Cat. No. 11288M

Instructions for Form 990-C

Farmers’ Cooperative Association Income Tax Return

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

Department of the Treasury

Internal Revenue Service

Paperwork Reduction Act Notice.—We

ask for the information on this form to

carry out the Internal Revenue laws of the

United States. You are required to give us

the information. We need it to ensure that

you are complying with these laws and to

allow us to figure and collect the right

amount of tax.

The time needed to complete and file

this form will vary depending on individual

circumstances. The estimated average time

is:

Recordkeeping 75 hr., 20 min.

Learning about the

law or the form 22 hr., 58 min.

Preparing the form 40 hr., 7 min.

Copying, assembling,

and sending the form

to the IRS 4 hr., 17 min.

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form 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 Where To File.

General Instructions

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

its income tax liability.

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 producer is a person who, as owner or

tenant, bears the risk of production and

receives income based on farm production

rather than fixed compensation. For

example, if a cooperative leases its land to

a tenant farmer who agrees to pay a rental

fee based on a percentage of the farm

crops produced, both the landowner and

the tenant farmer qualify as producers.

When To File

In general, a cooperative must file its

income tax return by the 15th day of the

9th month after the end of its tax year.

Extension.—File Form 7004, Application

for Automatic Extension of Time To File

Corporation Income Tax Return, to request

a 6-month extension of time to file.

Where To File

If the principal

office of the

organization

is located in

Use the following

Internal Revenue

Service Center

address

Ä Ä

Alabama, Arkansas, Florida,

Georgia, Louisiana,

Mississippi, North Carolina,

South Carolina, Tennessee

Atlanta, GA 39901

Arizona, Colorado, Kansas,

New Mexico, Oklahoma,

Texas, Utah, Wyoming

Austin, TX 73301

Indiana, Kentucky,

Michigan, Ohio, West

Virginia

Cincinnati, OH 45999

Alaska, California, Hawaii,

Idaho, Nevada, Oregon,

Washington

Fresno, CA 93888

Connecticut, Maine,

Massachusetts, New

Hampshire, New York,

Rhode Island, Vermont

Holtsville, NY 00501

Illinios, Iowa, Minnesota,

Missouri, Montana,

Nebraska, North Dakota,

South Dakota, Wisconsin

Kansas City, MO 64999

Delaware, District of

Columbia, Maryland, New

Jersey, Pennsylvania,

Virginia, any U.S.

possession, or foreign

country

Philadelphia, PA 19255

A group of cooperatives located in

several service center regions will often

keep all the books and records at the

principal office of the managing

cooperative. If this is the case, the income

tax returns of the cooperative may be filed

with the service center region in which this

principal office is located.

Who Must Sign

The return must be signed and dated by

the president, vice president, treasurer,

assistant treasurer, chief accounting

officer, or any other officer (such as tax

officer) authorized to sign. Receivers,

trustees, or assignees also must sign and

date any return filed on behalf of a

cooperative.

If a cooperative officer completes Form

990-C, the Paid Preparer’s space should

remain blank. Anyone who prepares Form

990-C but does not charge the cooperative

should not sign the return. Generally,

anyone who is paid to prepare the return

must sign it and fill in the other blanks in

the Paid Preparer’s Use Only area.

The paid preparer must complete the

required preparer information and:

● Sign the return, by hand, in the space

provided for the preparer’s signature.

(Signature stamps and labels are not

acceptable.)

● Give a copy of the return to the

taxpayer.

Accounting Methods

Taxable income must be computed using

the method of accounting regularly used in

keeping the cooperative’s books and

records. Generally, permissible methods

include the cash, accrual, or any other

method authorized by the Internal Revenue

Code. In all cases, the method used must

clearly show taxable income.

Generally, a cooperative must use the

accrual method of accounting if its average

annual gross receipts exceed $5 million.

See section 448(c).

Generally, an accrual basis taxpayer can

deduct accrued expenses in the tax year in

which 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 for recurring items. See section

461(h) and the related regulations for more

information.

Long-term contracts (except for certain

real property construction contracts) must

generally be accounted for using the

percentage of completion method

described in section 460. See section 460

for general rules on long-term contracts.

Generally, the cooperative may change

the method of accounting used to report
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taxable income (for income as a whole or

for any material item) only by getting

consent on Form 3115, Application for

Change in Accounting Method. For more

information, get Pub. 538, Accounting

Periods and Methods.

Completed Crop Pool Method of

Accounting.—Cooperatives may use the

completed crop pool method of accounting

for crop pools open before March 1, 1978.

See section 1382(g) for more information.

Change in Accounting

Period

Generally, before changing an accounting

period, the Commissioner’s approval must

be obtained (Regulations section 1.442-1)

by filing Form 1128, Application to Adopt,

Change, or Retain a Tax Year. Also see

Pub. 538.

Rounding Off to Whole

Dollars

The cooperative may show amounts on the

return and accompanying schedules as

whole dollars. To do so, drop any amount

less than 50 cents and increase any

amount from 50 cents through 99 cents to

the next higher dollar.

Recordkeeping

The cooperative’s records should be kept

for as long as they may be needed for the

administration of any provision of the

Internal Revenue Code. Usually, records

that support an item of income, deduction,

or credit on the return must be kept for 3

years from the date the return is due or

filed, whichever is later. Keep records that

verify the cooperative’s basis in property

for as long as they are needed to figure

the basis of the original or replacement

property.

The cooperative should also keep copies

of any returns it has filed. They help in

preparing future returns and in making

computations when filing an amended

return.

Depositary Method of Tax

Payment

The cooperative must pay the tax due in

full no later than the 15th day of the 3rd

month after the end of the tax year.

Deposit cooperative income tax payments

(and estimated tax payments) with Form

8109, Federal Tax Deposit Coupon. Do not

send deposits directly to an IRS office.

Mail or deliver the completed Form 8109

with the payment to a qualified 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 “1120” box on the coupon. Records of

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, Taxpayers

Starting a Business.

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.

Estimated Tax Payments

Generally, a cooperative must make

installment payments of estimated tax if it

expects its estimated tax (income tax

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

calendar or fiscal year cooperative, the

installments are due by the 15th day of the

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

year. If any date falls on a Saturday,

Sunday, or legal holiday, the installment is

due on the next regular workday. Use

Form 1120-W, Corporation Estimated Tax,

as a worksheet to compute estimated tax.

Use the deposit coupons (Form 8109) to

make deposits of estimated tax. For more

information on estimated tax payments,

including penalties that apply if the

cooperative fails to make required

payments, see the instructions for line 33

on page 7.

If the cooperative overpaid estimated

tax, it may be able to get a “quick refund”

by filing Form 4466, Corporation

Application for Quick Refund of

Overpayment of Estimated Tax. The

overpayment must be at least 10% of

expected income tax liability and at least

$500. To apply for a quick refund, file Form

4466 before the 16th day of the 3rd month

after the end of the tax year, but before

the cooperative files its tax return. Do not

file Form 4466 before the end of the

cooperative’s tax year.

Interest and Penalties

Interest.—Interest is charged on taxes not

paid by the due date even if an extension

of 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.

Late filing of return.—A cooperative that

does not file its tax return by the due date,

including extentions, may have to pay a

penalty of 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 more than 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.

Late payment of tax.—A cooperative that

does not pay the tax when due may have

to pay a penalty of 1⁄2 of 1% of the unpaid

tax for each month or part of a month the

tax is not paid, up to a maximum of 25%

of the unpaid tax. This penalty may also

apply to any additional tax not paid within

10 days of the date of the notice and

demand for payment. The penalty will not

be imposed if the cooperative can show

that the failure to pay on time was due to

reasonable cause.

Other penalties.—Other penalties can be

imposed for negligence, substantial

understatement of tax, and fraud. See

sections 6662 and 6663.

Unresolved Tax Problems

The IRS has a Problem Resolution

Program for taxpayers who have been

unable to resolve their problems with the

IRS. If the cooperative has a tax problem it

has been unable to resolve through normal

channels, write to the cooperative’s local

IRS district director or call the

cooperative’s local IRS office and ask for

Problem Resolution Assistance.

Hearing-impaired persons who have

access to TDD equipment may call

1-800-829-4059 to ask for help. The

Problem Resolution office will ensure that

your problem receives proper attention.

Although the office cannot change the tax

law or make technical decisions, it can

help clear up problems that may have

resulted from previous contacts.

Other Forms, Returns,

Schedules, and Statements

That May Be Required

Forms

The cooperative may have to file any of the

following:

Form W-2, Wage and Tax Statement, and

Form W-3, Transmittal of Income and Tax

Statements.

Form 940 or Form 940-EZ, Employer’s

Annual Federal Unemployment (FUTA) Tax

Return. The cooperative may be liable for

FUTA tax and may have to file Form 940 or

940-EZ if it paid wages of $1,500 or more

in any calendar quarter or one or more

employees worked for the cooperative for

some part of a day in any 20 different

weeks during the calendar year.

Form 941, Employer’s Quarterly Federal

Tax Return. Employers must file this form

quarterly to report income tax withheld and

employer and employee social security and

Medicare taxes. Agricultural employers

must file Form 943, Employer’s Annual Tax

Return for Agricultural Employees, instead

of Form 941, to report income tax withheld

and employer and employee social security

and Medicare taxes for farmworkers.

Caution: A 100% penalty may apply if

income, social security, and Medicare taxes

that must be withheld are not withheld or

are not paid to the IRS. The penalty is

100% of the unpaid taxes. The 100%

penalty may be imposed on all persons

who are determined by the IRS to be
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responsible for collecting, accounting for,

and paying over these taxes, and who

acted willfully in not doing so. See Circular

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

Agricultural Employer’s Tax Guide), for

details including the definition of

responsible person.

Form 966, Corporate Dissolution or

Liquidation.

Form 1042, Annual Withholding Tax Return

for U.S. Source Income of Foreign

Persons, and Form 1042S, Foreign

Person’s U.S. Source Income Subject to

Withholding. Use these forms to report and

transmit withheld tax on payments or

distributions made to nonresident alien

individuals, foreign partnerships, or foreign

corporations to the extent such payments

or distributions constitute gross income

from sources within the U.S. (see sections

861 through 865). For more information,

see sections 1441 and 1442, and Pub.

515, Withholding of Tax on Nonresident

Aliens and Foreign Corporations.

Form 1096, Annual Summary and

Transmittal of U.S. Information Returns.

Form 1098, Mortgage Interest Statement.

This form is used to report the receipt from

any individual of $600 or more of mortgage

interest and points in the course of the

cooperative’s trade or business for any

calendar year.

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

PATR, R, and S. These information returns

are for reporting abandonments,

acquisitions through foreclosure, proceeds

from broker and barter exchange

transactions, certain dividends and

distributions, interest payments, payments

for certain fishing boat crew members,

medical and dental health care payments,

direct sales of consumer goods for resale,

miscellaneous income payments,

nonemployee compensation, original issue

discount, patronage dividends,

distributions from profit-sharing plans,

retirement plans, individual retirement

arrangements, insurance contracts, etc.,

and proceeds from real estate

transactions. Also use these returns to

report amounts received as a nominee on

behalf of another person. For more

information, see the instructions for Form

1099 and Pub. 937, Employment Taxes

and Information Returns.

Note: Every cooperative must file Form

1099-MISC if, in the course of its trade or

business, it makes payments of rents,

commissions, or other fixed or

determinable income (see section 6041)

totaling $600 or more to any one person

during the calendar year.

Form 5452, Corporate Report of

Nondividend Distributions.

Form 5498, Individual Retirement

Arrangement Information. Use this form to

report contributions (including rollover

contributions) to an individual retirement

arrangement (IRA) and the value of an IRA

or simplified employee pension account

(SEP).

Form 5713, International Boycott Report,

for persons having operations in or related

to “boycotting” countries. Also, persons

who participate in or cooperate with an

international boycott may have to complete

Schedule A or B and Schedule C of Form

5713 to compute their loss of the following

items: the foreign tax credit, the deferral of

earnings of a controlled foreign

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. Taxpayers

who have acquired an interest in a tax

shelter, which is required to be registered,

use this form to report the tax shelter’s

registration number. Form 8271 must be

attached to any tax return (including an

application for tentative refund (Form 1139)

and an amended return) on which a

deduction, credit, loss, or other tax benefit

attributable to a tax shelter is taken or any

income attributable to a tax shelter is

reported.

Form 8275, Disclosure Statement. Form

8275 is used by taxpayers and income tax

preparers to disclose items or positions,

except those contrary to a regulation (see

Form 8275-R, below), that are not

otherwise adequately disclosed on a tax

return. The disclosure is made to avoid

parts of the accuracy-related penalty

imposed for negligence, disregard of rules,

or substantial understatement of tax. Form

8275 is also used for disclosures relating

to preparer penalties for understatement

due to unrealistic positions or for willful or

reckless conduct.

Form 8275-R, Regulation Disclosure

Statement, is used to disclose any item on

a tax return for which a position has been

taken that is contrary to Treasury

Regulations.

Form 8300, Report of Cash Payments

Over $10,000 Received in a Trade or

Business. Generally, this form is used to

report the receipt of more than $10,000 in

cash or foreign currency in one transaction

or in a series of related transactions.

After February 2, 1992, cashier’s checks,

bank drafts, and money orders with face

amounts of $10,000 or less are considered

cash under certain circumstances. For

more information, see Form 8300 and

Regulations section 1.6050I-1(c).

Form 8594, Asset Acquisition Statement,

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 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, which are subject to the

passive activity limitations of section 469,

use this form to compute their allowable

passive activity loss and credit.

Consolidated Return

The nonexempt parent of an affiliated

group of corporations must attach Form

851, Affiliations Schedule, to the

consolidated return. For the first year a

consolidated return is filed, each subsidiary

must attach Form 1122, Authorization and

Consent of Subsidiary Corporation to be

Included in a Consolidated Income Tax

Return.

File supporting statements for each

corporation included in the consolidated

return. Use columns to show the following,

both before and after adjustments:

● Items of gross income and deductions.

● A computation of taxable income.

● Balance sheets as of the beginning and

end of tax year.

● A reconciliation of retained earnings.

● A reconciliation of income per books

with income per return.

Attach consolidated balance sheets and

a reconciliation of consolidated retained

earnings.

Attachments

Attach Form 4136, Credit for Federal Tax

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

Attach schedules in alphabetical order and

other forms in numerical order after Form

4136.

To assist us in processing the return,

please 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

and show the same information in the

same order as on the printed forms. But

show your 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. Be sure to put the

cooperative’s name and EIN on each

sheet.

Specific Instructions

Period Covered.—File the 1992 return for

calendar year 1992 and fiscal years that

begin in 1992 and end in 1993. For a fiscal

year, fill in the tax year space at the top of

the form.
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Name, Address, and

Employer Identification

Number (EIN)

Use the label on the package that was

mailed to the cooperative. Cross out any

errors and print the correct information on

the label. If the cooperative doesn’t have a

label, print or type the cooperative’s true

name (as set forth in the charter or other

legal document creating it), address, and

EIN on the appropriate lines.

Address.—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 box number instead

of the street address.

Note: If a change in address occurs after

the return is filed, the cooperative should

use Form 8822, Change of Address, to

notify the IRS of the new address.

Item A. Identify the business activity from

which the cooperative receives the largest

total receipts (e.g., wholesale marketing of

meat; drying fruit; grain storage; wholesale

purchasing of fertilizers; cattle breeding;

etc.).

Item B. Employer identification number

(EIN).—Show the correct EIN in item B. If

the cooperative does not have an EIN, it

should apply for one on Form SS-4,

Application for Employer Identification

Number. Form SS-4 can be obtained at

most IRS and Social Security

Administration (SSA) offices. Send Form

SS-4 to the same Internal Revenue Service

Center to which Form 990-C is mailed. If

the cooperative has not received its EIN by

the time the return is due, write “Applied

for” in the space for the EIN. See Pub. 583

for more information.

Item C. Do not check this box if the

“Section 521” box is checked in Item D.

Item D. Type of 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.

Accrual method 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 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

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 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 or other schedules. List the type

and amount of income. 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

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 taxes

against tax refunds.

For cooperatives 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 the cooperative has only one item of

“other income,” describe it in parentheses

on line 10.

Deductions

Limitations on deductions

Section 263A uniform capitalization

rules.—These rules require cooperatives to

capitalize or include in inventory certain

costs incurred in connection with the

production of real and personal 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

during the production period of certain

property must be capitalized and is

governed by special rules. For more

information, see Notice 88-99, 1988-2 C.B.

422. The uniform capitalization rules also

apply to the production of property

constructed or improved by a cooperative

for use in its trade or business or in an

activity engaged in for profit.

Section 263A does not apply to personal

property acquired for resale if the

cooperative’s annual average gross

receipts are $10 million or less. It does not

apply to timber or to most property

produced under a long-term contract.

Special rules apply to farmers. The rules

do not apply to property produced for use

by the cooperative if substantial

construction had occurred before March 1,

1986.

In the case of inventory, some of the

indirect costs that must be capitalized are

administration expenses, taxes,
Page 5

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 that must be capitalized under

section 263A are not deductible until the

property to which the costs relate is sold,

used, or otherwise disposed of by the

cooperative.

Current deductions may still be claimed

for research and experimental costs under

section 174, intangible drilling costs for oil

and gas and geothermal property, and

mining and exploration and development

costs. 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.

Transactions between related

taxpayers.—Generally, an accrual basis

taxpayer may only deduct business

expenses and interest owed to a related

party in the year payment is included in

income of the related party. See sections

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

on deductions for unpaid interest and

expenses.

Section 291 limitations.—Cooperatives

may be required to adjust deductions for

depletion of iron ore and coal, intangible

drilling, exploration and development

costs, and the amortizable basis of

pollution control facilities. See section 291

to determine the amount of the

adjustment. Also see section 43.

Golden parachute payments.—A portion

of the payments made by a cooperative to

key personnel that exceeds their usual

compensation may not be deductible. This

occurs when the cooperative has an

agreement (golden parachute) with these

key employees to pay them these

excessive amounts if control of the

cooperative changes. See section 280G.

Business startup expenses.—Business

startup expenses are required to 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)).

There are two kinds of passive activities:

trade or business activities in which the

cooperative did not materially participate

(see Temporary Regulations section

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

activities regardless of its participation. An

activity is a trade or business activity if the

activity involves the conduct of a trade or

business (i.e., deductions from the activity

would be allowable under section 162 if

other limitations, such as the passive loss

rules, did not apply), or the activity involves

research or experimental expenditures that

are deductible under section 174 (or would

be deductible if the cooperative chose to

deduct rather than capitalize them), and

the activity is not a rental activity.

Cooperatives subject to the passive

activity limitations must complete Form

8810 to compute their allowable passive

activity loss and credit. Before completing

Form 8810, see Temporary Regulations

section 1.163-8T, which provides rules for

allocating interest expense among

activities. If a passive activity is also

subject to the at-risk rules of section 465,

the at-risk rules apply before the passive

loss rules. For more information, see

section 469, the related regulations, and

Pub. 925, Passive Activity and At-Risk

Rules.

Line 12. Compensation of officers.—

Enter any officers’ compensation on line

12. Before entering an amount on line 12,

complete Schedule E on page 3 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.

If a consolidated return is filed, each

member of an affiliated group must furnish

this information.

Line 13. Salaries and wages.—Enter the

total salaries and wages paid or incurred

for the tax year. Do not include salaries

and wages deductible elsewhere on the

return, such as amounts included in cost

of goods sold, elective contributions to a

section 401(k) cash or deferred

arrangement, or amounts contributed

under a salary reduction SEP agreement.

Caution: If the cooperative provided

taxable fringe benefits to its employees,

such as personal use of a car, do not

deduct as wages the amount allocated for

depreciation and other expenses claimed

on lines 20 and 26.

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 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.—Enter taxes paid or

accrued during the tax year, but do not

include the following:

● Federal income taxes (except the

environmental tax under section 59A);

● Foreign or U.S. possession income taxes

if a tax credit is claimed;

● 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.); or

● Taxes deducted elsewhere on the return,

such as those reflected in cost of goods

sold.

See section 164(d) for apportionment of

taxes on real property between the seller

and purchaser.

If the cooperative is liable for

environmental tax under section 59A, see

Form 4626, Alternative Minimum Tax—

Corporations, for computation of the

environment tax deduction.

Line 18. Interest.—Do not include interest

on indebtedness incurred or continued to

purchase or carry obligations if the interest

is wholly exempt from income tax. For

exceptions, see section 265(b).

Generally, a cash basis taxpayer cannot

deduct prepaid interest allocable to years

following the current tax year. For example,

a cash basis calendar year taxpayer who in

1992 prepaid interest allocable to any

period after 1992 can deduct only the

amount allocable to 1992.

Generally, the interest and carrying

charges on straddles cannot be deducted

and must be capitalized. See section

263(g).

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

the disqualified portion of original issue

discount on a high yield discount

obligation.

Certain interest paid or accrued by the

cooperative (directly or indirectly) to a

related person may be limited if tax is not

imposed on that interest. See section

163(j) for more information.

Do not deduct interest on debt allocable

to the production of qualified property.

Interest that is allocable to certain property

produced by a cooperative for its own use

or for sale must be capitalized. A

cooperative must also capitalize any

interest on debt allocable to an asset used

to produce the above property. See

section 263A and Notice 88-99 for

definitions and more information.
Page 6

See section 7872 for special rules

regarding the deductibility of foregone

interest on certain below-market-rate

loans.

Line 19. Charitable contributions.—Enter

contributions or gifts actually paid in the

tax year to or for the use of charitable and

governmental organizations described in

section 170(c) and any unused

contributions carried over from prior years.

The total amount claimed may not be

more than 10% of taxable income (line 30)

computed without regard to the following:

● Any deduction for contributions;

● The special deductions on line 29b,

Form 990-C;

● Any net operating loss (NOL) carryback

to the tax year under section 172;

● Any capital loss carryback to the tax

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

● The deduction allowed under section

249.

Charitable contributions over the 10%

limitation may not be deducted for the tax

year but may be carried over to the next 5

tax years.

Taxable income is modified in order to

determine the NOL used in an intervening

year (i.e., a year to which an NOL is carried

but not fully absorbed). For this purpose,

taxable income is computed by

determining the NOL deduction for the

year without regard to the NOL for the loss

year or any later year. See section

172(b)(2). To the extent charitable

contributions are used to reduce taxable

income for this purpose and increase an

NOL carryover, a contributions carryover is

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

Cooperatives on the accrual basis may

elect to deduct contributions paid by the

15th day of the 3rd month after the end of

the tax year if the contributions are

authorized by the board of directors during

the tax year. Attach a declaration to the

return, signed by an officer, stating that the

resolution authorizing the contributions was

adopted by the board of directors during

the tax year. Also, attach a copy of the

resolution.

If a cooperative (other than a closely

held cooperative) contributes property

other than cash and the deduction claimed

for the property exceeds $500, the

cooperative must attach a schedule to the

return describing the kind of property

contributed and the method used to

determine 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.

A cooperative must also keep records,

as required by the regulations for section

170, for all its charitable contributions.

If the cooperative made a “qualified

conservation contribution” under section

170(h), also include the fair market value of

the underlying property before and after

the donation, as well as the type of legal

interest contributed, and describe the

conservation purpose benefited by the

donation.

If a contribution carryover was included,

show the amount and how it was

determined.

Special rules for contributions of certain

property.—For a charitable contribution of

property, the cooperative must reduce the

contribution by the sum of:

1. The ordinary income, short-term

capital gain that would have resulted if the

property were sold at its fair market value;

and

2. For certain contributions, all of the

long-term capital gain that would have

resulted if the property were sold at its fair

market value.

The reduction for the long-term capital

gain applies to:

● Contributions of tangible personal

property for use by an exempt organization

for a purpose or function unrelated to the

basis for its exemption, and

● Contributions of any property (except for

stock for which market quotations are

readily available—see section 170(e)(5)) to

or for the use of certain private

foundations. See section 170(e) and

Regulations section 1.170A-4.

For special rules for contributions of

inventory and other property to certain

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

Regulations section 1.170A-4A.

Charitable contributions of scientific

property used for research. A

cooperative can receive a larger deduction

for contributing scientific property used for

research to an institution of higher

education. For more details, see section

170(e).

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

tangible property placed in service during

tax year 1992 or carried over from 1991.

See Form 4562, Depreciation and

Amortization, and its instructions.

Line 22. Depletion.—See sections 613

and 613A for percentage depletion rates

applicable to natural deposits. Also, see

section 291 for the limitation on the

depletion deduction for iron ore and coal

(including lignite).

Foreign intangible drilling costs and

foreign exploration and development costs

must either be added to the cooperative’s

basis for cost depletion purposes or be

deducted ratably over a 10-year period.

See sections 263(i), 616, and 617 for

details.

Attach Form T (Timber), Forest

Industries Schedules, if a deduction for

depletion of timber is taken.

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

plans.—Enter the deduction for

contributions to 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.—Complete this form for each

plan with 100 or more participants.

Form 5500-C/R.—Complete this form for

each plan with fewer than 100 participants.

Form 5500EZ.—Complete this form for a

one-participant plan. The term

“one-participant plan” also means a plan

that covers the owners and their spouses

or a plan that covers partners in a

business partnership (or the partners and

their spouses).

Line 25. Employee benefit programs.—

Enter the contributions to employee benefit

programs not claimed elsewhere on the

return (e.g., insurance, health and welfare

programs) that are not an incidental part of

a pension, profit-sharing, etc., plan

included on line 24.

Line 26. Other deductions.—Attach a

separate sheet listing all allowable

deductions that are not deductible

elsewhere on Form 990-C.

Include on this line the deduction for

amortization of pollution control facilities,

organization expenses, etc. See Form

4562.

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.

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. Also, meals must not be lavish or

extravagant; a bona fide business

discussion must occur during, immediately

before, or immediately after the meal; and

your employee must be present at the

meal. See section 274(k)(2) for exceptions.

If the cooperative claims a deduction for

unallowable meal expenses, it may have to

pay a penalty.

Additional limitations apply to deductions

for gifts, skybox rentals, luxury water

travel, convention expenses, and

entertainment tickets. For details, see

section 274 and Pub. 463, Travel,

Entertainment, and Gift Expenses.

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.
Page 7

Note: Do not deduct penalties such as

those listed under Interest and Penalties

on page 2 of the instructions.

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 (see Passive activity

limitations) 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.—The NOL

deduction is the total of the NOL

carryovers and carrybacks that can be

deducted in the tax year. See section

172(a). If this deduction is taken, show its

computation on an attached schedule.

Generally, unless section 277 applies, a

cooperative may carry an NOL back (under

section 172) to each of the 3 years

preceding the year of the loss and carry it

over to each of the 15 years following the

year of the loss. There is also an election

to carry an NOL (under section 172) over

to each of the 15 years following the year

of the loss. To make this election, check

the box for question 18 on Schedule N.

The return must be timely filed (including

extensions). The election is irrevocable.

See section 172(b)(3).

After applying the NOL to the first tax

year to which it may be carried, the portion

of the loss the cooperative may carry 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 loss. See

section 172(b).

If there is a carryback of an NOL, 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.

Caution: 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 end of the tax year, file

an amended Form 990-C instead of Form

1139.

Line 30. Taxable income.—For

coopertives required to file Form 8817,

taxable income reported on line 30 may

not exceed the combined taxable income

shown on line 30, Form 8817. Attach Form

8817 to the cooperative’s tax return. See

Form 8817 for more details.

Caution: Patronage source losses cannot

be used to offset nonpatronage income.

See section 1388(j) for more information.

Line 32b. Estimated tax payments.—

Enter any estimated tax payments the

cooperative made for the tax year.

Beneficiaries of Trusts.—If the

cooperative is the beneficiary of a trust,

and the trust makes a section 643(g)

election to credit its estimated tax

payments to its beneficiaries, include the

cooperative’s share of the estimated tax

payment in the total amount entered on

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

payment in the blank space to the right of

the entry space.

Line 32f. Credit from refiguring tax for

years in which nonqualified per-unit

retain certificates or nonqualified 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 paid on

fuels.—Complete and attach Form 4136 if

the cooperative qualifies to take the credit

for Federal tax paid on fuels.

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 employer identification number,

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 label the amount “backup

withholding.”

Line 33. Estimated Tax Penalty.—A

cooperative that does not make estimated

tax payments when due may be subject to

an underpayment penalty for the period of

underpayment. Generally, a cooperative is

subject to the penalty if its tax liability is

$500 or more, and it did not timely pay the

smaller of (a) 93% of its tax liability for

1992 (97% of its tax liability for a tax year

beginning after June 30, 1992), or (b)

100% of its prior year’s tax. See section

6655 for details and exceptions including

special rules for large corporations.

Form 2220, Underpayment of Estimated

Tax by Corporations, is used to see if the

cooperative owes a penalty and to figure

the amount of the penalty. Generally, the

cooperative does not have to file this form

because the IRS can figure the amount of

any penalty and bill the cooperative for it.

However, in certain cases, you may be

required to complete and attach Form

2220 even 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

line 33.

Schedule A

Cost of Goods Sold

All filers should see Section 263A uniform

capitalization rules on page 4 before

completing Schedule A.

Line 4a.—Qualified per-unit retain

certificates are issued to patrons who have

consented 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 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 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. In the case of
Page 8

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. For cooperatives that

have elected a 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). 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.

Line 8.—See Temporary Regulations

section 1.263A-1T for more details on

computing the amount of additional

section 263A costs to be capitalized and

added to ending inventory.

Lines 10a through 10e

Inventory valuation methods. Inventories

can be valued at:

1. Cost

2. Cost or market value (whichever is

lower); or

3. Any other method approved by the

IRS that conforms with the provisions of

the applicable regulations cited below.

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”

generally refers to normal market

conditions where there is a current bid

price prevailing at the date the inventory is

valued. When no regular open 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.

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”

due to 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-firstout” (LIFO) inventory method was either

adopted or extended to inventory goods

not previously valued under the LIFO

method provided in section 472, attach

Form 970, Application To Use LIFO

Inventory Method, or a statement with the

information required by Form 970. Also

check the LIFO box on line 10b. On line

10c, 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 B

Income from patronage dividends

and per-unit retain allocations

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.B. 217, for more

information.

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 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.

Report so-called dividends or earnings

received from mutual savings banks, etc.,

as interest. Do not treat them as dividends.

Line 2, Column (a).—Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984) that are

received from 20%-or-more-owned

domestic corporations subject to income

tax and that are subject to the 80%

deduction under section 243(c). Include on

this line taxable distributions from an

IC-DISC or former DISC that are

considered eligible for the 80% deduction.

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

debt-financed stock acquired after July 18,

1984, that are received from domestic and

foreign corporations subject to income tax

and that would otherwise be subject to the

dividends-received deduction under

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

Generally, debt-financed stock is stock

that the corporation acquired by incurring

a debt (e.g., 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 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
Page 9

deduction provided in section 247 for

dividends paid.

Line 5, Column (a).—Enter dividends

received on preferred stock of a

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

subject to income tax and is allowed the

deduction provided in section 247 for

dividends paid.

Line 6, Column (a).—Enter the

U.S.-source portion of dividends that are

received from less-than-20%-owned

foreign corporations and that qualify for the

70% deduction under section 245(a). To

qualify for the 70% deduction, the

cooperative must own at least 10% of the

stock of the foreign corporation by vote

and value. Also include dividends received

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

attributable to income treated as effectively

connected with the conduct of a trade or

business within the United States

(excluding foreign trade income) and that

qualify for the 70% deduction provided in

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

Line 7, Column (a).—Enter the

U.S.-source portion of dividends that are

received from 20%-or-more-owned foreign

corporations and that qualify for the 80%

deduction under section 245(a). Also

include dividends received from a

20%-or-more-owned FSC that are

attributable to income treated as effectively

connected with the conduct of a trade or

business within the 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:

● 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.

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 under subpart

F (sections 951 through 964).

Line 13, Column (a).—Include income

constructively received from controlled

foreign corporations under subpart F. This

amount should equal the total of amounts

reported on Schedule I, Form(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 eligible for

a dividends-received deduction.

No deduction is allowed under section

243 for a dividend from an IC-DISC or

former DISC (as defined in section 992(a))

to the extent the dividend:

1. Is paid out of the corporation’s

accumulated IC-DISC income or previously

taxed income, or

2. Is a deemed distribution under section

995(b)(1).

Line 16, Column (a).—Include the

following:

1. Dividends (other than capital gain

dividends and exempt-interest dividends)

that are received from regulated

investment companies that are not subject

to the 70% deduction.

2. Dividends from tax-exempt

organizations.

3. Dividends (other than capital gain

dividends) received from a real estate

investment trust that, for the tax year of

the trust in which the dividends are paid,

qualifies under sections 856 through 860.

4. Dividends not eligible for a

dividends-received deduction because of

the holding period of the stock or an

obligation to make corresponding

payments with respect to similar stock.

Two situations in which the

dividends-received deduction will not be

allowed on any share of stock are:

● If the cooperative held it 45 days or less

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

● To the extent the cooperative is under

an obligation to make related payments for

substantially similar or related property.

5. Any other taxable dividend income not

properly reported above (including

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

Schedule H

Deductions and Adjustments

under Section 1382

Cooperatives have an option under section

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

allocation units to offset earnings of one or

more other allocations, as the bylaws of

the cooperative may allow, but only to the

extent that the earnings and losses are

derived from business done with or for

patrons. If a cooperative exercises the

section 1388(j)(1) 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 engage in

the practice of netting 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

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

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

section 1059 and without any capital loss carryback to the tax year

under section 1212(a)(1)

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

3. Subtract line 2 from line 1

4. Multiply line 3 by 80%

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

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

20%-or-more-owned corporations

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

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

not complete the rest of this worksheet

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

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

8. Subtract line 7 from line 3

9. Multiply line 8 by 70%

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

11. Enter the smaller of line 9 or line 10

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

lines 6 and 11. Enter the result on line 9, column (c)
Page 10

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 U.S., 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 capital 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.

Also, one of the following conditions

must be met before a written notice of

allocation is qualified:

1. The patron must have at least 90 days

from the date the written notice of

allocation is paid to redeem 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 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

Line 3

Most cooperatives figure their tax by using

the Tax Rate Schedule below. Exceptions

apply to members of a controlled group.

See the instructions below for more

information.

Tax Rate Schedule

If taxable income (line 30, Form 990-C)

on page 1 is:

But Of the

not Tax amount

Over— over— is: 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

335,000 - - - - - 34% 0

Members of a controlled group.—A

member of a controlled group, as defined

in section 1563, must check the box on

line 1 and complete lines 2a and 2b of

Schedule J.

Members of a controlled group are

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

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. 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

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

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 15% of line 2

7. Enter 25% of line 4

8. Enter 34% of line 5

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

this member’s share of the smaller of: (a) 5% of the excess over

$100,000, or (b) $11,750. (See Additional 5% tax on this page.) 

10. Add lines 6 through 9. Enter here and on Schedule J, line 3
Page 11

members of the controlled group must

divide the amount in each taxable income

bracket equally among themselves. For

example, Controlled Group AB consists of

Cooperative A and Cooperative B. They do

not elect an apportionment plan. Therefore,

both Cooperative A and Cooperative B are

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

the $50,000 taxable income bracket on line

2a(i) and to $12,500 (one-half of $25,000)

in the $25,000 taxable income bracket on

line 2a(ii).

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

taxable 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 attach 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.—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 Corporation tax credit. For

rules on how to elect to claim the

possessions tax credit (Section 936), see

Form 5712, Election To Be Treated as a

Possessions Corporation Under Section

936. Figure the credit on Form 5735,

Possessions Corporation Tax Credit

Allowed Under Section 936.

● 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 8827, Credit for Prior

Year Minimum Tax, if any portion of the

1991 credit was disallowed solely because

of the tentative minimum tax limitation. See

section 53(d).

Line 4c. General business credit.—

Complete this line if the cooperative can

take any of the following credits. If the

cooperative has two or more of these

credits, a credit carryforward or carryback

(including an ESOP credit), or a passive

activity credit, Form 3800, General

Business Credit, must also be completed.

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.

Investment credit. This credit was

generally repealed for property placed in

service after 1985. See Form 3468,

Investment Credit, 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 Form 3468 for

details.

Jobs credit. The cooperative may qualify

to take this credit if it hired members of

special targeted groups during the tax

year. See Form 5884, Jobs Credit, for

more information.

Note: The cooperative may not take an

expense deduction for the part of the

wages or salaries paid or incurred that is

equal to the amount of the jobs credit

(determined without regard to the limitation

based on the tax (section 38(c))).

Credit for alcohol used as fuel. 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 and section 41.

Low-Income housing credit. See Form

8586, Low-Income Housing Credit and

section 42.

Enhanced oil recovery credit. A

cooperative may claim a credit for qualified

enhanced oil recovery costs. Use Form

8830, Enhanced Oil Recovery Credit, to

figure the 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 Form

8826, Disabled Access Credit, and section

44.

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.

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) on which it

took the low-income housing credit, see

Form 8611, Recapture of Low-Income

Housing Credit, and section 42(j) for

details.

Line 8a. Alternative minimum tax.— The

cooperative may owe the alternative

minimum tax 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

amount on Form 3800, Schedule A, line

34. On the dotted line to the left of line 8a,

write “Sec. 38(c)(2)” and the amount.

Line 8b. Environmental tax.—The

cooperative may be liable for the

environmental tax if the modified

alternative minimum taxable income of the

cooperative exceeds $2 million. See Form

4626 for details.

Line 9. Interest on tax deferred under

the installment method for certain

non-dealer property installment

obligations.—If an obligation arising from

the disposition of property to which section

453A applies is outstanding at the close of

the tax year, the cooperative must include

the interest due under section 453A(c) on

line 9, Schedule J. Write on the dotted line

to the left of line 9, Schedule J, “Sec.

453A(c)” and the amount. Attach a

schedule showing the computation.

Schedule L

Balance Sheets

Line 5. Tax-exempt securities.—Include

on this line:

1. State and local government

obligations, the interest on which is

excludable from gross income under

section 103(a), and

2. Stock in a mutual fund or other

regulated investment company that

distributed exempt-interest dividends

during the tax year of the cooperative.

Schedule M-1

Reconciliation of Income per

Books With Income per Return

Line 5c. Travel and entertainment.—

Include on line 5c any of the following:

● 20% 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.
Page 12

● Employee achievement awards over

$400.

● The cost of entertainment tickets over

the face value (also subject to 20%

disallowance) under section 274(n).

● The cost of skyboxes over the face value

of non luxury 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.

Line 7a. Tax exempt-interest.—Include as

interest on line 7a tax-exempt dividends

received as a shareholder in a mutual fund

or other regulated investment company.

Schedule N

Other Information

Be sure to answer all of the questions that

apply to the cooperative. The following

instructions apply to questions 1 through

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

Question 13

Foreign financial account.—Check the

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

the cooperative. Otherwise, check the “No”

box:

1. At any time during the 1992 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, 1993, with

the Department of the Treasury at the

address shown on the form. Form 

TD F 90-22.1 is not a tax return. Do not file

it with Form 990-C.

You can get Form TD F 90-22.1 from an

IRS Forms Distribution Center or by calling

our toll-free number 1-800-TAX-FORM

(1-800-829-3676).

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.

Question 15

In the space provided, show any

tax-exempt interest received or accrued.

Include any exempt-interest dividends

received as a shareholder in a mutual fund

or other regulated investment company.

Question 17

Check the “Yes” box for question 17 if

either 1 or 2 below applies to the

cooperative:

1. The cooperative is a subsidiary in an

affiliated group (defined below), but is not

filing a consolidated return for the tax year

with that group.

2. The cooperative is a subsidiary in a

parent-subsidiary controlled group (defined

below).

Any cooperative that meets either of the

requirements above should check the

“Yes” box. This applies even if the

cooperative is a subsidiary member of one

group and the parent corporation of

another.

Note: If the cooperative is an “excluded

member” of a controlled group (see section

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

of a controlled group for this purpose.

Affiliated group.—The term “affiliated

group” means one or more chains of

includible corporations (section 1504(a))

connected through stock ownership with a

common parent corporation. The common

parent must be an includible corporation

and the following requirements must be

met:

1. The common parent must own directly

stock that represents at least 80% of the

total voting power and at least 80% of the

total value of the stock of at least one of

the other includible corporations.

2. Stock that represents at least 80% of

the total voting power, and at least 80% of

the total value of the stock of each of the

other corporations (except for the common

parent) must be owned directly by at least

one of the other includible corporations.

For this purpose, the term “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).

Parent-subsidiary controlled group.—The

term “parent-subsidiary controlled group”

means one or more chains of corporations

connected through stock ownership

(section 1563(a)(1)). Both of the following

requirements must be met:

1. 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of each corporation in

the group (except the parent) must be

owned by one or more of the other

corporations in the group.

2. The common parent must own at

least 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of at least one of the

other corporations in the group. Stock

owned directly by other members of the

group is not counted when computing the

voting power or value.

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

of “stock” for purposes of determining

stock ownership above.

Question 18

Check the box on line 18 if the cooperative

elects under section 172(b)(3) to forgo the

carryback period for an NOL. If this box is

checked, do not attach the statement

described in Regulations section 7.0(d).