Do not offset interest expense against
interest income.

Special rules apply to interest income
from certain below-market rate loans. See
section 7872 for details.

Note: /nterest income is generally
non-patronage 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 dedicctible
from rental expense.

Line'8. Capital gain net income.—
Complete Schedule D (Form 1120),
Capital Gains and Losses. Every sale or
exchange of a capital asset must be
reported in detail on Schedule D (Form
1120), even though no gain or loss is
indicated. Generally, capital gains and
losses are considered nonpatronage
source.

Line 9. Net gain or (loss).—Enter the
net gain or (loss) from line 18, Part ll,
Form 4797, Sales of Business Property,
Line 10. Other income.—Enter any other
taxable income not listed above, and
explain its nature on an attached
schedule. Examples of other income are:
any adjustment under section 481(a)
required to be included in income during
the current tax year due to a change in
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; and
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’s taxes
with tax refunds.

For cobperatives described in section
1381 that are shareholders in a FSC,
include the non-exempt portion of foreign
trade income derived 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.

If “other income” consists of only one
item, describe it in parentheses on line
10. If more than one item of other income
is reported, attach a schedule listing each
item.

Deductions

Limitations on deductions

1. Transactions between related
taxpayers.—See section 267 for the

limitation on deductions. for unpaid
expenses and interest.

2. 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.

3. Section 263A uniform capitalization
rules,—The rules require cooperatives to
capitalize or include in inventory certain
costs incurred in connection with the
production of real-and persona! tangible
property held in inventory or held for sale
in the ordinary course of business. The
rules also apply to personal property
(tangible and intangible) acquired for
resale. Cooperatives subject to the rules
are required to capitalize not only direct
costs but an allocable portion of most
indirect costs (including taxes) that relate
to the assets produced or acquired for
resale. interest expense paid or incurred
in the course of production must be
capitalized and is governed by special
rules. The uniform capitalization rules also
apply to the production of property
constructed or improved by a cooperative
for use in its trade of business or in an
activity engaged in for profit.

Section 263A does not apply to
personal property acquired for resale if the
cooperative’s annual average gross
receipts are $10 million or less. It does
not apply to timber or to most property
produced under a long-term contract.
Special rules apply to farmers. The rules
do not apply to property that is produced
for use by the cooperative if substantial
construction had occurred before March
1, 1986.

In the case of inventory, some of the
indirect costs that must be capitalized are
administration expenses, . taxes,
depreciation, insurance, compensation
paid to officers, costs attributable to
services, rework labor; and contributions
to pension, stock bonus, and certain
profit-sharing, annuity, or deferred
compensation plans.

The costs required to be capitalized
under section 263A are not deductible
unti) the property to which the costs relate
is sold, used, or otherwise disposed of by
the cooperative.

Current deductions may still be claimed
for research and experimental costs under
section 174, intangible drilling costs for oil
and gas and geothermal property, and
mining and exploration and development
costs. Temporary Regulations section
1.263A-1T specifies indirect costs that
may be currently deducted and those that
must be capitalized with respect to
production or resale activities. For more
information, see Temporary Regulations
section 1.263A-1T.

4. 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.

5. Business startup expenses.—Business
startup expenses are required to be
capitalized uniess an election is made to
amortize them over a period of 60
months. See section 195.
6. Passive activity limitations. —
Limitations on passive activity losses and
credits under section 469 apply to closely
held cooperatives (defined below) and
personal service corporations as defined in
Temporary Regulations section 1.441-4T.
A cooperative is a closely held cooperative
for this purpose 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
urposes of this test. See section
42(c)(2). For rules of determining stock
ownership, see section 544 (as modified
by section 465(a)(3)).

There are two kinds of passive
activities: trade or business activities in
which the cooperative did not materially
participate for the tax year, and rental
activities regardless of its participation. An
activity is a trade or business activity if
the activity involves the conduct of a trade
or business (i.e., deductions from the
activity would be allowable under section
162 if other limitations, such as the
passive loss rules, did not apply), or
research or experimental expenditures in
the activity are deductible under section
174 (or would be deductible if the
cooperative chose to deduct rather than
capitalize them), and the activity is not a
rental activity. Temporary Regulations
section 1,469-1T(g)(3) defines material
Participation of cooperatives.

Cooperatives subject to the passive
activity limitations must complete Form
8810 to compute their allowable passive
activity loss and credit. Before completing
Form 8810, see Temporary Regulations
section 1.163-8T, which provides rules for
allocating interest expense among
activities. If a passive activity is also
subject to the at-risk rules of section 465,
the at-risk rules apply before the passive
loss rules. For more information, see
section 469, the Temporary Regulations
thereunder, and Pub. 925, Passive
Activity and At-Risk Rules.

Line 12. Compensation of officers. —In
addition to entering officers’ compensation
deductible on line 12, filers of Form
990-C must complete columns (a) through
(f) of Schedule E for all officers if 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. 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.

Page 5


Each member of a controlled group must compute the tax as follows:

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

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

whicheverisless  , . , ,
3. Subtract line 2 from line 1.

4. Enter fine 3 or the cooperative's share of the $25,000 taxable income bracket, whichever is less

5. Subtract line 4 from line 3,
G.15%oflime2 . . | | |,
7. 25% of line 4

8.34% of line5 rt
9. If the taxable income of the controlled

roup exceeds $100,000, enter this member's share

ITH

of the lesser of: 59 of the excess over $100,000, or $11,750. (See instructions for

additional 5% tax below.) :

10. Add lines 6 through 9. Enter here and on Schedule J, line 3

bracket equally among themselves. For
example, controlled group AB consists of
Cooperative A and cooperative B, both
calendar year cooperatives. They'do not
elect an apportionment plan. Therefore,
cooperative A is entitled to $25,000
(one-half of $50,000) in the taxable
income bracket on line 2a(i) and $12,500
(one-half of $25,000) in the taxable
income bracket on line 2a(ii). Cooperative
B is also entitled to the same amount in
each taxable income bracket.

Unequal Apportionment Plan. Members
of a controlled group may elect an
unequal apportionment plan and divide
the taxable income brackets as they wish.
There is no need for consistency between
taxable income brackets. Any member of.
the controlled group may be entitled to
all, some, or none of the taxable income
bracket. However, the total amount for all
members of the controlled group cannot
be more than the total amount in each
tarable income bracket.

Additional 5% tax. Members of a
controlled group are treated as one entity
for purposes of figuring the applicability of
the additional 5% tax that must be paid
by cooperatives with taxable income in
excess of $100,000. If the additional tax
applies, each member of the controlled
group will pay that tax based on the part
of the amount that is used in each taxable
income bracket to reduce that member's
tax. See section 1561(a). Each member of
the group must enter its share of the
additional 5% tax on line 2b, Schedule J
and aitach to its tax return a schedule
that shows the taxable income of the
entire group as well as how its share of
the additional tax was figured.

Line 4a. Foreign tax credit.—Form
1118, Computation of Foreign Tax
Credit—Corporations, explains when a
cooperative can take this credit for
Payment of income tax to a foreign
country.

Line 4b—Other credits:

© Possessions tax credit. See Form 5712,
Election To Be Treated as a Possessions
Corporation Under Section 936, for rules
on how to elect to claim the possessions
tax credit. Compute the credit on Form
5735, Computation of Possessions
Corporation Tax Credit Allowed Under
Section 936.

Page 10

© Credit for fuel produced from a
nonconventional source. A credit is
allowed for the sale of qualified fuels
produced from a nonconventional source.
Section 29 contains a definition of
qualified fuels, provisions for figuring the
credit, and other special rules, Attach a
separate Schedule to the return showing
the computation of the credit.

Also see Form. 8801, Credit for Prior
Year Minimum Tax, if any portion of the
credit is disallowed solely because of the
tentative minimum tax limitation. See
section 53(d).

Line 4c. General business credit.—The
general business credit includes:
© Investment credit. The investment
credit was generally repealed for property
placed in service after 1985. See Form
3468, Investment Crédit, for exceptions.
Note: Excess investment credit not used
by the cooperative must be passed
through to the patrons. This credit cannot
be carried over or back. See section 46(h)
for details.
Jobs credit. The jobs credit, if elected,
is allowed for hiring members of targeted
groups during the tax year. See Form
884, Jobs Credit, for definitions, special
rules, and limitations.

Do not take an expense deduction for
the part of the wages or salaries paid or
incurred which is equal to the amount of
the jobs credit (determined without regard
to the limitation based on the tax (section
38(c)).

Alcohol fue! credit. A cooperative may
be able to take a credit for alcohol used
as fuel. Use Form 6478, Credit for
Alcohol! Used as Fuel, to figure the credit.
© Credit for increasing research activities.
See Form 6765, Credit for Increasing
Research Activities (or for claiming the
orphan drug credit).

© Low-income housing credit. See section
42 and Form 8586, Low-income Housing
Credit.

@ Disabled access credit. A cooperative
may be able to take a credit for certain
expenditures paid or incurred to assist
individuals with disabilities. See
“Important Change” on page 1 for more
information on this credit.

Form 3800, General Business Credit.
Complete Form 3800 if the cooperative
has: (1) more than one of the above
credits; OR (2) a credit carryforward or
Carryback (including one from an ESOP
Credit); OR (3) a passive activity credit.

Enter the amount of the general business
credit on the appropriate line and check
the Form 3800 box on that line.

Form 3800 is not required if the
cooperative has only one of the general
business credits (and items (2) and (3) do
not apply). Instead, attach the applicable
credit form to the return.and check the
appropriate box for that credit.

If the cooperative’s only general
business credit is the disabled access
credit, attach Form 8826 to the return
and write “From Form 8826” in the space
to the left of line 4c.

Line 4d. Credit for prior year minimum
tax.—Use Form 8801 to figure the
minimum tax credit and any carryforward
of that credit.

Line 7—Recapture Taxes:

© Recapture of investment credit. If
Property is disposed of or ceases to be
qualified property before the end of the
life-years used in computing the regular or
energy investment credit, there may be a
recapture of the credit. See Form 4255,
Recapture of Investment Credit.

© Recapture of low-income housing credit.
if you must recapture part of the
low-income housing credit because there
has been a decrease in the qualified basis
of a building from the prior year or if you
disposed of the building or an ownership
interest in it, see Form 8611, Recapture
of Low-Income Housing Credit, and
section 42().

Line 8a. Alternative minimum tax.—
Attach Form 4626, Alternative Minimum
Tax—Corporations, if taxable income or
(loss) before the net operating loss
deduction when combined with
adjustment and tax preference items
(including the adjusted current earnings
adjustment) exceeds (a) $40,000, or (b)
the cooperative's allowable exemption
amount. See Form 4626 for details.
Reduce alternative minimum tax by any
credit allowed under section 38(c)(2) on
line 19 of Schedule A, Form 3800. Write
on the dotted line to the left of line 8a,
“Sec. 38(c)(2)—$(amount).”

Line 8b. Environmental tax.—The
cooperative may be subject to the
environmental tax if the modified
alternative minimum taxable income of
the cooperative exceeds $2,000,000. See
Form 4626 for details.

Line 9. Interest on tax deferred under
the installment method for certain
non-dealer property installment
obligations. —If an obligation arising from
the disposition of property to which
section 453A applies is outstanding at the
end of the tax year, the cooperative must
include the interest due under section
453A(c) in the amount to be entered on
line 9, Schedule J. Write on the dotted
line to the left of line 9, Schedule J, “Sec.
453A(c)-$(amount).” Attach a schedule
showing the computation.


employee benefit programs not claimed
elsewhere on the return (e.g., insurance,
health and welfare programs) that are not
an incidental part of a pension, profit-
sharing, etc., plan included on line 24.
Line 26. Other deductions.—Include on
this line the deduction taken for
amortization of pollution control facilities,
organization expenses, etc. See Form

Generally, a deduction may not be
taken for the amount of any item or part
thereof allocable to a class of exempt
income. See section 265(b) for
exceptions.

Generally, the cooperative can deduct
only 80% of the amount otherwise
allowable for meals and entertainment
expenses paid or incurred in its trade or
business. In addition, meals must not be
lavish or extravagant; a bona fide business
discussion must occur during, immediately.
before, or immediately after the meal; and
your employee must be present at the
meal. See section 274(k)(2) for
exceptions. If the cooperative claims a
deduction for unallowable meal expenses,
it may have to pay a penalty.

Additional limitations apply to
deductions for gifts, skybox rentals, luxury
water travel, convention expenses, and
entertainment tickets. See section 274
and Pub. 463, Travel, Entertainment, and
Gift Expenses, for details.

Generally, a cooperative can deduct all
other ordinary and necessary travel and
entertainment expenses paid or incurred
in its trade or business. However, it
cannot deduct an expense paid or
incurred for a facility (such as a yacht or
hunting lodge) that is used for an activity
that is usually considered entertainment,
amusement, or recreation. Note: The
cooperative may be able to deduct the
expense if the amount is treated as
compensation and reported on Form W-2
for an employee or on Form 1099-MISC
for an independent contractor.

Note: Do not deduct penalties imposed on
cooperatives such.as those included in
General Instruction D.

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 under
Passive Activity Limitations on page 5)
engaged in any activity as a trade or
business or for the production of income.
Such cooperatives may have to adjust the
amount on line 28, Form 990-C. But, the
at-risk rules do not apply to: (1) holding
real property placed in service by the
cooperative before 1987; (2) equipment
leasing under sections 465(c)(4),(5), and
(6); and (3) 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 section 465(d)
losses. These losses are limited to the
amount for which such 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, one or
more of which incurs a lass 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 !oss 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. Net operating loss
deduction.—The ‘‘net operating loss
deduction’ is the amount of the net
operating loss carryovers and carrybacks
that can be deducted in the tax year. See
section 172(a). If this deduction is taken,
explain its computation on an attached
schedule.

Generally, unless section 277 applies,
the cooperative may carry back a net
operating loss (under section 172) to each
of the 3 years before the year of the loss
and carry it over to each of the 15 years
following the year of the loss. The
cooperative may elect to carry a net
operating loss (under section 172) over to
each of the 15 years following the year of
the loss and give up the carryback period.
The election is made by attaching a
statement to a timely filed return,
including extensions. The election may not
be revoked.

After applying the net operating loss to
the first tax year to which it may be
carried, the part of the loss that may be
carried to each of the remaining tax years
is the excess, if any, of the loss over the
sum of the modified taxable income for
each of the prior tax years to which the
cooperative may carry the toss. See
section 172(b).

if there is a carryback of a net
operating loss, net capital loss, or an
unused credit, file Form 1139,
Corporation Application for Tentative
Refund, within 12 months after the close
of the tax year for a “quick refund” of
taxes. See section 6411. See section 172
for special rules, limitations, and
definitions pertaining to net operating loss
carrybacks and carryovers. Also see Pub.
536, Net Operating Losses.

Caution: Do not attach Form 1139 to the
cooperative’s income tax return. Mail it in
a separate envelope and file it with the
same service center where the
cooperative files its income tax return.
Line 30. Taxable income.—The taxable
income reported on line 30, Form 990-C
may not exceed the combined taxable
income shown on line. 30, Form 8817.
Attach Form 8817 to the cooperative’s tax
return.

Caution: Patronage source losses cannot
be used to offset nonpatronage income.
See section 1388() for more information.

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.—See Form 4136 and Pub. 378,
Fuel Tax Credits and Refunds.

Schedule B

Income from patronage dividends
and per-unit retain allocations

Enter the total patronage dividends and
per-unit retain allocations from Schedule
B, line 2 on line 4a, page 1. Complete
Schedule B as follows:

Enter patronage dividends received in
money, qualified written notices of
allocation, or other property (except
nonqualified written notices of allocation).
Also enter the total amount of
nonpatronage distributions, received on a
patronage basis from tax-exempt farmers’
cooperatives in money, qualified written
notices of allocation, or other property
(except nonqualified written notices of
allocation), based on earnings of that
cooperative either from business done
with or for the United States or any of its
agencies (or from sources other than
patronage, such as investment income).
Include qualified written notices of
allocation at their stated dollar amounts
and property at its fair market value. Also
enter amounts received on the
redemption, sale, or other disposition of
nonqualified written notices of allocation.

Generally, patronage dividends
attributable to 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.

Enter the amounts received (or the
stated dollar value of qualified per-unit
retain certificates received) from the sale
or redemption of nonqualified per-unit
retain certificates.

Also-enter 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.8. 217 for
more information.

Page 7


In a consolidated return, each member
of an affiliated group must furnish this
information.

Line 13. Salaries and wages.—Enter on
line 13a the total salaries and wages
(other than salaries and wages deducted
elsewhere on the return, such as
contributions to a Simplified Employee
Pension Plan, which are deducted on line
24) paid or incurred for the tax year.

Caution: /f the cooperative provided
taxable fringe benefits to its employees,
such as personal use of an auto, do not
deduct as wages the amount allocated for
depreciation and other expenses claimed
on lines 20 and 26.

Enter on line 13b the jobs credit from
Form 5884, Jobs Credit.

Line 14. Repairs.—Enter the cost of
incidental repairs, such as labor and
supplies, that do not add to the value or
appreciably prolong the life of the
property.

Line 15. Bad debts.—Enter the total
debts that became worthless in whole or
in part during the tax year.

Line 17. Taxes.—Enter taxes paid or
accrued during the tax year, but do not
include the following: (1) Federal incomé
taxes (except the environmental tax under
section 59A); (2) Foreign or U.S.
possession income taxes if a tax credit is
claimed; (3) Taxes not imposed on the
cooperative; or (4) Taxes, including state
or local sales taxes, that are paid or
incurred in connection with an acquisition
or disposition of property (such 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). See section
164(d) for dividing real estate taxes
between the seller and purchaser.

If the cooperative is liable for
environmental tax under section 59A, see
Form 4626, Alternative Minimum Tax—
Corporations.

Line 18. Interest.—Do not include
interest on indebtedness incurred or
continued to purchase or carry obligations
on which the-interest is wholly exempt
from income tax. For exceptions, see
section 265(b).

lf the cooperative is a cash basis .
taxpayer, and in 1990 it prepaid interest
for any period after 1990, it can onh
deduct the amount attributable to 1990.
See Pub. 545, Interest Expense.

Do not deduct interest on debt allocable
to the production of qualified property.

Interest that is allocable to certain
property produced by a cooperative for its
own use or for sale must be capitalized. A
cooperative must also capitalize any.
interest on.debt allocable to an asset used
to produce the above property. See
section 263A and Notice 88-99, 1988-2
C.B. 422 for definitions and more
information. .

Generally, the interest and carrying
charges on straddles must be capitalized.
See section 263(g).

See section 163(e)(5) which provides
special rules for the disqualified portion of
original issue discount on a high yield
discount obligation.

Page 6

Certain interest paid or accrued by the
cooperative (directly or indirectly) toa
related person may be limited to the
cooperative’s excess interest expense for
the tax year. See section 163(j) for more
information.

See section 7872 for special rules
regarding the deductibility of foregone
interest on certain below-market rate
loans.

Line 19. Contributions.—Enter
contributions or gifts actually paid within
the tax year to, or for the use of,
charitable organizations described in
section 170(c) and any unused
contributions carried over from prior
years.

The total amount claimed may not be
more than 10% of taxable income (line
30) computed without regard to the
following: (1) any deduction for
contributions; (2) the special deductions
on line 29b, Form 990-C; (3) any net
operating loss carryback to the tax year
under section 172; (4) any capital loss
carryback to the tax year under section
1212(a)(1); and. (5) deductions allowed
under sections 249 and 250.

Charitable contributions that are more
than the 10% limitation’ may not be
deducted for the tax year, but may be
carried over to the next 5 tax years.

A contribution carryover is not allowed,
however, to the extent that it increases a
net operating loss carryover. See section
170(d)(2)(B).

Cooperatives on the accrual basis may
elect to deduct contributions paid by the
15th day of the 3rd month after the end.
of the tax year if the contributions are
authorized by the board of directors
during the tax year. Attach to the return a
declaration, 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 to the return.

If a contribution is made in property
other than money and the. total claimed
value exceeds $500, attach a schedule
describing the kind of property contributed
and the method used in determining its
fair market value. Closely held
cooperatives must complete Form 8283,
Noncash Charitable Contributions, and
attach it to.Form 990-C. All other
cooperatives generally must complete and
attach Form 8283 to their returns for
contributions of property other than
money, if the total claimed deduction for
all property contributed was more than
$5,000. Also, a cooperative must keep
records, as required by the regulations for
section 170, for all its charitable
contributionssies Abs ais 2

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. Describe the legal
interest.in the property that you donated
and the conservation purpose furthered by
the donation.

If a contribution carryover was included,
show the amount and how it was
determined.

Special rules for contributions of certain
property.—Generally, 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;

(1) Contributions of tangible personal

property for use by an exempt

organization for a purpose or function
unrelated to the basis for its
exemption; and

Contributions of any property (except

for stock for which market quotations

are readily available—see section |

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

private foundations. See section

170(e) and Regulations section

1,170A-4.

For special rules for contributions of
inventory and other property to certain
organizations, see section 170(eX3) and
Regulations section 1.170A-4A.

Line 20. Depreciation.—Besides

depreciation, include on line 20 the part

of the cost (up to $10,000) that the
cooperative elected to expense for certain
recovery property placed in service during

tax year 1990 or carried over from 1989.

See the instructions for Form 4562,

Depreciation and Amortization.

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).

Foréign 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
more information.

Attach Form T (Timber), Forest
Industries Schedules, if a deduction for
depletion of timber is taken.

Line 24. Pension, profit-sharing, etc.

plans.—Employers who maintain pen:

profit-sharing, or other funded deferred
compensation plans, whether or not
qualified under the Internal Revenue

Code, and whether or not a deduction is

claimed for the current tax year, generally

are required to file one of the forms
described below. Section 6652(e) imposes

a penalty for late filing of these forms. In

addition, there is a penalty for overstating

the pension plan deduction. See sections

6652(e) and 6662(f).

Form 5500.—For each plan with 100 or

more participants.

Form 5500-C/R.—For each plan with

fewer than 100 participants.

Form 5500EZ .—Complete this form for

a one-participant plan.

Line 25. Employee benefit programs.—

Enter the amount of contributions to

2:



payments with respect to similar stock.
Two situations in which the
dividends-received deduction will not be
allowed on any share of stock are: (a) If
the cooperative held it 45 days or less
(see section 246(c)(1){A)),.or (b) To the
extent the:-cooperative is under an
obligation to make related payments for
substantially similar or related property.

Schedule H

Deductions and Adjustments under
Section 1382

Complete Schedule H as explained below
(lines 1 and 2 apply only to section 521
cooperatives). '

Cooperatives have an option under
section 1388(j)(1) to use losses
attributable to one or more allocation
units to offset earnings of one or more
other allocations, as may be provided for
in the bylaws of the cooperative, but only
to the extent that such earnings and
losses are derived from business done
with or for patrons. If a cooperative
exercises the section 1388()(1) option, it
must. provide the information specified in
section 1388()(3) by written notice to its
patrons, Special rules also apply if a
cooperative has acquired the assets of
another cooperative pursuant to a section
381(a) transaction. See section 1388(j))
for more information. Cooperatives may
engage in the practice of netting earni
and losses under section 1388()) and still
be eligible for tax-exempt treatment. See
section 521(b)(6).

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.
Such deduction is applicable only to the
tax year in which the dividends are
actually or constructively paid to the
holder of capital stock or other proprietary
interest of the cooperative association.
See Regulations section 1.1382-3(b) for
more information.

Line 2.—Enter amounts paid on a
patronage basis to patrons in money,
qualified written notices of allocation, or
other property (except nonqualified written
notices of allocation) if the income
involved was not from patronage. 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. ‘Income
not from patronage” includes incidental
income from sources not directly related
to marketing, purchasing, or service
activities of the cooperative (such as
income from the lease of premises,
investments, or from the sale or exchange
of capital assets) and from business done
with or for the Government of the United
States, or any of its agencies. See
“Patronage dividends” below for an
explanation of the term ‘'qualified written
notice of allocation.” See section
1382(c)(2)(B) for deductibility of amounts

paid in redemption of nonqualified written
notices of allocation.

Line 3.—''Patronage dividends" include
any amount paid to a patron by a
cooperative based on business done with
or for that patron under a pre-existing
obligation of the cooperative to pay that
amount. The amount is determined by
reference to the net earnings of the
organization from business done with or
for its patrons.

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 may be in the form
of money, qualified written notices of
allocation, or other property (except
nonqualified written notices of allocation).
“Written notices of allocation” means any
capita! stock, revolving fund certificate,
certificate of indebtedness, or other
written notice, which tells. the patron the.
stated dollar amount allocated to him or
her by the cooperative and the part, if
any, which is a patronage dividend. For a
written notice of allocation to be qualified,
20% or more of the amount of the
patronage dividend must be paid in money
or a qualified check. See section 1388(c)
and related regulations. See Rev. Rul.
81-103, 1981-1 C.B. 447, for the
qualification of written notices of
allocation issued to patrons by a payment
of cash and a crediting of accounts
receivable due from patrons.

In addition, one of the two following
conditions must be met before a written
notice of allocation is qualified:

(1) The patron must have at least 90
days from the date the written notice of
allocation is paid to redeem the written
notice of allocation in cash, and must
receive written notice of the right of
redemption at the time he or she received
the written notice of allocation; OR

(2) The patron must consent to have
the allocation treated as constructively
received and reinvested in the
cooperative. See section 1388(c)(2) and
related regulations for information on how
the consent must be made.

If a written notice of allocation does not
qualify, no deduction is allowable at the
time it is issued. However, the cooperative
is entitled to a deduction or refund of tax
when the nonqualified written notice of
allocation is finally redeemed, if that
notice was paid as a patronage dividend
during the payment period for the tax year
during which the patronage occurred. The
deduction or refund-is allowed, but only to
the extent that amounts paid to redeem
the nonqualified written notice of
allocation are paid in money or other
property (other than written notices of
allocation) and are not more than the
stated dollar amounts of the nonqualified

written notice of allocation. See section
1382(b) and related regulations.

Note: See section 1383 for special rules
for figuring the cooperative's tax in the
year nonqualified written notices of
allocation are redeemed. The cooperative
is entitled to: (a) a deduction in the tax
year the nonqualified written notices of
allocation are redeemed (if permitted
under section 1382(b)(2) or (4) or section
1382(c)(2)(B)); OR (b) a tax credit based
on a.recomputation of tax for the year(s)
the nonqualified written notices of
allocation were issued. See instructions for
line 32.

The following are not patronage
dividends:

(1) Amounts paid to patrons out of
earnings not from business done with or
for patrons;

(2) Amounts paid to patrons out of
earnings from business done with or for
other patrons to whom no amounts are
paid, or to whom smaller amounts are
paid for substantially identical
transactions;

(3) Amounts paid to patrons to redeem
capital stock, or to redeem certificates of
indebtedness, revolving fund certificates,
retain certificates, letters of advice, or
other similar documents; and

(4) Amounts paid to patrons without
reference to the net earnings of the
cooperative organization from business
done with or for its patrons.

Tax Computation

Line 3, Schedule J

A cooperative should compute. its tax on
its taxable income using the schedule
below. Members of a controlled group
should see the instructions below for lines
1 and 2 before proceeding.

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

Its Of the

tax amount

Over. is ‘over.

O 15% o
$50,000 $7,500 + 25% $50,000
75,000 13,750 + 34% 75,000
100,000 22,250 + 39% 100,000
335,000 3% °

Lines 1 and 2. Members of a controlled

group, as defined in section 1563, are

entitled to one $50,000 amount and one

$25,000 amount (in that order) on line
a.

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.
There are other requirements as well. See
Regulations section 1.1561-3(b) for the
requirements and for the time and
manner of making the consent.

Equal Apportionment Plan. If no
apportionment plan is adopted, the
members of the controlled group must
divide the amount in each taxable income

Page 9


1990 _&

Instructions for

Farmers’. Cooperative Association Income Tax Return

Department of the Treasury
Internal Revenue Service

Form 990-C

(Section references are to the internal Revenue Code unless otherwise noted.)

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
this information. We need it to ensure
that you are complying with these laws
and to allow us to figure and collect the
right amount of tax.

The time needed to complete and file
this form will vary depending on individual
circumstances, The estimated average
time is:

Recordkeeping . 75 hrs., 34 min.
Learning about the

law or the form. 23 hrs., 4 min.
Preparing the form 40 hrs., 13 min.
Copying, assembling,

and sending the form -
toIRS. 2. 1, . 4brs., 17 min.

If you have comments concerning the
accuracy of these time estimates or
Suggestions for making this form more
simple, we would be happy to hear from
you, You can write to both the Internal
Revenue Service, Washington, DC
20224, Attention: IRS. Reports Clearance
Officer, T:FP; and the Office of
Management and Budget, Paperwork
Reduction Project (1545-0051),
Washington, DC 20503.

DO NOT send the'tax form to either.of
these offices. Instead, see the instructions
below for information on where to file.

Important Change

New Form 8826, Disabled Access Credit,
has been developed as a result of the
addition of section 44 by the Revenue
Reconciliation Act of 1990. This allows
:eligible small businesses to claim a new
nonrefundable income tax credit equal to
50% of expenses that are over $250 and
not more than $10,250. These expenses
must be paid or incurred after November
5, 1990, to enable a small business to
comply with the requirements of the
Americans With Disabilities Act-of 1990.
An eligible small business is one with
gross receipts of $1 million or less in the
Previous tax year or one that had not
more than 30 full-time employees in the
previous tax year. Examples of expenses
eligible for the credit include amounts
paid or incurred: (1) to remove barriers
that prevent a business from being
accessible to, or usable by, individuals
with disabilities; (2) to provide qualified
interpreters or other methods of making
audio materials available to
hearing-impaired individuals; (3), to
provide qualified readers, taped texts, and

other methods of making visual materials
available to individuals with visual
impairments; or (4) to acquire or modify
equipment or devices for individuals with
disabilities.

General Instructions

A. Purpose of Form

Form 990-C, Farmers' Cooperative
Association income Tax Return, is used to
report the cooperative's income, gains,
losses, deductions, credits, and to figure
their income tax liability.

B. Filing Form 990-C

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 turn back to
them the proceeds of sales, less the
necessary marketing expenses, on the
basis of either the quantity or the
value of their products; OR
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 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 corporation leases its land to
a tenant farmer who agrees to pay a
rental fee based on a percentage of the
farm crops produced, both the landowner
and the tenant farmer qualify as
producers.

When To File.—in general, a cooperative
must file its income tax return by the 15th
day of the 9th month after the end of its
tax year.

Extension.—File Form 7004, Application
for Automatic Extension of Time To File
Corporation Income Tax Return, to request
an automatic 6-month extension of time
to file Form 990-C.

Period Covered.—File the 1990 return
for the calendar year 1990 and fiscal
years beginning in 1990. If the return is
for a fiscal year, fill in the tax year space
in the form heading.

(2)

To File.—

the principal office Use the following
of the organization is Internal Revenue
located In Service Center address

Alabama, Arkansas, Florida,
Georgia, Louisiana,

Mississippi, North Carolina,
South Carolina, Tennessee

Arizona, Colorado, Kansas,
New Mexico, Oklahoma,
Texas, Utah, Wyoming

Atlanta, GA 39901

Austin, TX 73301

indiana, Kentucky, Michigan,
Ohio, West Virginia

Alaska, California, Hawaii, Idaho,
Nevada, Oregon, Washington

Connecticut, Mg 4

issachusetts, New Hampshire,

Navn Rhee lana, Holtsville, NY 00501
Vermont

Cincinnati, OH 45999

Fresno, CA'93888

iinois, towa, Minnesota,
soi, Merten eRe anes iy, MO 64959
Wisconsin

Delaware, District of Columbia,
Maryland, New Jersey,
Pennsylvania, Virginia, any
US. possession, or foreign
country

Signature.—The return must be signed
and dated by the president, vice
president, treasurer, assistant treasurer, -
chief accounting officer, or any other
officer (such as tax officer) authorized to
sign. A receiver, trustee, or assignee must
sign and date any return required to be
filed on behalf of a cooperative.

If a cooperative officer filled in Form
990-C, the Paid Preparer's space under
“Signature of officer’ should remain
biank. If someone prepares Form 990-C
and does not charge the cooperative, that
person should not sign the return. Certain
others who prepare Form 990-C should
not sign. For example, a regular full-time
employee of the cooperative such as a
clerk, secretary, etc., does not have to
sign.

Generally, anyone who is paid to
prepare Form.990-C must sign the return
and fill in the other blanks in the Paid
Preparer’s Use Only area of the return.

The preparer required to sign the return
MUST compiete the required preparer
information and:

Sign it, by hand, in the space provided
for the preparer's signature. (Signature
stamps or iabels are not acceptable.)

@ Give a copy of Form 990-C to the
taxpayer in addition to the copy filed with
IRS.

Philadelphia, PA 19255

C. Figuring and Paying the
Tax ;

1. Accounting

Accounting Methods.—Taxable income
must be figured using the method of
accounting regularly used in keeping the
cooperative's books and records. In all
cases the method used must clearly
reflect taxable income. See section 446.
Cooperatives are generally required to
use the accrual method of accounting if
their average annual gross receipts are
more than $5,000,000. Cooperatives




Schedule L:

Balance Sheets

Line 5. Tax-exempt securities.—Include
on this line: (1) State and local
government obligations, the interest on
which is excludible from gross income
under section 103(a), and (2) Stock in a
mutual fund or other regulated investment
company that distributed exempt-interest
dividends during the tax year of the
cooperative.

Schedule M-1

Reconciliation of Income per Books
With Income per Return

Line 5c. Travel and entertainment.—
Include on this line: 20% of meals and
entertainment not allowed under section
274(n); expenses for the use of an
entertainment facility; the part of business
gifts in excess of $25; expenses of an
individual! allocable to conventions on
cruise ships in excess of $2,000;

employee achievement awards in excess
of $400; the cost of entertainment tickets
in excess of face value (also subject to
20% disallowance); the cost of skyboxes
in excess of the face value of non-luxury
box seat tickets; the part of the cost of
luxury water travel not allowed under
section 274(m); and expenses for travel
and entertainment not allowed as a
deduction.

Page 11


1 Refigure line 28, page 1, Form 990-C, without
1059 and without regard to any capital loss car

rd to any adjustment under section
k to the year under section 1212(a}(1)

2. Complete lines 10 and 11 of column (c) and enter the sum of these lines...

3. Subtract line 2fromlinel . . . .
4. Multiply the amount on line 3 by 80%

5, Enter the som of the amouats on tines 2, 5, 7, and 8 of column (c) and the

Portion of the

deduction on line 3 of column (c) that is attributable to dividends received from 20%-or-

Mmore-owned corporations =, toe

6. Enter the lesser of line 4 or line 5. (Do not complete the rest of this worksheet if line 5 is
greater than line 4. Instead, enter the amount from line 6 on line 9 of column (c).).

7. Enter the total amount of dividends received from
included on lines 2, 3, 5, 7, and 8 of column (a)

8. Subtract line 7 from line 3 .

9. Multiply the amount on line 8 by 70%
10. Subtract line 5 above from line 9 of column (c) .
11. Enter the lesser of line 9 or line 10

12, Dividends-received deduction after limitation (sec. 246(b)). Add the amounts on lines 6 and

11 and enter on line 9 of column (ce). ,

20%-or-more-owned corporations and

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
1.1502-14, 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
that are subject to the 70% deduction
under section 243(a)(1). Include on this
line taxable distributions from an IC-DISC
or former DISC that are designated as
being eligible for the 70%, deduction and
certain dividends of Federal Home Loan
Banks. See section 246(a)(2).

For dividends received from a regulated
investment company, see section 854 for
the amount subject to the 70% deduction.

So-called dividends or earnings received
from mutual savings banks, etc., are really
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
designated as being eligible for the 80%
deduction.

Line 3, Column (a).—Enter dividends on
debt-financed stock acquired after.July.
18, 1984, that are received from
domestic and foreign corporations subject
to income tax; and that would otherwise
be subject to the dividends-received
deduction under sections 243(a)(1),
243(c), or 245(a). Generally,
debt-financed stock’ is stock that the

* corporation acquired by incurring a debt
(for example, it borrowed money to buy
the stock).
Line 3, Columns (b) and (c).—Dividends
received on debt-financed stock acquired
after July 18, 1984, are-not entitled to

Page 8

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. A schedule showing
how the amount on line 3, column (c),
was figured must be attached to Form
990-C.

Line 4, Column (a).—Enter dividends
received on the preferred stock of a
less-than-20%-owned public utility that is
subject to income tax and is allowed the
deduction provided in section 247 for
dividends paid.

Line 5, Column (a).—Enter dividends
received on preferred stock of a
20%-or-more-owned public utility that is
‘subject to income tax and is allowed the
deduction provided in section 247 for
dividends paid.

Line 6, Column (a).—Enter the
U.S.-source portion of dividends that are
received from less-than-20%-owned
foreign corporations and that qualify for
the 70% deduction under section 245(a).
To qualify for the 70% deduction, the
cooperative must own at least 10% of the
stock of the foreign corporation by vote
and value. Also include on line 6, column
(a), 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 U.S.
(excluding foreign trade income) and that
qualify for the 70% deduction provided in
section 245(c)(1)(B).

Line 7, Column (a).—Enter the
U.S.-source portion of dividends that are
received from 20%-or-more-owned foreign
corporations and that qualify for the 80%
deduction. undersection 245(a). Also
include on line 7, column (a), 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 U.S.
(excluding foreign trade-income) and that
qualify for the 80% deduction provided in
section 245(c)(1)(B).

Line 8, Column (a).—Enter dividends
that are received from wholly owned
foreign subsidiaries and that are eligible

for the 100% deduction provided in
section 245(b).

in general, the deduction under section
245(b) applies to dividends paid out of the
earnings and profits of a foreign
corporation for a tax year during which:
(1) All of its outstanding stock is owned
(directly or indirectly) by the domestic
cooperative receiving the dividends, and
(2) All of its gross income from all sources
is effectively connected with the conduct
of a trade or business within the U.S.

Line 9, Column (c)—Limitation on
dividends-received deduction.—
Generally, line 9, column (c) may not
exceed the amount from the worksheet
above. However, in a year in which a net
operating loss 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 are subject to
the elective provisions of section 243(b)
and that are entitled to the 100%
dividends-received deduction under
section 243(a)(3). Cooperatives making
this election are subject to the provisions
of section 1561.
Line 12, Column (a).—Enter foreign
dividends not reportable on lines 3, 6, 7,
8, or 10 of column (a). Exclude
distributions of amounts constructively
taxed in the current year or in prior years
geger subpart F (sections 951 through

).

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 |, Form(s) 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 being
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
(C-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 and 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 which, for the tax year of
the trust in which the dividends are paid,
qualify under sections 856 through 860;
and (4) Dividends not eligible for a
dividends-received deduction because of
the holding period of the stock or an
obligation to make corresponding


Application for Employer Identification
Number. This form may be obtained from
most IRS and Social Security
Administration offices. Send Form SS-4 to
the same Internal Revenue Service Center
to which Form 990-C is mailed. If the EIN
has not been-received by the filing time
for the cooperative’s return, write “Applied
for” in the space for the EIN.

For more information concerning an
EIN, see Pub. 583.
Item C. See General Instruction E2,
consolidated returns. Do not check this
box if the “Section 521” box is checked in
Item D.

Item D. Type of Organization.—Check
the “Section 521” box if the organization
is a tax-exempt farmers’, fruit growers’, or
like association that is organized and
operated on a cooperative basis and is
described in section 521. If the
organization has submitted Form 1028,
Application for Recognition of Exemption,
but has not yet received a determination
letter from the IRS, check the “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 “Other” 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 In address.—Indicate by checking
the applicable box if this is the
cooperative’s first return, or if the
cooperative has ceased to exist, or it has
had a change in address.

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.

For dealer dispositions before March 1,
1986, of property used or produced in the
trade or business of farming, reported
under the installment method, enter on
line 1 the gross profit on collections from
installment sales and carry the same
amount to line 3. Attach a schedule
showing the following for the current year
and the 3 preceding years: (1) gross
sales, (2) cost of goods sold, (3) gross
profit, (4) percentage of gross profit to
gross sales, (5) amount collected, and (6)
gross profit on amount collected.

Accrual basis taxpayers generally need
not accrue income 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 such amount or if there is any
penalty for failure to timely pay such
amount. Cooperatives that fall under this
provision should attach a schedule
Page 4

showing total gross receipts, amount not
accrued as a result of the application of
section 448(d)(5), and the net amount
accrued. The net amount should be
entered on line 1a. For more information
and guidelines on this “non-accrual
experience method,” see Temporary
Regulations section 1.448-2T.

Line 2. Cost of goods sold.—Enter the
amount from line 9, Schedule A, on line
2, page 1. Complete Schedule A as
follows:

Line 4a.—Enter per-unit retain allocations
paid in qualified per-unit retain
certificates. Qualified per-unit retain
certificates are issued to patrons who
have consented to include the stated
dollar amount in current income.

Line 4b.—Enter per-unit retain allocations
paid in money or other property (except
nonqualified per-unit retain certificates).
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
is entitled to a deduction or 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 o'
redemption of a nonqualified per-unit
retain certificate.

If the inventories reported do not agree
with the balance sheet, attach a
statement explaining the difference.

Line 6a.—An entry is required on this
line only for cooperatives electing a
simplified method of accounting. In the
case of cooperatives electing the
simplified production method, additional
section 263A costs are generally costs,
other than interest, that were not
capitalized or included in inventory costs
under the cooperative’s method of
accounting immediately prior to the
effective date in Temporary Regulations
section 1.263A-1T, but that are-now
required to be capitalized under section
263A. In the case of cooperatives electing
the simplified resale method, additional
section 263A costs are generally 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). Enter on line 6a the
balance of section 263A costs paid or
incurred during the tax year not included
on lines 2 and 3. See Temporary
Regulations section 1.263A-1T for more
information.

Line 6b.—Enter any costs paid-or,
incurred during the tax year not entered
on lines 2 through 6a.

Inventory vaiuation methods. Inventories
can be valued at: (1) cost; (2) cost or
market value (whichever is lower); or 3)
any other method that is approved by the
Commissioner of Internal Revenue, and
that conforms to the provisions of the
applicable regulations cited below.

Taxpayers using erroneous valuation
methods must change to a method
permitted for Federal income tax
purposes. Such a change should be made
by filing Form 3115. For more information
about the change, see Regulations section
1,446-1(e)(3) and Rev. Proc. 84-74,
1984-2 C.B. 736 as modified by Rev.
Proc. 88-15, 1988-1, C.B. 683.

On line 10a of Schedule A, check the
method(s) used for valuing inventories.
Under “lower of cost or market,” “market”
generally applies to normal market
conditions where there is a current bid
price prevailing at the date the inventory
is valued. When no regular apen market
exists or when quotations are nominal
because of inactive market conditions, use
fair market prices from the most reliable
sales or purchase transactions that
occurred near the date the inventory is
valued. For more requirements, see
Regulations section 1.471-4.

Inventory may be valued below cost
when the merchandise is: (1) unsalable at
normal prices, or (2) 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). Such 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. See Regulations section
1,471-2(c) for more requirements.

If this is the first year the “Last-in-first-
out” (LIFO) inventory method was either
adopted or extended to inventory oods
not previously valued under the LIFO
method provided in section 472, attach
Form 970, Application to Use LIFO
Inventory Method, or a statement with the
information required by Form 970. Also
check the LIFO box on line 10b of
Schedule A. Enter the amount or percent
of total closing inventories covered under
section 472 on line 10c. 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 in the tax year you made this
election (section 472(d)).

Section 263A Uniform Capitalization
Rules. The uniform capitalization rules of
section 263A are discussed in general in
the instructions for Limitations on
deductions on page 5. See those
instructions before proceeding.

Line 5. Interest.—Enter taxable interest
on U.S. obligations and on loans, notes,
mortgages, bonds, bank deposits,
corporate bonds, tax refunds, etc.


payments, payments for certain fishing
boat crew members, medical and dental
health care payments, direct sales of
consumer goods for resale, miscellaneous
income payments, nonemployee
compensation, original issue discount,
patronage dividends, total distributions
from profit-sharing plans, retirement
plans, individual retirement arrangements,
insurance contracts, etc., and proceeds
from real estate transactions. Also use
these returns to report amounts that were
received as a nominee on behalf of .
another person. For more information, see
the instructions for Form 1099.

Note: Every cooperative must file
information returns if, in the course of its
trade or business, it makes payments of
rents, commissions, or other fixed or
determinable income (see section 6041)
totaling $600 or more to any one person
during the calendar year.

Form 5452. Corporate Report of
Nondividend Distributions.

Form 5498. individual Retirement
Arrangement Information. Use this form to
report contributions (including rollover
contributions) to an individual retirement
arrangement (IRA) and the value of an
IRA or simplified emptoyee pension
account.

Form 5713. International Boycott Report,
for persons having operations in or related
to “boycotting” countries. In addition,
persons who participate in or cooperate ~
with an international boycott may have to
complete Schedule A or B and Schedule C
of Form 5713 to compute their loss of the
following items: the foreign tax credit, the
deferral of earnings of a controlled foreign
corporation, IC-DISC benefits,.and FSC
benefits. .
Form 8264. Application for Registration of
a Tax Shelter. It is used by tax shelter
organizers ‘to register tax shelters with the
IRS, for the purpose of receiving a tax
shelter registration number. .
Form 8271. Investor Reporting of Tax
Shelter Registration Number. It is used by
taxpayers who have acquired an interest
in a tax shelter, which is required to be
registered, 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 8300. Report of Cash Payments
Over $10,000 Received in a Trade or -
Business. Generally, this form is used to
report the receipt of more than $10,000
in cash or foreign currency in one
transaction (or a series of related
transactions).

Form 8594, Asset Acquisition Statement,
is to be filed by both the purchaser and
seller of a group of assets constituting-a
trade or business if goodwill or a going
concern value attaches, or could attach,
to such assets and the purchaser's basis
in the assets is determined only by the
amount paid for the assets.

Form 8810. Corporate Passive Activity.
Loss and Credit Limitations. Closely held

cooperatives, which are subject to the
passive activity limitations of section 469,
use this form to compute their allowable
passive activity loss and credit.

Form 8817. Allocation of Patronage and

» Nonpatronage Income and Deductions.

Certain cooperatives whose gross receipts
are less than $10 million and that have
patronage and nonpatronage source
income and deductions, must complete
and attach this form to their return.

Form 8822, Change of Address. This form
may be used to notify the IRS if the
cooperative's mailing address changes.

2. Consolidated Return

The nonexempt cooperative parent of an
affiliated group of corporations must
attach Form 851, Affiliations Schedule, to
the consolidated return. For the first year
a consolidated return is filed, each
subsidiary must attach Form 1122,
Authorization and Consent of Subsidiary
Corporation to be Included in a
Consolidated Income Tax Return.

File supporting statements for each
corporation included in the consolidated
return. Use columns to show the
following, both before and after
adjustments: ‘
© Items of gross income afd dedictions:
A computation of taxable income.

@ Balance sheets as of the beginning and
end of tax year.

@ Areconciliation of retained earnings.

© A reconciliation of income per books
with income per return.

Attach consolidated balance sheets and
a reconciliation of consolidated retained
earnings.

3. Financial Statements

A cooperative is not required to complete
Schedules M-1 and M-2 if the
cooperative’s total assets at the end of
the tax year (line 13, column (d) of
Schedule L, Form 990-C) are less than
$25,000. :

4. Attachments

Please complete every applicable entry
space on Form 990:C. Do not attach
statements and write “See attached” in
lieu of completing the entry spaces on
Form 990-C. If more space is needed on
the forms or schedules, attach separate
sheets indicating at the top of each
attachment the form number or schedule
letter of the form or schedule being
continued. Show the same information
called for on the form in the same order
as on the printed forms. Be sure to show
totals on the printed forms. Please use
sheets that are the same size as the
forms and schedules. Attach these
separate sheets after all the forms and
schedules. Also, put the cooperative’s
name and EIN on each sheet.

F. Additional Information

Be sure to answer questions F through V
‘on page 5, Form 990-C, as applicable.
The instructions that follow are keyed to
these questions.

1. Question R

Foreign financial account.—Check the
“Yes” box if either a or b below applies to
the cooperative; otherwise, check the
“No” box:

a. At any time during the year the
cooperative had an interest in or signature
or other authority over a financial account
in a foreign country (such as a bank
account, securities account, or other
financial account); AND (1) The combined
value of the accounts was more than
$10,000 at any time during the year;
AND (2) The account was NOT with a
U.S, military banking facility operated by a
U.S. financial institution,

b. The cooperative owns more than 50%
of the stock in any corporation that would
answer “Yes” to item a 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 (such as a bank account,
securities account, or other financial
account).

if “Yes” is checked for this question,
file Form TD F 90-22.1 by June 30, 1991,
with the Department of the Treasury at
the address shown on the form. Form TD
F 90-22.1 is not a tax return. Do NOT file
it with Form 990-C,

Form TD F 90-22.1 may be obtained
from IRS Forms Distribution Centers.

Also, if “Yes” is checked for this
question, write the name of the foreign
country or countries. Attach a separate
sheet if more space is needed.

2. Question U

Report any tax-exempt interest received or
accrued in the space provided. Include
any exempt-interest dividends received as
a shareholder in a mutual fund or other
regulated investment company.

Specific Instructions

Name and Address.—Please use the
label which accompanied the form or copy
the exact name of the cooperative. If the
name or address on the label is wrong,
draw a line through the incorrect part and
enter the correct information. Also,
include the suite, room, or other unit
number after the street address. If a
pre-addressed label is used, please include
this information on the label. If the Post
Office does not deliver mail to the street
address and the cooperative has a P.O.
box, show the P.O. box number instead of
the street address.
Item A. Identify the business activity from
which the cooperative receives the largest
total receipts (e.g., wholesale marketing of
meat; drying fruit; grain storage; wholesale
oanasing of fertilizers; cattle breeding;
etc):
Item B. Employer identification
number.—lIf the EIN on the label is wrong
or if the cooperative did not receive a
label, enter the correct number.

A cooperative that does not have an EIN
should apply for one on Form SS-4,

Page 3



changing to the accrual method because
of this provision must complete’ Form
3115, Application for Change in
Accounting Method, and attach it to Form
990-C. The cooperative must also show on
a statement accompanying Form 3115 the
period over which the section 481(a)
adjustment will be taken into account and
the basis for the conclusion. See section
448 and Temporary Regulations sections
1.448-1T(g) and 1.448-1T(h) for more
information. Include the amount
reportable as income in 1990 under
section 481(a) on line 10, page 1.

Unless the law specifically permits
otherwise, the cooperative may change
the method of accounting used to report
taxable income in earlier years (for income
as a whole or for any material item) only
by first getting consent on Form 3115.
Also see 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. This provision is limited to
cooperatives which have been using this
method of accounting for at least 10 tax
years ending with the first tax year
beginning after December 31, 1976, and
who enter into an agreement with the
U.S. Government for a loan using the poo!
as collateral and make price support
advances to eligible producers in amounts
equal to the proceeds of the loan. See
section 1382(g).

Change in Accounting Period. —
Generally, before changing an accounting
period, the Commissioner's approval must
be obtained (Regulations section 1.442-1)
by filing Form 1128, Application to Adopt,
Change, or Retain a Tax Year. Also see
Pub. 538.

2. Rounding Off to Whole-Dollar
Amounts

Money items may be shown on the return
and accompanying schedules as
whole-dollar amounts. 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.

3. Depositary Method of Tax
Payment

Deposit cooperative income tax payments
(and estimated tax payments) with a
Federal Tax Deposit Coupon (Form
8109). Make these tax deposits with
either a financial institution qualified as a
depositary for Federal taxes or the Federal
Reserve bank or branch servicing the
geographic area where the cooperative is
located. Do not submit deposits directly to
an IRS office; otherwise, the cooperative
may be subject to a failure to deposit
penalty. Records of deposits will be sent
to the IRS for crediting to the
cooperative's account. See the '
instructions contained in the coupon book
for more information. To get more deposit
forms, use the reorder form (Form
8109A) provided in the coupon book.

To help ensure proper crediting to the
cooperative's account, write the
cooperative’s employer identification

Page 2

number (EIN), “Form 990-C,” and the tax
period to which the deposit applies on the
cooperative’s. check or money order.

A penalty may be imposed for failure to
deposit the required amount of tax. See
section 6656,

For more information concerning
deposits, see Pub. 583, Taxpayers
Starting a Business.

4. Estimated Tax

Generally, a cooperative must make
estimated tax payments if it can expect its
estimated tax (income tax minus credits)
to be $500 or more. Use Form 1120-W,
Corporation Estimated Tax, as a worksheet
to compute estimated tax. Use the deposit
coupons (Forms 8109) in making deposits
of 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 both: (1) at least
10% of expected income tax liability, and
(2) at least $500. To apply, file Form
4466 after the end of the tax year, but
before the 16th day of the third month
thereafter, and before the cooperative
files its tax return.

5. Timing Change in Deducting
Accrued Expenses

Generally, an accrual basis taxpayer can
deduct.accrued expenses in the tax year
that all events have occurred that
determine the liability, and the amount of
the liability can be figured with reasonable
accuracy. However, generally all the
events that establish liability for the
amount are treated as occurring only
when economic performance takes piace.
There are exceptions for recurring items.
See section 461(h).

D. Interest and Penalties

Avoid interest and penalties by-correctly
filing the return and paying the tax when
due. The cooperative may have to pay the
following penalties unless it can show that
failure to file or pay was due to
reasonable cause and not willful neglect.
1. Interest.—Interest is charged on taxes
not paid by the due date even if an
extension of the time to file is granted.
Interest is also charged on penalties 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.

2. Late Filing of Return.—A cooperative
that fails to file its tax return when due
(including extensions of time for filing)
may be subject to a penalty of 5% of the
unpaid tax for each month or fraction of a
month the return is not filed. The penalty
cannot exceed 25% of the unpaid tax.. The
minimum penalty for a return that is more
than 60 days late is the smaller of the tax
due or $100.

3. Late Payment of Tax.—Generally, the
penalty for not paying tax when due is %
of 1% of the unpaid amount for each

month or fraction of a month the tax
remains unpaid. The penalty cannot
exceed 25% of the amount due. It also
applies to any additional tax shown on a
bill not paid within 10 days of the date of
the notice and demand for payment.
4. Underpayment of Estimated Tax.—A
cooperative that fails to make estimated
tax payments when due may be subject to
an underpayment penalty for the period of
underpayment. In general, to avoid the
estimated tax penalty, the cooperative
must make estimated tax payments of at
feast 90% of the tax shown on the return
or 100% of its prior year’s tax. See
section 6655 for details and exceptions.
Form 2220, Underpayment of
Estimated Tax by Corporations, is used to
see if the cooperative owes a penalty and
to figure the amount of the penalty. tn
certain cases, you may be required to
complete and attach Form 2220 if no
penalty is due. See Form 2220 for details.
If you attach Form 2220, be sure to check
the box on line 33, page 1, and enter the
amount of any penalty on this: line.
5. Other Penalties.—There are also
penalties that can be imposed for
negligence, substantial understatement of
B& and fraud. See sections 6662 and

E. Other Forms, Returns,
Schedules, and Statements
That May Be Required

1. Forms.

The cooperative may have to file any of
the following:

Forms W-2 and W-3. Wage and Tax
Statement; and Transmittal of Income and
Tax Statements.

Form W-2P. Statement for Recipients of
Annuities, Pensions, Retired Pay, or IRA
Payments.

Form 966. Corporate Dissolution or
Liquidation.

Forms 1042 and 1042S. Annual
Withholding Tax Return for U.S. Source
Income of Foreign Persons; and Foreign
Person's U.S. Source income Subject to
Withholding. Use these forms to report
and transmit withheld tax on payments or
distributions made to nonresident alien
individuais, foreign partnerships, or foreign
corporations to the extent such payments.
or distributions constitute gross income
from sources within the U.S. (see sections
861 through 865). For more information,
see sections 1441 and 1442, and Pub.
515, Withholding of Tax on Nonresident
Aliens and Foreign Corporations.

Form 1096. Annual Summary and
Transmittal of U.S. Information Returns.
Form 1098. Mortgage Interest Statement.
This form is used to report the receipt
from any individual of $600 or more of
mortgage interest in the course of the
cooperative's trade or business for any
calendar year.

Forms 1099-A, B, DIV, INT, MISC, OID,
PATR, R, and S. Information returns for
reporting abandonments, acquisitions
through foreclosure, proceeds from broker
and barter exchange transactions, certain
dividends and distributions, interest