Department of the Treasury 2001 Internal Revenue Service

Instructions for Form 990-C

Farmers’ Cooperative Association Income Tax Return

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

Contents Page or change to the cash method of • The name and phone number of the

Changes To Note ................ 1 accounting for eligible trades or individual assigned to its case.

Photographs of Missing Children businesses. This rule does not apply to • Updates on progress. .... 1

Unresolved Tax Issues cooperatives prohibited from using the • Timeframes for action. ............ 1

How To Get Forms and cash method under section 448. For more • Speedy resolution.

Publications details, including change in accounting • Courteous service. .................. 1

General Instructions method requirements, see Notice When contacting the Taxpayer ............. 2 2001-76, 2001-52 I.R.B. 614. Advocate, the cooperative should provide Purpose of Form ................ 2 • The cooperative may request that the the following information: Who Must File .................. 2 IRS deposit its income tax refund of $1 • The cooperative’s name, address, and When To File ................... 2 million or more directly into its checking or employer identification number (EIN). Who Must Sign ................. 2 savings account at any U.S. bank or other • The name and telephone number of an Paid Preparer Authorization ........ 2 financial institutions that accepts direct authorized contact person and the hours Where To File .................. 2 deposits. For details, see the instructions he or she can be reached.

Other Forms, Returns, and for line 36 on page 12, and Form 8302, • The type of tax return and year(s) Statements That May Be Direct Deposit of Tax Refund of $1 Million involved.

Required . . . . . . . . . . . . . . . . . . . 2-3 or More. • A detailed description of the problem.

Statements .................... 3 • If the cooperative wants to allow the • Previous attempts to solve the problem

Assembling the Return ............ 4 IRS to discuss its 2001 tax return with the and the office that had been contacted.

Accounting Methods .............. 4 paid preparer who signed it, check the • A description of the hardship the

Accounting Periods “Yes” box in the area where the officer of cooperative is facing (if applicable). . . . . . . . . . . . . . 4-5

Rounding Off to Whole Dollars . . .... 5 the cooperative signed the return. See The cooperative may contact a

Recordkeeping page 2 for details. Taxpayer Advocate by calling (toll free) .................. 5

1-877-777-4778. Persons who have Depository Method of Tax Photographs of Missing access to TTY/TDD equipment may call Payment .................... 5 Children 1-800-829-4059 and ask for Taxpayer Estimated Tax Payments .......... 5 Advocate assistance. If the cooperative Interest and Penalties ............. 5 The Internal Revenue Service is a proud prefers, it may call, write, or fax the Specific Instructions partner with the National Center for ............ 6

Missing and Exploited Children. Taxpayer Advocate office in its area. See Period Covered ................. 6 Pub. 1546, The Taxpayer Advocate Photographs of missing children selected Address ....................... 6 Service of the IRS, for a list of addresses by the Center may appear in instructions Business Activity With The and fax numbers. on pages that would otherwise be blank. Largest Total Receipts .......... 6 You can help bring these children home Employer Identification Number by looking at the photographs and calling How To Get Forms and (EIN) ....................... 6 1-800-THE-LOST (1-800-843-5678) if you Consolidated Return .............. 6 recognize a child. Publications

Type of Cooperative .............. 6 Personal computer. You can access the Initial Return, Final Return, Unresolved Tax Issues IRS Web Site 24 hours a day, 7 days a Name Change, or Address week, at www.irs.gov to:

Change If the cooperative has attempted to deal ..................... 6 • Download forms, instructions, and with an IRS problem unsuccessfully, it Income . . . . . . . . . . . . . . . . . . . . . . 6-7 publications. should contact the Taxpayer Advocate. Deductions .................. 7-12 • See answers to frequently asked tax The Taxpayer Advocate independently Schedule A ................. 12-13 questions. represents the cooperative’s interests and Schedule C and Worksheet for • Search publications on-line by topic or concerns within the IRS by protecting its Schedule C ............... 13-14 keyword. rights and resolving problems that have Schedule H ................. 14-15 • Send us comments or request help by not been fixed through normal channels. Schedule J and Worksheet for e-mail.

Members of a Controlled While Taxpayer Advocates cannot • Sign up to receive local and national

Group change the tax law or make a technical tax news by e-mail. ................... 15-17

Schedule L tax decision, they can clear up problems You can also reach us using file . . . . . . . . . . . . . . . . . . . 17

that resulted from previous contacts and transfer protocol at ftp.irs.gov. Schedule M-1 . . . . . . . . . . . . . . . . . 17

ensure that the cooperative’s case is Schedule N ................. 17-18 CD-ROM. Order Pub. 1796, Federal Tax given a complete and impartial review. Index . . . . . . . . . . . . . . . . . . . . . . . . 19 Products on CD-ROM, and get:

The cooperative’s assigned personal • Current year forms, instructions, and

Changes To Note advocate will listen to its point of view and publications.

will work with the cooperative to address • Prior year forms, instructions, and

• For tax years ending on or after its concerns. The cooperative can expect publications.

December 31, 2001, certain cooperatives the advocate to provide: • Frequently requested tax forms that

with average annual gross receipts of • A “fresh look” at a new or on-going may be filled in electronically, printed out

more than $1 million but less than or problem. for submission, and saved for

equal to $10 million may be able to adopt • Timely acknowledgement. recordkeeping.

Cat. No. 11288M
• The Internal Revenue Bulletin. list of designated private delivery services • Call the IRS for information about the

Buy the CD-ROM on the Internet at was published by the IRS in October processing of the return or the status of

www.irs.gov/cdorders from the National 2001. The list includes only the following: any related refund or payment(s), and

Technical Information Service (NTIS) for • Airborne Express (Airborne): Overnight • Respond to certain IRS notices that the

$21 (no handling fee), or call cooperative has shared with the preparer Air Express Service, Next Afternoon

1-877-CDFORMS (1-877-233-6767) toll about math errors, offsets, and return Service, Second Day Service.

free to buy the CD-ROM for $21 (plus a preparation. The notices will not be sent • DHL Worldwide Express (DHL): DHL

$5 handling fee). “Same Day” Service, DHL USA to the preparer.

By phone and in person. You can order Overnight. The cooperative is not authorizing the

forms and publications 24 hours a day, 7 • Federal Express (FedEx): FedEx paid preparer to receive any refund

days a week, by calling Priority Overnight, FedEx Standard check, bind the cooperative to anything

1-800-TAX-FORM Overnight, FedEx 2Day. (including any additional tax liability), or (1-800-829-3676). You

can also get most forms and publications • United Parcel Service (UPS): UPS Next otherwise represent the cooperative

at your local IRS office. Day Air, UPS Next Day Air Saver, UPS before the IRS. If the cooperative wants

2nd Day Air, UPS 2nd Day Air A.M., UPS to expand the paid preparer’s

Worldwide Express Plus, and UPS authorization, see Pub. 947, Practice General Instructions Worldwide Express. Before the IRS and Power of Attorney.

The private delivery service can tell The authorization cannot be revoked. you how to get written proof of the mailing Purpose of Form However, the authorization will date.

Use automatically end no later than the due Form 990-C, Farmers’ Cooperative Extension. File Form 7004, Application date (excluding extensions) for filing the Association Income Tax Return, to report cooperative’s 2002 tax return. income, gains, losses, deductions, for Automatic Extension of Time To File

credits, and to figure the income tax Corporation Income Tax Return, to

liability of the cooperative. request a 6-month extension of time to Where To File

file. File Form 990-C with the Internal Who Must File Revenue Service, Ogden, UT

Every farmers’ cooperative association Who Must Sign 84201-0027.

must file Form 990-C whether or not the The return must be signed and dated by: association has taxable income • The president, vice president, Other Forms, Returns, (Regulations section 1.6012-2(f)). treasurer, assistant treasurer, chief

Generally, a farmers’ cooperative is accounting officer or Schedules and Statements

a farmers, fruit growers, or like • Any other cooperative officer (such as That May Be Required association organized and operated on a tax officer) authorized to sign.

cooperative basis to: Receivers, trustees, or assignees also Forms

1. Market the products of members or must sign and date any return filed on The cooperative may have to file some of other producers and return to them the behalf of a cooperative. the following forms. See the form for more proceeds of sales, less necessary If an employee of the cooperative information.

marketing expenses, on the basis of completes Form 990-C, the paid • Form W-2, Wage and Tax Statement, either the quantity or value of their preparer’s space should remain blank. In and Form W-3, Transmittal of Wage and products; or addition, anyone who prepares Form Tax Statements. Use these forms to

2. Purchase supplies and equipment 990-C but does not charge the report wages, tips, and other cooperative should not complete that for the use of members or other persons compensation, and withheld income, and turn over the supplies and equipment section. Generally, anyone who is paid to social security, and Medicare taxes for to them at actual cost, plus necessary prepare the return must sign it and fill in employees.

expenses. the “Paid Preparer’s Use Only” area. • Form 720, Quarterly Federal Excise

A member Tax Return. Use this form to report and is anyone who shares in The paid preparer must complete the pay luxury tax on passenger vehicles, the profits of a cooperative association required preparer information and— environmental taxes, communications and is entitled to participate in the • Sign the return, by hand, in the space

management of the association. and air transportation taxes, fuel taxes, provided for the preparer’s signature. manufacturers taxes, ship passenger A producer (Signature stamps and labels are not is a person who, as owner taxes, and certain other excise taxes. or tenant, bears the risk of production and acceptable.) • Form 851, Affiliations Schedule. The receives income based on farm • Give a copy of the return to the parent corporation of an affiliated group of production rather than fixed taxpayer. corporations must attach this form to its compensation. For example, if a Paid Preparer Authorization consolidated return. If this is the first year cooperative leases its land to a tenant one or more subsidiaries are being farmer who agrees to pay a rental fee If the cooperative wants to allow the IRS included in a consolidated return, also based on a percentage of the farm crops to discuss its 2001 tax return with the paid see Form 1122, Authorization and produced, both the landowner and the preparer who signed it, check the “Yes” Consent of Subsidiary Corporation To Be tenant farmer qualify as producers. box in the signature area of the return. Included in a Consolidated Income Tax This authorization applies only to the Return, on page 3. When To File individual whose signature appears in the • Form 926, Return by a U.S. Transferor Generally, a cooperative must file its “Paid Preparer’s Use Only” section of the of Property to a Foreign Corporation. Use income tax return by the 15th day of the cooperative’s return. It does not apply to this form to report certain transfers to 9th month after the end of its tax year. the firm, if any, shown in that return. foreign corporations under section 6038B.

If the due date falls on a Saturday, If the “Yes” box is checked, the • Form 940 or Form 940-EZ, Employer’s

Sunday, or legal holiday, the cooperative cooperative is authorizing the IRS to call Annual Federal Unemployment (FUTA)

may file on the next business day. the paid preparer to answer any Tax Return. The cooperative may be

Private delivery services. Cooperatives questions that may arise during the liable for FUTA tax and may have to file

can use certain private delivery services processing of its return. The cooperative Form 940 or Form 940-EZ if either of the

following applies: designated by the IRS to meet the “timely is also authorizing the paid preparer to:

mailing as timely filing/paying” rule for tax • Give the IRS any information that is 1. It paid wages of $1,500 or more in

returns and payments. The most recent missing from the return, any calendar quarter in 2000 or 2001 or

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2. It had at least one employee who in the course of its trade or business • Form 8594, Asset Allocation

worked for the cooperative for some part during the calendar year. Statement Under Sections 338 and 1060.

of a day in any 20 or more different weeks Cooperatives file this form to report the 6. Form 1099-OID, Original Issue in 2000 or 20 more different weeks in purchase or sale of a group of assets that Discount.

2001. constitute a trade or business if goodwill 7. Form-PATR, Taxable Distributions • Form 941, Employer’s Quarterly or going concern value could attach to the Received from Cooperatives. Federal Tax Return or Form 943, assets and if the buyer’s basis in the 8. Form 1099-R, Distributions From Employer’s Annual Tax Return for assets is determined only by the amount Pensions, Annuities, Retirement or Agricultural Employees. Employers must paid for the assets. Profit-Sharing Plans, or Insurance file these forms to report income tax • Form 8810, Corporate Passive Activity Contracts. withheld, and employer and employee Loss and Credit Limitations. Closely held

social security and Medicare taxes. Also, cooperatives (and cooperatives that are • Form 1122, Authorization and Consent

see Trust fund recovery penalty on personal service corporations) must use of Subsidiary Corporation To Be Included

page 5. in a Consolidated Income Tax Return. For this form to compute the passive activity

• Form 945, Annual Return of Withheld loss and credit allowed under section 469. the first year a subsidiary corporation is

Federal Income Tax. File Form 945 to being included in a consolidated return, • Form 8842, Election To Use Different

report income tax withheld from Annualization Periods for Corporate attach the completed form to the parent’s

nonpayroll distributions or payments, Estimate Tax. Cooperatives use Form consolidated return. Attach a separate

including pensions, annuities, IRAs, 8842 for each year they want to elect one Form 1122 for each subsidiary being

gambling winnings, and backup of the annualization periods in section included in the consolidated return.

withholding. • Form 5452, Corporate Report of 6655(e)(2)(C) for figuring estimated tax

See Trust fund recovery penalty on Nondividend Distributions. Use this form payments under the annualized income

page 5. to report nondividend distributions. installment method.

• Form 966, Corporate Dissolution or • Form 5471, Information Return of U.S. • Form 8849, Claim for Refund of Excise

Liquidation. Use this form to report the Persons With Respect to Certain Foreign Taxes. Cooperatives use this form to

adoption of a resolution or plan to Corporations. This form is required if the claim a refund of certain excise taxes.

dissolve the cooperative or liquidate any cooperative controls a foreign • Form 8865, Return of U.S. Persons

of its stock. corporation; acquires, disposes of, or With Respect to Certain Foreign

• Form 1042, Annual Withholding Tax owns 10% or more in value or vote of the Partnerships. A cooperative may have to

Return for U.S. Source Income of Foreign outstanding stock of a foreign corporation; file Form 8865 if it:

Persons, and or had control of a foreign corporation for 1. Controlled a foreign partnership

• Form 1042-S, Foreign Person’s U.S. an uninterrupted period of at least 30 (i.e., owned more than a 50% direct or

Source Income Subject to Withholding. days during the annual accounting period indirect interest in the partnership).

Use these forms to report and send of the foreign corporation. 2. Owned at least a 10% direct or

withheld tax on payments or distributions indirect interest in a foreign partnership • Form 5713, International Boycott made to nonresident alien individuals, while U.S. persons controlled that Report. Cooperatives that have foreign partnerships, or foreign partnership. operations in, or related to, certain corporations to the extent these payments 3. Had an acquisition, disposition, or “boycotting” countries file Form 5713.

constitute gross income from sources change in proportional interest in a • Form 8264, Application for Registration within the United States (see sections 861 foreign partnership that: of a Tax Shelter. Tax shelter organizers through 865). use this form to receive a tax shelter a. Increased its direct interest to at

Also see Pub. 515, Withholding of Tax least 10% or reduced its direct interest of registration number from the IRS.

on Nonresident Aliens and Foreign at least 10% to less than 10%. • Form 8271, Investor Reporting of Tax Entities, and sections 1441 and 1442. Shelter Registration Number. b. Changed its direct interest by at

• Form 1096, Annual Summary and least a 10% interest. Cooperatives which have acquired an Transmittal of U.S. Information Returns. interest in a tax shelter that is required to 4. Contributed property to a foreign

• Form 1098, Mortgage Interest partnership in exchange for a partnership be registered, use this form to report the Statement. Use this form to report the interest if: tax shelter’s registration number. Attach receipt from any individual of $600 or Form 8271 to any tax return (including an a. Immediately after the contribution, more of mortgage interest (including application for tentative refund (Form the cooperative owned, directly or points) in the course of the cooperative’s 1139) and an amended return) on which a indirectly, at least a 10% interest in the trade or business and reimbursements of deduction, credit, loss, or other tax benefit foreign partnership or overpaid interest. attributable to a tax shelter is taken or any b. The fair market value of the • Forms 1099. Use these information income attributable to a tax shelter is property the cooperative contributed to returns to report the following: reported. the foreign partnership, when added to

1. Form 1099-A, Acquisition or other contributions of property made to • Form 8275, Disclosure Statement, and

Abandonment of Secured Property. the foreign partnership during the Form 8275-R, Regulation Disclosure 2. Form 1099-B, Proceeds From preceding 12-month period, exceeds Statement. Disclose items or positions Broker and Barter Exchange $100,000. taken on a tax return that are not

Transactions. otherwise adequately disclosed on a tax Also, the cooperative may have to file

3. Form 1099-DIV, Dividends and Form 8865 to report certain dispositions return or that are contrary to Treasury Distributions. regulations (to avoid parts of the by a foreign partnership of property it

4. Form 1099-INT, Interest Income. previously contributed to that partnership accuracy-related penalty or certain 5. Form 1099-MISC, Miscellaneous if it was a partner at the time of the preparer penalties). Income. See this form to report payment: disposition. For more details, including • Form 8300, Report of Cash Payments to certain fishing boat crew members; to penalties for failing to file Form 8865, see Over $10,000 Received in a Trade or providers of health and medical services; Form 8865 and its separate instructions. Business. Use this form to report the of rent or royalties; nonemployee receipt of more than $10,000 in cash or compensation, etc. Statements foreign currency in one transaction or a

Note. Every cooperative must file Form series of related transactions. Consolidated return. File supporting

1099-MISC if it makes payments or rents, • Form 8302, Direct Deposit of Tax statements for each corporation included

commissions, or other fixed or Refund of $1 Million or More. This form in the consolidated return. Do not use

determinable income (see section 6041) must be filed to request a direct deposit of Form 990-C as a supporting statement.

totaling $600 or more to any one person a tax refund of $1 million or more. On the supporting statement, use

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columns to show the following, both schedules and other forms after page 5, • The amount of the liability can be

before and after adjustments: Form 990-C, in the following order. figured with reasonable accuracy, and

• Items of gross income and deductions. 1. Form 8302. • Economic performance takes place

• A computation of taxable income. 2. Form 4136. with respect to the expense.

• Balance sheets as of the beginning and 3. Form 4626. There are exceptions to the economic

end of the tax year. 4. Form 851. performance rule for certain items,

• A reconciliation of income per books 5. Additional schedules in alphabetical including recurring expenses. See section

with income per return. order. 461(h) and the related regulations for the

• A reconciliation of retained earnings. 6. Additional forms in numerical order. rules for determining when economic

Enter the totals for the consolidated performance takes place. Complete every applicable entry space group on Form 990-C. Attach Long-term contracts (except for certain on Form 990-C. Do not write “See consolidated balance sheets and a real property construction contracts) must Attached” instead of completing the entry reconciliation of consolidated retained generally be accounted for using the spaces. If more space is needed on the earnings. For more information on percentage of completion method forms or schedules, attach separate consolidated returns, see the regulations described in section 460. See section 460 sheets, using the same size and format under section 1502. and the underlying regulations for general as the printed forms. If there are rules on long-term contracts. Corporate tax shelters. supporting statements and attachments, A cooperative arrange them in the same order as the Change in accounting method. is required to disclose its participation in schedules or forms they support and Generally, the cooperative must get IRS certain tax shelters:

attach them last. Show the totals on the consent to change the method of • By attaching a disclosure statement

printed forms. Also, be sure to enter the accounting used to report taxable income to its income tax return for a reportable cooperative (for income as a whole or for any material transaction for each tax year its income ’s name and EIN on each

supporting statement or attachment. item). To do so, it must file Form 3115, tax liability is affected by its participation Application for Change in Accounting in the transaction and Accounting Methods Method. For more information, see Pub. • For the first tax year a disclosure 538, Accounting Periods and Methods. statement is attached to its tax return, by An accounting method is a set of rules

sending a copy of the disclosure used to determine when and how income The cooperative may also have to

statement to the Internal Revenue and expenses are reported. make an adjustment to prevent amounts

Service, Large & Mid-Size Business of income or expense from being Figure taxable income using the Division, LM:PFTG:OTSA, 1111 method of accounting regularly used in duplicated or omitted. This is called a

Constitution Ave., NW, Washington, DC section 481(a) adjustment, which is taken keeping the cooperative’s books and

20224. into account over a period not to exceed 4 records. Generally, permissible methods Disclosure is required for reportable years. include:

transactions that are: (a) listed • Cash, Example. A cooperative changes to transactions that the IRS has identified as • Accrual, or the cash method of accounting. It accrued a tax avoidance transaction and (b) other • Any other method authorized by the sales in 2000 for which it received reportable transactions that have tax Internal Revenue Code. payment in 2001. It must report those shelter characteristics. A listed In all cases, the method used must sales in both years as a result of transaction must be reported if it is clearly show taxable income. If changing its accounting method and must expected to reduce the taxpayer’s income inventories are required, the accrual make a section 481(a) adjustment to tax liability by more than $1 million in a method must be used for sales and prevent duplication of income. single tax year or by a total of more than purchases of merchandise. However, See Rev. Proc. 99-49, 1999-2 C.B. $2 million for any combination of years. qualifying taxpayers and eligible 725, to figure the amount of this For other reportable transactions, the businesses of qualifying small business adjustment for 2001. Include any positive threshold increases to $5 million for a taxpayers are excepted from using the section 481(a) adjustment on page 1, line single tax year or to $10 million for any accrual method and may account for 10. If the section 481(a) adjustment is combination of years. Generally, reporting inventoriable items as materials and negative, report it on page 1, line 26. is not required for customary business supplies that are not incidental. For transactions or transactions with tax Completed crop pool method of details, see Cost of Goods Sold on page benefits that the IRS has no reasonable accounting. Cooperatives may use the 12.

basis to challenge. completed crop pool method of Generally, a cooperative must use the accounting for crop pools open before See Temporary Regulations section accrual method of accounting if its March 1, 1978. See section 1382(g) for 1.6011-4T for details, including: average annual gross receipts exceed $5 more information. • The definition of a reportable million. See section 448(c). A cooperative

transaction and a listed transaction, engaged in farming operations must also Accounting Periods • The relevant tax shelter characteristics use the accrual method. For exceptions,

see section 447. A cooperative must figure its taxable for other reportable transactions, income on the basis of a tax year. The tax • The form and content of the disclosure Under the accrual method, an amount year is the annual accounting period the statement, and is includible in income when: cooperative uses to keep its records and • The filing requirements of the • All the events have occurred that fix the report its income and expenses. disclosure statement. right to receive the income, which is the Generally, cooperatives can use a Also, see Notice 2001-51, 2001-34 earliest of the date: (a) the required calendar year or a fiscal year. I.R.B. 190, for certain listed transactions performance takes place, (b) payment is

determined to have a tax avoidance due, or (c) payment is received and For more information about accounting

purpose and the intended tax benefits • The amount can be determined with periods, see Temporary Regulations

that are subject to disallowance. The reasonable accuracy. sections 1.441-1T, 1.441-2T, and Pub.

listed transactions in this notice may be See Regulations section 1.451-1(a) for 538.

updated from time to time when other tax details. Calendar year. If the calendar year is avoidance transactions are identified. Generally, an accrual basis taxpayer adopted as the annual accounting period,

can deduct accrued expenses in the tax the cooperative must maintain its books Assembling the Return year when: and records and report its income and

To ensure that the cooperative’s tax • All events that determine the liability expenses for the period from January 1

return is correctly processed, attach all have occurred, through December 31 of each year.

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Fiscal year. A fiscal year is 12 Depositing on time. For EFTPS Overpaid estimated tax. If the

consecutive months ending on the last deposits to be made timely, the cooperative overpaid estimated tax, it

day of any month except December. A cooperative must initiate the transaction may be able to get a quick refund by filing

52–53-week year is a fiscal year that at least 1 business day before the date Form 4466, Corporation Application for

varies from 52 to 53 weeks. the deposit is due. Quick Refund of Overpayment of

Adoption of tax year. A cooperative Estimated Tax. The overpayment must be Deposits with Form 8109. If the

adopts a tax year when it files its first at least 10% of expected income tax cooperative does not use EFTPS, deposit income tax return. It must adopt a tax cooperative income tax payments (and liability and be at least $500. File Form

year by the due date (not including 4466 before the 16th day of the 3rd estimated tax payments) with Form 8109, extensions) of its first income tax return. month after the end of the tax year, but Federal Tax Deposit Coupon. If you do before the cooperative files its tax return. Change in tax year. Generally, a not have a preprinted Form 8109, use Do not file Form 4466 before the end of cooperative must get the consent of the Form 8109-B to make deposits. You can the cooperative’s tax year. IRS before changing its tax year by filing get this form by calling 1-800-829-1040.

Form 1128, Application To Adopt, Be sure to have your EIN ready when you

Change, or Retain a Tax Year. However, call. Interest and Penalties

under certain conditions, a cooperative Do not send deposits directly to an IRS Interest. Interest is charged on taxes may change its tax year without getting office; otherwise, the cooperative may paid late even if an extension of time to the consent. See Regulations section have to pay a penalty. Mail or deliver the file is granted. Interest is also charged on 1.442-1 and Pub. 538. completed Form 8109 with the payment penalties imposed for failure to file,

Rounding Off to Whole to an authorized depositary, i.e., a negligence, fraud, gross valuation commercial bank or other financial overstatements, and substantial institution authorized to accept Federal Dollars understatements of tax from the due date

tax deposits. Make checks or money The cooperative may show amounts on (including extensions) to the date of orders payable to the depositary. payment. The interest charge is figured at the return and accompanying schedules a rate determined under section 6621. as whole dollars. To do so, drop any If the cooperative prefers, it may mail

amount less than 50 cents and increase the coupon and payment to: Financial Penalty for late filing of return. A any amount from 50 cents through 99 Agent, Federal Tax Deposit Processing, cooperative that does not file its tax return cents to the next higher dollar. P.O. Box 970030, St. Louis, MO 63197. by the due date, including extensions, Make the check or money order payable may be penalized 5% of the unpaid tax Recordkeeping to “Financial Agent.” for each month or part of a month the

Keep the cooperative’s records for as To help ensure proper crediting, write return is late, up to a maximum of 25% of

long as they may be needed for the the cooperative’s EIN, the tax period to the unpaid tax. The minimum penalty for administration of any provision of the which the deposit applies, and “Form a return that is over 60 days late is the Internal Revenue Code. Usually, records 990-C” on the check or money order. Be smaller of the tax due or $100. The

that support an item of income, deduction, sure to darken the “990-C” box on the penalty will not be imposed if the or credit on the return must be kept for 3 coupon. Records of these deposits will be cooperative can show that the failure to years from the date the return is due or sent to the IRS. file on time was due to reasonable cause.

filed, whichever is later. Keep records that Cooperatives that file late must attach a For more information on deposits, see verify the cooperative’s basis in property statement explaining the reasonable the instructions in the coupon booklet for as long as they are needed to figure cause. (Form 8109) and Pub. 583, Starting a the basis of the original or replacement

property. Business and Keeping Records. Penalty for late payment of tax. A

If the cooperative owes tax when it cooperative that does not pay the tax The cooperative should also keep when due generally may be penalized 1

/2 files Form 990-C, do not include copies of all returns. They help in of 1% of the unpaid tax for each month or CAUTION the payment with the tax return.

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preparing future and amended returns. Instead, mail or deliver the payment with part of a month the tax is not paid, up to a

Form 8109 to an authorized depositary or maximum of 25% of the unpaid tax. The Depository Method of Tax use EFTPS, if applicable. penalty will not be imposed if the

Payment cooperative can show that the failure to

pay on time was due to reasonable The cooperative must pay the tax due in Estimated Tax Payments cause. full no later than the 15th day of the 9th Generally, the following rules apply to the month after the end of the tax year. The cooperative’s payments of estimated tax. Trust fund recovery penalty. This

two methods of depositing cooperative • The cooperative must make installment penalty may apply if certain excise, income taxes are discussed below. payments of estimated tax if it expects its income, social security, and Medicare

Electronic Deposit Requirement. The total tax for the year (less applicable taxes that must be collected or withheld

cooperative must make electronic credits) to be $500 or more. are not collected or withheld, or these

deposits of all depository taxes (such as • The installments are due by the 15th taxes are not paid to the IRS. These

employment tax, excise tax, and day of the 4th, 6th, 9th, and 12th months taxes are generally reported on Forms

corporate income tax) using the of the tax year. If any date falls on a 720, 941, 943, or 945 (see Other Forms,

Electronic Federal Tax Payment System Saturday, Sunday, or legal holiday, the Returns, and Statements That May Be

(EFTPS) in 2002 if: installment is due on the next regular Required on page 2). The trust fund

• The total deposits of such taxes in business day. recovery penalty may be imposed on all

2000 were more than $200,000 or • Use Form 1120-W, Estimated Tax for persons who are determined by the IRS

• The cooperative was required to use Corporations, as a worksheet to compute to have been responsible for collecting,

EFTPS in 2001. estimated tax. accounting for, and paying over these

If the cooperative is required to use • If the cooperative does not use EFTPS, taxes, and who acted willfully in not doing

EFTPS and fails to do so, it may be use the deposit coupons (Form 8109) to so. The penalty is equal to the unpaid

subject to a 10% penalty. If the make deposits of estimated tax. trust fund tax. See the instructions for

cooperative is not required to use EFTPS, For more information on estimated tax Form 720, Pub. 15 (Circular E),

it may participate voluntarily. To enroll in payments, including penalties that apply if Employer’s Tax Guide, or Pub. 51

or get more information about EFTPS, the cooperative fails to make required (Circular A), Agricultural Employer’s Tax

call 1-800-555-4477 or 1-800-945-8400. payments, see the instructions for line 33 Guide, for details, including the definition

To enroll online, visit www.eftps.gov. on page 12. of responsible persons.

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Other penalties. Other penalties can be 460. For special rules for reporting certain Item D—Type of imposed for negligence, substantial advance payments for goods and

understatement of tax, and fraud. See long-term contracts, see Regulations Cooperative

sections 6662 and 6663. section 1.451-5. For permissible methods Check the “Tax exempt ” (section 521)

box if the cooperative is a tax-exempt for reporting certain advance payments

farmers’, fruit growers’, or like for services by an accrual method

association, organized and operated on a cooperative, see Rev. Proc. 71-21, Specific Instructions cooperative basis and is described in 1971-2 C.B. 549.

section 521. Installment sales. Generally, the

Period Covered If the cooperative has submitted Form installment method cannot be used for

1028, Application for Recognition of dealers dispositions of property. A “dealer File the 2001 return for calendar year Exemption, but has not received a disposition” is: (a) any disposition of 2001 and fiscal years that begin in 2001 determination letter from the IRS, check personal property by a person who and end in 2002. For a fiscal year return, the “Tax exempt ” (section 521) box, and regularly sells or otherwise disposes of fill in the tax year space at the top of the write “Application Pending” at the top of personal property of the same type on the form. page 1 of Form 990-C. installment plan or (b) any disposition of

Note.The 2001 Form 990-C may also be real property held for sale to customers in All other farmers’, etc., cooperatives used if: the ordinary course of the taxpayer’s organized and operated as described • The cooperative has a tax year of less trade or business. under “Who Must File” on page 2 of the than 12 months that begins and ends in instructions should check the These restrictions on using the 2002 and “Nonexempt” box. installment method do not apply to • The 2002 Form 990-C is not available dispositions of property used or produced at the time the cooperative is required to Cooperatives organized and operated in a farming business or sales of for purposes other than those described, file its return. timeshares and residential lots for which such as to purchase food for members, The cooperative must show its 2002 the cooperative elects to pay interest should not file Form 990-C. See the tax year on the 2001 Form 990-C and under section 453(I)(3). instructions for Form 1120, U.S. take into account any tax law changes Corporation Income Tax Return, for For sales of timeshares and residential that are effective for tax years beginning information about filing requirements. lots reported under the installment after December 31, 2001. method, the cooperative’s income tax is

Item E—Initial Return, increased by the interest payable under Address section 453(l)(3). To report this addition to Final Return, Name tax, see the instructions for line 9, Include the suite, room, or other unit

number after the street address. If a Change, Address Change, Schedule J.

preaddressed label is used, include this Enter on line 1 (and carry to line 3), the information on the label. or Amended Return gross profit on collections from installment • If this is the cooperative’s first return, sales for any of the following: If the Post Office does not deliver mail

to the street address and the cooperative check the “Initial return” box. • Dealer dispositions of property before

has a P.O. box, show the box number • If the cooperative ceases to exist, file March 1, 1986. Form 990-C and check the “Final return” • Dispositions of property used or instead of the street address. box. produced in the trade or business of • If the cooperative changed its name farming. Item A—Business Activity since it last filed a return, check the box • Certain dispositions of timeshares and With the Largest Total for “Name change.” Generally, a residential lots reported under the cooperative also must have amended its installment method. Receipts articles of incorporation and filed the Attach a schedule showing the Identify the business activity from which amendment with the state in which it was following information for the current and the cooperative receives the largest total incorporated. the 3 preceding years: (a) gross sales, (b) receipts (e.g., wholesale marketing of • If the cooperative has changed its cost of goods sold, (c) gross profits, (d) meat, drying fruit, grain storage, address since it last filed a return, check percentage of gross profits to gross sales, wholesale purchasing of fertilizers, cattle the box for “Address change.” (e) amount collected, and (f) gross profit breeding, etc.). Note. If a change in address occurs after on the amount collected.

the return is filed, use Form 8822, Nonaccrual experience method. Item B—Employer Change of Address, to notify the IRS of Accrual method taxpayers need not the new address. accrue certain amounts to be received Identification Number (EIN) from the performance of services that, on Enter the cooperative’s EIN. If the Income the basis of their experience, will not be cooperative does not have an EIN, it must Except as otherwise provided in the collected (section 448(d)(5)). This apply for one on Form SS-4, Application provision does not apply to any amount if for Employer Identification Number. If the Internal Revenue Code, gross income

includes all income from whatever source interest is required to be paid on the cooperative has not received its EIN by derived. Gross income, however, does amount or if there is any penalty for the time the return is due, write “Applied not include extraterritorial income that is failure to timely pay the amount. for” in the space for the EIN. See Pub. qualifying foreign trade income. Use Cooperatives that fall under this provision 583 for details.

Form 8873, should attach a schedule showing total Extraterritorial Income

Exclusion, to figure the exclusion. Report gross receipts, the amount not accrued as Item C—Consolidated it on Form 990-C as explained in the a result of the application of section

448(d)(5), and the net amount accrued. Return Instructions for Form 8873.

Enter the net amount on line 1a. For more Cooperative’s filing a consolidated return Line 1. Gross receipts or sales. Enter information and guidelines on this must attach Form 851 and other gross receipts or sales from all business “nonaccrual experience method,” see supporting statements to the return. For operations except those required to be Temporary Regulations section 1.448-2T. details, see “Other Forms, Returns, and reported on lines 4a through 10. In

Statements That May Be Required,” on general, advance payments are reported Note. Certain cooperatives that have

page 2. Do not check this box if the in the year of receipt. To report income gross receipts of $10 million or more and

“Section 521” box is checked in Item D. from long-term contracts, see section have patronage and nonpatronage source

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income and deductions, must complete Line 4b. Dividends. See the instructions products by the FSC for the tax year that

and attach Form 8817, Allocation of for Schedule C on page 13, then includes the last day of the FSC’s tax

Patronage and Nonpatronage Income complete Schedule C and enter on line year, even though the FSC is not required

and Deductions, to their return. 4b, the amount from Schedule C, line 17. to distribute such income until the due

date of its income tax return. Line 2. Cost of goods sold. Enter the Line 5. Interest. Enter taxable interest • Ordinary income from trade or business cost of goods sold on line 2, page 1. on U.S. obligations and on loans, notes,

Before making this entry, complete mortgages, bonds, bank deposits, activities of a partnership (from Schedule

Schedule A on page 3 of Form 990-C. K-1 (Form 1065 or 1065-B)). Do not offset corporate bonds, tax refunds, etc.

See the Schedule A instructions on page ordinary losses against ordinary income. Do not offset interest expense against Instead, include the losses on line 26, 12. interest income. Form 990-C. Show the partnership’s

Line 4a. Income from patronage Special rules apply to interest income name, address, and EIN on a separate

dividends and per-unit retain from certain below-market rate loans. See statement attached to this return. If the

allocations. Attach a schedule listing the section 7872 for more information. amount entered is from more than one

name of each declaring association from Note. Interest income is generally partnership, identify the amount from

which the cooperative received income nonpatronage income to nonexempt each partnership.

from patronage dividends and per-unit cooperatives (Regulations section retain allocations, and the total amount 1.1382-3(c)(2)). As such, a patronage Deductions received from each association. dividend deduction may not be deductible

Include on the schedule the items from interest expense. Limitations on deductions

listed in 1 through 6 below: Line 6. Gross rents. Enter the gross Section 263A uniform capitalization amount received from the rental of 1. Patronage dividends received in: rules. The uniform capitalization rules of property. Deduct expenses such as • Money, section 263A require cooperatives to repairs, interest, taxes, and depreciation • Qualified written notices of capitalize or include in inventory, certain on the proper lines for deductions. allocation, or costs incurred in connection with:

• Other property (except nonqualified Generally, gross rents are considered • The production of real property and nonpatronage income to nonexempt written notices of allocation). tangible personal property held in cooperatives (Regulations section inventory or held for sale in the ordinary 2. Nonpatronage distributions 1.1382-3(c)(2)). As such, a patronage course of business. received on a patronage basis from dividend deduction may not be deductible • Real property or personal property tax-exempt farmers’ cooperatives in: from rental expense. (tangible and intangible) acquired for • Money, Line 8. Capital gain net income. Every resale. • Qualified written notices of sale or exchange of a capital asset must • The production of real property and allocation, or be reported in detail on Schedule D tangible personal property by a • Other property (except nonqualified (Form 1120), Capital Gains and Losses, cooperative for use in its trade or written notices of allocation), based on even if there is no gain or loss. Generally, business or in activity engaged in for earnings of that cooperative either from capital gains and losses are considered profit. business done with or for the United nonpatronage source. Tangible personal property States or any of its agencies (or from Line 10. Other income. Enter any other produced by a cooperative includes a sources other than patronage, such as film, sound recording, videotape, book, or taxable income not reported on lines 1 investment income). similar property. through 9. List the type and amount of 3. Qualified written notices of income on an attached schedule. If the allocation at their stated dollar amounts Cooperatives subject to the rules are cooperative has only one item of other and property at its fair market value required to capitalize not only direct costs income, describe it in parentheses on line (FMV). but an allocable part of most indirect 10. Examples of other income to report on 4. Amounts received on the costs (including taxes) that (a) benefit the line 10 are: redemption, sale, or other disposition assets produced or acquired for resale or • Recoveries of bad debts deducted in of nonqualified written notices of (b) are incurred by reason of the prior years under the specific charge-off allocation. performance of production or resale method. Generally, patronage dividends from activities. • The amount of credit for alcohol used

purchases of capital assets or as fuel (determined without regard to the For inventory, some of the indirect depreciable property are not includible in limitation based on tax) that was entered expenses that must be capitalized are: income but must be used to reduce the on Form 6478, Credit for Alcohol Used as • Administration expenses. basis of the assets. See section 1385(b) Fuel. • Taxes. and the related regulations. • Refunds of taxes deducted in prior • Depreciation. 5. Amounts received (or the stated years to the extent they reduced income • Insurance. dollar value of qualified per-unit retain subject to tax in the year deducted (see • Compensation paid to officers certificates received) from the sale or section 111). Do not offset current year attributable to services. redemption of nonqualified per-unit taxes against tax refunds. • Reworked labor. retain certificates. • The amount of any deduction • Contributions to pension, stock bonus, 6. Per-unit retain allocations previously taken under section 179A that and certain profit-sharing, annuity, or received (except nonqualified per-unit is subject to recapture. The cooperative deferred compensation plans. retain certificates). See section 1385. must recapture the benefit of any Regulations section 1.263A-1(e)(3) allowable deduction for clean-fuel vehicle specifies other indirect costs that relate to Note. Payments from the Commodity property (or clean-fuel vehicle refueling production or resale activities that must Credit Corporation to a farmers’ property), if, within 3 years of the date the be capitalized and those that may be cooperative for certain expenses of the property was placed in service, it ceases currently deductible. co-op’s farmers-producers under a to qualify. See Regulations section

“reseal” program of the U.S. Department 1.179A-1 for details. Interest expense paid or incurred

of Agriculture are patronage-source • For cooperatives described in section during the production period of

income that may give rise to patronage 1381 that are shareholders in a FSC, designated property must be capitalized

dividends under section 1382(b)(1). See include the nonexempt portion of foreign and is governed by special rules. For

Rev. Rul. 89-97, 1989-2 C.B. 217, for trade income from the sale or other more details, see Regulations sections

more information. disposition of agricultural or horticultural 1.263A-8 through 1.263A-15.

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The costs required to be capitalized organizations are treated as individuals amounts contributed under a salary

under section 263A are not deductible for purposes of this test. See section reduction SEP agreement or a SIMPLE

until the property (to which the costs 542(a)(2). For rules of determining stock IRA plan.

relate) is sold, used, or otherwise ownership, see section 544 (as modified Include only the deductible part of disposed of by the cooperative. by section 465(a)(3)). each officers’ compensation on Schedule

Exceptions. Generally, the two kinds of passive E. (See Disallowance of deduction for

Section 263A does not apply to: activities are: employee compensation in excess of

• Trade or business activities in which $1 million below). Complete Schedule E, • Personal property acquired for resale if the cooperative did not materially line 1, columns (a) through (f), for all the cooperative’s average annual gross participate (see Temporary Regulations officers. The cooperative determines who receipts for the 3 prior tax years were $10 section 1.469-1T(g)(3)) and is an officer under the laws of the state million or less. • Rental activities regardless of its where it is incorporated. • Timber. participation. • Most property produced under a If a consolidated return is filed, each For exceptions, see Form 8810. member of an affiliated group must long-term contract. An activity is a trade or business furnish this information. • Certain property produced in a farming

business. activity if it is not a rental activity, and Disallowance of deduction for

• Research and experimental costs • The activity involves the conduct of a employee compensation in excess of

under section 174. trade or business (i.e., deductions from $1 million. Publicly held cooperatives

• Intangible drilling costs for oil, gas, and the activity would be allowable under may not deduct compensation to a

geothermal property. section 162 if other limitations, such as “covered employee” to the extent that the

• Mining exploration and development the passive loss rules, did not apply) or compensation exceeds $1 million.

costs. • The activity involves research and For details, see section 162(m) and • Inventoriable items accounted for in the experimental costs that are deductible Regulations section 1.162-27. same manner as materials and supplies under section 174 (or would be deductible Line 13. Salaries and wages. Enter the if the cooperative chose to deduct rather that are not incidental. See Cost of amount of salaries and wages paid for the Goods Sold than capitalize them). on page 12 for details. tax year, reduced by: For more details on the uniform Cooperatives subject to the passive • Any work opportunity credit from Form capitalization rules, see Regulations activity limitations must complete Form 5884, sections 1.263A-1 through 1.263A-3. See 8810 to compute their allowable passive • Any empowerment zone employment Regulations section 1.263A-4 for rules for activity loss and credit. Before completing credit from Form 8844, property produced in a farming business. Form 8810, see Temporary Regulations • Any Indian employment credit from section 1.163-8T, which provides rules for Transactions between related Form 8845, and allocating interest expense among taxpayers. Generally, an accrual basis • Any welfare-to-work credit from Form activities. If a passive activity is also taxpayer may only deduct business 8861. subject to the earnings stripping rules of expenses and interest owed to a related See the instructions for these forms for section 163(j) or the at-risk rules of party in the year payment is included in more information. Do not include salaries section 465, those rules apply before the income of the related party. See sections and wages deductible elsewhere on the passive loss rules. For more information, 163(e)(3), 163(j), and 267 for the return, such as amounts included in cost see section 469, the related regulations, limitations on deductions for unpaid of goods sold, elective contributions to a and Pub. 925, Passive Activity and interest and expenses. section 401(k) cash or deferred At-Risk Rules. Section 291 limitations. Cooperatives arrangement, or amounts contributed

may be required to adjust deductions for under a salary reduction SEP agreement Reducing certain expenses for which

credits are allowable. For each credit depletion of iron ore and coal, intangible or a SIMPLE IRA plan. listed below, the cooperative must reduce drilling, exploration and development If the cooperative provided taxable the otherwise allowable deductions for costs, and the amortizable basis of fringe benefits to its employees, expenses used to figure the credit by the pollution control facilities. See section 291 CAUTION such as personal use of a car, do

!

amount of the current year credit: to determine the amount of the not deduct as wages the amount • Work opportunity credit. adjustment. Also see section 43. allocated for depreciation and other • Research credit. Golden parachute payments. A portion expenses claimed on lines 20 and 26. • Enhanced oil recovery credit. of the payments made by a cooperative to • Disabled access credit. Line 14. Repairs and maintenance. key personnel that exceeds their usual • Empowerment zone employment Enter the cost of incidental repairs, such compensation may not be deductible. credit. as labor and supplies, that do not add to This occurs when the cooperative has an • Indian employment credit. the value of the property or appreciably agreement (golden parachute) with these • The employer credit for social security prolong its life. New buildings, machinery, key employees to pay them these excess and Medicare taxes paid on certain or permanent improvements that increase amounts if control of the cooperative employee tips. the value of the property are not changes. See section 280G. • Orphan drug credit. deductible. They must be depreciated or

Business start-up expenses. Business • Welfare-to-work credit. amortized.

start-up expenses must be capitalized If the cooperative has any of these Line 15. Bad debts. Enter the total debts

unless an election is made to amortize credits, figure each current year credit that became worthless in whole or in part them over a period of 60 months. See before figuring the deduction for during the tax year. A cash method section 195 and Regulations section expenses on which the credit is based. taxpayer may not claim a bad debt 1.195-1. Line 12. Compensation of officers. deduction unless the amount was

Passive activity limitations. Limitations Enter deductible officer previously included in income. ’s compensation on passive activity losses and credits on line 12. Before entering an amount on Line 17. Taxes and licenses. Enter

under section 469 apply to closely held line 12, complete Schedule E if the taxes paid or accrued during the tax year, cooperatives. cooperative’s total receipts (line 1a plus but do not include the following:

For this purpose, a cooperative is a lines 4 through 10, page 1) are $500,000 • Federal income taxes.

closely held cooperative if at any time or more. Do not include compensation • Foreign or U.S. possession income

during the last half of the tax year more deductible elsewhere on the return, such taxes if a tax credit is claimed (however,

than 50% in value of its outstanding stock as amounts included in cost of goods see the Instructions for Form 5735 for

is owned, directly or indirectly, by or for sold, elective contributions to a section special rules for possession income

not more than 5 individuals. Certain 401(k) cash or deferred arrangement, or taxes).

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• Taxes not imposed on the cooperative. 3rd month after the end of the tax year if • The principal purpose of the

• Taxes, including state or local sales the contributions were authorized by the contribution was to avoid Federal income

taxes, that are paid or incurred in board of directors during the current tax tax by obtaining a deduction for activities

connection with an acquisition or year. Attach a declaration to the return, that would have been nondeductible

disposition of property (these taxes must signed by an officer, stating that the under the lobbying expense rules if

be treated as part of the cost of the resolution authorizing the contributions conducted directly by the donor.

acquired property, or in the case of a was adopted by the board of directors Contributions of property other than disposition, as a reduction in the amount during the current tax year. Also, attach a cash. If a cooperative contributes realized on the disposition). copy of the resolution. property other than cash and claims over • Taxes assessed against local benefits Limitation on deduction. The total a $500 deduction for the property, it must that increase the value of the property amount claimed may not be more than attach a schedule to the return describing assessed (such as for paving, etc.). 10% of taxable income (line 30) the kind of property contributed and the • Taxes deducted elsewhere on the computed without regard to the following: method used to determine its fair market return, such as those reflected in cost of • Any deduction for contributions; value (FMV). Generally, cooperatives goods sold. • The special deductions on line 29b, must complete and attach Form 8283 to See section 164(d) for apportionment Form 990-C; their returns for all contributions of of taxes on real property between the • Any net operating loss (NOL) carryback property (other than money) if the total seller and purchaser. to the tax year under section 172; claimed deduction for all property

Line 18. Interest. • Any capital loss carryback to the tax contributed was more than $5,000.

year under section 1212(a)(1); and Note. The deduction for interest is limited If the cooperative made a “qualified • The deduction allowed under section when the cooperative is a policyholder or conservation contribution” under section

249. beneficiary with respect to a life 170(h), also include the FMV of the

insurance, endowment, or annuity Carryover. Charitable contributions underlying property before and after the

contract issued after June 8, 1997. For over the 10% limitation may not be donation, as well as the type of legal

details, see section 264(f). Attach a deducted for the tax year but may be interest contributed, and describe the

statement showing the computation of the carried over to the next 5 tax years. conservation purpose benefited by the

deduction. donation. Special rules apply if the cooperative

Do not deduct the following interest: has an NOL carryover to the tax year. In If a contribution carryover was

• Interest on indebtedness incurred or included, show the amount and how it figuring the charitable contributions

continued to purchase or carry obligations deduction for the tax year, the 10% limit is was determined.

the interest on which is wholly exempt applied using the taxable income after Reduced deduction for

from income tax. For exceptions, see taking into account any deduction for the contributions of certain property. For a

section 265(b). NOL. charitable contribution of property, the • For cash basis taxpayers, prepaid cooperative must reduce the contribution To figure the amount of any remaining interest allocable to years following the by the sum of: NOL carryover to later years, taxable current tax year (e.g., a cash basis income must be modified (see section • The ordinary income and short-term calendar year taxpayer who in 2001 capital gain that would have resulted if the 172(b)). To the extent that contributions prepaid interest allocable to any period property were sold at its FMV and are used to reduce taxable income for this after 2001 can deduct only the amount purpose and increase an NOL carryover, • For certain contributions, the long-term allocable to 2001). capital gain that would have resulted if the a contributions carryover is not allowed. • Interest and carrying charges on property were sold at its FMV. See section 170(d)(2)(B). straddles. Generally, these amounts must The reduction for the long-term capital be capitalized. See section 263(g). Substantiation requirements. gain applies to: • Interest on debt allocable to the Generally, no deduction is allowed for any • Contributions of tangible personal production of designated property by a contribution of $250 or more unless the property for use by an exempt cooperative for its own use or for sale. cooperative gets a written organization for a purpose or function This interest must be capitalized. A acknowledgment from the donee unrelated to the basis for its exemption cooperative must also capitalize any organization that shows the amount of and

interest on debt allocable to an asset cash contributed, describes any property • Contributions of any property to or for used to produce the above property. See contributed and gives an estimate of the the use of certain private foundations, section 263A(f) and Regulations sections value of any goods or services provided except for stock, for which market 1.263A-8 through 1.263A-15 for in return for the contribution. The quotations are readily available (section definitions and more information. acknowledgment must be obtained by the 170(e)(5)). Special rules apply to: due date (including extensions) of the Larger deduction. A larger deduction • Interest on which no tax is imposed cooperative’s return, or, if earlier, the date is allowed for certain contributions of: (see section 163(j)). the return is filed. Do not attach the • Inventory and other property to certain • Forgone interest on certain acknowledgment to the tax return, but organizations for use in the care of the ill, below-market-rate loans (see section keep it with the cooperative’s records. needy, or infants (see section 170(e)(3) 7872). These rules apply in addition to the filing and Regulations section 1.170A-4A); • Original issue discount on certain high requirements for Form 8283, Noncash • Scientific equipment used for research yield discount obligations (see section Charitable Contributions described below. to institutions of higher learning or to 163(e) to figure the disqualified portion). For more information on substantiation certain scientific research organizations Line 19. Charitable contributions. and recordkeeping requirements, see the (other than by personal holding Enter contributions or gifts actually paid in regulations under section 170 and Pub. companies and service organizations) the tax year to or for the use of charitable 526, Charitable Contributions. (see section 170(e)(4)); and and governmental organizations Contributions to organizations • Computer technology and equipment described in section 170(c) and any for educational purposes. conducting lobbying activities. unused contributions carried over from Contributions made to an organization Contributions of computer prior years. that conducts lobbying activities are not technology and equipment for

Cooperatives reporting taxable income deductible if: educational purposes. A cooperative

on the accrual method may elect to treat • The lobbying activities relate to matters may take an increased deduction under

as paid during the tax year any of direct financial interest to the donor’s section 170(e)(6) for qualified

contributions paid by the 15th day of the trade or business and contributions of computer technology or

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equipment for educational purposes. depletion deduction for iron ore and coal • Fines or penalties paid to a government

Computer technology or equipment (including lignite). for violating any law.

means computer software, computer or Attach Form T (Timber), Forest • Any amount that is allocable to a class

peripheral equipment, and fiber optic of exempt income. See section 265(b) for Activities Schedules, if a deduction for cable related to computer use. A exceptions. depletion of timber is taken. contribution is a qualified contribution if: Special rules apply to the following Foreign intangible drilling costs and • It is made to an eligible donee (see expenses. foreign exploration and development below); costs must either be added to the Travel, meals, and entertainment. • Substantially all of the donee property’s cooperative’s basis for cost depletion Subject to limitations and restrictions use is: purposes or be deducted ratably over a discussed below, a cooperative can 1. Related to the purpose or function 10-year period. See sections 263(i), 616, deduct ordinary and necessary travel, of the donee; and 617 for details. meals, and entertainment expenses paid 2. For use within the United States; or incurred in its trade or business. Also, Line 24. Pension, profit-sharing, etc., and special rules apply to deductions for gifts, plans. Enter the deduction for 3. For educational purposes. skybox rentals, luxury water travel, contributions to qualified pension, • The contribution is made not later than convention expenses, and entertainment profit-sharing, or other funded deferred 3 years after the date the taxpayer tickets. For details, see section 274 and compensation plans. Employers who acquired or substantially completed the maintain such a plan generally must file Pub. 463.

construction of the property; one of the forms listed below, even if the Travel. The cooperative cannot • The original use of the property is by plan is not a qualified plan under the deduct travel expenses of any individual the donor or the donee; Internal Revenue Code. The filing accompanying a cooperative officer or • The property is not transferred by the requirement applies even if the employee, including a spouse or donee for money, services, or other cooperative does not claim a deduction dependent of the officer or employee, property, except for shipping, transfer, for the current tax year. There are unless: and installation costs; penalties for failure to file these forms on • That individual is an employee of the • The property fits productively into the time and for overstating the pension plan cooperative and donee’s education plan; and deduction. See sections 6652(e) and • His or her travel is for a bona fide • The property meets standards, if any, 6662(f). business purpose and would otherwise be that may be prescribed by future Form 5500, Annual Return/Report of deductible by that individual. regulations, to assure it meets minimum Employee Benefit Plan. File this form for functionality and suitability for educational Meals and entertainment. Generally, a plan that is not a one-participant plan purposes. the cooperative can deduct only 50% of (see below). the amount otherwise allowable for meals Eligible donee. The term “eligible Form 5500-EZ, Annual Return of and entertainment expenses paid or donee” means: One-Participant (Owners and Their incurred in its trade or business. In • An educational organization that Spouses) Retirement Plan. File this form addition (subject to exceptions under normally maintains a regular faculty and for a plan that only covers the owner (or section 274(k)(2)): curriculum and has a regularly enrolled the owner and his or her spouse) but only • Meals must not be lavish or body of pupils in attendance at the place if the owner (or the own and his or her extravagant; where its educational activities are spouse) owns the entire business. • A bona fide business discussion must regularly conducted, Line 25. Employee benefit programs. occur during, immediately before, or • A section 501(c)(3) entity organized Enter the contributions to employee immediately after the meal; and primarily for purposes of supporting benefit programs not claimed elsewhere • An employee must be present at the elementary and secondary education, or on the return (e.g., insurance, health and meal. • A public library (as described in section welfare programs, etc.) that are not an See section 274(n)(3) for a special rule 170(e)(6)(B)(i)(III). incidental part of a pension, profit-sharing, that applies to meal expenses for

Exceptions. The following exceptions etc., plan included on line 24. individuals subject to the hours of service

apply to the above rules for computer limits of the Department of Line 26. Other deductions. technology and equipment: Transportation. Attach a schedule, listing by type and • Contributions to private foundations amount, all allowable deductions that are Membership dues. The cooperative may qualify if the foundation contributes not deductible elsewhere on Form 990-C. may deduct amounts paid or incurred for the property to an eligible donee within 30 membership dues in civic or public days after the contribution and notifies the Examples of amounts to include: service organizations, professional donor of the contribution. For details see • Amortization of pollution control organizations, business leagues, trade section 170(e)(6)(C). facilities, organization expenses, etc. See associations, chambers of commerce, • For contributions of property reacquired Form 4562. boards of trade, and real estate boards, by the manufacturer of the property, the 3 • Insurance premiums. unless a principal purpose of the year period begins on the date that the • Legal and professional fees. organization is to entertain or provide original construction of the property was • Supplies used and consumed in the entertainment facilities for members or substantially completed. Also, the original business. their guest. In addition, cooperatives may use of the property may be by someone • Utilities. not deduct membership dues in any club other than the donor or the donee. • Ordinary losses from trade or business organized for business, pleasure, activities of a partnership (from Schedule Line 20. Depreciation. Besides recreation, or other social purpose. This K-1 (Form 1065 or 1065-B). Do not offset depreciation, include on line 20 the part of includes country clubs, golf and athletic ordinary losses against ordinary income. the cost that the cooperative elected to clubs, airline and hotel clubs, and clubs Instead, include the income on line 10. expense under section 179 for certain operated to provide meals under Show the partnership’s name, address, tangible property placed in service during conditions favorable to business and EIN on a separate statement tax year 2001 or carried over from 2000. discussion. attached to this return. If the amount See Form 4562, Depreciation and entered is from more than one Entertainment facilities. The Amortization, and its instructions. partnership, identify the amount from cooperative cannot deduct an expense

Line 22. Depletion. See sections 613 each partnership. paid or incurred for a facility (such as a

and 613A for percentage depletion rates Also see Special rules below for limits yacht or hunting lodge) used for an

applicable to natural deposits. Also, see on certain other deductions. activity that is usually considered

section 291 for the limitation on the Do not deduct: entertainment, amusement, or recreation.

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Note. The cooperative may be able to total or partial) in an activity to which the ownership occurred. Also see

deduct the otherwise nondeductible at-risk rules apply, determine the net Regulations section 1.382-6(b) for details

expense if the amount is treated as profit or loss from the activity by on how to make the closing-of-the-books

compensation and reported on Form W-2 combining the gain or loss on the sale or election.

for an employee or on Form 1099-MISC disposition with the profit or loss from the • A cooperative acquires control of

for an independent contractor. activity. If the cooperative has a net loss, another cooperative (or acquires its

Deduction for clean-fuel vehicles and it may be limited because of the at-risk assets in a reorganization) and the

rules. amount of pre-acquisition losses that may certain refueling property. Section offset recognized built-in gains is limited. 179A allows a deduction for part of the Treat any loss from an activity not See section 384. cost of qualified clean-fuel vehicle allowed for the tax year as a deduction

property and qualified clean-fuel vehicle allocable to the activity in the next tax Waiving the carryback period. A

refueling property placed in service during year. cooperative may make an irrevocable the tax year. For more information, see Line 29a. Net operating loss deduction. election to waive the carryback period Pub. 535. A cooperative may use the net operating and instead carry the NOL forward to

Lobbying expenses. Generally, loss (NOL) incurred in one tax year to years following the year of the loss. To

lobbying expenses are not deductible. reduce its taxable income in another year. make this election, check the box in item

These expenses include: Generally, a cooperative may carry an 19 on Schedule N. To be valid, the

• Amounts paid or incurred in connection NOL back to each of the 2 years, election must be made by the due date

with influencing Federal or state preceding the year of the loss and then (including extensions) for filing Form

carry any remaining amount over to each 990-C. legislation (but not local legislation) or

• Amounts paid or incurred in connection of the 20 years (15 years for NOLs Special carryback periods for with any communication with certain incurred in tax years beginning before certain losses. The regular 2 year Federal executive branch officials in an August 6, 1997) following the year of the carryback period generally does not apply attempt to influence the official actions or loss (see Waiving the carryback period to the following losses. positions of the officials. See Regulations below). For exceptions to the general • Specified liability losses, including a section 1.162-29 for the definition of rule, see Special carryback periods for product liability loss. The part of an NOL certain losses below. Enter on line 29a, “influencing legislation.” that is attributable to a specified liability Dues and other similar amounts paid the total NOL carryovers from prior tax loss may be carried back 10 years. The to certain tax-exempt organizations may years, but do not enter more than the cooperative may, however, elect to treat not be deductible. See section 162(e)(3). cooperative’s taxable income (after such a loss as if it were not a specified If certain in-house expenditures do not special deductions). An NOL deduction liability loss. If the cooperative makes this exceed $2,000, they are deductible. For cannot be taken in a year in which the election, the loss carryback period will be cooperative has negative taxable income. information on contributions to charitable 2, 3, or 5 years, whichever applies. Make organizations that conduct lobbying Attach a schedule showing the the election by attaching a statement to a activities, see the instructions for line 19. computation of the NOL deduction. Also timely filed return including extensions; For more information on lobbying complete item 20 on Schedule N. however, see Exception below. Also see expenses, see section 162(e). For details on the NOL deduction, see section 172(b)(1)(C). Pub. 542, Corporations. • Farming losses. An NOL attributable Line 28

Carryback and carryover rules. To to any farming business may be carried Taxable income before NOL carry back the loss and obtain a quick back 5 years. However, the cooperative deduction and special deductions may elect to treat the loss as if it were not refund of taxes, use Form 1139,

At-risk rules. Special at-risk rules under Corporation Application for Tentative a farming loss. If the cooperative makes

section 465 generally apply to closely Refund. Form 1139 must be filed within this election, the loss carryback period will

held cooperatives (see Passive activity 12 months after the close of the tax year be 2 or 3 years, whichever applies. Make

limitations on page 8) engaged in any of the loss. See section 6411 for details. the election by attaching a statement to a

activity as a trade or business or for the Do not attach Form 1139 to the timely filed return (including extensions;

production of income. These cooperatives cooperative’s income tax return. Mail it in however, see Exception). Also see

may have to adjust the amount on line 28, a separate envelope to the Ogden section 172(b)(1)(G) and 172(i).

Form 990-C. The at-risk rules do not Service Center. Exception. If the cooperative timely apply to the following: For carryback claims filed later than 12 filed its return for the loss year without • Holding real property placed in service months after the close of the tax year of making the election (see Specified by the cooperative before 1987; the loss, file an amended Form 990-C, liability losses or Farming losses • Equipment leasing under sections instead of Form 1139. above), the cooperative may still make 465(c)(4), (5), and (6); and After the cooperative has applied the the election by filing an amended return • Any qualifying business of a qualified NOL to the first tax year to which it may within 6 months of the due date of the cooperative under section 465(c)(7). loss year return (excluding extensions). However, the at-risk rules do apply to be carried, the taxable income of that Attach the election to the amended return year is modified (as described in section the holding of mineral property. and write “Filed pursuant to section 172(b)) to determine how much of the If the at-risk rules apply, adjust the 301.9100-2” on the election statement. remaining loss may be carried to other amount on this line for any section 465(d) File the amended return at the same years. See section 172(b) and the related losses. These losses are limited to the address the original return was filed. regulations for details. amount for which the cooperative is at Once made, the election is irrevocable. Special NOL rules apply when: risk for each separate activity at the close • An ownership change occurs (i.e., the Eligible losses.The part of an NOL of the tax year. If the cooperative is amount of the taxable income of a loss that is attributable to an eligible loss may involved in one or more activities, any of cooperative that can be offset by be carried back 3 years. An “eligible loss” which incurs a loss for the year, report the pre-change NOL carryovers is limited). is an NOL attributable to a Presidentially losses for each activity separately. Attach See section 382 and the related declared disaster if, for the tax year in Form 6198, At-Risk Limitations, showing regulations. Also see Temporary which the NOL arose, the cooperative the amount at risk and gross income and Regulations section 1.382-2T(a)(2)(ii), was (a) engaged in a farming business or deductions for the activities with the which requires that a loss cooperative file (b) a small business that met the gross losses. an information statement with its income receipts test of section 448(c). An eligible

If the cooperative sells or otherwise tax return for each tax year that it is a loss loss does not include any farming loss or

disposes of an asset or its interest (either cooperative and certain shifts in specified liability loss described above.

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Line 30. Taxable income. For See section 6655 for details and merchandise during the tax year on line 2.

cooperatives required to file Form 8817, exceptions including special rules for The amount the cooperative can deduct

taxable income reported on line 30 may large cooperatives. for the tax year is figured on line 9. For

not exceed the combined taxable income Use Form 2220, Underpayment of additional guidance on this method of

shown on line 30, Form 8817. Attach Estimated Tax by Corporations, to see if accounting for inventory items, see Rev.

Form 8817 to the cooperative’s tax return. the cooperative owes a penalty and to Proc. 2001-10 and Pub. 538.

See Form 8817 for more details. figure the amount of the penalty. All filers not using the cash method of Generally, the cooperative does not have Patronage source losses cannot accounting should see Section 263A to file this form because the IRS can be used to offset nonpatronage uniform capitalization rules on page 7 figure the amount of any penalty and bill before completing Schedule A. CAUTION income. See section 1388(j) for

!

the cooperative for it. However, even if more information. Line 1. Inventory at beginning of year. the cooperative does not owe the penalty

Line 32b. Estimated tax payments. complete and attach Form 2220 if: If the cooperative is changing its method

Enter any estimated tax payments the • The annualized income or adjusted of accounting for the current tax year, it

seasonal installment method is used or must refigure last year’s closing inventory cooperative made for the tax year. • The cooperative is a large cooperative using the new method of accounting and Beneficiaries of trusts. If the computing its first required installment enter the result on line 1. If there is a

cooperative is the beneficiary of a trust, based on the prior year’s tax. (See the difference between last year’s closing and the trust makes a section 643(g) inventory and the refigured amount, Instructions for Form 2220 for the election to credit its estimated tax definition of a large corporation.) attach an explanation and take it into payments to its beneficiaries, include the If Form 2220 is attached, check the account when figuring the cooperative’s

cooperative’s share of the estimated tax box on line 33, and enter the amount of section 481(a) adjustment explained on payment in the total amount entered on any penalty on this line. page 4. line 32b. Write “T” and the amount of the Line 36. Direct deposit of refund. If the Line 4a. Qualified per-unit retain payment in the blank space to the right of cooperative has a refund of $1 million or certificates are issued to patrons who the entry space. more and wants it directly deposited into have agreed to include the stated dollar

Line 32f. Credit from refiguring tax for its checking or savings account at any amount in current income.

years in which nonqualified per-unit U.S. bank or other financial institution Line 5. Enter the amount paid in money retain certificates or nonqualified instead of having a check sent to the or other property (except per-unit retain written notices of allocation (redeemed cooperative, complete Form 8302 and certificates) to patrons to redeem this year) were issued. If the attach it to the cooperative’s tax return. nonqualified per-unit retain certificates. If cooperative paid less total tax by not a per-unit retain certificate does not claiming the deduction for the redemption qualify, no deduction is allowable at the of nonqualified written notices of Schedule A time it is issued. However, the allocation or nonqualified per-unit retain cooperative may take a deduction or a certificates in the current tax year, and Cost of Goods Sold refund of tax when the nonqualified instead the cooperative refigured the tax Generally, inventories are required at the per-unit retain certificate is finally for the years the nonqualified written beginning and end of each tax year if the redeemed, provided that the nonqualified notices or certificates were originally production, purchase, or sale of per-unit retain certificate was paid as a issued, enter the amount of the reduction merchandise is an income-producing per-unit retain allocation during the in the issue years’ taxes on this line. factor. See Regulations section 1.471-1. payment period for the tax year during Attach a schedule showing how the credit However, if the cooperative is a which the marketing occurred. The was figured. This credit is treated as a deduction is allowed only for amounts payment, and any amount that is more qualifying taxpayer, it may adopt or paid in money or other property (other change its accounting method to account than the tax on line 31 will be refunded. than per-unit retain certificates) that are for inventoriable items in the same

Line 32g. Credit for federal tax on manner as materials and supplies that are not more than the stated dollar amount of

fuels. Complete Form 4136, Credit for the nonqualified per-unit retain certificate. not incidental. A qualifying taxpayer is a

Federal Tax Paid on Fuels, if the See section 1382(b). taxpayer (a) whose average annual gross cooperative qualifies to take this credit. receipts for the 3 prior years is $1 million See section 1383 and the instructions

Line 32h. Total payments. Add the or less and (b) whose business is not a for line 32f for a special rule for figuring

amounts on lines 32d through 32g and tax shelter (as defined in section the cooperative’s tax in the year of

enter the total on line 32h. 448(d)(3). In addition, for tax years ending redemption of a nonqualified per-unit on or after December 31, 2001, this rule retain certificate. Backup withholding. If the cooperative applies to an eligible business of a Line 6a. An entry is required on this line had income tax withheld from any qualifying small business taxpayer. A only for cooperatives electing a simplified payments it received, because, for qualifying small business taxpayer method of accounting. example, it failed to give the payer its includes a cooperative with an average correct EIN, include the amount withheld annual gross receipts of more than $1 For cooperatives that have elected the

in the total for line 32h. This type of million but less than or equal to $10 simplified production method,

withholding is called backup withholding. million and that is not prohibited from additional section 263A costs are

Show the amount withheld in the blank using the cash method under section 448. generally those costs, other than interest,

space in the right-hand column between For more details, including the definition that were not capitalized under the

lines 31 and 32h, and write “Backup of an eligible business, see Notice cooperative’s method of accounting

Withholding.” 2001-76. immediately prior to the effective date of

section 263A that are now required to be Line 33. Estimated tax penalty. A Under this accounting method, capitalized under section 263A. For cooperative that does not make estimated inventory costs for raw materials details, see Regulations section tax payments when due may be subject purchased for use in producing finished 1.263A-2(b). to an underpayment penalty for the period goods and merchandise purchased for

of underpayment. Generally, a resale are deductible in the year the For cooperatives that have elected the

cooperative is subject to the penalty if its finished goods or merchandise are sold simplified resale method, additional

tax liability is $500 or more and it did not (but not before the year the cooperative section 263A costs are generally those

timely pay the smaller of: paid for the raw materials or merchandise costs incurred with respect to the

• Its tax liability for 2001 or if it is also using the cash method). Enter following categories:

• Its prior year’s tax. amounts paid for all raw materials and • Off-site storage or warehousing.

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• Purchasing; handling, such as way because the goods are subnormal the amount of dividends that qualify for

processing, assembly, repackaging, and due to damage, imperfections, shop wear, the deduction.

transporting. etc., within the meaning of Regulations Report so-called dividends or earnings

• General and administrative costs section 1.471-2(c). The goods may be received from mutual savings banks, etc.,

(mixed service costs). valued at a current bona fide selling price, as interest. Do not treat them as

For details, see Regulations section minus direct cost of disposition (but not dividends.

1.263A-3(d). less than scrap value) if such a price can Line 2, Column (a). Enter on line 2:

Enter on line 6a the balance of section be established. • Dividends (except those received on 263A costs paid or incurred during the tax If this is the first year the Last-in, debt-financed stock acquired after July year not includable on lines 2, 3, and 6b. First-out (LIFO) inventory method was 18, 1984) that are received from

Line 6b. Enter on line 6b any costs paid either adopted or extended to inventory 20%-or-more-owned domestic

or incurred during the tax year not goods not previously valued under the corporations subject to income tax and

entered on lines 2 through 6a. LIFO method provided for in section 472, that are subject to the 80% deduction

Line 8. See Regulations sections attach Form 970, Application To Use under section 243(c) and

1.263A-1 through 1.263A-3 for details on LIFO Inventory Method, or a statement • Taxable distributions from an IC-DISC

figuring the amount of additional section with the information required by Form or former DISC that are considered

263A costs to be included in ending 970. Also check the LIFO box on line 10c. eligible for the 80% deduction.

inventory. On line 10d, enter the amount or the Line 3, Column (a). Enter dividends that percent of total closing inventories If the cooperative accounts for are: covered under section 472. Estimates are inventoriable items in the same manner • Received on debt-financed stock acceptable. as materials and supplies that are not acquired after July 18, 1984, that are incidental, enter on line 8 the portion of its If the cooperative changed or received from domestic and foreign raw materials and merchandise extended its inventory to LIFO and had to corporations subject to income tax and purchased for resale that are included on write up its opening inventory to cost in that would otherwise be subject to the line 7 and were not sold during the year. dividends-received deduction under the year of election, report the effect of sections 243(a)(1), 243(c), or 245(a). Lines 10a through 10f this write-up as income (line 10, page 1)

proportionately over a 3-year period that Generally, debt-financed stock is stock

Inventory valuation methods. begins with the year of the LIFO election that the cooperative acquired by incurring

Inventories can be valued at: (section 472(d)). a debt (e.g., it borrowed money to buy the • Cost, stock). • Cost or market value (whichever is For more information on inventory • Received from a RIC on debt-financed

lower), or valuation methods, see Pub. 538, stock. The amount of dividends eligible • Any other method approved by the IRS Accounting Periods and Methods. for the dividends-received deduction is

that conforms to the requirements of the limited by section 854(b). The cooperative

applicable regulations cited below. should receive a notice from the RIC

However, the cooperative is required Schedule C specifying the amount of dividends that to use cost if it is using the cash method qualify for the deduction.

of accounting. Dividends and Special Line 3, Columns (b) and (c). Dividends Cooperatives that account for Deductions received on debt-financed stock acquired inventoriable in the same manner as For purposes of the 20% ownership test after July 18, 1984, are not entitled to the materials and supplies that are not on lines 1 through 7, the percentage of full 70% or 80% dividends-received incidental may currently deduct stock owned by the cooperative is based deduction. The 70% or 80% deduction is expenditures for direct labor and all on voting power and value of the common reduced by a percentage that is related to indirect costs that would otherwise be stock. Preferred stock described in the amount of debt incurred to acquire the included in inventory costs. section 1504(a)(4) is not taken into stock. See section 246A. Also see section

The average cost (rolling average) account. Cooperatives filing a 245(a) before making this computation for method of valuing inventories generally consolidated return should see an additional limitation that applies to does not conform to the requirements of Regulations sections 1.1502-13, dividends received from foreign the regulations. See Rev. Rul. 71-234, 1.1502-26, and 1.1502-27 before corporations. Attach a schedule to Form 1971-1 C.B. 148. completing Schedule C. 990-C showing how the amount on line 3,

Cooperatives that use erroneous column (c), was figured. Line 1, Column (a). Enter dividends valuation methods must change to a (except those received on debt-financed Line 4, Column (a). Enter dividends method permitted for Federal income tax stock acquired after July 18, 1984—see received on the preferred stock of a purposes. To make this change, use section 246A) that: less-than-20%-owned public utility that is Form 3115. • Are received from subject to income tax and is allowed the On line 10a, check the method(s) used less-than-20%-owned domestic deduction provided in section 247 for for valuing inventories. Under lower of corporations subject to income tax and dividends paid. cost or market, the term “market” (for • Qualify for the 70% deduction under Line 5, Column (a). Enter dividends normal goods) means the current bid section 243(a)(1). received on preferred stock of a price prevailing on the inventory valuation Also include on line 1: 20%-or-more-owned public utility that is date for the particular merchandise in the • Taxable distributions from an IC-DISC subject to income tax and is allowed the volume usually purchased by the or former DISC that are designated as deduction provided in section 247 for taxpayer. For a manufacturer, market eligible for the 70% deduction and certain dividends paid. applies to the basic elements of cost— dividends of Federal Home Loan Banks.

raw materials, labor, and burden. If See section 246(a)(2). Line 6, Column (a). Enter the

section 263A applies to the taxpayer, the • Dividends (except those received on U.S.–source portion of dividends that: basic elements of cost must reflect the debt-financed stock acquired after July • Are received from

current bid price of all direct costs and all 18, 1984) from a regulated investment less-than-20%-owned foreign indirect costs properly allocable to goods company (RIC). The amount of dividends corporations and on hand at the inventory date. eligible for the dividends-received • Qualify for the 70% deduction under

Inventory may be valued below cost deduction under section 243 is limited by section 245(a).

when the merchandise is unsalable at section 854(b). The cooperative should To qualify for the 70% deduction, the

normal prices or unsalable in the normal receive a notice from the RIC specifying cooperative must own at least 10% of the

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stock of the foreign corporation by vote that are received from RICs that are not 6. Enter the smaller of line 4 or line

and value. 5. If line 5 is greater than line 4, subject to the 70% deduction.

 Also include dividends received from stop here; enter the amount 2. Dividends from tax-exempt

a less-than-20%-owned FSC that: from line 6 on line 9, column (c). organizations.

• Are attributable to income treated as Do not complete the rest of this 3. Dividends (other than capital gain worksheet .............. effectively connected with the conduct of dividends) received from a REIT that, for 7. Enter the total amount of a trade or business within the United the tax year of the trust in which the dividends received from States (excluding foreign trade income) dividends are paid, qualifies under 20%-or-more-owned and sections 856 through 860. corporations that are included • Qualify for the 70% deduction provided 4. Dividends not eligible for a on lines 2, 3, 5, 7, and 8, dividends-received deduction because of in section 245(c)(1)(B). column (a) .............. the holding period of the stock or an 8. Subtract line 7 from line 3 .... Line 7, Column (a). Enter the obligation to make corresponding 9. Multiply line 8 by 70% ....... U.S.–source portion of dividends that are payments with respect to similar stock. 10. Subtract line 5 from line 9, received from 20%-or-more-owned column (c) .............. Two situations in which the foreign corporations and that qualify for 11. Enter the smaller of line 9 or line dividends-received deduction will not be the 80% deduction under section 245(a). 10 . . . . . . . . . . . . . . . . . . . . allowed on any share of stock are: Also include dividends received from a 12. Dividends-received deduction • If the cooperative held it for less 20%-or-more-owned FSC that: after limitation (section than 46 days during the 90-day period • Are attributable to income treated as 246(b)). Add lines 6 and 11. beginning 45 days before the stock effectively connected with the conduct of Enter the result here and on line became ex-dividend with respect to the a trade or business within the United 9, column (c) ............. dividend (see section 246(c)(1)(A)) or States (excluding foreign trade income) • To the extent the cooperative is and Line 10, Column (a). Enter dividends under an obligation to make related • Qualify for the 80% deduction provided from FSCs that are attributable to foreign payments for substantially similar or in section 245(c)(1)(B). trade income and that are eligible for the related property. 100% deduction provided in section 5. Any other taxable dividend income Line 8, Column (a). Enter dividends that 245(c)(1)(A). not properly reported above (including are received from wholly owned foreign Line 11, Columns (a) and (c). Enter only distributions under section 936(h)(4)). subsidiaries and that are eligible for the those dividends that qualify under section 100% deduction provided in section 243(b) for the 100% dividends-received 245(b). deduction described in section 243(a)(3).

In general, the deduction under section Cooperatives taking this deduction are Schedule H

245(b) applies to dividends paid out of the subject to the provisions of section 1561. Deductions and Adjustments earnings and profits of a foreign The 100% deduction does not apply to Under Section 1382 corporation for a tax year during which: affiliated group members that are joining • All of its outstanding stock is owned If the cooperative sells qualifying foreign in the filing of a consolidated return. trade property, no deduction is allowed for (directly or indirectly) by the domestic

cooperative receiving the dividends and Line 12, Column (a). Enter foreign patronage dividends, per-unit retain

dividends not reportable on lines 3, 6, 7, allocations, and nonpatronage • All of its gross income from all sources 8, or 10 of column (a). Include on line 12 distributions. For details, see section is effectively connected with the conduct the cooperative’s share of the ordinary 941(b)(2). of a trade or business within the United

States. earnings of a qualified electing fund from Any patronage dividends or per-unit Form 8621, Return by a Shareholder of a retain allocations that are allocated to Line 9, Column (c)—Limitation on Passive Foreign Investment Company or qualifying foreign trade income of the dividends-received deduction. Qualified Electing Fund, line 6c. cooperative may be treated as qualifying Generally, line 9, column (c), may not Line 13, Column (a). Include income foreign trade income of the patron. In exceed the amount from the worksheet constructively received from controlled order to qualify, the amount must be below. However, in a year in which an foreign corporations under subpart F. This designated by the cooperative in a written NOL occurs, this limitation does not apply amount should equal the total of amounts notice mailed to its patrons not later than even if the loss is created by the reported on Schedule I, Form 5471. the 15th day of the 9th month following dividends-received deduction. See the close of the tax year. For more sections 172(d) and 246(b). Line 14, Column (a). Include gross-up details, see section 943(g). for taxes deemed paid under sections 902

and 960. Cooperatives may, under section

Worksheet for Schedule C, line 9 1388(j)(1), use losses from one or more Line 15, Column (a). Enter taxable allocation units to offset earnings of one (keep for your records) distributions from an IC-DISC or former or more other allocations, as permitted by DISC that are designated as not eligible their bylaws, but only to the extent that 1. Refigure line 28, page 1, Form for a dividends-received deduction. 990-C, without any adjustment the earnings and losses are from

under section 1059 and without No deduction is allowed under section business done with or for patrons. If a

any capital loss carryback to the 243 for a dividend from an IC-DISC or cooperative exercises this option, it must

tax year under section former DISC (as defined in section provide the information specified in

1212(a)(1) .............. 992(a)) to the extent the dividend: section 1388(j)(3) by written notice to its

2. Complete lines 10 and 11, patrons. 1. Is paid out of the cooperative’s

column (c) and enter the total accumulated IC-DISC income or Special rules also apply if a here .................. previously taxed income or cooperative has acquired the assets of 3. Subtract line 2 from line 1 .... 2. Is a deemed distribution under another cooperative under a section 4. Multiply line 3 by 80% ....... section 995(b)(1). 381(a) transaction. See section 1388(j) 5. Add lines 2, 5, 7, and 8, column for more information. Cooperatives may (c) and the part of the deduction Line 16, Column (a). Include the net earnings and losses under section on line 3, column (c) that is following: 1388(j) and still be eligible for tax-exempt attributable to dividends

1. Dividends (other than capital gain treatment. See section 521(b)(6). received from

20%-or-more-owned distributions reported on Schedule D Note. Lines 1 and 2 apply only to section

corporations ............. (1120) and exempt-interest dividends) 521 cooperatives.

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Line 1. Enter the amount actually or • Other property (except nonqualified 1. Out of earnings not from business

constructively paid as dividends during written notices of allocation). done with or for patrons;

the tax year on: A written notice of allocation means: 2. Out of earnings from business done

• Common stock (whether voting or • Any capital stock, with or for other patrons to whom no

nonvoting), • Revolving fund certificate, amounts or smaller amounts are paid for

• Preferred stock, • Retain certificate, substantially identical transactions;

• Capital retain certificates, • Certificate of indebtedness, 3. To redeem capital stock,

• Revolving fund certificates, • Letter of advice, or certificates of indebtedness, revolving

• Letters of advice, or • Other written notice, which states the fund certificates, retain certificates, letters

• Other documentary evidence of a dollar amount allocated to the patron by of advice, or other similar documents; or

proprietary interest in the cooperative the cooperative and the part, if any, which 4. Without reference to the net

association. is a patronage dividend. earnings of the cooperative organization

See Regulations section 1.1382-3(b) In general, a qualified written notice from business done with or for its patrons.

for more information. of allocation is a written notice of

allocation that is: Line 2. Enter amounts paid on a • Paid as part of a patronage dividend in patronage basis to patrons from Schedule J money or by qualified check equal to at nonpatronage income. Payment may be least 20% of the patronage dividend and in: Tax Computation • One of the following conditions is met: • Money,

• Qualified written notices of allocation, 1. The patron must have at least 90 Lines 1 and 2

or days from the date the written notice of Members of a controlled group. A • Other property (except nonqualified allocation is paid to redeem it in cash, member of a controlled group, as defined written notices of allocation). and must receive written notice of the in section 1563, must check the box on The amounts must be paid during the right of redemption at the time the patron line 1 and complete lines 2a and 2b of payment period that begins on the first receives the allocation; or Schedule J. day of the tax year and ends on the 15th 2. The patron must agree to have the Line 2a. Members of a controlled group day of the 9th month after the end of the allocation treated as constructively are entitled to share one $50,000, one tax year in which the income was earned. received and reinvested in the $25,000, and one $9,925,000 taxable cooperative. See section 1388(c)(2) and Nonpatronage income includes income bracket amount (in that order) on related regulations for information on how incidental income from sources not line 2a. the consent must be made. directly related to: When a controlled group adopts or • Marketing, If a written notice of allocation does not later amends an apportionment plan, • Purchasing, qualify, no deduction is allowable at the each member must attach to its tax return • Service activities of the cooperative time it is issued. However, the a copy of its consent to this plan. (such as income from the lease of cooperative is entitled to a deduction or

premises, investments, or from the sale or The copy (or an attached statement) refund of tax when the nonqualified

exchange of capital assets), or written notice of allocation is finally must show the part of the amount in each

• Income from business done with or for redeemed, if that notice was paid as a taxable income bracket apportioned to

the U.S. Government, or any of its patronage dividend during the payment that member. See Regulations section

agencies. period for the tax year during which the 1.1561-3(b) for other requirements and

See Patronage dividends below for a patronage occurred. The deduction or for the time and manner of making the

definition of consent. “qualified written notice of refund is allowed, but only to the extent

allocation.” See section 1382(c)(2)(B) for that amounts paid to redeem the Equal apportionment plan. If no

deductibility of amounts paid in nonqualified written notice of allocation apportionment plan is adopted, members

redemption of nonqualified written notices are paid in money or other property (other of a controlled group must divide the

of allocation. than written notices of allocation). They amount in each taxable income bracket

Line 3. To be deductible, patronage cannot be more than the stated dollar equally among themselves. For example,

dividends must be paid during the amounts of the nonqualified written notice Controlled Group AB consists of

payment period that begins on the first of allocation. See section 1382(b) and Cooperative A and Cooperative B. They

day of the tax year in which the patronage related regulations. do not elect an apportionment plan.

occurs and ends on the 15th day of the Therefore, each cooperative is entitled to: See Rev. Rul. 81-103, 1981-1 C.B. 9th month after the end of that tax year. • $25,000 (one-half of $50,000) on line 447, for the redemption of nonqualified 2a(1), See sections 1382(e) and (f) for written notices of allocation issued to • $12,500 (one-half of $25,000) on line special rules for the time when patronage patrons by a payment of cash and a 2a(2), and occurs if products are marketed under a crediting of accounts receivable due from • $4,962,500 (one-half of $9,925,000) on pooling arrangement, or if earnings are patrons. line 2a(3). includible in the gross income of the Note. See section 1383 for special rules Unequal apportionment plan. Members cooperative for a tax year after the year in

which the patronage occurred. for figuring the cooperative’s tax in the of a controlled group may elect an year nonqualified written notices of unequal apportionment plan and divide Patronage dividends include any allocation are redeemed. The cooperative the taxable income brackets as they want. amount paid to a patron by a cooperative is entitled to: There is no need for consistency among based on the quality or value of business taxable income brackets. Any member (a) A deduction in the tax year the done with or for that patron under a may be entitled to all, some, or none of nonqualified written notices of allocation pre-existing obligation of the cooperative the taxable income bracket. However, the are redeemed (if permitted under section to pay that amount. total amount for all members cannot be 1382(b)(2) or (4) or section 1382(c)(2)(B)) The amount is determined by more than the total amount in each or reference to the net earnings of the taxable income bracket. 

organization from business done with or (b) A tax credit based on a Line 2b. Members of a controlled group for its patrons. recomputation of tax for the year(s) the are treated as one group to figure the nonqualified written notices of allocation Patronage dividends may be in: applicability of the additional 5% tax and were issued. See instructions for line 32f. • Money, the additional 3% tax. If an additional tax

• Qualified written notices of allocation, Amounts paid to patrons are not applies, each member will pay that tax

or patronage dividends if paid: based on the part of the amount used in

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each taxable income bracket to reduce beginning in 2001 did not exceed $7.5 Most cooperatives figure their tax by that member’s tax. See section 1561(a). If million ($5 million if the cooperative had using the Tax Rate Schedule below. an additional tax applies, attach a only 1 prior tax year). Exceptions apply to members of a schedule showing the taxable income of controlled group (see the worksheet For more details, see the Instructions the entire group and how the cooperative above). for Form 4626. figured its share of the additional tax.

Tax Rate Schedule Line 6a. Foreign tax credit. To find out

Line 2b(1). Enter the cooperative’s when a cooperative can take the credit for If taxable income on line 30, page 1, share of the additional 5% tax on line Form 990-C is: payment of income tax to a foreign 2b(1). country or U.S. possession, see Form

Over — But not Tax is: Of the 1118, Foreign Tax Credit—Corporations. Line 2b(2). Enter the cooperative’s over — amount share of the additional 3% tax on line over — Line 6b. Other Credits

2b(2). $0 $50,000 15% $0 Possessions tax credit. The Small

Line 3 50,000 75,000 $ 7,500 + 25% 50,000 Business Job Protection Act of 1996

75,000 100,000 13,750 + 34% 75,000 repealed the possessions credit.

100,000 335,000 22,250 + 39% 100,000 However, existing credit claimants may Tax Computation Worksheet for 335,000 10,000,000 113,900 + 34% 335,000 qualify for a credit under the transitional Members of a Controlled Group 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 rules. Get Form 5735, Possessions Tax

(keep for your records) Credit (Under Sections 936 and 30A). 15,000,000 18,333,333 5,150,000 + 38% 15,000,000

Note. Each member of a controlled group must 18,333,333 - - - - - 35% 0 Nonconventional source fuel credit. A

compute its tax using this worksheet. credit is allowed for the sale of qualified

fuels produced from a nonconventional Deferred tax under section 1291. If the 1. Enter taxable income (line 30, source. Section 29 contains a definition of cooperative was a shareholder in a page 1) ................. qualified fuels, provisions for figuring the passive foreign investment company credit, and other special rules. Attach a (PFIC), and the cooperative received an 2. Enter line 1 or the cooperative’s separate schedule to the return showing excess distribution or disposed of its share of the $50,000 taxable the computation of the credit. investment in the PFIC during the year, it income bracket, whichever is must include the total increase in taxes Qualified electric vehicle (QEV) credit. less ................... due under section 1291(c)(2) in the Include on line 6b any credit from Form

3. Subtract line 2 from line 1 amount entered on line 3, Schedule J. On 8834, Qualified Electric Vehicle Credit. .... Vehicles that qualify for this credit are not the dotted line next to line 3, Schedule J,

4. Enter line 3 or the cooperative’s write eligible for the deduction for clean-fuel “Section 1291” and the amount.

share of the $25,000 taxable vehicles under section 179A. Do not include on line 3 any interest income bracket, whichever is Line 6c. General business credit. due under section 1291(c)(3). Instead, less ................... Check the Form 3800 box, complete show the amount of interest owed in the Form 3800, General Business Credit, and 5. Subtract line 4 from line 3 .... bottom margin of page 1, Form 990-C, enter the total of the credits on line 6c if and write “Section 1291 interest.” For the cooperative has any of the following: 6. Enter line 5 or the cooperative’s details, see Form 8621, Return by a share of the $9,925,000 taxable Shareholder of a Passive Foreign • More than one of the general business

income bracket, whichever is Investment Company or Qualified credits listed below (other than the less ................... Electing Fund. empowerment zone employment credit),

• General credits from an electing large 7. Subtract line 6 from line 5 Line 4. Alternative minimum tax. .... partnership shown in box 7 of Schedule Unless the cooperative is treated as a K-1 (Form 1065-B), 8. Multiply line 2 by 15% ....... small corporation exempt from alternative • A credit carryforward or carryback of minimum tax (AMT), it may owe AMT if it any of these credits (other than the 9. Multiply line 4 by 25% ....... has any of the adjustments and tax empowerment zone employment credit), preference items listed on Form 4626, 10. Multiply line 6 by 34% ....... • A trans-Alaska pipeline liability fund Alternative Minimum Tax—Corporations. credit, or The cooperative must file Form 4626 if its 11. Multiply line 7 by 35% ....... • Any of these credits (other than the taxable income (loss) combined with low-income housing credit and the these adjustments and tax preference 12. If the taxable income of the empowerment zone employment credit items is more than the smaller of: controlled group exceeds that is from a passive activity). • $40,000 or $100,000, enter this member’s • The cooperative’s allowable exemption Note. A cooperative filing Form 3800 share of the smaller of: 5% of

amount (from Form 4626). and Form 8844, Empowerment Zone the taxable income in excess of

For this purpose, taxable income does Employment Credit, would check both $100,000, or $11,750. See

not include the NOL deduction. Get Form the “Form 3800” box and the “Form(s)” Instructions for line 2b . ....

4626 for details. box, write “8844” in the space provided

13. If the taxable income of the and enter the total of the credits on line Exemption for small corporations. controlled group exceeds $15 6c. A cooperative is treated as a small million, enter this member’s If the cooperative is not required to file corporation exempt from the AMT for its share of the smaller of: 3% of Form 3800, attach the applicable form(s) tax year beginning in 2001 if that year is the taxable income in excess of listed in parentheses below. Check the $15 million, or $100,000. See the cooperative’s first tax year in

existence (regardless of its gross “Form(s)” box, write the attached form Instructions for line 2b ..... number(s) in the space provided, and receipts) or:

enter the total of the credit(s) on line 6c. 14. Add lines 8 through 13. Enter 1. It was treated as a small

here and on Schedule J, line 3. corporation exempt from the AMT for all Note. Any excess energy investment

prior tax years beginning after 1997 and credit, work opportunity credit, Indian

Note. Members of a controlled group 2. Its average annual gross receipts employment credit, empowerment zone

must attach to form 990-C, a statement for the 3-tax-year period (or portion credit, employment credit, welfare-to-work

showing the computation of the tax thereof during which the cooperative was credit, or new markets credit not used by

entered on line 3. in existence) ending before its tax year the cooperative (because of the tax

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liability limitation) must be passed through must recapture part of the QEV credit • Unrealized gains and losses on

to the patrons. These credits cannot be claimed in a prior year, if, within 3 years securities held “available for sale.”

carried back or over by the cooperative. of the date the vehicle was placed in • Foreign currency translation

See Forms 3468, 5884, 8844, 8845, service, it ceases to qualify for the credit. adjustments.

8861, and 8874 for details. See Regulations section 1.30-1 for details • The excess of additional pension

• Investment Credit (Form 3468). on how to figure the recapture. liability over unrecognized prior service

• Work Opportunity Credit (Form 5884). • Recapture of the Indian employment cost.

• Credit for Alcohol Used as Fuel (Form credit. Generally, if an employer • Guarantees of employees stock

6478). terminates the employment of a qualified (ESOP) debt. • Credit for Increasing Research employee less than 1 year after the date • Compensation related to employee Activities (Form 6765). of initial employment, any Indian stock award plans. • Low-Income Housing Credit (Form employment credit allowed for a prior tax If the total adjustment to be entered on 8586). year because of wages paid or incurred to line 24 is a negative amount, enter the • Orphan Drug Credit (Form 8820). that employee must be recaptured. For amount in parentheses. • Disabled Access Credit (Form 8826). details, see Form 8845 and section 45A.

• Enhanced Oil Recovery Credit (Form • Interest on deferred tax attributable to

8830). (a) installment sales of certain timeshares

• Renewable Electricity Production Credit and residential lots (section 453(l)(3) and Schedule M-1

(Form 8835). (b) certain nondealer installment Reconciliation of Income (Loss) • Empowerment Zone Employment obligations (section 453A(c)).

Credit (Form 8844). While the • Interest due on deferred gain (section per Books With Income per

empowerment zone employment credit is 1260(b)). Return

a part of the general business credit, it is How to report. If the cooperative Line 5c. Travel and entertainment. figured separately on Form 8844 and is checked the “Other” box, attach a Include on line 5c any of the following: never carried to Form 3800. schedule showing the computation of • Meals and entertainment not deductible • Indian Employment Credit (Form 8845). each item included in the total for line 9, under section 274(n). • Credit for Employer Social Security and and identify the applicable Code section • Expenses for the use of an Medicare Taxes Paid on Certain and, the type of tax or interest. entertainment facility. Employee Tips (Form 8846). Line 10. Total Tax. Include • The part of business gifts over $25. • Credit for Contributions to Selected any deferred • Expenses of an individual in excess of Community Development Corporations tax on the termination of a section 1294

election applicable to shareholders in a $2,000, which are allocable to (Form 8847). qualified electing fund in the amount conventions on cruise ships. • Welfare-to-Work Credit (Form 8861). entered on line 10. See Form 8621, Part • Employee achievement awards over • New Markets Credit (Form 8874). V and How to report below. $400. Line 6d. Credit for prior year minimum • The cost of entertainment tickets over tax. To figure the minimum tax credit and Subtract any deferred tax on the their face value (also subject to 50% limit any carryforward of that credit, use Form cooperative’s share of undistributed under section 274(n)). 8827, Credit for Prior Year Minimum earnings of a qualified electing fund (see • The cost of skyboxes over the face Tax—Corporations. Form 8621, Part II). value of nonluxury box seat tickets. Also see Form 8827 if any of the How to report. Attach a schedule • The part of luxury water travel not cooperative’s 2000 nonconventional showing the computation of each item deductible under section 274(m). source fuel credit, orphan drug credit, or included in, or subtracted from, the total • Expenses for travel as a form of qualified electric vehicle credit was for line 10. On the dotted line next to line education. disallowed solely because of the tentative 10, specify (a) the applicable Code • Other nondeductible expenses for minimum tax limitation. See section 53(d). section, (b) the type of tax, and (c) enter travel and entertainment.

Line 9. Other Taxes the amount of tax. For example, if the For more information, see Pub. 542. cooperative is deferring $100 LIFO Include any of the following taxes and recapture tax, subtract this amount from Line 7. Tax-exempt interest. Include as interest in the total on line 9. Check the interest on line 7, any exempt-interest the total on line 10, then enter “Section appropriate box(es) for the form, if any, 1363-Deferred Tax-$100” on the dotted dividends received as a shareholder in a used to compute the total. mutual fund or other RIC. line next to line 10. 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, Schedule L Schedule N

see Form 4255, Recapture of Investment Balance Sheets per Books Other Information Credit, for details. The balance sheet should agree with the The following instructions apply to Form Recapture of low-income housing cooperative’s books and records. Include 990-C, page 5, Schedule N. Be sure to credit. If the cooperative disposed of certificates of deposit as cash on line 1, complete all the items that apply to the property (or there was a reduction in the Schedule L. cooperative. qualified basis of the property) for which it

took the low-income housing credit, it may Line 5. Tax-exempt securities. Include Question 13 owe a tax. See Form 8611, Recapture of on this line:

Low-Income Housing Credit. Foreign financial account. Check the 1. State and local government

Other. Additional taxes and interest “Yes” box if either 1 or 2 below applies to obligations, the interest on which is

amounts may be included in the total the cooperative. Otherwise, check the excludable from gross income under

entered on line 9. Check the box for “No” box. section 103(a) and

“Other” if the cooperative includes any of 2. Stock in a mutual fund or other RIC 1. At any time during the 2001

the taxes and interest discussed below. that distributed exempt-interest dividends calendar year, the cooperative had an

See How to report, below, for details on during the tax year of the cooperative. interest in or signature or other authority

reporting these amounts on an attached over a bank, securities, or other financial

schedule. Line 24. Adjustments to shareholders’ account in a foreign country (see Form

• Recapture of the qualified electric equity. Some examples of adjustments to TD F 90–22.1, Report of Foreign Bank

vehicle (QEV) credit. The cooperative report on this line include: and Financial Accounts); and

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• The combined value of the accounts one group and the parent corporation of carryback period for a NOL. To be valid,

was more than $10,000 at any time another. the election must be made by the due

during the calendar year and date (including extensions) for filing Form Note. If the cooperative is an “excluded • The account was not with a U.S. member” of a controlled group (see 990-C. Cooperatives filing a

military banking facility operated by a U.S. section 1563(b)(2)), it is still considered a consolidated return must check the box

financial institution. member of a controlled group for this and attach the statement required by

2. The cooperative owns more than purpose. Regulations section 1.1502-21(b)(3)(i) or

50% of the stock in any corporation that (ii). If the cooperative checks this box, do Affiliated group. The term “affiliated would answer “Yes” to item 1 above. not attach the statement described in group” means one or more chains of Temporary Regulations section If “Yes” is checked for this question: includible corporations (section 1504(a)) 301.9100-12T(d). • Enter the name(s) of the foreign connected through stock ownership with a

country or countries. Attach a separate common parent corporation. The common Item 20 sheet if more space is needed. parent must be an includible corporation

• File Form TD F 90-22.1 by June 30, and the following requirements must be Enter the amount of the NOL carryover to

2002, with the Department of the met: the tax year from prior years, even if

Treasury at the address shown on the some of the loss is used to offset income 1. The common parent must own form. Do not file it with Form 990-C. on this return. The amount to enter is the directly stock that represents at least 80% You can order Form TD F 90-22.1 by total of all NOLs generated in prior years of the total voting power and at least 80% calling 1-800-TAX-FORM but not used to offset income (either as a of the total value of the stock of at least carryback or carryover) in a tax year prior (1-800-829-3676) or you can download it one of the other includible cooperatives from the IRS Web Site at www.irs.gov. to 2001. Do not reduce the amount by and any NOL deduction reported on line 29a. 2. Stock that represents at least 80% Question 14 of the total voting power and at least 80%

The cooperative may be required to file of the total value of the stock of each of

Form 3520, Annual Return To Report the other corporations (except for the Paperwork Reduction Act Notice. We

Transactions with Foreign Trusts and common parent) must be owned directly ask for the information on this form to

Receipt of Certain Foreign Gifts, if: by one or more of the other includible carry out the Internal Revenue laws of the

United States. You are required to give us corporations. • It directly or indirectly transferred the information. We need it to ensure that

money or property to a foreign trust. For For this purpose, stock generally does you are complying with these laws and to

this purpose, any U.S. person who not include any stock that (a) is allow us to figure and collect the right

created a foreign trust is considered a nonvoting, (b) is nonconvertible, (c) is amount of tax.

transferor. limited and preferred as to dividends and

• It is treated as the owner of any part of does not participate significantly in You are not required to provide the

the assets of a foreign trust under the corporate growth, and (d) has redemption information requested on a form that is

grantor trust rules. and liquidation rights that do not exceed subject to the Paperwork Reduction Act

• It received a distribution from a foreign the issue price of the stock (except for a unless the form displays a valid OMB

trust. reasonable redemption or liquidation control number. Books or records relating

For more information, see the premium). See section 1504(a)(4). to a form or its instructions must be

Instructions for Form 3520. Parent-subsidiary controlled group. retained as long as their contents may

The term “parent-subsidiary controlled become material in the administration of

Note. An owner of a foreign trust must group” means one or more chains of any Internal Revenue law. Generally, tax ensure that the trust files an annual cooperatives connected through stock returns and return information are

information return on Form 3520-A, ownership (section 1563(a)(1)). Both of confidential, as required by section 6103. Annual Information Return of Foreign the following requirements must be met: Trust with a U.S. Owner. For details, see The time needed to complete and file 1. At least 80% of the total combined Form 3520-A. this form will vary depending on individual voting power of all classes of voting stock circumstances. The estimated average Item 15 or at least 80% of the total value of all time is:

Show any tax-exempt interest income classes of stock of each cooperative in

the group (except the parent) must be received or accrued. Include any Recordkeeping . . . . . . . . 77 hr., 58 min. owned by one or more of the other exempt-interest dividends received as a Learning about the law or cooperatives in the group and shareholder in a mutual fund or other the form . . . . . . . . . . . . . 23 hr., 46 min.

RIC. 2. The common parent must own at Preparing the form . . . . . . 40 hr., 59 min. least 80% of the total combined voting Copying, assembling, and

Question 17 power of all classes of stock entitled to sending the form to the IRS 4 hr., 17 min. vote or at least 80% of the total value of Check the “Yes” box if: all classes of stock of one or more of the

1. The cooperative is a subsidiary in If you have comments concerning the other cooperatives in the group. Stock an affiliated group (defined below), but is accuracy of these time estimates or owned directly by other members of the not filing a consolidated return for the tax suggestions for making this form simpler, group is not counted when computing the year with that group or we would be happy to hear from you. You voting power or value. 2. The cooperative is a subsidiary in a can write to the Tax Forms Committee,

parent-subsidiary controlled group See section 1563(d)(1) for the Western Area Distribution Center,

definition of “stock” for purposes of Rancho Cordova, CA 95743-0001. (defined below). determining stock ownership above. Any cooperative that meets either of Do not send the tax form to this office.

the requirements above should check the Item 19 Instead, see Where To File on page 2. “Yes” box. This applies even if the Check the box if the cooperative elects

cooperative is a subsidiary member of under section 172(b)(3) to forego the

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Index

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

Accounting methods ......4 Electronic Federal Tax Limitations on deductions . . 7 Repairs and maintenance . . 8

Accounting periods ......4 Payment System Lobbying expenses . . . . . 11

Address change .........6 (EFTPS) ............5 S

Affiliated group Employee benefit . . . . . . . . 18 N Salaries and wages ......8

Alternative minimum tax . . 16 programs . . . . . . . . . . . 10 Name change ..........6 Schedule:

Amended return Employer identification .........6 Net operating loss . . . . . . 11 A . . . . . . . . . . . . . . . . . 12

Assembling the return ....4 number (EIN) .........6 Nonpatronage income . . . 15 C . . . . . . . . . . . . . . . . . 13

Estimated tax: H . . . . . . . . . . . . . . . . . 14

Overpaid ............5 J . . . . . . . . . . . . . . . . . 15 B Payments ............5 O L . . . . . . . . . . . . . . . . . 17 Backup withholding . . . . . 12 Other deductions . . . . . . . 10 M-1 . . . . . . . . . . . . . . . 17 Bad debts .............8 F Other income ...........7 N . . . . . . . . . . . . . . . . . 17

Balance sheets . . . . . . . . 17 Final return ............6 Business start-up Foreign financial P T

expenses ............8 account Paid preparer . . . . . . . . . . . . 17 Tax Computation . . . . . . . 15

authorization .........2 Foreign tax credit . . . . . . . 16 Tax issues, unresolved ....1 C Passive activity limitations . . Forms and publications, Tax rate schedule . . . . . . 16 Capital gain net income . . . 7 ...................8 how to get ...........1 Taxes and licenses ......8 Charitable contributions . . . 9 Patronage dividends . . . . 15 Travel, meals, and Closely held cooperative . . . 8 Payments: G entertainment . . . . . . . . 10

Compensation of officers . . 8 Estimated tax . . . . . . . . 12 General business credit . . 16

Consolidated return ......3 Penalties ..............5 Golden parachute W Controlled group: Penalty: payments ............8 When to file ............2 Member of . . . . . . . . . . 15 Estimated tax . . . . . . . . 12 Gross receipts ..........6 Where to file ...........2 Corporate tax shelters ....4 Pension, profit-sharing, Who must file ..........2 Cost of goods sold . . . . . . 12 etc., plans . . . . . . . . . . 10

I Possessions tax credit . . . 16 Who must sign ..........2

Income ...............6 Private delivery services . . . 2 Worksheet: D Initial return ............6 Schedule C . . . . . . . . . 14

Deductions ............7 Interest due: Worksheets:

Depletion . . . . . . . . . . . . . 10 Q Late payment of tax ....5 Controlled group Depository method of tax Qualified written notice Interest expense ........9 members, tax

payment .............5 of allocation . . . . . . . . . 15 Interest income: computation . . . . . . . 15

Depreciation . . . . . . . . . . 10 Taxable .............7 Written notice of

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

Dividend income ........7 Section 263A Recapture taxes . . . . . . . 17 ■ Dividends– received uniform Reconciliation of income . . 17

deduction . . . . . . . . . . . 13 capitalization Recordkeeping .........5

rules . . . . . . . . . . . 7, 12 Related party

Valuation methods . . . . 13 transactions ..........8

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