1998 Department of the Treasury

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.

Changes To Note

The Taxpayer Relief Act of 1997 (“The

Act”) made changes to the tax law for

cooperatives. Some of the changes are

discussed below.

● For tax years beginning after December

31,1997, cooperatives may be entitled to

an increased charitable contribution

deduction for gifts of computer technology

and equipment to schools. For details,

see Contributions of computer

technology and equipment to schools,

on page 8.

● For tax years beginning after December

31, 1997, the alternative minimum tax has

been repealed for cooperatives that

qualify as “small corporations.” For more

information, see the instructions on page

14 and Form 4626, Alternative Minimum

Tax — Corporations.

● The Act changed the tax year to which

unused general business credits may be

carried. Unused general business credits

that arise in tax years beginning after

1997 are carried back 1 year and then

forward to each of the 20 years following

the unused credit year. For more

information, see section 39(a).

Unresolved Tax Problems

Most problems can be solved with one

contact either by calling, writing, or visiting

an IRS office. But if you have tried

unsuccessfully to resolve a problem with

the IRS, you should contact the Taxpayer

Advocate's Problem Resolution Program

(PRP). Someone at PRP will assign you

a personal advocate who is in the best

position to try to resolve your problem.

The Taxpayer Advocate can also offer

you special help if you have a significant

hardship as a result of a tax problem.

You should contact the Taxpayer

Advocate if:

● You have tried unsuccessfully to

resolve your problem with the IRS and

have not been contacted by the date

promised, or

● You are on your second attempt to

resolve a problem.

You may contact a Taxpayer Advocate

by calling a new toll-free assistance

number, 1-877-777-4778. Persons who

have access to TTY/TTD equipment may

call 1-800-829-4059 and ask for the

Taxpayer Advocate. If you prefer, you can

write to the Taxpayer Advocate at the IRS

office that last contacted you.

While Taxpayer Advocates cannot

change the tax law or make a technical

decision, they can clear up problems that

resulted from previous contacts and

ensure that your case is given a complete

and impartial review. Taxpayer Advocates

are working to put service first. For more

information about PRP, see Pub. 1546,

The Problem Resolution Program of the

Internal Revenue Service.

How To Get Forms and

Publications

Personal computer. Access the IRS's

Internet Web Site at

www.irs.ustreas.gov to do the following:

● Download forms, instructions, and

publications.

● See answers to frequently asked tax

questions.

● Search publications on-line by topic or

keyword.

● Send us comments or request help via

e-mail.

● Sign up to receive current tax issues

and news by e-mail from the IRS Digital

Dispatch.

You can also reach us using:

● Telnet at iris.irs.ustreas.gov

● File Transfer Protocol at

ftp.irs.ustreas.gov

● Direct Dial (by modem) —

703–321–8020.

CD–ROM. Order Pub. 1796, Federal Tax

Products on CD-Rom, and get:

● Current year forms, instructions, and

publications, and

● Prior year forms and instructions.

● Popular forms that may be filled in

electronically, printed out for submission,

and saved for recordkeeping.

Buy the CD-Rom on the Internet at

www.irs.ustreas.gov/cdorders from the

National Technical Information Service

(NTIS) for $13 (plus a $5 handling fee),

and save 35%, or call 1-877-CDFORMS

(1-800-233-6767) toll-free to buy the

CD-Rom for $20 (plus a $5 handling fee).

By phone and in person. You can order

forms and publications 24 hours a day, 7

days a week, by calling

1–800–TAX-FORM (1–800–829–3676).

You can also get most forms and

publications at your local IRS office.

General Instructions

Purpose of Form

Use Form 990-C Farmers' Cooperative

Association Income Tax Return to report

income, gains, losses, deductions,

credits, and to figure the income tax

liability of the cooperative.

Who Must File

Every farmers' cooperative association

must file Form 990-C whether or not the

association has taxable income

(Regulations section 1.6012-2(f)).

Generally, a farmers' cooperative is a

farmers', fruit growers', or like association

organized and operated on a cooperative

basis to:

1. Market the products of members

or other producers and return to them the

proceeds of sales, less necessary

marketing expenses, on the basis of

either the quantity or value of their

products; OR 

2. Purchase supplies and equipment

for the use of members or other persons

and turn over the supplies and equipment

to them at actual cost, plus necessary

expenses.

A member is anyone who shares in the

profits of a cooperative association and is

entitled to participate in the management

of the association.

A producer is a person who, as owner

or tenant, bears the risk of production and

receives income based on farm

production rather than fixed

compensation. For example, if a

cooperative leases its land to a tenant

farmer who agrees to pay a rental fee

based on a percentage of the farm crops

produced, both the landowner and the

tenant farmer qualify as producers.

When To File

Generally, a cooperative must file its

income tax return by the 15th day of the

9th month after the end of its tax year.

If the due date falls on a Saturday,

Sunday, or legal holiday, the cooperative

may file on the next business day.

Private Delivery Services. You can use

certain private delivery services

designated by the IRS to meet the “timely

mailing as timely filing/paying” rule for tax

returns and payments. The IRS publishes

a list of the designated private delivery

services in September of each year. The

Cat. No. 11288M
list published in September 1998,

includes only the following:

● Airborne Express (Airborne): Overnight

Air Express Service, Next Afternoon

Service, Second Day Service.

● DHL Worldwide Express (DHL): DHL

“Same Day” Service, DHL USA

Overnight.

● Federal Express (FedEx): FedEx

Priority Overnight, FedEx Standard

Overnight, FedEx 2 Day.

● United Parcel Service (UPS): UPS Next

Day Air, UPS Next Day Air Saver, UPS

2nd Day Air, UPS 2nd Day Air A.M.

The private delivery service can tell you

how to get written proof of the mailing

date.

Extension. File Form 7004, Application

for Automatic Extension of Time To File

Corporation Income Tax Return, to

request a 6-month extension of time to

file.

Where To File

File Form 990–C with the:

Internal Revenue Service

Ogden, UT 84201–0027.

Who Must Sign

The return must be signed and dated by:

● The president, vice president, treasurer,

assistant treasurer, chief accounting

officer, or

● Any other cooperative officer (such as

tax officer) authorized to sign.

Receivers, trustees, or assignees also

must sign and date any return filed on

behalf of a cooperative.

If a cooperative officer completes Form

990-C, the Paid Preparer's space should

remain blank. Anyone who prepares Form

990-C but does not charge the

cooperative should not sign the return.

Generally, anyone who is paid to prepare

the return must sign it and fill in the other

blanks in the Paid Preparer's Use Only

area.

The paid preparer must complete the

required preparer information and:

● Sign the return, by hand, in the space

provided for the preparer's signature.

(Signature stamps and labels are not

acceptable.)

● Give a copy of the return to the

taxpayer.

Accounting Methods

Figure taxable income using the method

of accounting regularly used in keeping

the cooperative's books and records.

Generally, permissible methods include:

● Cash,

● Accrual, or

● Any other method authorized by the

Internal Revenue Code.

 In all cases, the method used must

clearly show taxable income.

Generally, a cooperative must use the

accrual method of accounting if its

average annual gross receipts exceed $5

million. See section 448(c).

Under the accrual method, an amount

is includible in income when:

● All the events have occurred that fix the

right to receive the income and

● The amount can be determined with

reasonable accuracy.

See Regulations section 1.451-1(a) for

details.

Generally, an accrual basis taxpayer

can deduct accrued expenses in the tax

year when:

● All events that determine the liability

have occurred,

● The amount of the liability can be

figured with reasonable accuracy, and

● Economic performance takes place with

respect to the expense.

 There are exceptions to the economic

performance rule for certain items,

including recurring expenses. See section

461(h) and the related regulations for the

rules for determining when economic

performance takes place.

Long-term contracts (except for certain

real property construction contracts) must

generally be accounted for using the

percentage of completion method

described in section 460. See section 460

for general rules on long-term contracts.

Change in Accounting Method.

Generally, the cooperative may change

the method of accounting used to report

taxable income (for income as a whole or

for any material item) only by getting

consent on Form 3115, Application for

Change in Accounting Method. For more

information, get Pub. 538, Accounting

Periods and Methods.

Completed Crop Pool Method of

Accounting. Cooperatives may use the

completed crop pool method of

accounting for crop pools open before

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

more information.

Accounting Periods

A cooperative must figure its taxable

income on the basis of a tax year. The tax

year is the annual accounting period the

cooperative uses to keep its records and

report its income and expenses.

Generally, cooperatives can use a

calendar year or a fiscal year.

For more information about accounting

periods, see Temporary regulations

sections 1.441–1T, 1.441–2T, and Pub.

538.

Calendar year. If the calendar year is

adopted as the annual accounting period,

the cooperative must maintain its books

and records and report its income and

expenses for the period from January 1

through December 31 of each year.

Fiscal year. A fiscal year is 12

consecutive months ending on the last

day of any month except December. A

52–53 week year is a fiscal year that

varies from 52 to 53 weeks.

Adoption of tax year. A cooperative

adopts a tax year when it files its first

income tax return. It must adopt a tax year

by the due date (not including extensions)

of its first income tax return.

Change in tax year. Generally, a

cooperative must get the consent of the

IRS before changing its tax year by filing

Form 1128, Application To Adopt,

Change, or Retain a Tax Year. However,

under certain conditions, a cooperative

may change its tax year without getting

the consent. See Regulations section

1.442–1 and Pub. 538.

Rounding Off to Whole

Dollars

The cooperative may show amounts on

the return and accompanying schedules

as whole dollars. To do so, drop any

amount less than 50 cents and increase

any amount from 50 cents through 99

cents to the next higher dollar.

Recordkeeping

Keep the cooperative's records for as long

as they may be needed for the

administration of any provision of the

Internal Revenue Code. Usually, records

that support an item of income, deduction,

or credit on the return must be kept for 3

years from the date the return is due or

filed, whichever is later. Keep records

that verify the cooperative's basis in

property for as long as they are needed

to figure the basis of the original or

replacement property.

The cooperative should also keep

copies of any returns it has filed. They

help in preparing future returns and filing

amended returns.

Depository Method of Tax

Payment

The cooperative must pay the tax due in

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

month after the end of the tax year. Some

cooperatives (described below) are

required to electonically deposit all

depository taxes, including cooperative

income tax payments.

Electronic deposit requirement. The

cooperative must make electronic

deposits of all depository tax liabilities that

occur after 1998 if:

● It was required to electronically deposit

taxes in prior years,

● It deposited more than $50,000 in social

security, Medicare, railroad retirement,

and withheld income taxes in 1997, or

● It did not deposit social security,

Medicare, railroad retirement, or withheld

income taxes in 1997, but it deposited

more than $50,000 in other taxes under

section 6302 (such as the corporate

income tax) in 1997.

For details, see Regulations section

31.6302–1(h)(2).

The Electronic Federal Tax Payment

System (EFTPS) must be used to make

electronic deposits. If the cooperative is

Page 2
required to make electronic deposits and

fails to do so, it may be subject to a 10%

penalty.

Note: A penalty will not be imposed for

tax liabilities that occur prior to July 1,

1999, if the cooperative was first required

to used EFTPS on or after July 1, 1997.

Cooperatives that are not required to

make electronic deposits may voluntarily

participate in EFTPS. To enroll in EFTPS,

call 1–800–945–8400 or

1–800–555–4477. For general information

about EFTPS call 1–800–829–1040.

Deposits with Form 8109. If the

cooperative does not use EFTPS, deposit

cooperative income tax payments (and

estimated tax payments) with Form 8109.

Do not send deposits directly to an IRS

office. Mail or deliver the completed Form

8109 with the payment to a qualified

depositary for Federal taxes or to the

Federal Reserve Bank (FRB) servicing

the cooperative's geographic area. Make

checks or money orders payable to that

depositary or FRB.

To help ensure proper crediting, write

the cooperative's employer identification

number, the tax period to which the

deposit applies, and “Form 990-C” on the

check or money order. Be sure to darken

the “990-C” box on the coupon. Records

of these deposits will be sent to the IRS.

A penalty may be imposed if the

deposits are mailed or delivered to an IRS

office rather than to an authorized

depositary or FRB.

For more information on deposits, see

the instructions in the coupon booklet

(Form 8109) and Pub. 583, Starting a

Business and Keeping Records.

Caution: If the cooperative owes tax

when it files Form 990-C, do not include

the payment with the tax return. Instead,

mail or deliver the payment with Form

8109 to a qualified depositary or FRB, or

use the EFTPS system, if applicable.

Estimated Tax Payments

Generally, the following rules apply to the

cooperative's payments of estimated tax.

● The cooperatives must make

installment payments of estimated tax if it

expects its estimated tax (income tax

minus credits) to be $500 or more.

● The installments are due by the 15th

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

of the tax year. If any date falls on a

Saturday, Sunday, or legal holiday, the

installment is due on the next regular

business day.

● Use Form 1120-W, Estimated Tax for

Corporations, as a worksheet to compute

estimated tax.

● If the cooperative does not use EFTPS,

use the deposit coupons (Form 8109) to

make deposits of estimated tax.

For more information on estimated tax

payments, including penalties that apply

if the cooperative fails to make required

payments, see the instructions for line 33

on page 10.

Overpaid estimated tax. If the

cooperative overpaid estimated tax, it

may be able to get a quick refund by filing

Form 4466, Corporation Application for

Quick Refund of Overpayment of

Estimated Tax. The overpayment must be

at least 10% of expected income tax

liability and at least $500. File the

cooperative's Form 4466 before the 16th

day of the 3rd month after the end of the

tax year, but before the cooperative files

its tax return. Do not file Form 4466

before the end of the cooperative's tax

year.

Interest and Penalties

Interest. Interest is charged on taxes

paid late even if an extension of time to

file is granted. Interest is also charged on

penalties imposed for failure to file,

negligence, fraud, gross valuation

overstatements, and substantial

understatements of tax from the due date

(including extensions) to the date of

payment. The interest charge is figured

at a rate determined under section 6621.

Penalty for late filing of return. A

cooperative that does not file its tax return

by the due date, including extensions,

may be penalized 5% of the unpaid tax for

each month or part of a month the return

is late, up to a maximum of 25% of the

unpaid tax. The minimum penalty for a

return that is over 60 days late is the

smaller of the tax due or $100. The

penalty will not be imposed if the

cooperative can show that the failure to

file on time was due to reasonable cause.

Cooperatives that file late must attach a

statement explaining the reasonable

cause.

Penalty for late payment of tax. A

cooperative that does not pay the tax

when due may be penalized 1

/2 of 1% of

the unpaid tax for each month or part of

a month the tax is not paid, up to a

maximum of 25% of the unpaid tax. The

penalty will not be imposed if the

cooperative can show that the failure to

pay on time was due to reasonable cause.

Trust fund recovery penalty. This

penalty may apply if certain excise,

income, social security, and Medicare

taxes that must be collected or withheld

are not collected or withheld, or these

taxes are not paid to the IRS. These taxes

are generally reported on Forms 720, 941,

943, or 945 (See Other Forms, Returns,

and Statements that May Be Required,

below). The trust fund recovery penalty

may be imposed on all persons who are

determined by the IRS to have been

responsible for collecting, accounting for,

and paying over these taxes, and who

acted willfully in not doing so. The penalty

is equal to the unpaid trust fund tax. See

the instructions for Form 720, Pub. 15

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

Pub. 51 (Circular A), Agricultural

Employer's Tax Guide, for details,

including the definition of responsible

persons.

Other penalties. Other penalties can be

imposed for negligence, substantial

understatement of tax, and fraud. See

sections 6662 and 6663.

Other Forms, Returns, and

Statements that May Be

Required

Forms

The cooperative may have to file some

of the following forms. See the form for

more information.

Form W-2, Wage and Tax Statement, and

Form W-3, Transmittal of Income and Tax

Statements.

Form 720, Quarterly Federal Excise Tax

Return. Use Form 720 to report the luxury

tax on passenger vehicles, environmental

excise taxes, communications and air

transportation taxes, fuel taxes,

manufacturers' taxes, ship passenger

taxes, and certain other excise taxes. Also

see Trust fund recovery penalty above.

Form 926, Return by a U.S. Transferor

of property to a Foreign Corporation. Use

this form to report information required

under section 6038B.

Form 940 or Form 940-EZ, Employer's

Annual Federal Unemployment (FUTA)

Tax Return. The cooperative may be

liable for FUTA tax and may have to file

Form 940 or 940-EZ if it paid wages of

$1,500 or more in any calendar quarter in

1997 or 1998 or at least one employee

worked for the cooperative for some part

of a day in any 20 or more different weeks

in 1997 or 20 or more weeks in 1998.

Form 941, Employer's Quarterly Federal

Tax Return. Employers must file this form

quarterly to report income tax withheld

and employer and employee social

security and Medicare taxes (Also see

Trust fund recovery penalty above.

Agricultural employers must file Form

943, Employer's Annual Tax Return for

Agricultural Employees, instead of Form

941, to report income tax withheld and

employer and employee social security

and Medicare taxes for farm workers. See

Trust fund recovery penalty above.

Form 945, Annual Return of Withheld

Federal Income Tax. File Form 945 to

report income tax withholding from

nonpayroll distributions or payments, such

as pensions, annuities, IRAs, military

retirement, gambling winnings, Indian

gaming profits, and backup withholding.

See Trust fund recovery penalty above.

Form 966, Corporate Dissolution or

Liquidation. Used to report the adoption

of a resolution or plan to dissolve the

corporation or liquidate any of its stock.

Form 1042, Annual Withholding Tax

Return for U.S. Source Income of Foreign

Persons, and Form 1042–S, Foreign

Person's U.S. Source Income Subject to

Withholding. Use these forms to report

and send withheld tax on certain

payments or distributions made to

nonresident alien individuals, foreign

partnerships, or foreign corporations. Also

Page 3
see Pub. 515, Withholding of Tax on

Nonresident Aliens and Foreign

Corporations, and sections 1441 and

1442.

Form 1096, Annual Summary and

Transmittal of U.S. Information Returns.

Use Form 1096 to transmit Forms 1099,

1098, 5498, and W-2G.

Form 1098, Mortgage Interest Statement.

This form is used to report the receipt

from any individual of $600 or more of

mortgage interest and points in the course

of the cooperative's trade or business for

any calendar year.

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

MISC, MSA, OID, PATR, R, and S. Use

these information returns to report

acquisitions and abondonments of

secured property, proceeds from broker

and barter exchange transactions,

cancelation of a debt, certain dividends

and distributions, interest income, certain

payments made on a per diem basis

under a long-term care insurance

contract, and certain accelerated death

benefits, miscellaneous income (e.g.

payments to certain fishing boat crew

members, payments to providers of health

and medical services, miscellaneous

income payments), distributions from a

medical savings account (MSA), original

issue discount, distributions from

cooperatives to their patrons,distributions

from retirement or profit-sharing plans,

IRAs, SEPs, or SIMPLEs, and insurance

contracts, and proceeds from real estate

transactions. Also use these returns to

report amounts received as a nominee for

another person.

For more information, see the

instructions for Forms 1099, 1098, 5498,

and W-2G.

Note: Every cooperative must file Form

1099-MISC if, in the course of its trade

or business, it makes payments of rents,

commissions, or other fixed or

determinable income (see section 6041)

totaling $600 or more to any one person

during the calendar year.

Form 5452, Corporate Report of

Nondividend Distributions. Use this form

to report nondividend distributions.

Form 5498, IRA, SEP, or SIMPLE

retirement plan Information. Use this form

to report contributions (including roll over

contributions) to an IRA, SEP, or SIMPLE

and the value of an IRA, SEP, or SIMPLE

retirement plan account.

Form 5713, International Boycott Report.

Use if the cooperative has operations in

or related to a boycotting country,

company, or national of a country.

Form 8264, Application for Registration

of a Tax Shelter. Tax shelter organizers

are required to file Form 8264 to get a tax

shelter registration number from the IRS.

Form 8271, Investor Reporting of Tax

Shelter Registration Number. Taxpayers

who have acquired an interest in a tax

shelter, that is required to be registered,

use this form to report the tax shelter's

registration number. Form 8271 must be

attached to any tax return (including an

application for tentative refund (Form

1139) and an amended return) on which

a deduction, credit, loss, or other tax

benefit attributable to a tax shelter is

taken or any income attributable to a tax

shelter is reported.

Form 8275, Disclosure Statement, and

Form 8275–R, Regulation Disclosure

Statement. Use these forms to disclose

items or positions taken on a tax return

that are not otherwise adequately

disclosed on the return or that are

contrary to Treasury regulations (to avoid

parts of the accuracy-related penalty or

certain preparer penalties).

Form 8300, Report of Cash Payments

Over $10,000 Received in a Trade or

Business. File this form to report the

receipt of more than $10,000 in cash or

foreign currency in one transaction or in

a series of related transactions.

Form 8594, Asset Acquisition Statement

Under Section 1060. Use this form to

report the purchase or sale of a group of

assets that constitute a trade or business

if goodwill or going concern value attach

to the assets.

Form 8718, User Fee for Exempt

Organization Ruling and Determination

Requests. The Service is required to

collect a fee from any organization

seeking an IRS determination of its

exempt status as an organization

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

521 of the Internal Revenue Code. A fee

will also be imposed in connection with

any exempt organization request for a

private-letter ruling. The nonrefundable

fee must be submitted with the application

or ruling request. Otherwise, the request

will be returned to the submitter without

any action being taken on it. The fees

imposed are reflected in Form 8718,

which is used to transmit both the

appropriate fee and the exemption

application.

Form 8810, Corporate Passive Activity

Loss and Credit Limitations. Closely held

cooperatives that are subject to the

passive activity limitations of section 469

use this form to compute their allowable

passive activity loss and credit.

Form 8842, Election To Use Different

Annualization Periods for Corporate

Estimated Tax. Cooperatives use Form

8842 for each year they want to elect one

of the annualization periods in section

6655(e)(2)(C) for figuring estimated tax

payments under the annualized income

installment method.

Form 8849, Claim for Refund of Excise

Taxes. Use this form to claim a refund of

excise taxes paid on Form 720, 730, or

2290, for excise taxes on fuels,

chemicals, and other articles that are later

used for nontaxable purposes, or for

which there is a reduced rate of tax.

Consolidated Return

The nonexempt parent of an affiliated

group of cooperatives must attach Form

851, Affiliations Schedule, to the

consolidated return. For the first year a

consolidated return is filed, each

subsidiary must attach Form 1122,

Authorization and Consent of Subsidiary

corporation to be Included in a

Consolidated Income Tax Return.

File supporting statements for each

cooperative included in the consolidated

return. Do not use Form 990-C as a

supporting statement. On the supporting

statement use columns to show the

following, both before and after

adjustments:

● Items of gross income and deductions.

● A computation of taxable income.

● Balance sheets as of the beginning and

end of tax year.

● A reconciliation of income per books

with income per return.

● A reconciliation of retained earnings.

Enter the totals for the consolidated

group on Form 990-C. Attach

consolidated balance sheets and a

reconciliation of consolidated retained

earnings.

For more information on consolidated

returns, see the regulations under section

1502.

Attachments

Attach Form 4136, Credit for Federal Tax

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

Attach schedules in alphabetical order

and other forms in numerical order after

Form 4136.

Complete every applicable entry space

on Form 990-C. Do not write “See

attached” instead of completing the entry

spaces. If you need more space on the

forms or schedules, attach separate

sheets, using the same size and format

as on the printed forms. Show the totals

on the printed forms. Attach these

separate sheets after all the forms and

schedules. Be sure to put the

cooperative's name and EIN on each

sheet.

Specific Instructions

Period Covered. File the 1998 return for

calendar year 1998 and fiscal years that

begin in 1998 and end in 1999. For a

fiscal year, fill in the tax year space at the

top of the form.

Address and Employer

Identification Number (EIN)

Address. Include the suite, room, or

other unit number after the street address.

If the Post Office does not deliver mail

to the street address and the cooperative

has a P.O. box, show the box number

instead of the street address.

Note: If a change in address occurs after

the return is filed, use Form 8822,

Change of Address, to notify the IRS of

the new address.

Employer identification number (EIN).

Show the correct EIN in item B. If the

cooperative does not have an EIN, it

should apply for one on Form SS-4,

Application for Employer Identification

Page 4
Number. Form SS-4 can be obtained at

Social Security Administration (SSA)

offices or by calling 1–800–TAX-FORM.

Send Form SS-4 to the address of the

Ogden Internal Revenue Service Center,

as shown in the instructions for Form

SS-4. If the cooperative has not received

its EIN by the time the return is due, write

“Applied for” in the space for the EIN. See

Pub. 583 for more information.

Item A — Business Activity with

the Largest Total Receipts

Identify the business activity from which

the cooperative receives the largest total

receipts (e.g., wholesale marketing of

meat; drying fruit; grain storage;

wholesale purchasing of fertilizers; cattle

breeding; etc.).

Item C — Consolidated Return

Do not check this box if the “Section

521” box is checked in Item D.

Item D — Type of Cooperative

Check the “Tax exempt (Section 521)”

box if the cooperative is a tax-exempt

farmers', fruit growers', or like association,

organized and operated on a cooperative

basis and is described in section 521.

If the cooperative has submitted Form

1028, Application for Recognition of

Exemption, but has not received a

determination letter from the IRS, check

the “Tax exempt (Section 521)” box, and

write “Application Pending” at the top of

page 1 of Form 990-C.

All other farmers', etc., cooperatives

organized and operated as described

under “Who Must File” on page 1 of the

instructions should check the

“Nonexempt” box.

Cooperatives organized and operated

for purposes other than those described,

such as to purchase food for members,

should not file Form 990-C. See the

instructions for Form 1120, U.S.

Corporation Income Tax Return, for

information about filing requirements.

Item E — Initial return, final return,

and change of address, or

amended return

Indicate by checking the applicable box if

the cooperative:

● Is filing it's first return,

● Has ceased to exist,

● Had a change of address, or

● Is filing an amended return.

Income

Note: Generally, income from all

sources, whether U.S. or foreign, must be

included.

Line 1. Gross receipts or sales. Enter

gross receipts or sales from all business

operations except those required to be

reported on lines 4a through 10. For

reporting advance payments, see

Regulations section 1.451-5.

Accrual method taxpayers are not

required to accrue certain amounts to be

received from the performance of services

that, on the basis of their experience, will

not be collected (section 448(d)(5)). This

provision does not apply to any amount if

interest is required to be paid on the

amount or if there is any penalty for failure

to timely pay the amount. Cooperatives

that fall under this provision should attach

a schedule showing total gross receipts,

the amount not accrued as a result of the

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

net amount accrued. Enter the net amount

on line 1a. For more information and

guidelines on this “non-accrual

experience method,” see Temporary

Regulations section 1.448-2T.

Note: Certain cooperatives that have

gross receipts of $10 million or more and

have patronage and nonpatronage source

income and deductions, must complete

and attach Form 8817, Allocation of

Patronage and Nonpatronage Income and

Deductions, to their return.

Line 4a. Income from patronage

dividends and per-unit retain

allocations. Attach a schedule listing:

 The name of each declaring

association from whom the cooperative

received patronage dividends and per-unit

retain allocations income from, and the

total amount received from each

association.

Include on the schedule the items listed

in 1 through 6 below:

1. Patronage dividends received in:

● Money,

● Qualified written notices of allocation,

or

● Other property (except nonqualified

written notices of allocation).

2. Nonpatronage distributions

received on a patronage basis from

tax-exempt farmers' cooperatives in:

● Money,

● Qualified written notices of allocation,

or

● Other property (except nonqualified

written notices of allocation), based on

earnings of that cooperative either from

business done with or for the United

States or any of its agencies (or from

sources other than patronage, such as

investment income).

3. Qualified written notices of

allocation at their stated dollar amounts

and property at its fair market value.

4. Amounts received on the

redemption, sale or other disposition

of nonqualified written notices of

allocation:

Generally, patronage dividends from

purchases of capital assets or depreciable

property are not includible in income but

must be used to reduce the basis of the

assets. See section 1385(b) and the

related regulations.

5. Amounts received (or the stated

dollar value of qualified per-unit retain

certificates received) from the sale or

redemption of nonqualified per-unit

retain certificates.

6. Per-unit retain allocations received

(except nonqualified per-unit retain

certificates). See section 1385.

Note: Payments from the Commodity

Credit Corporation to a farmers'

cooperative for certain expenses of the

co-op's farmers-producers under a

“reseal” program of the U.S. Department

of Agriculture are patronage-source

income that may give rise to patronage

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

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

more information.

Line 5. Interest. Enter taxable interest

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

mortgages, bonds, bank deposits,

corporate bonds, tax refunds, etc.

Do not offset interest expense against

interest income.

Special rules apply to interest income

from certain below-market rate loans. See

section 7872 for more information.

Note: Interest income is generally

nonpatronage income to nonexempt

cooperatives (Regulations section

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

dividend deduction may not be deductible

from interest expense.

Line 6. Gross rents. Enter the gross

amount received for the rent of property.

Deduct expenses such as repairs,

interest, taxes, and depreciation on the

proper lines for deductions.

Generally, gross rents are considered

nonpatronage income to nonexempt

cooperatives (Regulations section

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

dividend deduction may not be deductible

from rental expense.

Line 8. Capital gain net income. Every

sale or exchange of a capital asset must

be reported in detail on Schedule D

(Form 1120), Capital Gains and Losses,

even though no gain or loss is indicated.

Generally, capital gains and losses are

considered nonpatronage source.

Line 10. Other income. Enter any other

taxable income not reported on lines 1

through 9. List the type and amount of

income on an attached schedule. If the

cooperative has only one item of other

income, describe it in parentheses on line

10. Examples of other income to report

on line 10 are:

● Any adjustment under section 481(a)

required to be included in income during

the current tax year due to a change in a

method of accounting.

● Recoveries of bad debts deducted in

prior years under the specific charge-off

method.

● The amount of credit for alcohol used

as fuel (determined without regard to the

limitation based on tax) that was entered

on Form 6478, Credit for Alcohol Used

as Fuel.

● Refunds of taxes deducted in prior

years to the extent they reduced income

subject to tax in the year deducted (see

section 111). Do not offset current year

taxes against tax refunds.

● The amount of any deduction previously

taken under section 179A that is subject

Page 5
to recapture. The cooperative must

recapture the benefit of any allowable

deduction for clean-fuel vehicle property

(or clean-fuel vehicle refueling property),

if, within 3 years of the date the property

was placed in service, it ceases to qualify.

See Regulations section 1.179A-1 for

details.

● For cooperatives described in section

1381 that are shareholders in a FSC,

include the non-exempt portion of foreign

trade income from the sale or other

disposition of agricultural or horticultural

products by the FSC for the tax year that

includes the last day of the FSC's tax

year, even though the FSC is not required

to distribute such income until the due

date of its income tax return.

● Ordinary income from trade or business

activities of a partnership (from Schedule

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

Deductions

Limitations on deductions

Section 263A uniform capitalization

rules. The uniform capitalization rules of

section 263A require cooperatives to

capitalize or include in inventory certain

costs incurred in connection with:

● The production of real property and

tangible personal property held in

inventory or held for sale in the ordinary

course of business.

● Personal property (tangible and

intangible) acquired for resale.

● The production of property constructed

or improved by a cooperative for use in its

trade or business or in activity engage in

for profit.

Tangible personal property produced

by a cooperative includes a film, sound

recording, videotape, book, or simular

property.

Cooperatives subject to the rules are

required to capitalize not only direct costs

but an allocable part of most indirect costs

(including taxes) that benefit the assets

produced or acquired for resale.

For inventory, some of the indirect

expenses that must be capitalized are:

● Administration expenses.

● Taxes.

● Depreciation.

● Insurance.

● Compensation paid to officers

attributable to services.

● Reworked labor.

● Contributions to pension, stock bonus,

and certain profit-sharing, annuity, or

deferred compensation plans.

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

specifies other indirect costs that relate to

production or resale activities that must

be capitalized and those that may be

currently deductible.

Interest expense paid or incurred

during the production period of certain

property must be capitalized and is

governed by special rules. For more

details, see Regulations sections

1.263A-8 through 1.263A-15.

The costs required to be capitalized

under section 263A are not deductible

until the property to which the costs relate

is sold, used, or otherwise disposed of by

the cooperative.

Transactions between related

taxpayers. Generally, an accrual basis

taxpayer may only deduct business

expenses and interest owed to a related

party in the year payment is included in

income of the related party. See sections

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

limitations on deductions for unpaid

interest and expenses.

Section 291 limitations. Cooperatives

may be required to adjust deductions for

depletion of iron ore and coal, intangible

drilling, exploration and development

costs, and the amortizable basis of

pollution control facilities. See section 291

to determine the amount of the

adjustment. Also see section 43.

Golden parachute payments. A portion

of the payments made by a cooperative

to key personnel that exceeds their usual

compensation may not be deductible.

This occurs when the cooperative has an

agreement (golden parachute) with these

key employees to pay them these

excessive amounts if control of the

cooperative changes. See section 280G.

Business start-up expenses. Business

start-up expenses must be capitalized

unless an election is made to amortize

them over a period of 60 months. See

section 195.

Passive activity limitations. Limitations

on passive activity losses and credits

under section 469 apply to closely held

cooperatives.

For this purpose, a cooperative is a

closely held cooperative if at any time

during the last half of the tax year more

than 50% in value of its outstanding stock

is owned, directly or indirectly, by or for

not more than 5 individuals, and the

cooperative is not a personal service

corporation. Certain organizations are

treated as individuals for purposes of this

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

determining stock ownership, see section

544 (as modified by section 465(a)(3)).

Generally, the two kinds of passive

activities are:

● Trade or business activities in which the

cooperative did not materially participate

(see Temporary Regulations section

1.469-1T(g)(3)) for the tax year, and

● Rental activities regardless of its

participation.

For exceptions, see Form 8810.

 An activity is a trade or business

activity if:

● The activity is not a rental activity, and

● The activity involves the conduct of a

trade or business (i.e., deductions from

the activity would be allowable under

section 162 if other limitations, such as

the passive loss rules, did not apply), or

● The activity involves research and

experimental costs that are deductible

under section 174 (or would be deductible

if the cooperative chose to deduct rather

than capitalize them).

Cooperatives subject to the passive

activity limitations must complete Form

8810 to compute their allowable passive

activity loss and credit. Before completing

Form 8810, see Temporary Regulations

section 1.163-8T, which provides rules for

allocating interest expense among

activities. If a passive activity is also

subject to the earnings stripping rules of

section 163(j) or the at-risk rules of

section 465, those rules apply before the

passive loss rules. For more information,

see section 469, the related regulations,

and Pub. 925, Passive Activity and

At-Risk Rules.

Reducing certain expenses for which

credits are allowable. For each credit

listed below, the cooperative must reduce

the otherwise allowable deductions for

expenses used to figure the credit by the

amount of the current year credit:

1. Work opportunity credit.

2. Research credit.

3. Enhanced oil recovery credit.

4. Disabled access credit.

5. Empowerment zone employment

credit.

6. Indian employment credit.

7. The employer credit for social

security and Medicare taxes paid on tips.

8. Orphan drug credit.

9. Welfare-to-work credit.

If the cooperative has any of these

credits, be sure to figure each current

year credit before figuring the deduction

for expenses on which the credit is based.

Line 12. Compensation of officers.

Enter deductible officers' compensation

on line 12. Before entering an amount on

line 12, complete Schedule E if their total

receipts (line 1a plus lines 4 through 10,

page 1) are $500,000 or more. Do not

include compensation deductible

elsewhere on the return, such as amounts

included in cost of goods sold, elective

contributions to a section 401(k) cash or

deferred arrangement, or amounts

contributed under a salary reduction SEP

agreement or a SIMPLE retirement plan

(savings incentive match plan).

Include only the deductible part of

officers' compensation on Schedule E.

(See Disallowance of deduction for

employee compensation in excess of

$1 million below). Complete Schedule E,

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

officers. The cooperative determines who

is an officer under the laws of the state

where organized.

If a consolidated return is filed, each

member of an affiliated group must furnish

this information.

Disallowance of deduction for

employee compensation in excess of

$1 million. Publicly held corporations

may not deduct compensation to a

“covered employee” to the extent that the

compensation exceeds $1 million.

Generally, a covered employee is:

Page 6
● The chief executive officer of the

cooperative (or an individual acting in that

capacity) as of the end of the tax year, or

● An employee whose total compensation

must be reported to shareholders under

the Securities Exchange Act of 1934

because the employee is among the four

highest compensated officers for that tax

year (other than the chief executive

officer).

For this purpose, compensation does

not include the following:

● Income from certain employee trusts,

annuity plans, or pensions;

● Any benefit paid to an employee that is

excluded from the employee's income.

The deduction limit does not apply to:

● Commissions based on individual

performance;

● Qualified performance-based

compensation; and

● Income payable under a written, binding

contract in effect on February 17, 1993.

The $1 million limit is reduced by

amounts disallowed as excess parachute

payments under section 280G.

For details, see section 162(m) and

Regulations section 1.162–27.

Line 13. Salaries and wages. Enter the

amount of salaries and wages paid for the

tax year, reduced by:

● Any work opportunity credit from Form

5884,

● Any empowerment zone employment

credit from Form 8844,

● Any Indian employment credit from

Form 8845, and

● Any welfare-to-work credit from Form

8861.

See the instructions for these forms for

more information. Do not include salaries

and wages deductible elsewhere on the

return, such as amounts included in cost

of goods sold, elective contributions to a

section 401(k) cash or deferred

arrangement, or amounts contributed

under a salary reduction SEP agreement

or a SIMPLE retirement plan (savings

incentive match plan).

Caution: If the cooperative provided

taxable fringe benefits to its employees,

such as personal use of a car, do not

deduct as wages the amount allocated for

depreciation and other expenses claimed

on lines 20 and 26.

Line 14. Repairs and maintenance.

Enter the cost of incidental repairs, such

as labor and supplies, that do not add to

the value of the property or appreciably

prolong its life. New buildings, machinery,

or permanent improvements that increase

the value of the property are not

deductible. They must be depreciated or

amortized.

Line 15. Bad debts. Enter the total debts

that became worthless in whole or in part

during the tax year.

Caution: A cash method taxpayer may

not claim a bad debt deduction unless the

amount was previously included in

income.

Line 17. Taxes and licenses. Enter

taxes paid or accrued during the tax year,

but do not include the following:

● Federal income taxes.

● Foreign or U.S. possession income

taxes if a tax credit is claimed (however,

see the instructions for Form 5735 for

special rules for possession income

taxes).

● Taxes not imposed on the cooperative.

● Taxes, including state or local sales

taxes, that are paid or incurred in

connection with an acquisition or

disposition of property (these taxes must

be treated as part of the cost of the

acquired property, or in the case of a

disposition, as a reduction in the amount

realized on the disposition).

● Taxes assessed against local benefits

that increase the value of the property

assessed (such as for paving, etc.).

● Taxes deducted elsewhere on the

return, such as those reflected in cost of

goods sold.

See section 164(d) for apportionment

of taxes on real property between the

seller and purchaser.

Line 18. Interest.

Note: The deduction for interest is limited

when the cooperative is a policyholder or

beneficiary with respect to a life

insurance, endowment, or annuity

contract issued after June 8, 1997. For

details, see section 264(f). Attach a

statement showing the computation of the

deduction.

Do not include the following interest:

● Interest on indebtedness incurred or

continued to purchase or carry obligations

if the interest is wholly exempt from

income tax. For exceptions, see section

265(b).

● For cash basis taxpayers, prepaid

interest allocable to years following the

current tax year (e.g., a cash basis

calendar year taxpayer who in 1998

prepaid interest allocable to any period

after 1998 can deduct only the amount

allocable to 1998.

● Interest and carrying charges on

straddles. Generally, these amounts must

be capitalized. See section 263(g).

● Interest on debt allocable to the

production of qualified property or

property produced by a cooperative for its

own use or for sale. This interest must be

capitalized. A cooperative must also

capitalize any interest on debt allocable

to an asset used to produce the above

property. See section 263A and

Regulations sections 1.263A-8 through

1.263A-15 for definitions and more

information.

Special rules apply to:

● Interest on which no tax is imposed

(see section 163(j)).

● Forgone interest on certain

below-market-rate loans (see section

7872).

● Original issue discount on certain high

yield discount obligations (see section

163(e) to figure the disqualified portion.

Line 19. Charitable contributions.

Enter contributions or gifts actually paid in

the tax year to or for the use of charitable

and governmental organizations

described in section 170(c) and any

unused contributions carried over from

prior years.

Cooperatives on the accrual basis may

elect to deduct contributions paid by the

15th day of the 3rd month after the end

of the tax year if the contributions are

authorized by the board of directors

during the tax year. Attach a declaration

to the return, signed by an officer, stating

that the resolution authorizing the

contributions was adopted by the board

of directors during the tax year. Also,

attach a copy of the resolution.

Limitation on deduction The total

amount claimed may not be more than

10% of taxable income (line 30) computed

without regard to the following:

● Any deduction for contributions;

● The special deductions on line 29b,

Form 990-C;

● Any net operating loss (NOL) carryback

to the tax year under section 172;

● Any capital loss carryback to the tax

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

● The deduction allowed under section

249.

Charitable contributions over the 10%

limitation may not be deducted for the tax

year but may be carried over to the next

5 tax years.

Special rules apply if the cooperative

has an NOL carryover to the tax year. In

figuring the charitable contributions

deduction for the tax year, the 10% limit

is applied using the taxable income after

the deduction for the NOL.

To figure the amount of any remaining

NOL carryover to later years, taxable

income must be modified (see section

172(b)). To the extent that contributions

are used to reduce taxable income for this

purpose and increase an NOL carryover,

a contributions carryover is not allowed.

See section 170(d)(2)(B).

Substantiation requirements.

Generally, no deduction is allowed for any

contribution of $250 or more unless the

cooperative gets a written

acknowledgment from the donee

organization that shows the amount of

cash contributed, describes any property

contributed, and gives an estimate of the

value of any goods or services provided

in return for the contribution. The

acknowledgment must be obtained by the

due date (including extensions) of the

cooperative's return, or if earlier, the date

the return is filed. Do not attach the

acknowledgment to the tax return, but

keep it with the cooperative's records.

These rules apply in addition to the filing

requirements for Form 8283 described

below.

For more information on substantiation

and recordkeeping requirements, see the

regulations under section 170 and Pub.

526, Charitable Contributions.

Page 7
Contributions to organizations

conducting lobbying activities.

Contributions made to an organization

that conducts lobbying activities are not

deductible if:

● The lobbying activities relate to matters

of direct financial interest to the donor's

trade or business, and

● The principal purpose of the

contribution was to avoid Federal income

tax by obtaining a deduction for activities

that would have been nondeductible

under the lobbying expense rules if

conducted directly by the donor.

Contributions of property other than

cash. If a cooperative contributes

property other than cash and claims a

$500 deduction for the property, it must

attach a schedule to the return describing

the kind of property contributed and the

method used to determine its fair market

value. Generally, cooperatives must

complete and attach Form 8283,

Noncash Charitable Contributions, to their

returns for all contributions of property

other than money if the total claimed

deduction for all property contributed was

more than $5,000.

If the cooperative made a “qualified

conservation contribution” under section

170(h), also include the fair market value

of the underlying property before and after

the donation, as well as the type of legal

interest contributed, and describe the

conservation purpose benefited by the

donation.

If a contribution carryover was included,

show the amount and how it was

determined.

Reduced deduction for contributions

of certain property. For a charitable

contribution of property, the cooperative

must reduce the contribution by the sum

of:

1. The ordinary income, short-term

capital gain that would have resulted if the

property were sold at its fair market value;

and

2. For certain contributions, all of the

long-term capital gain that would have

resulted if the property were sold at its fair

market value.

The reduction for the long-term capital

gain applies to:

● Contributions of tangible personal

property for use by an exempt

organization for a purpose or function

unrelated to the basis for its exemption,

and

● Contributions of any property to or for

the use of certain private foundations

(except for stock contributed before July

1, 1998, for which market quotations are

readily available (section 170(e)(5)).

Larger Deduction. A larger deduction

is allowed for certain contributions of:

● Inventory and other property to certain

organizations for use in the care of the ill,

needy, or infants (see section 170(e)(3)

and Regulations section 1.170A-4A);

● Scientific equipment used for research

to institutions of higher learning or to

certain scientific research organizations

(other than by personal holding

companies and service organizations)

(see section 170(e)(4));

● Computer technology and equipment to

schools (see below).

Contributions of computer

technology and equipment to schools.

A Cooperative may take an increased

deduction under section 170(e)(6) for

qualified contributions of computer

technology or equipment for elementary

or secondary school purposes. A

contribution ia a qualified contribution if:

● It is made to an eligible donee (see

below)

● Substantially all of the use of the

property by the donee is in the U.S. for

educational purposes in grades K through

12 that are related to the purpose or

function of the donee;

● The contribution is made not later than

2 years after the date the taxpayer

acquired or substantially completed the

construction of the property:

● The original use of the property is by

the donor or the donee;

● The property is not transferred by the

donee for money, services, or other

property, except for shipping, transfer,

and installation costs; and

● The property fits productively into the

donee's education plan.

Eligible donee. The term eligble donee

means:

● An educational organization that

normally maintains a regular faculty and

curriculum and has a regularly enrolled

body of pupils in attendance at the place

where its educational activities are

regularly conducted: or

● A section 501(c)(3) entity organized

primarily for purposes of supporting

elementary and secondary education.

Note: Contributions of computer

technology or equipment to private

foundations may be treated as qualified

elementary or secondary educational

contributions if certain requirements are

met. See section 170(e)(6)(C).

Line 20. Depreciation. Besides

depreciation, include on line 20 the part

of the cost that the cooperative elected to

expense under section 179 for certain

tangible property placed in service during

tax year 1998 or carried over from 1997.

See Form 4562, Depreciation and

Amortization, and its instructions.

Line 22. Depletion. See sections 613

and 613A for percentage depletion rates

applicable to natural deposits. Also, see

section 291 for the limitation on the

depletion deduction for iron ore and coal

(including lignite).

Attach Form T (Timber), Forest

Activities Schedules, if a deduction for

depletion of timber is taken.

Foreign intangible drilling costs and

foreign exploration and development

costs must either be added to the

cooperative's basis for cost depletion

purposes or be deducted ratably over a

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

and 617 for details.

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

plans. Enter the deduction for

contributions to qualified pension,

profit-sharing, or other funded deferred

compensation plans. Employers who

maintain such a plan generally must file

one of the forms listed below, even if the

plan is not a qualified plan under the

Internal Revenue Code. The filing

requirement applies even if the

cooperative does not claim a deduction

for the current tax year. There are

penalties for failure to file these forms on

time and for overstating the pension plan

deduction. See sections 6652(e) and

6662(f).

Form 5500. File this form for each plan

with 100 or more participants.

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

plan with fewer than 100 participants.

Form 5500-EZ. File this form for a

one-participant plan. The term

“one-participant plan” also means a plan

that covers the owners and their spouses

or a plan that covers partners in a

business partnership (or the partners and

their spouses).

Line 25. Employee benefit programs.

Enter the contributions to employee

benefit programs not claimed elsewhere

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

welfare programs etc.) that are not an

incidental part of a pension, profit-sharing,

etc., plan included on line 24.

Line 26. Other deductions

Note: Do not deduct fines or penalties

paid to a government for violating any law.

Attach a schedule, listing by type and

amount all allowable deductions that are

not deductible elsewhere on Form 990-C.

Generally, a deduction may not be

taken for any amount that is allocable to

a class of exempt income. See section

265(b) for exceptions.

Examples of amounts to include are:

● The deduction for amortization of

pollution control facilities, organization

expenses, etc. See Form 4562.

● Ordinary losses from trade or business

activities of a partnership (from Schedule

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

Travel, meals, and entertainment.

Subject to limitations and restrictions

discussed below, a cooperative can

deduct ordinary and necessary travel,

meals, and entertainment expenses paid

or incurred in its trade or business. Also,

special rules apply to deductions for gifts,

skybox rentals, luxury water travel,

convention expenses, and entertainment

tickets. For details, see section 274 and

Pub. 463.

Travel. The cooperative cannot deduct

travel expenses of any individual

accoumpanying a cooperative officer or

employee, including a spouse or

dependent of the officer or employee,

unless:

● That individual is an employee of the

cooperative, and

● His or her travel is for a bona fide

business purpose and would otherwise

be deductible by that individual.

Page 8
Meals and entertainment. Generally,

the cooperative can deduct only 50% of

the amount otherwise allowable for meals

and entertainment expenses paid or

incurred in its trade or business. in

addition, (subject to exceptions under

section 274(k)(2)):

● Meals must not be lavish or

extravagant;

● A bona fide business discussion must

occur during, immediately before, or

immediately after the meal; and

● An employee must be present at the

meal.

Membership dues. The cooperative

may deduct amounts paid or incurred for

membership dues in civic or public service

organizations, professional organizations

(such as bar or medical associations),

business leagues, trade associations,

chambers of commerce, boards of trade,

and real estate boards, unless a principal

purpose of the organization is to entertain

or provide entertainment facilities for

members or their guests. In addition,

cooperatives may not deduct membership

dues in any club organized for business,

pleasure, recreation, or other social

purpose. This includes country clubs, golf

and athletic clubs, airline and hotel clubs,

and clubs operated to provide meals

under conditions favorable to business

discussion.

Entertainment Facilities. The

cooperative cannot deduct an expense

paid or incurred for a facility (such as a

yacht or hunting lodge) used for an

activity that is usually considered

entertainment, amusement, or recreation.

Note: The cooperative may be able to

deduct the otherwise nondeductible

expense if the amount is treated as

compensation and reported on Form W-2

for an employee or on Form 1099-MISC

for an independent contractor.

Lobbying expenses. Generally,

lobbying expenses are not deductible.

These expenses include:

● Amounts paid or incurred in connection

with influencing Federal or state

legislation (but not local legislation), or

● Amounts paid or incurred in connection

with any communication with certain

Federal executive branch officials in an

attempt to influence the official actions or

positions of the officials. See Regulations

section 1.162-29 for the definition of

“influencing legislation.”

Dues and other similar amounts paid to

certain tax-exempt organizations may not

be deductible. See section 162(e)(3). If

certain in-house expenditures do not

exceed $2,000, they are deductible. For

information on contributions to charitable

organizations that conduct lobbying

activities, see the instructions for line 19.

For more information on lobbying

expenses, see section 162(e).

Line 28

Taxable income before NOL deduction

and special deductions

At-risk rules. Special at-risk rules under

section 465 generally apply to closely held

cooperatives (defined in Passive activity

limitations on page 6) engaged in any

activity as a trade or business or for the

production of income. These cooperatives

may have to adjust the amount on line 28,

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

apply to the following:

● Holding real property placed in service

by the cooperative before 1987;

● Equipment leasing under sections

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

● Any qualifying business of a qualified

cooperative under section 465(c)(7).

However, the at-risk rules do apply to

the holding of mineral property.

If the at-risk rules apply, adjust the

amount on this line for any section 465(d)

losses. These losses are limited to the

amount for which the cooperative is at-risk

for each separate activity at the close of

the tax year. If the cooperative is involved

in one or more activities, any of which

incurs a loss for the year, report the

losses for each activity separately. Attach

Form 6198, At-Risk Limitations, showing

the amount at-risk and gross income and

deductions for the activities with the

losses.

If the cooperative sells or otherwise

disposes of an asset or its interest (either

total or partial) in an activity to which the

at-risk rules apply, determine the net profit

or loss from the activity by combining the

gain or loss on the sale or disposition with

the profit or loss from the activity. If the

cooperative has a net loss, it may be

limited because of the at-risk rules.

Treat any loss from an activity not

allowed for the tax year as a deduction

allocable to the activity in the next tax

year.

Line 29a. NOL deduction. A cooperative

may use the net operating loss (NOL)

incurred in one tax year to reduce its

taxable income in another year.

Generally, a cooperative may carry an

NOL back to each of the 2 years (3 years

for NOLs incurred in tax years beginning

before August 6, 1997), preceding the

year of the loss and then carry any

remaining amount over to each of the 20

years (15 years for NOLs incurred in tax

years beginning before August 6, 1997),

following the year of the loss (but see

Exceptions to carryback rules, below).

Enter on line 29a, the total NOL

carryovers from prior tax years, but do not

enter more than the cooperative's taxable

income (after special deductions). An

NOL deduction cannot be taken in a year

in which the cooperative has negative

taxable income. Attach a schedule

showing the computation of the NOL

deduction. Also complete item 20 on

Schedule N.

For details on the NOL deduction, get

Pub. 536, Net Operating Losses.

Carryback and carryover rules.

Generally, an NOL must first be carried

back to the second tax year (third taxyear

for NOLs incurred in tax years beginning

before August 6, 1997), preceding the

year of the loss. To carry back the loss

and obtain a quick refund of taxes, use

Form 1139, Corporation Application for

Tentative Refund. Form 1139 must be

filed within 12 months after the close of

the tax year of the loss. See section 6411

for details. Do not attach Form 1139 to the

cooperative's income tax return. Mail it in

a separate envelope to the service center

where the cooperative files its income tax

return.

For carryback claims filed later than 12

months after the close of the tax year of

the loss, file an amended Form 990-C,

instead of Form 1139.

After the cooperative has applied the

NOL to the first tax year to which it may

be carried, the taxable income of that year

is modified (as described in section

172(b)) to determine how much of the

remaining loss may be carried to other

years. See section 172(b) and the related

regulations for details.

Special rules apply when an ownership

change occurs (i.e., the amount of the

taxable income of a loss corporation that

can be offset by pre-change NOL

carryovers is limited). See section 382

and the related regulations. Also see

Temporary Regulations section

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

loss corporation file an information

statement with its income tax return for

each tax year that it is a loss corporation

and certain shifts in ownership occurred.

Also see Regulations section 1.382-6(b)

for details on how to make the

closing-of-the-books election.

See section 384 for the limitation on the

use of preacquistion losses of one

corporation to offset recognized built-in

gains of another corporation.

Exceptions to carryback rules. A

cooperative may make an irrevocable

election to forego the carryback period

and instead carry the NOL forward to

years following the year of the loss. To

make this election, check the box in item

19 on Schedule N. The return must be

timely filed (including extensions).

Different carryback periods apply for

certain losses. The part of an NOL that is

attributable to a specified liability loss,

including a product liability loss, may be

carried back 10 years (section

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

Line 30. Taxable income. For

cooperatives required to file Form 8817,

taxable income reported on line 30 may

not exceed the combined taxable income

shown on line 30, Form 8817. Attach

Form 8817 to the cooperative's tax return.

See Form 8817 for more details.

Caution: Patronage source losses

cannot be used to offset nonpatronage

income. See section 1388(j) for more

information.

Page 9
Line 32b. Estimated tax payments.

Enter any estimated tax payments the

cooperative made for the tax year.

Beneficiaries of Trusts. If the

cooperative is the beneficiary of a trust,

and the trust makes a section 643(g)

election to credit its estimated tax

payments to its beneficiaries, include the

cooperative's share of the estimated tax

payment in the total amount entered on

line 32b. Write “T” and the amount of the

payment in the blank space to the right

of the entry space.

Line 32f. Credit from refiguring tax for

years in which nonqualified per-unit

retain certificates or nonqualified

written notices of allocation (redeemed

this year) were issued. If the

cooperative paid less total tax by not

claiming the deduction for the redemption

of nonqualified written notices of

allocation or nonqualified per-unit retain

certificates in the current tax year, and

instead the cooperative refigured the tax

for the years the nonqualified written

notices or certificates were originally

issued, enter the amount of the reduction

in the issue years' taxes on this line.

Attach a schedule showing how the credit

was figured. This credit is treated as a

payment, and any amount that is more

than the tax on line 31 will be refunded.

Line 32g. Credit for federal tax on

fuels. Complete Form 4136 if the

cooperative qualifies to take this credit.

See attachments on page 4.

Line 32h. Total Payments. Add the

amounts on lines 32d through 32g and

enter the total on line 32h.

Backup withholding. If the cooperative

had income tax withheld from any

payments it received, because, for

example, it failed to give the payer its

correct EIN, include the amount withheld

in the total for line 32h. This type of

withholding is called backup withholding.

Show the amount withheld in the blank

space in the right-hand column between

lines 31 and 32h, and write “backup

withholding.”

Line 33. Estimated Tax Penalty. A

cooperative that does not make estimated

tax payments when due may be subject

to an underpayment penalty for the period

of underpayment. Generally, a

cooperative is subject to the penalty if its

tax liability is $500 or more, and it did not

timely pay the smaller of:

● 100% of its tax liability for 1998, or

● 100% of its prior year's tax. See section

6655 for details and exceptions including

special rules for large cooperatives.

Use Form 2220, Underpayment of

Estimated Tax by Corporations, to see if

the cooperative owes a penalty and to

figure the amount of the penalty.

Generally, the cooperative does not have

to file this form because the IRS can

figure the amount of any penalty and bill

the cooperative for it. However, even if the

cooperative does not owe the penalty you

must complete and attach Form 2220 if:

● The annualized income or adjusted

seasonal installment method is used, or

● The cooperative is a large cooperative

computing its first required installment

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

Form 2220 instructions for the definition

of a large corporation.)

 If you attach Form 2220, check the box

on line 33, and enter the amount of any

penalty on this line.

Schedule A

Cost of Goods Sold

Inventories are required at the beginning

and end of each tax year if the production,

purchase, or sale of merchandise is an

income-producing factor. See Regulations

section 1.471-1. If inventories are not

used, enter zero on lines 1 and 8.

Note: All filers should see Section 263A

uniform capitalization rules on page 6

before completing Schedule A.

Line 4a. Qualified per-unit retain

certificates are issued to patrons who

have agreed to include the stated dollar

amount in current income.

Line 5. Enter the amount paid in money

or other property (except per-unit retain

certificates) to patrons to redeem

nonqualified per-unit retain certificates. If

a per-unit retain certificate does not

qualify, no deduction is allowable at the

time it is issued. However, the cooperative

may take a deduction or a refund of tax

when the nonqualified per-unit retain

certificate is finally redeemed, provided

that the nonqualified per-unit retain

certificate was paid as a per-unit retain

allocation during the payment period for

the tax year during which the marketing

occurred. The deduction is allowed only

for amounts paid in money or other

property (other than per-unit retain

certificates) that are not more than the

stated dollar amount of the nonqualified

per-unit retain certificate. See section

1382(b).

See section 1383 and the instructions

for line 32f for a special rule for figuring

the cooperative's tax in the year of

redemption of a nonqualified per-unit

retain certificate.

Line 6a. An entry is required on this line

only for cooperatives electing a simplified

method of accounting.

For cooperatives that have elected the

Simplified production method,

additional section 263A costs are

generally those costs, other than interest,

that were not capitalized under the

cooperative's method of accounting

immediately prior to the effective date of

section 263A that are now required to be

capitalized under section 263A. For

details, see Regulations section

1.263A-2(b).

For cooperatives that have elected the

simplified resale method, additional

section 263A costs are generally those

costs incurred with respect to the

following categories:

● Off-site storage or warehousing;

● Purchasing;

● Handling, processing, assembly and

repackaging; and

● General and administrative costs

(mixed service costs).

For details, see Regulations section

1.263A-3(d).

Enter on line 6a the balance of section

263A costs paid or incurred during the tax

year not included on lines 2 and 3.

Line 6b. Enter on line 6b any costs paid

or incurred during the tax year not entered

on lines 2 through 6a.

Line 8. See Regulations sections

1.263A-1 through 1.263A-3 for details on

figuring the amount of additional section

263A costs to be included in ending

inventory.

Lines 10a through 10f

Inventory valuation methods.

Inventories can be valued at:

● Cost;

● Cost or market value (whichever is

lower); or

● Any other method approved by the IRS

that conforms to the requirements of the

applicable regulations cited below.

The average cost (rolling average)

method of valuing inventories generally

does not conform to the requirements of

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

1971-1 C.B. 148.

Cooperatives that use erroneous

valuation methods must change to a

method permitted for Federal income tax

purposes. To make this change, use Form

3115.

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

for valuing inventories. Under lower of

cost or market, the term “market” (for

normal goods) means the current bid

price prevailing on the inventory valuation

date for the particular merchandise in the

volume usually purchased by the

taxpayer. For a manufacturer, market

applies to the basic elements of cost—raw

materials, labor, and burden. If section

263A applies to the taxpayer, the basic

elements of cost must reflect the current

bid price of all direct costs and all indirect

costs properly allocable to goods on hand

at the inventory date.

Inventory may be valued below cost

when the merchandise is unsalable at

normal prices or unsalable in the normal

way because the goods are subnormal

because of damage, imperfections, shop

wear, etc. within the meaning of

Regulations section 1.471-2(c). The

goods may be valued at a current bona

fide selling price, minus direct cost of

disposition (but not less than scrap value)

if such a price can be established.

If this is the first year the

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

was either adopted or extended to

inventory goods not previously valued

under the LIFO method provided in

section 472, attach Form 970, Application

To Use LIFO Inventory Method, or a

statement with the information required

Page 10
by Form 970. Also check the LIFO box

on line 10c. On line 10d, enter the amount

or the percent of total closing inventories

covered under section 472. Estimates are

acceptable.

If the cooperative changed or extended

its inventory to LIFO and had to write up

its opening inventory to cost in the year

of election, report the effect of this writeup

as income (line 10, page 1)

proportionately over a 3-year period that

begins with the year of the LIFO election

(section 472(d)).

For more information on inventory

valuation methods, get Pub. 538,

Accounting Periods and Methods.

Schedule C

Dividends and Special Deductions

For purposes of the 20% ownership test

on lines 1 through 7, the percentage of

stock owned by the cooperative is based

on voting power and value of the common

stock. Preferred stock described in

section 1504(a)(4) is not taken into

account. Cooperatives filing a

consolidated return should see

Regulations sections 1.1502-13

1.1502-26 and 1.1502-27 before

completing Schedule C.

Line 1, Column (a). Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984—see

section 246A) that:

● Are received from

less-than-20%-owned domestic

corporations subject to income tax; and

● Qualify for the 70% deduction under

section 243(a)(1).

 Include taxable distributions from an

IC-DISC or former DISC that are

designated as eligible for the 70%

deduction and certain dividends of

Federal Home Loan Banks. See section

246(a)(2).

Also include on line 1 dividends (except

those received on debt-financed stock

acquired after July 18, 1984) from a

regulated investment company (RIC). The

amount of dividends eligible for the

dividends-received deduction under

section 243 is limited by section 854(b).

The cooperative should receive a notice

from the RIC specifying the amount of

dividends that qualify for the deduction.

Report so-called dividends or earnings

received from mutual savings banks, etc.,

as interest. Do not treat them as

dividends.

Line 2, Column (a). Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984) that

are received from 20%-or-more-owned

domestic corporations subject to income

tax and that are subject to the 80%

deduction under section 243(c). Include

on this line taxable distributions from an

IC-DISC or former DISC that are

considered eligible for the 80% deduction.

Line 3, Column (a). Enter dividends

received on debt-financed stock acquired

after July 18, 1984, that are received from

domestic and foreign corporations subject

to income tax and that would otherwise

be subject to the dividends-received

deduction under sections 243(a)(1),

243(c), or 245(a). Generally,

debt-financed stock is stock that the

cooperative acquired by incurring a debt

(e.g., it borrowed money to buy the stock).

Include on line 3 dividends received

from a regulated investment company

(RIC) on debt-financed stock. The amount

of dividends eligible for the

dividends-received deduction is limited by

section 854(b). The cooperative should

receive a notice from the RIC specifying

the amount of dividends that qualify for

the deduction.

Line 3, Columns (b) and (c). Dividends

received on debt-financed stock acquired

after July 18, 1984, are not entitled to the

full 70% or 80% dividends-received

deduction. The 70% or 80% deduction is

reduced by a percentage that is related to

the amount of debt incurred to acquire the

stock. See section 246A. Also see section

245(a) before making this computation for

an additional limitation that applies to

dividends received from foreign

corporations. Attach a schedule to Form

990-C showing how the amount on line

3, column (c), was figured.

Line 4, Column (a). Enter dividends

received on the preferred stock of a

less-than-20%-owned public utility that is

subject to income tax and is allowed the

deduction provided in section 247 for

dividends paid.

Line 5, Column (a). Enter dividends

received on preferred stock of a

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

subject to income tax and is allowed the

deduction provided in section 247 for

dividends paid.

Line 6, Column (a). Enter the

U.S.-source portion of dividends that:

● Are received from

less-than-20%-owned foreign

corporations, and

● Qualify for the 70% deduction under

section 245(a).

To qualify for the 70% deduction, the

cooperative must own at least 10% of the

stock of the foreign corporation by vote

and value.

 Also include dividends received from

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

● Are attributable to income treated as

effectively connected with the conduct of

a trade or business within the United

States (excluding foreign trade income),

and

● Qualify for the 70% deduction provided

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

Line 7, Column (a). Enter the

U.S.-source portion of dividends that are

received from 20%-or-more-owned

foreign corporations and that qualify for

the 80% deduction under section 245(a).

Also include dividends received from a

20%-or-more-owned FSC that:

● Are attributable to income treated as

effectively connected with the conduct of

a trade or business within the United

States (excluding foreign trade income),

and

● Qualify for the 80% deduction provided

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

Line 8, Column (a). Enter dividends that

are received from wholly owned foreign

subsidiaries and that are eligible for the

100% deduction provided in section

245(b).

In general, the deduction under section

245(b) applies to dividends paid out of the

earnings and profits of a foreign

corporation for a tax year during which:

● All of its outstanding stock is owned

(directly or indirectly) by the domestic

cooperative receiving the dividends, and

● All of its gross income from all sources

is effectively connected with the conduct

of a trade or business within the United

States.

Line 9, Column (c)—Limitation on

dividends-received deduction

Generally, line 9, column (c) may not

exceed the amount from the worksheet

below. However, in a year in which an

NOL occurs, this limitation does not apply

even if the loss is created by the

dividends-received deduction. See

sections 172(d) and 246(b).

Line 10, Column (a). Enter dividends

from FSCs that are attributable to foreign

trade income and that are eligible for the

100% deduction provided in section

245(c)(1)(A).

Line 11, Columns (a) and (c). Enter only

those dividends that qualify under section

243(b) for the 100% dividends-received

deduction described in section 243(a)(3).

Cooperatives taking this deduction are

subject to the provisions of section 1561.

Worksheet for Schedule C, line 9

(keep for your records)

1. Refigure line 28, page 1, Form

990–C, without any adjustment under

section 1059 and without any capital

loss carryback to the tax year under

section 1212(a)(1) ..............................

2. Complete lines 10 and 11, column (c)

and enter the total here......................

3. Subtract line 2 from line 1..................

4. Multiply line 3 by 80% ........................

5. Add lines 2, 5, 7, and 8 , column (c)

and the portion of the deduction on

line 3, column (c) that is attributable

to dividends received from 20%

-or-more-owned corporations .............

6. Enter the smaller of line 4 or line 5.

If line 5 is greater than line 4, stop

here; enter the amount from line 6 on

line 9, column (c). Do not complete

the rest of this worksheet

7. Enter the total amount of dividends

received from 20%-or-more-owned

corporations that are included on

lines 2, 3, 5, 7, and 8 , column (a).....

8. Subtract line 7 from line 3..................

9. Multiply line 8 by 70% ........................

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

11. Enter the smaller of line 9 or line 10..

12. Dividends-received deduction after

limitation (section 246(b)). Add lines

6 and 11. Enter the result here and

on line 9, column (c)...........................

Page 11
Note: The 100% deduction does not

apply to affiliated group members that are

joining in the filing of a consolidated

return.

Line 12, Column (a). Enter foreign

dividends not reportable on lines 3, 6, 7,

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

the cooperative's share of the ordinary

earnings of a qualified electing fund from

Form 8621, line 1c.

Line 13, Column (a). Include income

constructively received from controlled

foreign corporations under subpart F. This

amount should equal the total of amounts

reported on Schedule I, Form 5471.

Line 14, Column (a). Include gross-up

for taxes deemed paid under sections 902

and 960.

Line 15, Column (a). Enter taxable

distributions from an IC-DISC or former

DISC that are designated as not eligible

for a dividends-received deduction.

No deduction is allowed under section

243 for a dividend from an IC-DISC or

former DISC (as defined in section

992(a)) to the extent the dividend:

1. Is paid out of the corporation's

accumulated IC-DISC income or

previously taxed income, or

2. Is a deemed distribution under

section 995(b)(1).

Line 16, Column (a). Include the

following:

1. Dividends (other than capital gain

dividends and exempt-interest dividends)

that are received from regulated

investment companies that are not

subject to the 70% deduction.

2. Dividends from tax-exempt

organizations.

3. Dividends (other than capital gain

dividends) received from a real estate

investment trust that, for the tax year of

the trust in which the dividends are paid,

qualifies under sections 856 through 860.

4. Dividends not eligible for a

dividends-received deduction because of

the holding period of the stock or an

obligation to make corresponding

payments with respect to similar stock.

Two situations in which the

dividends-received deduction will not be

allowed on any share of stock are:

● If the cooperative held it for less than

46 days during the 90–day period

beginning 45 days before the stock

became ex-dividend with respect to the

dividend.(see section 246(c)(1)(A)), or

● To the extent the cooperative is under

an obligation to make related payments

for substantially similar or related

property.

5. Any other taxable dividend income

not properly reported above (including

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

Schedule H

Deductions and Adjustments

under Section 1382

Cooperatives may, under section

1388(j)(1), use losses from one or more

allocation units to offset earnings of one

or more other allocations, as permitted by

its bylaws, but only to the extent that the

earnings and losses are from business

done with or for patrons. If a cooperative

exercises this option, it must provide the

information specified in section 1388(j)(3)

by written notice to its patrons.

Special rules also apply if a cooperative

has acquired the assets of another

cooperative under a section 381(a)

transaction. See section 1388(j) for more

information. Cooperatives may net

earnings and losses under section 1388(j)

and still be eligible for tax-exempt

treatment. See section 521(b)(6).

Note: Lines 1 and 2 apply only to section

521 cooperatives.

Line 1. Enter the amount actually or

constructively paid as dividends during

the tax year on:

● Common stock (whether voting or

nonvoting),

● Preferred stock,

● Capital retain certificates,

● Revolving fund certificates,

● Letters of advice, or

● Other documentary evidence of a

proprietary interest in the cooperative

association.

See Regulations section 1.1382-3(b)

for more information.

Line 2. Enter amounts paid on a

patronage basis to patrons from

non-patronage income. Payment may be

in:

● Money,

● Qualified written notices of allocation,

or

● Other property (except nonqualified

written notices of allocation).

 The amounts must be paid during the

payment period which begins on the first

day of the tax year and ends on the 15th

day of the 9th month after the end of the

tax year in which the income was earned.

Non-patronage income includes

incidental income from sources not

directly related to:

● Marketing,

● Purchasing,

● Service activities of the cooperative

(such as income from the lease of

premises, investments, or from the sale

or exchange of capital assets), or

● Income from business done with or for

the U.S. Government, or any of its

agencies.

See “Patronage dividends” below for

a definition of “qualified written notice of

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

deductibility of amounts paid in

redemption of nonqualified written notices

of allocation.

Line 3. To be deductible, patronage

dividends must be paid during the

payment period that begins on the first

day of the tax year in which the patronage

occurs and ends on the 15th day of the

9th month after the end of that tax year.

See sections 1382(e) and (f) for special

rules for the time when patronage occurs

if products are marketed under a pooling

arrangement, or if earnings are includible

in the gross income of the cooperative for

a tax year after the year in which the

patronage occurred.

Patronage dividends include any

amount paid to a patron by a cooperative

based on the quality or value of business

done with or for that patron under a

pre-existing obligation of the cooperative

to pay that amount.

The amount is determined by reference

to the net earnings of the organization

from business done with or for its patrons.

Patronage dividends may be in:

● Money,

● Qualified written notices of allocation,

or

● Other property (except nonqualified

written notices of allocation).

A written notice of allocation means:

● Any capital stock,

● Revolving fund certificate,

● Retain certificate

● Certificate of indebtedness,

● Letter of advise, or

● Other written notice, which states the

dollar amount allocated to the patron by

the cooperative and the part, if any, which

is a patronage dividend.

 In general, a qualified written notice

of allocation is a written notice of

allocation that is:

● Paid as part of a patronage dividend in

money or by qualified check equal to at

least 20% of the patronage dividend, and

● One of the following conditions is met.

1. The patron must have at least 90

days from the date the written notice of

allocation is paid to redeem it in cash, and

must receive written notice of the right of

redemption at the time they received the

allocation; OR 

2. The patron must agree to have the

allocation treated as constructively

received and reinvested in the

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

related regulations for information on how

the consent must be made.

If a written notice of allocation does not

qualify, no deduction is allowable at the

time it is issued. However, the cooperative

is entitled to a deduction or refund of tax

when the nonqualified written notice of

allocation is finally redeemed, if that

notice was paid as a patronage dividend

during the payment period for the tax year

during which the patronage occurred.

The deduction or refund is allowed, but

only to the extent that amounts paid to

redeem the nonqualified written notice of

allocation are paid in money or other

Page 12
property (other than written notices of

allocation). They cannot be more than the

stated dollar amounts of the nonqualified

written notice of allocation. See section

1382(b) and related regulations.

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

for the redemption of nonqualified written

notices of allocation issued to patrons by

a payment of cash and a crediting of

accounts receivable due from patrons.

Note: See section 1383 for special rules

for figuring the cooperative's tax in the

year nonqualified written notices of

allocation are redeemed. The cooperative

is entitled to:

(a) a deduction in the tax year the

nonqualified written notices of allocation

are redeemed (if permitted under section

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

1382(c)(2)(B)); OR

(b) a tax credit based on a

recomputation of tax for the year(s) the

nonqualified written notices of allocation

were issued. See instructions for line 32f.

The following are not patronage

dividends, amounts paid to patrons:

1. Out of earnings not from business

done with or for patrons;

2. Out of earnings from business done

with or for other patrons to whom no

amounts or smaller amounts are paid for

substantially identical transactions;

3. To redeem capital stock,

certificates of indebtedness, revolving

fund certificates, retain certificates, letters

of advice, or other similar documents; and

4. Without reference to the net

earnings of the cooperative organization

from business done with or for its patrons.

Schedule J

Tax Computation

Note: Members of a controlled group

must attach a statement showing the

computation of the tax entered on line 3.

Lines 1 and 2

Members of a controlled group. A

member of a controlled group, as defined

in section 1563, must check the box on

line 1 and complete lines 2a and 2b of

Schedule J.

Line 2a. Members of a controlled group

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

and one $9,925,000 taxable income

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

When a controlled group adopts or later

amends an apportionment plan, each

member must attach to its tax return a

copy of its consent to this plan.

The copy (or an attached statement)

must show the part of the amount in each

taxable income bracket apportioned to

that member. See Regulations section

1.1561-3(b) for other requirements and for

the time and manner of making the

consent.

Equal apportionment plan. If no

apportionment plan is adopted, members

of a controlled group must divide the

amount in each taxable income bracket

equally among themselves. For example,

controlled group AB consists of

Cooperative A and Cooperative B. They

do not elect an apportionment plan.

Therefore, each cooperative is entitled to:

● $25,000 (one-half of $50,000) on line

2a(1),

● $12,500 (one-half of $25,000) on line

2a(2), and

● $4,962,500 (one-half of $9,925,000) on

line 2a(3).

Unequal apportionment plan. Members

of a controlled group may elect an

unequal apportionment plan and divide

the taxable income brackets as they want.

There is no need for consistency among

taxable income brackets. Any member

may be entitled to all, some, or none of

the taxable income bracket. However, the

total amount for all members cannot be

more than the total amount in each

taxable income bracket.

Line 2b. Members of a controlled group

are treated as one group to figure the

applicability of the additional 5% tax and

the additional 3% tax. If an additional tax

applies, each member will pay that tax

based on the part of the amount used in

each taxable income bracket to reduce

that member's tax. See section 1561(a).

If an additional tax applies, attach a

schedule showing the taxable income of

the entire group and how the cooperative

figured its share of the additional tax.

Line 2b(1). Enter the cooporative's

share of the additional 5% tax on line

2b(1).

Line 2b(2). Enter the cooperative's

share of the additional 3% tax on line

2b(2).

Line 3

Most cooperatives figure their tax by using

the Tax Rate Schedule below. Exceptions

apply to members of a controlled group

(see worksheet above). See the

instructions below for more information.

Deferred tax under section 1291. If the

cooperative was a shareholder in a

passive foreign investment company

(PFIC), and the cooperative received an

excess distribution or disposed of its

investment in the PFIC during the year, it

must include the total increase in taxes

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

amount entered on line 3, Schedule J. On

the dotted line next to line 3, Schedule J,

write “Section 1291” and the amount.

Do not include on line 3 any interest

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

show the amount of interest owed in the

bottom margin of page 1, Form 990-C,

and write “Section 1291 interest.” For

details, see Form 8621, Return by a

Shareholder of a Passive Foreign

Investment Company or Qualified Electing

Fund.

Line 4a. Foreign tax credit. To find out

when a cooperative can take the credit for

payment of income tax to a foreign

country or U.S. possession, see Form

1118, Foreign Tax Credit— Corporations.

Line 4b—Other credits

Possessions tax credit. The Small

Business Job Protection Act of 1996

repealed the possessions credit.

However, existing credit claimants may

qualify for a credit under the transitional

rules. Get Form 5735, Possessions Tax

Credit (Under Sections 936 and 30A).

Nonconventional source fuel credit. A

credit is allowed for the sale of qualified

fuels produced from a nonconventional

source. Section 29 contains a definition

of qualified fuels, provisions for figuring

the credit, and other special rules. Attach

a separate schedule to the return showing

the computation of the credit.

Qualified electric vehicle (QEV) credit.

Include on line 4b any credit from Form

8834, Qualified Electric Vehicle Credit.

Tax Rate Schedule

If taxable income on line 30, page 1,

Form 990–C is:

Over—

But not

over— Tax is:

Of the

amount

over—

$0 $50,000 15% $0

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

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

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

Tax Computation Worksheet for

Members of a Controlled Group

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

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

15,000,000 18,333,333 5,150,000 + 38% 15,000,000 (Keep for your Records) 18,333,333 - - - - - 35% 0

Note: Each member of a controlled group must

compute the tax using this worksheet..

1. Enter taxable income (line 30, page

1) .........................................................

2. Enter line 1 or the cooperative's share

of the $50,000 taxable income

bracket, whichever is less ..................

3. Subtract line 2 from line 1..................

4. Enter line 3 or the cooperative's share

of the $25,000 taxable income

bracket, whichever is less ..................

5. Subtract line 4 from line 3..................

6. Enter line 5 or the cooperative's share

of the $9,925,000 taxable income

bracket, whichever is less ..................

7. Subtract line 6 from line 5..................

8. Multiply line 2 by 15% ........................

9. Multiply line 4 by 25% ........................

10. Multiply line 6 by 34% ........................

11. Multiply line 7 by 35% ........................

12. If the taxable income of the controlled

group exceeds $100,000, enter this

member's share of the smaller of: 5%

of the taxable income in excess of

$100,000, or $11,750. See

Instructions for line 2b below..........

13. If the taxable income of the controlled

group exceeds $15 million, enter this

member's share of the smaller of 3%

of the taxable income in excess of

$15 million, or $100,000. See

Instructions for line 2b below..........

14. Add lines 8 through 13. Enter here

and on Schedule J, line 3. .................

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Vehicles that qualify for this credit are not

eligible for the deduction for clean-fuel

vehicles under section 179A.

Line 4c. General business credit.

Complete this line if the cooperative can

take any of the following credits.

Complete Form 3800, General Business

Credit, if the cooperative has two or more

of these credits, a credit carryforward or

carryback (including an ESOP credit), a

trans-Alaska pipeline liability fund credit,

or a passive activity credit. Enter the

amount of the general business credit on

line 4c, and check the box for Form 3800.

If the cooperative has only one credit,

enter on line 4c, the amount of the credit

from the form. Also be sure to check the

appropriate box for that form.

Note: Any excess energy investment

credit, work opportunity credit, Indian

employment credit, empowerment zone

credit, employment credit, or

welfare-to-work credit not used by the

cooperative (because of tax liability

limitation) must be passed through to the

patrons. These credits cannot be carried

back or over by the cooperative. See

Forms 3468, 5884, 8844, 8845, and

8861for details.

Form 3468, Investment Credit.

Form 5884, Work Opportunity Credit.

Form 6478, Credit for Alcohol Used as

Fuel.

Form 6765, Credit for Increasing

Research Activities.

Form 8586, Low-income Housing

Credit.

Form 8820, Orphan Drug Credit.

Form 8826, Disabled Access Credit.

Form 8830, Enhanced Oil Recovery

Credit.

Form 8835, Renewable Electricity

Production Credit.

Form 8844, Empowerment Zone

Employment Credit.

Note: Although the empowerment zone

employment credit is a component of the

general business credit, it is figured

separately and is not carried to Form

3800.

Form 8845, Indian Employment Credit.

Form 8846, Credit for Employer Social

Security and Medicare Taxes Paid on

Certain Employee Tips.

Form 8847, Credit for Contributions to

Selected Community Development

Corporations.

Form 8861, Welfare-to-Work Credit.

Line 4d. Credit for prior year minimum

tax. To figure the minimum tax credit and

any carryforward of that credit, use Form

8827, Credit for Prior Year Minimum

Tax— Corporations.

Also see Form 8827 if any of the

cooperative's 1997 nonconventional

source fuel credit, orphan drug credit, or

qualified electric vehicle credit was

disallowed solely because of the tentative

minimum tax limitation. See section 53(d).

Line 7 — Recapture Taxes

Recapture of Investment Credit. If the

cooperative disposed of investment credit

property or changed its use before the

end of its useful life or recovery period,

see Form 4255, Recapture of Investment

Credit, for details.

Recapture of Low-income Housing

Credit. If the cooperative disposed of

property (or there was a reduction in the

qualified basis of the property) for which

it took the low-income housing credit, see

Form 8611, Recapture of Low-Income

Housing Credit.

Recapture of qualified electric vehicle

(QEV) credit. The cooperative must

recapture part of the QEV credit it claimed

in a prior year, if, within 3 years of the

date the vehicle was placed in service, it

ceases to qualify for the credit. See

Regulations section 1.30-1 for details on

how to figure the recapture. Include the

amount of the recapture in the total for

line 7, Schedule J. To the left of the line

7 entry space, write “QEV recapture” and

the amount.

Recapture of Indian employment

credit. Generally, if an employer

terminates the employment of a qualified

employee less than 1 year after the date

of initial employment, any Indian

employment credit allowed for a prior tax

year by reason of wages paid or incurred

to that employee must be recaptured. For

details, see Form 8845, and section 45A.

Include the amount of the recapture in the

total for line 7, Schedule J. On the dotted

line next to the entry space, write “45A”

and the amount.

Line 8. Alternative minimum tax. The

cooperative may owe the alternative

minimum tax (AMT) if it has any of the

adjustments and tax preference items

listed on Form 4626, Alternative Minimum

Tax— Corporations. The cooperative

must file Form 4626 if its taxable income

(loss) combined with these adjustments

and tax preference items is more than the

smaller of:

● $40,000, or

● The cooperative's allowable exemption

amount (from Form 4626).

For this purpose, taxable income does

not include the NOL deduction. Get Form

4626 for details.

Reduce alternative minimum tax by any

amounts on Form 3800, line 36, Schedule

A, and line 23, Form 8844. On the dotted

line next to line 8a, write “Section

38(c)(2)” (or “EZE”) and the amount.

Exception for small corporations.

For tax years beginning after December

31, 1997, the alternative minimum tax

does not apply to cooperatives that qualify

as “small corporations” Generally, a

cooperative qualifies as a small

cooperative if:

● Its average annual gross receipts for its

1994, 1995, and 1996 tax years did not

exceed $5 million, and

● Its average annual gross receipts for its

1995, 1996, and 1997 tax years did not

exceed $7.5 million.

If 1998 is the first tax year of a

cooperative's existence, it is treated as a

small corporation, regardless of its gross

receipts for the year. For more

information, see Form 4626.

Line 9. Other Tax and Interest Amounts

Other tax and interest amounts may be

included in or subtracted from the total tax

reported on line 9.

Amounts to include in the total for line

9 are:

● Interest on deferred tax attributable to

certain nondealer installment obligations

(section 453A(c))

● Installment sales of certain timeshares

and residential lots (section 453(l)(3)),

and

● For shareholders in qualified electing

funds, deferred tax due upon the

termination of a section 1294 election

(see Form 8621, Part IV).

Amounts to subtract from the total for

line 9 are:

Deferred tax on the cooperatives share

of the undistributed earnings of a qualified

electing fund (see Form 8621, Part II).

How to report Attach a schedule

showing your computation of each item

included in or subtracted from the total for

line 9. On the dotted line next to line 9,

enter the amount of tax or interest and:

● Identify it as tax or interest

● Specify the code section that applies.

Example. To show $50 of interest due

on deferred tax from the installment sale

of a timeshare, enter “Sec. 453(I)(3)

interest – $50.”

If you figured the tax or interest using

another form(e.g., Form 8621), see the

instructions for that form to find out how

to report the amount and what to write on

Schedule J, line 9.

Schedule L

Balance Sheets Per Books

The balance sheet should agree with the

cooperative's books and records. Include

certificates of deposit as cash on line 1,

Schedule L.

Line 5. Tax-exempt securities. Include

on this line:

1. State and local government

obligations, the interest on which is

excludable from gross income under

section 103(a), and

2. Stock in a mutual fund or other

regulated investment company that

distributed exempt-interest dividends

during the tax year of the cooperative.

Line 24 Adjustments to Shareholders

Equity

Some examples of adjustments to

report on this line include:

● Unrealized gains and losses on

securities held “available for sale”.

Page 14
● Foreign currency translation

adjustments.

● The excess of additional pension

liability over unrecognized prior service

cost.

● Guarantees of employees stock

(ESOP) debt.

● compensation related to employee

stock award plans.

● If the total adjustment to be entered on

line 24 is a negative amount, enter the

amount in parentheses.

Schedule M-1

Reconciliation of Income (Loss)

per Books With Income per Return

Line 5c. Travel and entertainment.

Include on line 5c any of the following:

● 50% of meals and entertainment not

allowed under section 274(n).

● Expenses for the use of an

entertainment facility.

● The part of business gifts over $25.

● Expenses of an individual in excess of

$2,000, which are allocable to

conventions on cruise ships.

● Employee achievement awards over

$400.

● The cost of entertainment tickets over

the face value (also subject to 50%

disallowance under section 274(n)).

● The cost of skyboxes over the face

value of nonluxury box seat tickets.

● The part of the cost of luxury water

travel not allowed under section 274(m).

● Expense for travel as a form of

education.

● Other expenses for travel and

entertainment not allowed as a deduction.

For more information, see Pub. 542.

Line 7a. Tax exempt interest. Include

as interest on line 7a, any tax-exempt

dividends received as a shareholder in a

mutual fund or other regulated investment

company.

Schedule N

Other Information

The following instructions apply to items

1 through 20 on Form 990-C, page 5,

Schedule N. Be sure to complete all the

items that apply to the cooperative.

Question 13

Foreign financial account. Check the

“Yes” box if either 1 or 2 below applies to

the cooperative. Otherwise, check the

“No” box:

1. At any time during the 1998

calendar year the cooperative had an

interest in or signature or other authority

over a bank, securities, or other financial

account in a foreign country; and

● The combined value of the accounts

was more than $10,000 at any time during

the calendar year; and

● The account was NOT with a U.S.

military banking facility operated by a U.S.

financial institution.

2. The cooperative owns more than

50% of the stock in any corporation that

would answer “Yes” to item 1 above.

Get Form TD F 90-22.1, Report of

Foreign Bank and Financial Accounts, to

see if the cooperative is considered to

have an interest in or signature or other

authority over a financial account in a

foreign country.

If “Yes” is checked for this question, file

Form TD F 90-22.1 by June 30, 1999,

with the Department of the Treasury at the

address shown on the form. Because

Form TD F 90-22.1 is not a tax return, do

not file it with Form 990-C.

You can get Form TD F 90-22.1 from

an IRS Forms Distribution Center or by

calling 1-800-TAX-FORM

(1-800-829-3676).

Also, if “Yes” is checked for this

question, enter the name of the foreign

country or countries. Attach a separate

sheet if more space is needed.

Question 14

The cooperative may be required to file

Form 3520, Annual Return To Report

Transactions with Foreign Trusts and

Receipt of Certain Foreign Gifts, if:

● It directly or indirectly transferred

money or property to a foreign trust. For

this purpose, any U.S. person who

created a foreign trust is considered a

transferor.

● It is treated as the owner of any part of

the assets of a foreign trust under the

grantor trust rules.

● It received a distribution from a foreign

trust.

For more information, see the

instructions for Form 3520.

Note: An owner of a foreign trust must

ensure that the trust files an annual

information return on Form 3520-A,

Annual Information Return of Foreign

Trust with a U.S. Owner. For details, see

Form 3520-A.

Item 15

Show any tax-exempt interest received

or accrued. Include any exempt-interest

dividends received as a shareholder in a

mutual fund or other regulated investment

company.

Question 17

Check the “Yes” box for question 17 if:

1. The cooperative is a subsidiary in

an affiliated group (defined below), but is

not filing a consolidated return for the tax

year with that group, or

2. The cooperative is a subsidiary in

a parent-subsidiary controlled group

(defined below).

Any cooperative that meets either of the

requirements above should check the

“Yes” box. This applies even if the

cooperative is a subsidiary member of

one group and the parent corporation of

another.

Note: If the cooperative is an “excluded

member” of a controlled group (see

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

member of a controlled group for this

purpose.

Affiliated group. The term “affiliated

group” means one or more chains of

includible corporations (section 1504(a))

connected through stock ownership with

a common parent corporation. The

common parent must be an includible

corporation and the following

requirements must be met:

1. The common parent must own

directly stock that represents at least 80%

of the total voting power and at least 80%

of the total value of the stock of at least

one of the other includible corporations.

2. Stock that represents at least 80%

of the total voting power, and at least 80%

of the total value of the stock of each of

the other corporations (except for the

common parent) must be owned directly

by at least one of the other includible

corporations.

For this purpose, stock generally does

not include any stock that (a) is nonvoting,

(b) is nonconvertible, (c) is limited and

preferred as to dividends and does not

participate significantly in corporate

growth, and (d) has redemption and

liquidation rights that do not exceed the

issue price of the stock (except for a

reasonable redemption or liquidation

premium). See section 1504(a)(4).

Parent-subsidiary controlled group.

The term “parent-subsidiary controlled

group” means one or more chains of

corporations connected through stock

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

the following requirements must be met:

1. 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of each corporation in

the group (except the parent) must be

owned by one or more of the other

corporations in the group.

2. The common parent must own at

least 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of at least one of the

other corporations in the group. Stock

owned directly by other members of the

group is not counted when computing the

voting power or value.

See section 1563(d)(1) for the definition

of “stock” for purposes of determining

stock ownership above.

Item 19

Check the box for question 19 if the

cooperative elects under section

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

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

checked, do not attach the statement

described in Temporary Regulations

section 301.9100-12T(d).

Page 15
Item 20

Enter the amount of the net operating loss

(NOL) carryover to the tax year from prior

years, even if some of the loss is used to

offset income on this return. The amount

to enter is the total of all NOLs generated

in prior years but not used to offset

income (either as a carryback or

carryover) to a tax year prior to 1998. Do

not reduce the amount by any NOL

deduction reported on line 29a.

Pub. 536 has a worksheet for figuring

a cooperative's NOL carryover.

Paperwork Reduction Act Notice. We

ask for the information on this form to

carry out the Internal Revenue laws of the

United States. You are required to give

us the information. We need it to ensure

that you are complying with these laws

and to allow us to figure and collect the

right amount of tax.

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB

control number. Books or records relating

to a form or its instructions must be

retained as long as their contents may

become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section 6103.

The time needed to complete and file

this form will vary depending on individual

circumstances. The estimated average

times are:

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form simpler,

we would be happy to hear from you. You

can write to the Tax Forms Committee,

Western Area Distribution Center, Rancho

Cordova, CA 95743-0001.

DO NOT send the tax form to this

office. Instead, see Where To File on

page 2.

Recordkeeping ............................. 77 hr., 58 min.

Learning about the law or the

form ............................................... 23 hr., 46 min.

Preparing the form....................... 40 hr., 59 min.

Copying, assembling, and

sending the form to the IRS ....... 4 hr., 17 min.

Page 16