.—Enter the amount paid in

money or other property (except per-unit

retain certificates) to patrons to redeem

nonqualified per-unit retain certificates. If

a per-unit retain certificate does not

qualify, no deduction is allowable at the

time it is issued. However, the

cooperative may take a deduction or a

refund of tax when the nonqualified

per-unit retain certificate is finally

redeemed, provided that the

nonqualified per-unit retain certificate

was paid as a per-unit retain allocation

during the payment period for the tax

year during which the marketing

occurred. The deduction is allowed only

for amounts paid in money or other

property (other than per-unit retain

certificates) that are not more than the

stated dollar amount of the nonqualified

per-unit retain certificate. See section

1382(b).

See section 1383 and the instructions

for line 32f for a special rule for figuring

the cooperative’s tax in the year of

redemption of a nonqualified per-unit

retain certificate.

Line 6a.—An entry is required only for

cooperatives electing a simplified

method of accounting.

For these cooperatives, additional

section 263A costs are generally costs,

other than interest, that were not

capitalized under the cooperative’s

method of accounting immediately prior

to the effective date of section 263A

that are now required to be capitalized

under section 263A. For details, see

Regulations section 1.263A-2(b).

For cooperatives that have elected the

simplified resale method, additional

section 263A costs are generally those

costs incurred with respect to the

following categories: Off-site storage or

warehousing; purchasing; handling,

processing, assembly and repackaging;

and general and administrative costs

(mixed service costs). For details, see

Regulations section 1.263A-3(d).

Enter on line 6a the balance of section

263A costs paid or incurred during the

tax year not included on lines 2 and 3.

Line 6b.—Enter any costs paid or

incurred during the tax year not entered

on lines 2 through 6a.

Line 8.—See Regulations sections

1.263A-1 through 1.263A-3 for details

on figuring the amount of additional

section 263A costs to be included in

ending inventory.

Lines 10a through 10f

Inventory valuation methods.

Inventories can be valued at:

● Cost;

● Cost or market value (whichever is

lower); or

● Any other method approved by the

IRS that conforms to the requirements of

the applicable regulations cited below.

The average cost (rolling average)

method of valuing inventories generally

does not conform to the requirements of

the regulations. See Rev. Rul. 71-234,

1971-1 C.B. 148.

Cooperatives that use erroneous

valuation methods must change to a

method permitted for Federal income tax

purposes. To make this change, use

Form 3115.

On line 10a, check the method(s) used

for valuing inventories. Under lower of

cost or market, the term “market” (for

normal goods) means the current bid

price prevailing on the inventory

valuation date for the particular

merchandise in the volume usually

purchased by the taxpayer. For a

manufacturer, market applies to the

basic elements of cost—raw materials,

labor, and burden. If section 263A

applies to the taxpayer, the basic

elements of cost must reflect the current

bid price of all direct costs and all

indirect costs properly allocable to

goods on hand at the inventory date.

Inventory may be valued below cost

when the merchandise is unsalable at

normal prices or unsalable in the normal

way because the goods are subnormal

because of damage, imperfections, shop

wear, etc. within the meaning of

Regulations section 1.471-2(c). The

goods may be valued at a current bona

fide selling price, minus direct cost of

disposition (but not less than scrap

value) if such a price can be established.

If this is the first year the

Last-in-first-out (LIFO) inventory method

was either adopted or extended to

inventory goods not previously valued

under the LIFO method provided in

section 472, attach Form 970,

Application To Use LIFO Inventory

Method, or a statement with the

information required by Form 970. Also

check the LIFO box on line 10c. On line

10d, enter the amount or the percent of

total closing inventories covered under

section 472. Estimates are acceptable.

If the cooperative changed or

extended its inventory to LIFO and had

to write up its opening inventory to cost
Page 11

in the year of election, report the effect

of this writeup as income (line 10, page

1) proportionately over a 3-year period

that begins with the year of the LIFO

election (section 472(d)).

For more information on inventory

valuation methods, get Pub. 538,

Accounting Periods and Methods.

Schedule C

Dividends and Special Deductions

For purposes of the 20% ownership test

on lines 1 through 7, the percentage of

stock owned by the cooperative is

based on voting power and value of the

common stock. Preferred stock

described in section 1504(a)(4) is not

taken into account. Cooperatives filing a

consolidated return should see

Regulations sections 1.1502-13

(1.1502-14 for calendar year 1995 files

and fiscal year filers with tax years that

begin before July 12, 1995), 1.1502-26

and 1.1502-27.

Line 1, Column (a).—Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984—see

section 246A) that are received from

less-than-20%-owned domestic

corporations subject to income tax and

that are subject to the 70% deduction

under section 243(a)(1). Include on this

line taxable distributions from an

IC-DISC or former DISC that are

designated as eligible for the 70%

deduction and certain dividends of

Federal Home Loan Banks. See section

246(a)(2).

Also include on line 1 dividends

(except those received on debt-financed

stock acquired after July 18, 1984) from

a regulated investment company (RIC).

The amount of dividends eligible for the

dividends-received deduction under

section 243 is limited by section 854(b).

The corporation should receive a notice

from the RIC specifying the amount of

dividends that qualify for the deduction.

Report so-called dividends or earnings

received from mutual savings banks,

etc., as interest. Do not treat them as

dividends.

Line 2, Column (a).—Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984) that

are received from 20%-or-more-owned

domestic corporations subject to income

tax and that are subject to the 80%

deduction under section 243(c). Include

on this line taxable distributions from an

IC-DISC or former DISC that are

considered eligible for the 80%

deduction.

Line 3, Column (a).—Enter dividends on

debt-financed stock acquired after July

18, 1984, that are received from

domestic and foreign corporations

subject to income tax and that would

otherwise be subject to the

dividends-received deduction under

sections 243(a)(1), 243(c), or 245(a).

Generally, debt-financed stock is stock

that the cooperative acquired by

incurring a debt (e.g., it borrowed money

to buy the stock).

Include on line 3 dividends received

from a regulated investment company

(RIC) on debt-financed stock. The

amount of dividends eligible for the

dividends-received deduction is limited

by section 854(b). The cooperative

should receive a notice from the RIC

specifying the amount of dividends that

qualify for the deduction.

Line 3, Columns (b) and (c).—

Dividends received on debt-financed

stock acquired after July 18, 1984, are

not entitled to the full 70% or 80%

dividends-received deduction. The 70%

or 80% deduction is reduced by a

percentage that is related to the amount

of debt incurred to acquire the stock.

See section 246A. Also see section

245(a) before making this computation

for an additional limitation that applies to

dividends received from foreign

corporations. Attach a schedule to Form

990-C showing how the amount on line

3, column (c), was figured.

Line 4, Column (a).—Enter dividends

received on the preferred stock of a

less-than-20%-owned public utility that

is subject to income tax and is allowed

the deduction provided in section 247

for dividends paid.

Line 5, Column (a).—Enter dividends

received on preferred stock of a

20%-or-more-owned public utility that is

subject to income tax and is allowed the

deduction provided in section 247 for

dividends paid.

Line 6, Column (a).—Enter the

U.S.-source portion of dividends that are

received from less-than-20%-owned

foreign corporations and that qualify for

the 70% deduction under section 245(a).

To qualify for the 70% deduction, the

cooperative must own at least 10% of

the stock of the foreign corporation by

vote and value. Also include dividends

received from a less-than-20%-owned

FSC that are attributable to income

treated as effectively connected with the

conduct of a trade or business within

the United States (excluding foreign

trade income) and that qualify for the

70% deduction provided in section

245(c)(1)(B).

Line 7, Column (a).—Enter the

U.S.-source portion of dividends that are

received from 20%-or-more-owned

foreign corporations and that qualify for

the 80% deduction under section 245(a).

Also include dividends received from a

20%-or-more-owned FSC that are

attributable to income treated as

effectively connected with the conduct

of a trade or business within the United

States (excluding foreign trade income)

and that qualify for the 80% deduction

provided in section 245(c)(1)(B).

Line 8, Column (a).—Enter dividends

that are received from wholly owned

foreign subsidiaries and that are eligible

for the 100% deduction provided in

section 245(b).

In general, the deduction under

section 245(b) applies to dividends paid

out of the earnings and profits of a

foreign corporation for a tax year during

which:

Worksheet for Schedule C, line 9 (Keep for your records.)

1. Refigure line 28, page 1, Form 990-C, without any adjustment

under section 1059 and without any capital loss carryback to the

tax year under section 1212(a)(1)

2. Complete lines 10 and 11, column (c) and enter the total here

3. Subtract line 2 from line 1

4. Multiply line 3 by 80%

5. Add lines 2, 5, 7, and 8, column (c) and the part of the deduction

on line 3, column (c) that is attributable to dividends from

20%-or-more-owned corporations

6. Enter the smaller of line 4 or line 5. If line 5 is greater than line 4,

stop here; and enter the amount from line 6 on line 9, column (c)

and do not complete the rest of this worksheet

7. Enter the total amount of dividends from 20%-or-more-owned

corporations that are included on lines 2, 3, 5, 7, and 8, column

(a)

8. Subtract line 7 from line 3

9. Multiply line 8 by 70%

10. Subtract line 5 above from line 9, column (c)

11. Enter the smaller of line 9 or line 10

12. Dividends-received deduction after limitation (sec. 246(b)). Add

lines 6 and 11. Enter the result here and on line 9, column (c)
Page 12

● All of its outstanding stock is owned

(directly or indirectly) by the domestic

cooperative receiving the dividends, and

● All of its gross income from all

sources is effectively connected with the

conduct of a trade or business within

the United States.

Line 9, Column (c)—Limitation on

dividends-received deduction.—

Generally, line 9, column (c) may not

exceed the amount from the worksheet

above. However, in a year in which an

NOL occurs, this limitation does not

apply even if the loss is created by the

dividends-received deduction. See

sections 172(d) and 246(b).

Line 10, Column (a).—Enter dividends

from FSCs that are attributable to

foreign trade income and that are

eligible for the 100% deduction provided

in section 245(c)(1)(A).

Line 11, Columns (a) and (c).—Enter

only those dividends that qualify under

section 243(b) for the 100%

dividends-received deduction described

in section 243(a)(3). Cooperatives taking

this deduction are subject to the

provisions of section 1561.

Note: The 100% deduction does not

apply to affiliated group members that

are joining in the filing of a consolidated

return.

Line 12, Column (a).—Enter foreign

dividends not reportable on lines 3, 6, 7,

8, or 10 of column (a). Include on line 12

the cooperative’s share of the ordinary

earnings of a qualified electing fund from

Form 8621, line 6c, or the amount of

any excess distributions from a passive

foreign investment company from Form

8621, line 11b. Exclude distributions of

amounts constructively taxed in the

current year or in prior years under

subpart F (sections 951 through 964).

Line 13, Column (a).—Include income

constructively received from controlled

foreign corporations under subpart F.

This amount should equal the total of

amounts reported on Schedule I, Form

5471.

Line 14, Column (a).—Include gross-up

for taxes deemed paid under sections

902 and 960.

Line 15, Column (a).—Enter taxable

distributions from an IC-DISC or former

DISC that are designated as not eligible

for a dividends-received deduction.

No deduction is allowed under section

243 for a dividend from an IC-DISC or

former DISC (as defined in section

992(a)) to the extent the dividend:

1. Is paid out of the corporation’s

accumulated IC-DISC income or

previously taxed income, or

2. Is a deemed distribution under

section 995(b)(1).

Line 16, Column (a).—Include the

following:

1. Dividends (other than capital gain

dividends and exempt-interest

dividends) that are received from

regulated investment companies that are

not subject to the 70% deduction.

2. Dividends from tax-exempt

organizations.

3. Dividends (other than capital gain

dividends) received from a real estate

investment trust that, for the tax year of

the trust in which the dividends are paid,

qualifies under sections 856 through

860.

4. Dividends not eligible for a

dividends-received deduction because

of the holding period of the stock or an

obligation to make corresponding

payments with respect to similar stock.

Two situations in which the

dividends-received deduction will not be

allowed on any share of stock are:

● If the cooperative held it 45 days or

less (see section 246(c)(1)(A)), or

● To the extent the cooperative is under

an obligation to make related payments

for substantially similar or related

property.

5. Any other taxable dividend income

not properly reported above (including

distributions under section 936(h)(4)).

Schedule H

Deductions and Adjustments

under Section 1382

Cooperatives have an option under

section 1388(j)(1) to use losses from one

or more allocation units to offset

earnings of one or more other

allocations, as permitted by its bylaws,

but only to the extent that the earnings

and losses are from business done with

or for patrons. If a cooperative exercises

this option, it must provide the

information specified in section 1388(j)(3)

by written notice to its patrons. Special

rules also apply if a cooperative has

acquired the assets of another

cooperative under a section 381(a)

transaction. See section 1388(j) for more

information. Cooperatives may net

earnings and losses under section

1388(j) and still be eligible for

tax-exempt treatment. See section

521(b)(6).

Note: Lines 1 and 2 apply only to

section 521 cooperatives.

Line 1.—Enter the amount actually or

constructively paid as dividends during

the tax year on common stock (whether

voting or nonvoting), preferred stock,

capital retain certificates, revolving fund

certificates, letters of advice, or other

documentary evidence of a proprietary

interest in the cooperative association.

See Regulations section 1.1382-3(b) for

more information.

Line 2.—Enter amounts paid on a

patronage basis to patrons from

non-patronage income. Payment may be

in money, qualified written notices of

allocation, or other property (except

nonqualified written notices of

allocation). The amounts must be paid

during the payment period which begins

on the first day of the tax year and ends

on the 15th day of the 9th month after

the end of the tax year in which the

income was earned.

Non-patronage income includes

incidental income from sources not

directly related to marketing, purchasing,

or service activities of the cooperative

(such as income from the lease of

premises, investments, or from the sale

or exchange of capital assets). It also

includes income from business done

with or for the U.S. Government, or any

of its agencies.

See “Patronage dividends” below for a

definition of “qualified written notice of

allocation.” See section 1382(c)(2)(B) for

deductibility of amounts paid in

redemption of nonqualified written

notices of allocation.

Line 3.—Patronage dividends include

any amount paid to a patron by a

cooperative based on business done

with or for that patron under a

pre-existing obligation of the cooperative

to pay that amount. The amount is

determined by reference to the net

earnings of the organization from

business done with or for its patrons.

Patronage dividends may be in the

form of money, qualified written notices

of allocation, or other property (except

nonqualified written notices of

allocation).

To be deductible, patronage dividends

must be paid during the payment period

that begins on the first day of the tax

year in which the patronage occurs and

ends on the 15th day of the 9th month

after the end of that tax year.

See sections 1382(e) and (f) for

special rules for the time when

patronage occurs if products are

marketed under a pooling arrangement,

or if earnings are includible in the gross

income of the cooperative for a tax year

after the year in which the patronage

occurred.

Written notices of allocation means

any capital stock, revolving fund

certificate, certificate of indebtedness, or

other written notice, which tells the

patron the stated dollar amount

allocated to them by the cooperative

and the part, if any, which is a

patronage dividend.

A qualified written notice of

allocation is a written notice of

allocation, which pays in money or a

qualified check, 20% or more of the

amount of the patronage dividend. See

section 1388(c) and related regulations.

See Rev. Rul. 81-103, 1981-1 C.B. 447,

for the qualification of written notices of

allocation issued to patrons by a

payment of cash and a crediting of

accounts receivable due from patrons.
Page 13

Also, one of the following conditions

must be met before a written notice of

allocation is qualified:

1. The patron must have at least 90

days from the date the written notice of

allocation is paid to redeem it in cash,

and must receive written notice of the

right of redemption at the time he or she

received the allocation; OR

2. The patron must agree to have the

allocation treated as constructively

received and reinvested in the

cooperative. See section 1388(c)(2) and

related regulations for information on

how the consent must be made.

If a written notice of allocation does

not qualify, no deduction is allowable at

the time it is issued. However, the

cooperative is entitled to a deduction or

refund of tax when the nonqualified

written notice of allocation is finally

redeemed, if that notice was paid as a

patronage dividend during the payment

period for the tax year during which the

patronage occurred. The deduction or

refund is allowed, but only to the extent

that amounts paid to redeem the

nonqualified written notice of allocation

are paid in money or other property

(other than written notices of allocation).

They cannot be more than the stated

dollar amounts of the nonqualified

written notice of allocation. See section

1382(b) and related regulations.

Note: See section 1383 for special rules

for figuring the cooperative’s tax in the

year nonqualified written notices of

allocation are redeemed. The

cooperative is entitled to: (a) a deduction

in the tax year the nonqualified written

notices of allocation are redeemed (if

permitted under section 1382(b)(2) or (4)

or section 1382(c)(2)(B)); OR (b) a tax

credit based on a recomputation of tax

for the year(s) the nonqualified written

notices of allocation were issued. See

instructions for line 32f.

The following are not patronage

dividends, amounts paid to patrons:

1. Out of earnings not from business

done with or for patrons;

2. Out of earnings from business done

with or for other patrons to whom no

amounts or smaller amounts are paid for

substantially identical transactions;

3. To redeem capital stock,

certificates of indebtedness, revolving

fund certificates, retain certificates,

letters of advice, or other similar

documents; and

4. Without reference to the net

earnings of the cooperative organization

from business done with or for its

patrons.

Schedule J

Tax Computation

Note: Members of a controlled group

must attach a statement showing the

computation of the tax entered on line 3.

Lines 1 and 2a

Members of a controlled group.—A

member of a controlled group, as

defined in section 1563, must check the

box on line 1 and complete lines 2a and

2b of Schedule J.

Members of a controlled group are

entitled to one $50,000, one $25,000,

and one $9,925,000 taxable income

bracket amount (in that order) on line 2a.

When a controlled group adopts or

later amends an apportionment plan,

each member must attach to its tax

return a copy of its consent to this plan.

The copy (or an attached statement)

must show the part of the amount in

each taxable income bracket

apportioned to that member. See

Regulations section 1.1561-3(b) for other

requirements and for the time and

manner of making the consent.

Equal apportionment plan. If no

apportionment plan is adopted,

members of a controlled group must

divide the amount in each taxable

income bracket equally among

themselves. For example, Controlled

Group AB consists of Cooperative A and

Cooperative B. They do not elect an

apportionment plan. Therefore, both

Cooperative A and Cooperative B are

entitled to $25,000 (one-half of $50,000)

in the $50,000 taxable income bracket

on line 2a(1) and to $12,500 (one-half of

$25,000) in the $25,000 taxable income

bracket on line 2a(2), and $4,962,500

(one-half of $9,925,000) in the

$9,925,000 taxable income bracket on

line 2a(3).

Unequal apportionment plan. Members

of a controlled group may elect an

unequal apportionment plan and divide

the taxable income brackets as they

want. There is no need for consistency

among taxable income brackets. Any

member of the controlled group may be

entitled to all, some, or none of the

taxable income bracket. However, the

total amount for all members of the

controlled group cannot be more than

the total amount in each taxable income

bracket.

Line 2b

Additional 5% tax. Members of a

controlled group are treated as one

cooperative to figure the applicability of

the additional 5% tax that must be paid

by cooperatives with taxable income

over $100,000. If the additional tax

applies, each member of the controlled

group will pay that tax based on the part

of the amount that is used in each

taxable income bracket to reduce that

member’s tax. See section 1561(a). Each

member of the group must enter its

share of the additional 5% tax on line

2b(1), and attach to its tax return a

schedule that shows the taxable income

of the entire group as well as how it

figured its share of the additional 5%

tax.

Additional 3% tax. Members of a

controlled group are treated as one

cooperative to figure the additional 3%

tax that must be paid by cooperatives

with taxable income over $15 million. If

the additional tax applies, each member

Tax Computation Worksheet for Members of a Controlled Group (Keep for your records.)

Note: Each member of a controlled group must compute the tax

using this worksheet.

1. Enter taxable income (line 30, page 1)

2. Enter line 1 or the cooperative’s share of the $50,000 taxable

income bracket, whichever is less

3. Subtract line 2 from line 1

4. Enter line 3 or the cooperative’s share of the $25,000 taxable

income bracket, whichever is less

5. Subtract line 4 from line 3

6. Enter line 5 or the cooperative’s share of the $9.925,000 taxable

income bracket, whichever is less

7. Subtract line 6 from line 5

8. Multiply line 2 by 15%

9. Multiply line 4 by 25%

10. Multiply line 6 by 34%

11. Multiply line 7 by 35%

12. If the taxable income of the controlled group exceeds $100,000,

enter this member’s share of the smaller of: 5% of the taxable

income in excess of $100,000, or $11,750. (See Additional 5%

tax below.)

13. If the taxable income of the controlled group exceeds $15 million,

enter this member’s share of the smaller of 3% of the taxable

income in excess of $15 million, or $100,000. (See Additional 3%

tax below.)

14. Add lines 8 through 13. Enter here and on Schedule J, line 3
Page 14

of the controlled group will pay that tax

based on the part of the amount that is

used in each taxable income bracket to

reduce that member’s tax. See section

1561(a). Each member of the group

must enter its share of the additional 3%

tax on line 2b(2) and attach to its tax

return a schedule that shows the taxable

income of the entire group as well as

how it figured its share of the additional

3% tax.

Line 3

Most cooperatives figure their tax by

using the Tax Rate Schedule below.

Exceptions apply to members of a

controlled group (see worksheet on page

13). See the instructions below for more

information.

Deferred tax amount of a shareholder

in a passive foreign investment

company (section 1291).—If the

cooperative was a shareholder in a

passive foreign investment company

(PFIC), and the cooperative received an

excess distribution or disposed of its

investment in the PFIC during the year,

it must include the total increase in

taxes due under section 1291(c)(2) in the

amount entered on line 3, Schedule J.

On the dotted line next to line 3,

Schedule J, write “Section 1291” and

the amount.

Do not include on line 3 any interest

due under section 1291(c)(3). Instead,

show the amount of interest owed in the

bottom margin of page 1, Form 990-C,

and write “Section 1291 interest.” For

details, see Form 8621, Return by a

Shareholder of a Passive Foreign

Investment Company or Qualified

Electing Fund.

Line 4a. Foreign tax credit.—To find

out when a cooperative can take the

credit for payment of income tax to a

foreign country or U.S. possession, see

Form 1118, Foreign Tax Credit—

Corporations.

Line 4b—Other credits:

Possessions tax credit. For rules on

how to elect to claim the possessions

tax credit (Section 936), see Form 5712,

Election To Be Treated as a Possessions

Corporation Under Section 936. Figure

the credit on Form 5735, Possessions

Corporation Tax Credit Allowed Under

Section 936.

Nonconventional source fuel credit. A

credit is allowed for the sale of qualified

fuels produced from a nonconventional

source. Section 29 contains a definition

of qualified fuels, provisions for figuring

the credit, and other special rules.

Attach a separate schedule to the return

showing the computation of the credit.

Also see Form 8827, Credit for Prior

Year Minimum Tax, if any of the 1994

credit was disallowed solely because of

the tentative minimum tax limitation. See

section 53(d).

Qualified electric vehicle (QEV) credit.

Include on line 4b any credit from Form

8834, Qualified Electric Vehicle Credit.

Vehicles that qualify for this credit are

not eligible for the deduction for

clean-fuel vehicles under section 179A.

Line 4c. General business credit.—

Complete this line if the cooperative can

take any of the following credits.

Complete Form 3800, General Business

Credit, if the cooperative has two or

more of these credits, a credit

carryforward or carryback (including an

ESOP credit), a trans-Alaska pipeline

liability fund credit, a passive activity

credit. Enter the amount of the general

business credit on line 4c, and check

the box for Form 3800. If the

cooperative has only one credit, enter on

line 4c, the amount of the credit from

the form. Also be sure to check the

appropriate box for that form.

Note: Any excess energy investment

credit, jobs credit, Indian employment

credit, or empowerment zone

employment credit not used by the

cooperative (because of tax liability

limitation) must be passed through to the

patrons. The credits cannot be carried

back or over by the cooperative. See

Forms 3468, 5884, 8844, and 8845 for

details.

Investment credit. The cooperative may

claim the investment credit for property

placed in service that is qualified

rehabilitation property, energy, qualified

timber, or transition property. See Form

3468, Investment Credit, for details.

Jobs credit. The cooperative may

qualify to take this credit if it hired

members of special targeted groups

during the tax year. See Form 5884,

Jobs Credit, for more information.

Credit for alcohol used as fuel. Use

Form 6478, Credit for Alcohol Used as

Fuel, to figure the credit.

Credit for increasing research

activities. See Form 6765, Credit for

Increasing Research Activities and

section 41.

Low-Income housing credit. See Form

8586, Low-Income Housing Credit and

section 42.

Enhanced oil recovery credit. A

cooperative may claim a credit for

qualified enhanced oil recovery costs.

Use Form 8830, Enhanced Oil Recovery

Credit.

Disabled access credit. A cooperative

may be able to take a credit for certain

expenditures paid or incurred to help

individuals with disabilities. See Form

8826, Disabled Access Credit, and

section 44.

Renewable electricity production

credit. A cooperative may be able to

take a credit for electricity produced by

the cooperative using closed-loop

biomass or wind and sold to an

unrelated person. See Form 8835,

Renewable Electricity Production Credit,

for details.

Indian employment credit. A

corporation may be able to claim a

credit of 20% of a limited amount of the

wages and health insurance costs paid

or incurred by the corporation for

qualified employees. A qualified

employee is a member of an enrolled

Indian tribe (or whose spouse is a

member), who also meets certain other

qualifications. See Form 8845, Indian

Employment Credit, and section 45A.

Credit for employer social security

and Medicare taxes paid on certain

employee tips. Food and beverage

establishments may claim a credit equal

to the employer’s social security and

Medicare obligations attributable to tips

in excess of those treated as wages for

purposes of the minimum wage laws.

See Form 8846, Credit for Employer

Social Security and Medicare Taxes Paid

on Certain Employee Tips, and section

45B.

Credit for contributions to certain

community development corporations.

Corporations may claim a credit of 5%

of qualified cash contributions to certain

community development corporations

(CDCs) selected by the Secretary of

Housing and Urban Development. See

Form 8847, Credit for Contributions to

Tax Rate Schedule

If taxable income (line 30, Form 990-C) on page 1 is:

Of the

But not amount

Over — over— over— Tax is:

$0 $50,000 15% $0

50,000 75,000 $7,500 + 25% 50,000

75,000 100,000 13,750 + 34% 75,000

100,000 335,000 22,250 + 39% 100,000

335,000 10,000,000 113,900 + 34% 335,000

10,000,000 15,000,000 3,400,000 + 35% 10,000,000

15,000,000 18,333,333 5,150,000 + 38% 15,000,000

18,333,333 - - - - - 35% 0
Page 15

Certain Community Development

Corporations.

Note: The empowerment zone

employment credit (described below) is a

component of the general business

credit, but is figured separately and is

not carried to Form 3800.

Empowerment zone employment

credit. A cooperative that has

employees that live and work for the

cooperative in an area designated by the

Federal government as an

“empowerment zone” may be able to

take a credit for wages paid to certain

employees. The credit is equal to 20%

of the first $15,000 of qualified wages

and is limited to $3,000 per year per

employee. See Form 8844,

Empowerment Zone Employment Credit,

and section 1396.

Line 4d. Credit for prior year minimum

tax.—To figure the minimum tax credit

and any carryforward of that credit, use

Form 8827, Credit for Prior Year

Minimum Tax— Corporations.

Include on line 4d any orphan drug

credit. On the dotted line next to the

entry space, write “ODC” and the

amount.

Also include on line 4d any

trans-Alaska pipeline liability fund credit.

On the dotted line next to the entry

space, write “TAP” and the amount.

Line 7.—Recapture Taxes:

Recapture of Investment Credit. If the

cooperative disposed of investment

credit property or changed its use before

the end of its useful life or recovery

period, see Form 4255, Recapture of

Investment Credit, for details.

Recapture of Low-income Housing

Credit. If the cooperative disposed of

property (or there was a reduction in the

qualified basis of the property) for which

it took the low-income housing credit,

see Form 8611, Recapture of

Low-Income Housing Credit, and section

42(j) for details.

Recapture of qualified electric vehicle

(QEV) credit. The cooperative must

recapture part of the QEV credit it

claimed in a prior year, if, within 3 years

of the date the vehicle was placed in

service, it ceases to qualify for the

credit. See Regulations section 1.30-1

for details on how to figure the

recapture. Include the amount of the

recapture in the total for line 7, Schedule

J. On the dotted line next to the entry

space, write “QEV recapture” and the

amount.

Recapture of Indian employment

credit. Generally, if an employer

terminates the employment of a qualified

employee less than 1 year after the date

of initial employment, any Indian

employment credit allowed for a prior

tax year by reason of wages paid or

incurred to that employee must be

recaptured. For details, see Form 8845,

Indian Employment Credit, and section

45A. Include the amount of the

recapture in the total for line 7, Schedule

J. On the dotted line next to the entry

space, write “45A” and the amount.

Line 8a. Alternative minimum tax.—

The cooperative may owe the alternative

minimum tax (AMT) if it has any of the

adjustments and tax preference items

listed on Form 4626, Alternative

Minimum Tax— Corporations. The

cooperative must file Form 4626 if its

taxable income (loss) combined with

these adjustments and tax preference

items is more than the smaller of:

● $40,000, or

● The cooperative’s allowable exemption

amount (from Form 4626).

For this purpose, taxable income does

not include the NOL deduction. Get

Form 4626 for details.

Reduce alternative minimum tax by

any amounts on Form 3800, line 34,

Schedule A, (or line 21, Form 8844). On

the dotted line next to line 8a, write

“Section 38(c)(2)” (or “EZE”) and the

amount.

Line 8b. Environmental tax.—The

cooperative may be liable for the

environmental tax if the modified

alternative minimum taxable income of

the cooperative exceeds $2 million. See

Form 4626 for details.

Line 9. Interest on tax deferred under

the installment method for certain

non-dealer property installment

obligations.—If an obligation arising

from the disposition of property to which

section 453A applies is outstanding at

the close of the tax year, the

cooperative must include the interest

due under section 453A(c) on line 9,

Schedule J. Write on the dotted line to

the left of line 9, Schedule J, “Sec.

453A(c)” and the amount. Attach a

schedule showing the computation.

Deferred tax and interest on

undistributed earnings of a qualified

electing fund under section 1294.

Complete Form 8621 to determine the

cooperative’s share of tax attributable to

the undistributed earnings of a qualified

electing fund, or the deferred tax due, if

any, as a result of the termination of a

section 1294 election. See the

instructions for Form 8621 to figure the

amount of tax to include in, or subtract

from the total on line 9. The instructions

for Form 8621 also explain how to report

any interest due under section 1294 on

the deferred tax.

Schedule L

Balance Sheets

The balance sheet should agree with the

cooperative’s books and records.

Include certificates of deposit as cash

on line 1, Schedule L.

Line 5. Tax-exempt securities.—

Include on this line:

1. State and local government

obligations, the interest on which is

excludable from gross income under

section 103(a), and

2. Stock in a mutual fund or other

regulated investment company that

distributed exempt-interest dividends

during the tax year of the cooperative.

Schedule M-1

Reconciliation of Income (Loss)

per Books With Income per Return

Line 5c. Travel and entertainment.—

Include on line 5c any of the following:

● 50% of meals and entertainment not

allowed under section 274(n).

● Expenses for the use of an

entertainment facility.

● The part of business gifts over $25.

● Expenses of an individual in excess of

$2,000, which are allocable to

conventions on cruise ships.

● Employee achievement awards over

$400.

● The cost of entertainment tickets over

the face value (also subject to 50%

disallowance under section 274(n)).

● The cost of skyboxes over the face

value of nonluxury box seat tickets.

● The part of the cost of luxury water

travel not allowed under section 274(m).

● Expense for travel as a form of

education.

● Other expenses for travel and

entertainment not allowed as a

deduction.

For more information, see Pub. 542.

Line 7a. Tax exempt interest.—Include

as interest on line 7a, any tax-exempt

dividends received as a shareholder in a

mutual fund or other regulated

investment company.

Schedule N

Other Information

Be sure to answer all the questions that

apply to the cooperative. The following

instructions apply to questions 1 through

20 on Form 990-C, page 5, Schedule N.

Question 13

Foreign financial account.—Check the

“Yes” box if either 1 or 2 below applies

to the cooperative. Otherwise, check the

“No” box:

1. At any time during the 1995

calendar year the cooperative had an

interest in or signature or other authority

over a bank, securities, or other financial

account in a foreign country; and
Page 16

● The combined value of the accounts

was more than $10,000 at any time

during the calendar year; and

● The account was NOT with a U.S.

military banking facility operated by a

U.S. financial institution.

2. The cooperative owns more than

50% of the stock in any corporation that

would answer “Yes” to item 1 above.

Get Form TD F 90-22.1, Report of

Foreign Bank and Financial Accounts, to

see if the cooperative is considered to

have an interest in or signature or other

authority over a financial account in a

foreign country.

If “Yes” is checked for this question,

file Form TD F 90-22.1 by June 30,

1996, with the Department of the

Treasury at the address shown on the

form. Form TD F 90-22.1 is not a tax

return. Do not file it with Form 990-C.

You can get Form TD F 90-22.1 from

an IRS Forms Distribution Center or by

calling 1-800-TAX-FORM

(1-800-829-3676).

Also, if “Yes” is checked for this

question, enter the name of the foreign

country or countries. Attach a separate

sheet if more space is needed.

Question 15

Show any tax-exempt interest received

or accrued. Include any exempt-interest

dividends received as a shareholder in a

mutual fund or other regulated

investment company.

Question 17

Check the “Yes” box for question 17 if

either 1 or 2 below applies to the

cooperative:

1. The cooperative is a subsidiary in

an affiliated group (defined below), but is

not filing a consolidated return for the

tax year with that group.

2. The cooperative is a subsidiary in a

parent-subsidiary controlled group

(defined below).

Any cooperative that meets either of

the requirements above should check

the “Yes” box. This applies even if the

cooperative is a subsidiary member of

one group and the parent corporation of

another.

Note: If the cooperative is an “excluded

member” of a controlled group (see

section 1563(b)(2)), it is still considered a

member of a controlled group for this

purpose.

Affiliated group.—The term “affiliated

group” means one or more chains of

includible corporations (section 1504(a))

connected through stock ownership with

a common parent corporation. The

common parent must be an includible

corporation and the following

requirements must be met:

1. The common parent must own

directly stock that represents at least

80% of the total voting power and at

least 80% of the total value of the stock

of at least one of the other includible

corporations.

2. Stock that represents at least 80%

of the total voting power, and at least

80% of the total value of the stock of

each of the other corporations (except

for the common parent) must be owned

directly by at least one of the other

includible corporations.

For this purpose, stock generally does

not include any stock that (a) is

nonvoting, (b) is nonconvertible, (c) is

limited and preferred as to dividends

and does not participate significantly in

corporate growth, and (d) has

redemption and liquidation rights that do

not exceed the issue price of the stock

(except for a reasonable redemption or

liquidation premium). See section

1504(a)(4).

Parent-subsidiary controlled group.—

The term “parent-subsidiary controlled

group” means one or more chains of

corporations connected through stock

ownership (section 1563(a)(1)). Both of

the following requirements must be met:

1. 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of each corporation

in the group (except the parent) must be

owned by one or more of the other

corporations in the group.

2. The common parent must own at

least 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of at least one of the

other corporations in the group. Stock

owned directly by other members of the

group is not counted when computing

the voting power or value.

See section 1563(d)(1) for the

definition of “stock” for purposes of

determining stock ownership above.

Question 19

Check the box on line 19 if the

cooperative elects under section

172(b)(3) to forgo the carryback period

for a net operating loss (NOL). If this box

is checked, do not attach the statement

described in Temporary Regulations

section 301.9100-12T(d).

Question 20

Enter the amount of the net operating

loss (NOL) carryover to the tax year from

prior years, regardless of whether any of

the loss is used to offset income on this

return. The amount to enter is the total

of all NOLs generated in prior years but

not used to offset income (either as a

carryback or carryover) to a tax year

prior to 1995. Do not reduce the amount

by any NOL deduction reported on line

29a.

Pub. 536 has a worksheet for figuring

a corporation’s NOL carryover.

Printed on recycled paper