Department of the Treasury 2003 Internal Revenue Service

Instructions for Form 990-C

Farmers’ Cooperative Association Income Tax Return

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

Contents Page by looking at the photographs and calling How To Get Forms and

Photographs of Missing Children . . . . 1 1-800-THE-LOST (1-800-843-5678) if you

Unresolved Tax Issues ............ 1 recognize a child. Publications

How To Get Forms and Personal computer. You can access the

Publications .................. 1 Unresolved Tax Issues IRS website 24 hours a day, 7 days a

General Instructions ............. 1 week, at www.irs.gov to: If the cooperative has attempted to deal Purpose of Form ................ 1 • Download forms, instructions, and with an IRS problem unsuccessfully, it Who Must File publications. .................. 1 should contact the Taxpayer Advocate. When To File • Order IRS products online. ................... 2 The Taxpayer Advocate independently

Where To File • See answers to frequently asked tax .................. 2 represents the cooperative’s interests and

Who Must Sign questions. ................. 2 concerns within the IRS by protecting its • Search publications online by topic or Paid Preparer Authorization ........ 2 rights and resolving problems that have keyword. Other Forms and Statements not been fixed through normal channels. • Send us comments or request help by That May Be Required .......... 2 While Taxpayer Advocates cannot email. Assembling the Return ............ 4 change the tax law or make a technical • Sign up to receive local and national Accounting Methods .............. 4 tax decision, they can clear up problems tax news by email. Accounting Periods .............. 4 that resulted from previous contacts and You can also reach us using file Rounding Off to Whole Dollars . . . . . . 4 ensure that the cooperative’s case is transfer protocol at ftp.irs.gov. Recordkeeping .................. 5 given a complete and impartial review. CD-ROM. Order Pub. 1796, Federal Tax Depository Method of Tax The cooperative’s assigned personal Products on CD-ROM, and get: Payment .................... 5

advocate will listen to its point of view and • Current year forms, instructions, and Estimated Tax Payments .......... 5

will work with the cooperative to address publications. Interest and Penalties ............. 5 its concerns. The cooperative can expect • Prior year forms, instructions, and Specific Instructions ............ 5 publications. the advocate to provide: Period Covered ................. 5 • A “fresh look” at a new or on-going • Frequently requested tax forms that Address ....................... 6 problem. may be filled in electronically, printed out Business Activity With the for submission, and saved for • Timely acknowledgement. Largest Total Receipts .......... 6 recordkeeping. • The name and phone number of the Employer Identification Number • The Internal Revenue Bulletin. individual assigned to its case. (EIN) ....................... 6 Buy the CD-ROM on the Internet at • Updates on progress. Consolidated Return .............. 6 www.irs.gov/cdorders from the National • Timeframes for action.

Type of Cooperative .............. 6 Technical Information Service (NTIS) for • Speedy resolution. $22 (no handling fee) or call Initial Return, Final Return, • Courteous service.

Name Change, Address When contacting the Taxpayer 1-877-CDFORMS (1-877-233-6767) toll

Change, or Amended Return . . . . . . 6 free to buy the CD-ROM for $22 (plus a Advocate, the cooperative should be $5 handling fee). Income ....................... 6 prepared to provide the following

Deductions .................... 7 information: By phone and in person. You can order

Schedule A . . . . . . . . . . . . . . . . . . . 12 • The cooperative’s name, address, and forms and publications 24 hours a day, 7

Schedule C . . . . . . . . . . . . . . . . . . . 13 employer identification number (EIN). days a week, by calling

Worksheet for Schedule C . . . . . . . . 14 • The name and telephone number of an 1-800-TAX-FORM (1-800-829-3676). You

Schedule H . . . . . . . . . . . . . . . . . . . 14 authorized contact person and the hours can also get most forms and publications

Schedule J and Worksheet for he or she can be reached. at your local IRS office. • The type of tax return and year(s) Members of a Controlled involved. Group . . . . . . . . . . . . . . . . . . . . . 15 • A detailed description of the problem. General Instructions

Schedule L . . . . . . . . . . . . . . . . . . . 17 • Previous attempts to solve the problem Schedule M-1 . . . . . . . . . . . . . . . . . 17 and the office that was contacted. Purpose of Form Schedule N . . . . . . . . . . . . . . . . . . . 17 • A description of the hardship the Use Form 990-C, Farmers’ Cooperative Index . . . . . . . . . . . . . . . . . . . . . . . . 19 cooperative is facing (if applicable). Association Income Tax Return, to report The cooperative may contact a income, gains, losses, deductions, Photographs of Missing Taxpayer Advocate by calling (toll free) credits, and to figure the income tax 1-877-777-4778. Persons who have liability of the cooperative. Children access to TTY/TDD equipment may call

The Internal Revenue Service is a proud 1-800-829-4059 and ask for Taxpayer Who Must File

partner with the National Center for Advocate assistance. If the cooperative Every farmers’ cooperative must file Form Missing and Exploited Children. prefers, it may call, write, or fax the 990-C whether or not it has taxable Photographs of missing children selected Taxpayer Advocate office in its area. See income (Regulations section 1.6012-2(f)). by the Center may appear in instructions Pub. 1546, The Taxpayer Advocate

on pages that would otherwise be blank. Service of the IRS, for a list of addresses Generally, a farmers’ cooperative is

You can help bring these children home and fax numbers. a farmers, fruit growers, or like

Cat. No. 11288M
association organized and operated on a is available for all timely filed income tax date (excluding extensions) for filing the

cooperative basis to: returns without regard to the requirements cooperative’s 2004 tax return.

1. Market the products of members or of section 6072(d).

other producers and return to them the Other Forms and

proceeds of sales, less necessary Where To File

marketing expenses, on the basis of Statements That May Be File Form 990-C with the Internal

either the quantity or value of their Revenue Service, Ogden, UT Required products; or 84201-0027.

2. Purchase supplies and equipment Forms

for the use of members or other persons Who Must Sign The cooperative may have to file some of and turn over the supplies and equipment The return must be signed and dated by: the following forms. See the form for more to them at actual cost, plus necessary • The president, vice president, information. expenses. treasurer, assistant treasurer, chief • Form W-2, Wage and Tax Statement, A member is anyone who shares in accounting officer or and Form W-3, Transmittal of Wage and the profits of a cooperative association • Any other cooperative officer (such as Tax Statements. Use these forms to

and is entitled to participate in the tax officer) authorized to sign. report wages, tips, and other management of the association. Receivers, trustees, or assignees also compensation, and withheld income,

A producer is a person who, as owner must sign and date any return filed on social security, and Medicare taxes for

or tenant, bears the risk of production and behalf of a cooperative. employees.

receives income based on farm If an employee of the cooperative • Form 720, Quarterly Federal Excise

production rather than fixed Tax Return. Use this form to report and completes Form 990-C, the paid

compensation. For example, if a pay environmental taxes, communications preparer’s space should remain blank.

cooperative leases its land to a tenant and air transportation taxes, fuel taxes, Anyone who prepares Form 990-C but

farmer who agrees to pay a rental fee manufacturers taxes, ship passenger does not charge the cooperative should

based on a percentage of the farm crops taxes, and certain other excise taxes. not complete that section. Generally,

produced, both the landowner and the anyone who is paid to prepare the return • Form 851, Affiliations Schedule. The

tenant farmer qualify as producers. must sign it and fill in the “Paid Preparer’s parent corporation of an affiliated group of Use Only” area. corporations must attach this form to its When To File The consolidated return. If this is the first year paid preparer must complete the

A cooperative may file its income tax required preparer information and— one or more subsidiaries are being

return by the 15th day of the 9th month • Sign the return in the space provided included in a consolidated return, also

after the end of its tax year provided it for the preparer’s signature. see Form 1122, Authorization and

meets the requirements of section • Give a copy of the return to the Consent of Subsidiary Corporation To Be

6072(d) prior to filing. Any cooperative taxpayer. Included in a Consolidated Income Tax

not Return, on page 3. meeting the requirements of section

6072(d) must file its income tax return by Paid Preparer Authorization • Form 926, Return by a U.S. Transferor

the 15th day of the 3rd month after the If the cooperative wants to allow the IRS of Property to a Foreign Corporation. Use

end of its tax year. to discuss its 2003 tax return with the paid this form to report certain transfers to

preparer who signed it, check the “Yes” foreign corporations under section 6038B. If the due date falls on a Saturday,

Sunday, or legal holiday, the cooperative box in the signature area of the return. • Form 940 or Form 940-EZ, Employer’s

may file on the next business day. This authorization applies only to the Annual Federal Unemployment (FUTA)

individual whose signature appears in the Tax Return. The cooperative may be Private delivery services. Cooperatives “Paid Preparer’s Use Only” section of the liable for FUTA tax and may have to file can use certain private delivery services cooperative’s return. It does not apply to Form 940 or Form 940-EZ if it either: designated by the IRS to meet the “timely the firm, if any, shown in that section. mailing as timely filing/paying” rule for tax 1. Paid wages of $1,500 or more in

If the “Yes” box is checked, the any calendar quarter in 2002 or 2003 or returns and payments. The most recent

list of designated private delivery services cooperative is authorizing the IRS to call 2. Had one or more employees who

was published by the IRS in September the paid preparer to answer any worked for the cooperative for at least

2002. The list includes only the following: questions that may arise during the some part of a day in any 20 or more

• Airborne Express (Airborne): Overnight processing of its return. The cooperative different weeks in 2002 or 20 or more

Air Express Service, Next Afternoon is also authorizing the paid preparer to: different weeks in 2003.

Service, and Second Day Service. • Give the IRS any information that is • Form 941, Employer’s Quarterly

• DHL Worldwide Express (DHL): DHL Federal Tax Return or missing from the return, Form 943,

“Same Day” Service, and DHL USA Employer’s Annual Federal Tax Return • Call the IRS for information about the

Overnight. processing of the return or the status of for Agricultural Employees. Employers

• Federal Express (FedEx): FedEx must file these forms to report income tax any related refund or payment(s), and

Priority Overnight, FedEx Standard withheld, and employer and employee • Respond to certain IRS notices that the

Overnight, FedEx 2Day, FedEx social security and Medicare taxes. Also, cooperative has shared with the preparer

International Priority, and FedEx see about math errors, offsets, and return Trust fund recovery penalty on

preparation. The notices will not be sent International First. page 5.

• United Parcel Service (UPS): UPS Next to the preparer. • Form 945, Annual Return of Withheld

Day Air, UPS Next Day Air Saver, UPS The cooperative is not authorizing the Federal Income Tax. File Form 945 to

2nd Day Air, UPS 2nd Day Air A.M., UPS paid preparer to receive any refund report income tax withheld from Worldwide Express Plus, and UPS check, bind the cooperative to anything nonpayroll distributions or payments, Worldwide Express. (including any additional tax liability), or including pensions, annuities, IRAs, The private delivery service can tell otherwise represent the cooperative gambling winnings, and backup you how to get written proof of the mailing before the IRS. If the cooperative wants withholding. Also, see Trust fund

date. to expand the paid preparer’s recovery penalty on page 5. authorization, see Pub. 947, Practice Extension. File Form 7004, Application • Form 966, Corporate Dissolution or Before the IRS and Power of Attorney. for Automatic Extension of Time To File Liquidation. Use this form to report the

Corporation Income Tax Return, to The authorization cannot be revoked. adoption of a resolution or plan to

request a 6-month extension of time to However, the authorization will dissolve the cooperative or liquidate any

file. The 6-month extension of time to file automatically end no later than the due of its stock.

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• Form 1042, Annual Withholding Tax • Form 5452, Corporate Report of • Form 8849, Claim for Refund of Excise

Return for U.S. Source Income of Foreign Nondividend Distributions. Use this form Taxes. Cooperatives use this form to

Persons, and to report nondividend distributions. claim a refund of certain excise taxes.

• Form 1042-S, Foreign Person’s U.S. • Form 5471, Information Return of U.S. • Form 8865, Return of U.S. Persons

Source Income Subject to Withholding. Persons With Respect to Certain Foreign With Respect to Certain Foreign Use these forms to report and send Corporations. This form is required if the Partnerships. A cooperative may have to withheld tax on payments or distributions cooperative controls a foreign file Form 8865 if it:

made to nonresident alien individuals, corporation; acquires, disposes of, or 1. Controlled a foreign partnership foreign partnerships, or foreign owns 10% or more in value or vote of the (i.e., owned more than a 50% direct or corporations to the extent these payments outstanding stock of a foreign corporation; indirect interest in the partnership). constitute gross income from sources or had control of a foreign corporation for 2. Owned at least a 10% direct or within the United States (see sections 861 an uninterrupted period of at least 30 indirect interest in a foreign partnership through 865). days during the annual accounting period while U.S. persons controlled that • Form 1042-T, of the foreign corporation. Annual Summary and partnership. Transmittal of Forms 1042-S. Use Form • Form 5713, International Boycott

Report. Cooperatives that have 3. Had an acquisition, disposition, or 1042-T to transmit paper forms 1042-S to

operations in, or related to, certain change in proportional interest in a the IRS.

foreign partnership that: Also, see Pub. 515, “boycotting” countries file Form 5713. Withholding of

Tax on Nonresident Aliens and Foreign • Form 8264, Application for Registration a. Increased its direct interest to at

Entities, and sections 1441 and 1442. of a Tax Shelter. Tax shelter organizers least 10% or reduced its direct interest of

use this form to receive a tax shelter at least 10% to less than 10%. • Form 1096, Annual Summary and

Transmittal of U.S. Information Returns. registration number from the IRS. b. Changed its direct interest by at

• Form 8271, Investor Reporting of Tax least a 10% interest. • Form 1098, Mortgage Interest

Statement. Use this form to report the Shelter Registration Number. 4. Contributed property to a foreign

receipt from any individual of $600 or Cooperatives which have acquired an partnership in exchange for a partnership

more of mortgage interest (including interest in a tax shelter that is required to interest if:

be registered, use this form to report the points) in the course of the cooperative’s a. Immediately after the contribution, tax shelter’s registration number. Attach trade or business and reimbursements of the cooperative owned, directly or Form 8271 to any tax return (including an overpaid interest. indirectly, at least a 10% interest in the application for tentative refund (Form • Forms 1099. Use these information foreign partnership or 1139) and an amended return) on which a returns to report the following: b. The fair market value of the deduction, credit, loss, or other tax benefit 1. Form 1099-A, Acquisition or property the cooperative contributed to attributable to a tax shelter is taken or any Abandonment of Secured Property. the foreign partnership, when added to income attributable to a tax shelter is

2. Form 1099-B, Proceeds From other contributions of property made to reported. Broker and Barter Exchange the foreign partnership during the • Form 8275, Disclosure Statement, and Transactions. preceding 12-month period, exceeds Form 8275-R, Regulation Disclosure 3. Form 1099-C, Cancellation of $100,000. Statement. Disclose items or positions Debt. taken on a tax return that are not Also, the cooperative may have to file

4. Form 1099-DIV, Dividends and otherwise adequately disclosed on a tax Form 8865 to report certain dispositions

Distributions. return or that are contrary to Treasury by a foreign partnership of property it

5. Form 1099-INT, Interest Income. regulations (to avoid parts of the previously contributed to that partnership

6. Form 1099-MISC, Miscellaneous accuracy-related penalty or certain if it was a partner at the time of the

Income. See this form to report payments: preparer penalties). disposition. For more details, including

to certain fishing boat crew members; to • Form 8300, Report of Cash Payments penalties for failing to file Form 8865, see

providers of health and medical services; Over $10,000 Received in a Trade or Form 8865 and its separate instructions.

of rent or royalties; nonemployee Business. Use this form to report the • Form 8886, Reportable Transaction

compensation, etc. receipt of more than $10,000 in cash or Disclosure Statement. Use this form to

foreign currency in one transaction or a disclose information for each reportable Note. Every cooperative must file Form series of related transactions. transaction in which the cooperative 1099-MISC if it makes payments of rents, • Form 8302, Electronic Deposit of Tax participated. Form 8886 must be filed for commissions, or other fixed or Refund of $1 Million or More. This form each tax year that the Federal income tax determinable income (see section 6041) must be filed to request an electronic liability of the cooperative is affected by totaling $600 or more to any one person deposit of a tax refund of $1 million or its participation in the transaction. The in the course of its trade or business more. following are reportable transactions. during the calendar year. • Form 8594, Asset Acquisition 1. Any transaction that is the same as 7. Form 1099-OID, Original Issue

Discount. Statement. Cooperatives file this form to or substantially similar to tax avoidance report the purchase or sale of a group of transactions identified by the IRS. 8. Form 1099-PATR, Taxable assets that constitute a trade or business Distributions Received from 2. Any transaction offered under if goodwill or going concern value could Cooperatives. conditions of confidentiality. attach to the assets.

9. Form 1099-R, Distributions From 3. Any transaction for which the • Form 8810, Corporate Passive Activity Pensions, Annuities, Retirement or cooperative has contractual protection Loss and Credit Limitations. Closely held Profit-Sharing Plans, IRAs, Insurance against disallowance of the tax benefits. cooperatives must use this form to Contracts, etc. 4. Any transaction resulting in a loss compute the passive activity loss and of at least $10 million in any single year or • Form 1122, Authorization and Consent credit allowed under section 469. $20 million in any combination of years. of Subsidiary Corporation To Be Included • Form 8842, Election To Use Different

in a Consolidated Income Tax Return. For Annualization Periods for Corporate 5. Any transaction resulting in a

the first year a subsidiary corporation is Estimated Tax. Cooperatives use Form book-tax difference of more than $10

being included in a consolidated return, 8842 for each year they want to elect one million on a gross basis.

attach the form to the parent’s of the annualization periods in section 6. Any transaction resulting in a tax

consolidated return. Attach a separate 6655(e)(2)(C) for figuring estimated tax credit of more than $250,000, if the

Form 1122 for each subsidiary being payments under the annualized income cooperative held the asset generating the

included in the consolidated return. installment method. credit for 45 days or less.

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Statements Accrual method. Generally, a cooperative must file Form 3115,

cooperative must use the accrual method Application for Change in Accounting Consolidated return. File supporting of accounting if its average annual gross Method. For more information, see Form statements for each corporation included receipts exceed $5 million. For details, 3115 and Pub. 538, Accounting Periods in the consolidated return. Do not use see section 448(c). Generally, a and Methods. Form 990-C as a supporting statement. cooperative engaged in farming Section 481(a) adjustment. The On the supporting statement, use operations also must use the accrual cooperative may have to make an columns to show the following (both method. For exceptions, see section 447. adjustment under section 481(a) to before and after adjustments): If inventories are required, the accrual prevent amounts of income or expense 1. Items of gross income and method generally must be used for sales from being duplicated or omitted. deductions. and purchases of merchandise. However, Cooperatives generally must take the 2. A computation of taxable income. qualifying taxpayers and eligible section 481(a) adjustment into account in 3. Balance sheets as of the beginning businesses of qualifying small business the year of change. The cooperative must and end of the tax year. taxpayers are excepted from using the complete the appropriate lines of Form 4. A reconciliation of income per accrual method and may account for 3115 to figure the amount of the books with income per return. inventoriable items as materials and adjustment. 5. A reconciliation of retained supplies that are not incidental. For Include any net positive section 481(a) earnings. details, see Cost of Goods Sold on page adjustment on page 1, line 10. If the net 12. section 481(a) adjustment is negative, The cooperative does not have to Under the accrual method, an amount report it on page 1, line 26. complete items 3, 4, and 5, if its is includible in income when: Completed crop pool method of CAUTION total receipts (line 1a plus lines 4

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through 10 on page 1 of the return) and • All the events have occurred that fix the accounting. Cooperatives may be able

right to receive the income, which is the to use the completed crop pool method of its total assets at the end of the tax year

are less than $250,000. earliest of the date: (a) the required accounting for crop pools opened before

performance takes place, (b) payment is March 1, 1978. See section 1382(g) for Enter the totals for the consolidated due, or (c) payment is received and more information. group on Form 990-C. Attach • The amount can be determined with consolidated balance sheets and a reasonable accuracy. Accounting Periods reconciliation of consolidated retained See Regulations section 1.451-1(a) for earnings. For more information on A cooperative must figure its taxable details. consolidated returns, see the regulations income on the basis of a tax year. A tax

under section 1502. Generally, an accrual basis taxpayer year is the annual accounting period a

can deduct accrued expenses in the tax cooperative uses to keep its records and Assembling the Return year when: report its income and expenses.

To ensure that the cooperative’s tax • All events that determine the liability Generally, cooperatives can use a

return is correctly processed, attach all have occurred, calendar year or a fiscal year.

schedules and other forms after page 5, • The amount of the liability can be For more information about accounting Form 990-C, in the following order. figured with reasonable accuracy, and periods, see Pub. 538. • Economic performance takes place 1. Form 8302. Calendar year. If the calendar year is with respect to the expense. 2. Form 4136. adopted as the annual accounting period, 3. Form 4626. There are exceptions to the economic the cooperative must maintain its books 4. Form 851. performance rule for certain items, and records and report its income and 5. Additional schedules in alphabetical including recurring expenses. See section expenses for the period from January 1 order. 461(h) and the related regulations for the through December 31 of each year. 6. Additional forms in numerical order. rules for determining when economic Fiscal year. A fiscal year is 12 performance takes place. Complete every applicable entry space consecutive months ending on the last

on Form 990-C. Do not write “See Nonaccrual experience method. day of any month except December. A

Attached” instead of completing the entry Accrual-method cooperatives whose 52-53-week year is a fiscal year that

spaces. If more space is needed on the average annual gross receipts for the 3 varies from 52 to 53 weeks.

prior tax years do not exceed $5 million, forms or schedules, attach separate Adoption of tax year. A cooperative sheets, using the same size and format are not required to accrue certain adopts a tax year when it files its first as the printed forms. If there are amounts to be received from the income tax return. It must adopt a tax performance of services that, on the basis supporting statements and attachments, year by the due date (not including arrange them in the same order as the of experience, will not be collected. This extensions) of its first income tax return. provision does not apply to any amount if schedules or forms they support and Change in tax year. Generally, a attach them last. Show the totals on the interest is required to be paid on the cooperative must get the consent of the printed forms. Also, be sure to enter the amount or if there is any penalty for IRS before changing its tax year by filing cooperative’s name and EIN on each failure to timely pay the amount. For more Form 1128, Application To Adopt, supporting statement or attachment. information, see section 448(d)(5) and Change, or Retain a Tax Year. However, Temporary Regulations section under certain conditions, a cooperative Accounting Methods 1.448–2T. See the instructions on page 6 may change its tax year without getting for reporting requirements. An accounting method is a set of rules consent. For more information on change Percentage-of-completion method. used to determine when and how income of tax year, see Form 1128, Regulations Long-term contracts (except for certain and expenses are reported. Figure section 1.442-1, and Pub. 538. real property construction contracts) must taxable income using the method of generally be accounted for using the accounting regularly used in keeping the Rounding Off to Whole percentage-of-completion method cooperative’s books and records. In all

cases, the method used must clearly described in section 460. See section 460 Dollars

and the regulations for general rules on show taxable income. Permissible The cooperative may round off cents to

methods include: long-term contracts. whole dollars on its return and schedules.

• Cash, Change in accounting method. To If the cooperative does round to whole

• Accrual, or change its method of accounting used to dollars, it must round all amounts. To

• Any other method authorized by the report taxable income (for income as a round, drop amounts under 50 cents and

Internal Revenue Code. whole or for any material item), the increase amounts from 50 to 99 cents to

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the next dollar (for example, $1.39 tax deposits). Make checks or money (including extensions) to the date of

becomes $1 and $2.50 becomes $3.) orders payable to the depositary. payment. The interest charge is figured at

a rate determined under section 6621. If two or more amounts must be added If the cooperative prefers, it may mail

to figure the amount to enter on a line, the coupon and payment to: Financial Penalty for late filing of return. A

include cents when adding the amounts Agent, Federal Tax Deposit Processing, cooperative that does not file its tax return

and round off only the total. P.O. Box 970030, St. Louis, MO 63197. by the due date, including extensions,

Make the check or money order payable may be penalized 5% of the unpaid tax

Recordkeeping to “Financial Agent.” for each month or part of a month the

return is late, up to a maximum of 25% of Keep the cooperative’s records for as To help ensure proper crediting, write the unpaid tax. The minimum penalty for long as they may be needed for the the cooperative’s EIN, the tax period to a return that is over 60 days late is the administration of any provision of the which the deposit applies, and “Form smaller of the tax due or $100. The Internal Revenue Code. Usually, records 990-C” on the check or money order. Be penalty will not be imposed if the that support an item of income, deduction, sure to darken the “990-C” box on the cooperative can show that the failure to or credit on the return must be kept for 3 coupon. Records of these deposits will be file on time was due to reasonable cause. years from the date the return is due or sent to the IRS. Cooperatives that file late must attach a filed, whichever is later. Keep records that For more information on deposits, see statement explaining the reasonable verify the cooperative’s basis in property the instructions in the coupon booklet cause. for as long as they are needed to figure (Form 8109) and Pub. 583, Starting a the basis of the original or replacement Penalty for late payment of tax. A Business and Keeping Records. property. cooperative that does not pay the tax

when due generally may be penalized 1 If the cooperative owes tax when it /2 The cooperative should also keep files Form 990-C, do not include of 1% of the unpaid tax for each month or copies of all returns. They help in CAUTION the payment with the tax return. part of a month the tax is not paid, up to a

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preparing future and amended returns. Instead, mail or deliver the payment with maximum of 25% of the unpaid tax. The

Depository Method of Tax Form 8109 to an authorized depositary or penalty will not be imposed if the

use EFTPS, if applicable. cooperative can show that the failure to

Payment pay on time was due to reasonable

The cooperative must pay the tax due in Estimated Tax Payments cause.

full no later than the 15th day of the 9th Generally, the following rules apply to the Trust fund recovery penalty. This

month after the end of the tax year. The cooperative’s payments of estimated tax. penalty may apply if certain excise,

two methods of depositing cooperative • The cooperative must make installment income, social security, and Medicare

income taxes are discussed below. payments of estimated tax if it expects its taxes that must be collected or withheld

Electronic Deposit Requirement. The total tax for the year (less applicable are not collected or withheld, or these

cooperative must make electronic credits) to be $500 or more. taxes are not paid to the IRS. These

deposits of all depository taxes (such as • The installments are due by the 15th taxes are generally reported on Forms

employment tax, excise tax, and day of the 4th, 6th, 9th, and 12th months 720, 941, 943, or 945 (see Other Forms

corporate income tax) using the of the tax year. If any date falls on a and Statements That May Be Required

Electronic Federal Tax Payment System Saturday, Sunday, or legal holiday, the on page 2). The trust fund recovery

(EFTPS) in 2004 if: installment is due on the next regular penalty may be imposed on all persons

• The total deposits of such taxes in business day. who are determined by the IRS to have

2002 were more than $200,000 or • Use Form 1120-W, Estimated Tax for been responsible for collecting,

• The cooperative was required to use Corporations, as a worksheet to compute accounting for, and paying over these

EFTPS in 2003. estimated tax. taxes, and who acted willfully in not doing

If the cooperative is required to use • If the cooperative does not use EFTPS, so. The penalty is equal to the unpaid

EFTPS and fails to do so, it may be use the deposit coupons (Form 8109) to trust fund tax. See the instructions for

subject to a 10% penalty. If the make deposits of estimated tax. Form 720, Pub. 15 (Circular E),

cooperative is not required to use EFTPS, For more information on estimated tax Employer’s Tax Guide, or Pub. 51

it may participate voluntarily. To enroll in payments, including penalties that apply if (Circular A), Agricultural Employer’s Tax

or get more information about EFTPS, the cooperative fails to make required Guide, for details, including the definition

call 1-800-555-4477 or 1-800-945-8400. payments, see the instructions for line 33 of responsible persons.

To enroll online, visit www.eftps.gov. on page 12. Other penalties. Other penalties can be

Depositing on time. For EFTPS Overpaid estimated tax. If the imposed for negligence, substantial

deposits to be made timely, the cooperative overpaid estimated tax, it understatement of tax, and fraud. See

cooperative must initiate the transaction may be able to get a quick refund by filing sections 6662 and 6663.

at least 1 business day before the date Form 4466, Corporation Application for

the deposit is due. Quick Refund of Overpayment of

Deposits with Form 8109. Estimated Tax. The overpayment must be If the at least 10% of expected income tax Specific Instructions cooperative does not use EFTPS, deposit

cooperative income tax payments (and liability and be at least $500. File Form

estimated tax payments) with Form 8109, 4466 after the end of the cooperative’s Period Covered

tax year, and no later than the 15th day of Federal Tax Deposit Coupon. If you do File the 2003 return for calendar year the third month after the end of the tax not have a preprinted Form 8109, use 2003 and fiscal years that begin in 2003 year. Form 4466 must be filed before the Form 8109-B to make deposits. You can and end in 2004. For a fiscal year return, cooperative files its tax return. get this form by calling 1-800-829-4933. fill in the tax year space at the top of the

Be sure to have your EIN ready when you form.

call. Interest and Penalties Note. The 2003 Form 990-C may also be

Do not send deposits directly to an IRS Interest. Interest is charged on taxes used if:

office; otherwise, the cooperative may paid late even if an extension of time to • The cooperative has a tax year of less

have to pay a penalty. Mail or deliver the file is granted. Interest is also charged on than 12 months that begins and ends in

completed Form 8109 with the payment penalties imposed for failure to file, 2004 and

to an authorized depositary (i.e., a negligence, fraud, substantial valuation • The 2004 Form 990-C is not available

commercial bank or other financial misstatements, and substantial at the time the cooperative is required to

institution authorized to accept Federal understatements of tax from the due date file its return.

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The cooperative must show its 2004 determination letter from the IRS, check payments for goods and long-term

tax year on the 2003 Form 990-C and the “Tax exempt” box, and write contracts, see Regulations section

take into account any tax law changes “Application Pending” at the top of page 1 1.451-5. For permissible methods for

that are effective for tax years beginning of Form 990-C. reporting certain advance payments for

after December 31, 2003. services by an accrual method Farmers’ cooperatives without section cooperative, see Rev. Proc. 71-21, 521 exempt status, organized and Address 1971-2 C.B. 549. operated as described under Who Must

Include the suite, room, or other unit File on page 1 of the instructions, should Installment sales. Generally, the

number after the street address. If a check the “Nonexempt” box. installment method cannot be used for

preaddressed label is used, include this dealer dispositions of property. A “dealer Cooperatives organized and operated disposition” is: (a) any disposition of information on the label. for purposes other than those described personal property by a person who If the Post Office does not deliver mail in Who Must File should not file Form regularly sells or otherwise disposes of to the street address and the cooperative 990-C. See the instructions for Form personal property of the same type on the has a P.O. box, show the box number. 1120, U.S. Corporation Income Tax installment plan or (b) any disposition of Return, for information about filing real property held for sale to customers in Item A—Business Activity requirements. the ordinary course of the taxpayer’s

With the Largest Total trade or business. Item E—Initial Return, Receipts These restrictions on using the Final Return, Name installment method do not apply to Identify the business activity from which dispositions of property used or produced the cooperative receives the largest total Change, Address Change, in a farming business or sales of receipts (e.g., wholesale marketing of or Amended Return timeshares and residential lots for which meat, drying fruit, grain storage, the cooperative elects to pay interest wholesale purchasing of fertilizers, cattle • If this is the cooperative’s first return, under section 453(I)(3). breeding, etc.). check the “Initial return” box.

• If the cooperative ceases to exist, file For sales of timeshares and residential

Form 990-C and check the “Final return” lots reported under the installment Item B—Employer box. method, the cooperative’s income tax is Identification Number (EIN) • If the cooperative changed its name increased by the interest payable under

Enter the cooperative’s EIN. If the since it last filed a return, check the box section 453(l)(3). To report this addition to

cooperative does not have an EIN, it must for “Name change.” Generally, a tax, see the instructions for line 9,

apply for one. An EIN may be applied for: cooperative also must have amended its Schedule J, on page 16.

• Online-Click on the EIN link at articles of incorporation and filed the Enter on line 1 (and carry to line 3), the www.irs.gov/businesses/small. The amendment with the state in which it was gross profit on collections from installment EIN is issued immediately once the incorporated. sales for any of the following: application information is validated. • If the cooperative has changed its • Dealer dispositions of property before • By telephone at 1-800-829-4933 from address since it last filed a return, check March 1, 1986.

7:30 a.m. to 5:30 p.m. in the cooperatives the box for “Address change.” • Dispositions of property used or local time zone. Note. produced in the trade or business of If a change in address occurs after • By mailing or faxing Form SS-4, farming. the return is filed, use Form 8822, Application for Employer Identification Change of Address, to notify the IRS of • Certain dispositions of timeshares and Number. the new address. residential lots reported under the If the cooperative has not received its installment method. • If the cooperative must change their EIN by the time the return is due, write Attach a schedule showing the originally filed return for any year, it “Applied for” in the space for the EIN. For following information for the current and should file a new return including any more details, see Pub. 583. the 3 preceding years: (a) gross sales, (b) required attachments. Use the revision of Note: The online application process Form 990-C applicable to the year being cost of goods sold, (c) gross profits, (d)

is not yet available for cooperatives with percentage of gross profits to gross sales, amended. The amended return must

addresses in foreign countries or Puerto (e) amount collected, and (f) gross profit provide all the information called for by Rico. on the amount collected. the form and instructions, not just the new

or corrected information. Check the Nonaccrual experience method. Item C—Consolidated “Amended return” box. Cooperatives that qualify to use the

Return nonaccrual experience method (explained

Income on page 4) should attach a schedule Cooperatives filing a consolidated return showing total gross receipts, the amount must attach Form 851 and other Except as otherwise provided in the not accrued as a result of the application supporting statements to the return. For Internal Revenue Code, gross income of section 448(d)(5), and the net amount details, see Other Forms and includes all income from whatever source accrued. Enter the net amount on line 1a. Statements That May Be Required, derived. Gross income, however, does on

not include extraterritorial income that is Note. Certain cooperatives that have page 2. Do not check this box if the qualifying foreign trade income. Use gross receipts of $10 million or more and “Section 521” box is checked in Item D.

Form 8873, Extraterritorial Income have patronage and nonpatronage source

Exclusion, to figure the exclusion. Include income and deductions, must complete Item D—Type of and attach Form 8817, Allocation of the exclusion in the total for “Other Cooperative Deductions” on line 26. Patronage and Nonpatronage Income

Check the “Tax exempt” (section 521) box and Deductions, to their return. Line 1. Gross receipts. Enter gross if the cooperative is a tax-exempt receipts or sales from all business Line 2. Cost of goods sold. Enter the

farmers’, fruit growers’, or like cost of goods sold on line 2, page 1. operations except items of income association, organized and operated on a Before making this entry, complete required to be reported on lines 4a cooperative basis and is described in Schedule A on page 2 of Form 990-C. through 10. In general, advance section 521. payments are reported in the year of See the Schedule A instructions on page

12. If the cooperative has submitted Form receipt. For how to report income from

1028, Application for Recognition of long-term contracts, see section 460. For Line 4a. Income from patronage

Exemption, but has not received a special rules for reporting certain advance dividends and per-unit retain

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allocations. Attach a schedule listing the Note. Interest income is generally partnership, identify the amount from

name of each declaring association from nonpatronage income to nonexempt each partnership.

which the cooperative received income cooperatives (Regulations section

from patronage dividends and per-unit 1.1382-3(c)(2)). As such, a patronage Deductions

retain allocations, and the total amount dividend deduction may not be allowable.

received from each association. Line 6. Gross rents. Enter the gross Limitations on deductions

amount received from the rental of Include the items listed below: Section 263A uniform capitalization property. Deduct expenses such as 1. Patronage dividends received in: rules. The uniform capitalization repairs, interest, taxes, and depreciation • Money, (UNICAP) rules of section 263A require on the applicable lines. • Qualified written notices of cooperatives to capitalize, or include in

allocation, or Note. Generally, gross rents are inventory, certain costs incurred in

• Other property (except nonqualified connection with: considered nonpatronage income to written notices of allocation). • The production of real property and nonexempt cooperatives (Regulations

2. Nonpatronage distributions tangible personal property held in section 1.1382-3(c)(2)). As such, a

received on a patronage basis from inventory or held for sale in the ordinary patronage dividend deduction may not be course of business. tax-exempt farmers’ cooperatives in: allowable. • Money, • Real property or personal property Line 8. Capital gain net income. Every • Qualified written notices of (tangible and intangible) acquired for sale or exchange of a capital asset must allocation, or resale. be reported in detail on Schedule D • Other property (except nonqualified • The production of real property and (Form 1120), Capital Gains and Losses, written notices of allocation), based on tangible personal property by a even if there is no gain or loss. Generally, earnings of that cooperative either from cooperative for use in its trade or capital gains and losses are considered business done with or for the United business or in an activity engaged in for nonpatronage source. States or any of its agencies (or from profit.

sources other than patronage, such as Line 10. Other income. Enter any other Tangible personal property

investment income). taxable income not reported on lines 1 produced by a cooperative includes a

3. Qualified written notices of film, sound recording, videotape, book, or through 9. List the type and amount of

allocation similar property. at their stated dollar amounts income on an attached schedule. If the

and property at its fair market value cooperative has only one item of other Cooperatives subject to the UNICAP (FMV). income, describe it in parentheses on line rules are required to capitalize not only 4. Amounts received on the 10. Examples of other income to report on direct costs but an allocable part of most redemption, sale, or other disposition of line 10 are: indirect costs (including taxes) that (a) nonqualified written notices of • Recoveries of bad debts deducted in benefit the assets produced or acquired allocation. prior years under the specific charge-off for resale or (b) are incurred by reason of

Generally, patronage dividends from method. the performance of production or resale

purchases of capital assets or • The amount of credit for alcohol used activities.

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

of Agriculture are patronage-source 1.179A-1 for details. Interest expense paid or incurred

• For cooperatives described in section during the production period of income that may give rise to patronage

dividends under section 1382(b)(1). See 1381 that are shareholders in an FSC, designated property must be capitalized

and is governed by special rules. For Rev. Rul. 89-97, 1989-2 C.B. 217, for include the nonexempt portion of foreign

more information. trade income from the sale or other more details, see Regulations sections

disposition of agricultural or horticultural 1.263A-8 through 1.263A-15. Line 4b. Dividends. See the instructions

for Schedule C on page 13, then products by the FSC for the tax year that The costs required to be capitalized

complete Schedule C and enter on line includes the last day of the FSC’s tax under section 263A are not deductible

4b, the amount from Schedule C, line 17. year, even though the FSC is not required until the property (to which the costs to distribute such income until the due relate) is sold, used, or otherwise Line 5. Interest. Enter taxable interest date of its income tax return. disposed of by the cooperative. on U.S. obligations and on loans, notes, • Ordinary income from trade or business mortgages, bonds, bank deposits, activities of a partnership (from Schedule Exceptions. Section 263A does not corporate bonds, tax refunds, etc. K-1 (Form 1065 or 1065-B)). Do not offset apply to: ordinary losses against ordinary income. Do not offset interest expense against Instead, include the losses on line 26, • Personal property acquired for resale if interest income. Form 990-C. Show the partnership’s the cooperative’s average annual gross

Special rules apply to interest income receipts for the 3 prior tax years were $10 name, address, and EIN on a separate

from certain below-market rate loans. See million or less. statement attached to this return. If the

section 7872 for more information. amount entered is from more than one • Timber.

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• Most property produced under a For exceptions, see Form 8810. under the laws of the state where it is

long-term contract. incorporated. An activity is a trade or business • Certain property produced in a farming activity if it is not a rental activity and If a consolidated return is filed, each business. • The activity involves the conduct of a member of an affiliated group must • Research and experimental costs furnish this information. trade or business (i.e., deductions from under section 174.

• Intangible drilling costs for oil, gas, and the activity would be allowable under Line 13. Salaries and wages. Enter the

geothermal property. section 162 if other limitations, such as amount of salaries and wages paid for the the passive loss rules, did not apply) or tax year, reduced by the current year • Mining exploration and development

costs. • The activity involves research and credits generated by the cooperative experimental costs that are deductible claimed on: • Inventoriable items accounted for in the under section 174 (or would be deductible • Line 2 of Form 5884, Work Opportunity same manner as materials and supplies if the cooperative chose to deduct rather Credit, that are not incidental. See Cost of

Goods Sold than capitalize them). • Line 2 of Form 8844, Empowerment on page 12 for details.

For more details on the UNICAP rules, Cooperatives subject to the passive Zone and Renewal Community activity limitations must complete Form Employment Credit, see Regulations sections 1.263A-1

through 1.263A-3. See Regulations 8810 to compute their allowable passive • Line 4 of Form 8845, Indian

activity loss and credit. Before completing Employment Credit, section 1.263A-4 and Pub. 225, Farmer’s

Tax Guide, for rules for property produced Form 8810, see Temporary Regulations • Line 2 of Form 8861, Welfare-to-Work

in a farming business. section 1.163-8T, which provides rules for Credit, and

allocating interest expense among • Line 2 of Form 8884, New York Liberty Transactions between related activities. If a passive activity is also Zone Business Employee Credit. taxpayers. Generally, an accrual basis subject to the earnings stripping rules of See the instructions for these forms for taxpayer may only deduct business section 163(j) or the at-risk rules of more information. Do not include salaries expenses and interest owed to a related section 465, those rules apply before the and wages deductible elsewhere on the party in the year payment is included in passive loss rules. For more information, return, such as amounts included in cost the income of the related party. See see section 469, the related regulations, of goods sold, elective contributions to a sections 163(e)(3), 163(j), and 267 for the and Pub. 925, Passive Activity and section 401(k) cash or deferred limitations on deductions for unpaid At-Risk Rules. arrangement, or amounts contributed interest and expenses. under a salary reduction SEP agreement Reducing certain expenses for which Section 291 limitations. Cooperatives or a SIMPLE IRA plan. credits are allowable. For each credit may be required to adjust deductions for listed below, the cooperative may have to depletion of iron ore and coal, intangible If the cooperative provided taxable reduce the otherwise allowable drilling, exploration and development fringe benefits to its employees, deductions for expenses used to figure costs, and the amortizable basis of CAUTION such as personal use of a car, do

!

the credit, by the amount of the current pollution control facilities. See section 291 not deduct as wages the amount year credit generated by the cooperative. allocated for depreciation, and other to determine the amount of the • Work opportunity credit. adjustment. Also see section 43. expenses claimed on lines 20 and 26. • Research credit.

Golden parachute payments. A portion Line 14. Repairs and maintenance. • Enhanced oil recovery credit. of the payments made by a cooperative to Enter the cost of incidental repairs, such • Disabled access credit.

key personnel that exceeds their usual as labor and supplies, that do not add to • Empowerment zone and renewal compensation may not be deductible. the value of the property or appreciably community employment credit. This occurs when the cooperative has an prolong its life. New buildings, machinery, • Indian employment credit. agreement (golden parachute) with these or permanent improvements that increase • The employer credit for social security key employees to pay them these excess the value of the property are not and Medicare taxes paid on certain amounts if control of the cooperative deductible here. They must be employee tips. changes. See section 280G. depreciated or amortized. • Orphan drug credit.

Business start-up expenses. Business • Welfare-to-work credit. Line 15. Bad debts. Enter the total debts

start-up expenses must be capitalized. An • New York Liberty Zone business that became worthless in whole or in part

election may be made to expense them employee credit. during the tax year. A cash method

over a period of 60 months. See section If the cooperative has any of these taxpayer may not claim a bad debt

195 and Regulations section 1.195-1. credits, first figure each current year deduction unless the amount was

credit generated by the cooperative, then previously included in income. Passive activity limitations. Limitations figure the remaining deduction for the on passive activity losses and credits Line 16. Rents. If the cooperative rented expense upon which the credit is based. under section 469 apply to closely held or leased a vehicle, enter the total annual

cooperatives. Line 12. Compensation of officers. rent or lease expense paid or incurred

Enter deductible officer’s compensation during the year. Also complete Part V of A cooperative is a closely held on line 12. Before entering an amount on Form 4562, Depreciation and cooperative (as defined at section line 12, complete Schedule E if the Amortization. If the cooperative leased a 469(j)(1)) if at any time during the last half cooperative’s total receipts (line 1a plus vehicle for a term of 30 days or more, the of the tax year more than 50% in value of lines 4 through 10, page 1) are $500,000 deduction for vehicle lease expense may its outstanding stock is owned, directly or or more. Do not include compensation have to be reduced by an amount called indirectly, by or for not more than 5 deductible elsewhere on the return, such the inclusion amount. The cooperative individuals. Certain organizations are as amounts included in cost of goods may have an inclusion amount if: treated as individuals for purposes of this

test. See section 542(a)(2). For rules of sold, elective contributions to a section And the vehicle’s FMV on determining stock ownership, see section 401(k) cash or deferred arrangement, or The lease term the first day of the lease 544 (as modified by section 465(a)(3)). amounts contributed under a salary began: exceeded: reduction SEP agreement or a SIMPLE Generally, the two kinds of passive IRA plan. activities are: After 12/31/02 but before 1/1/04 $18,000

• Trade or business activities in which Include only the deductible part of After 12/31/98 but before 1/1/03 $15,500 the cooperative did not materially each officers’ compensation on Schedule After 12/31/96 but before 1/1/99 $15,800 participate and E. Complete Schedule E, line 1, columns

• Rental activities, regardless of its (a) through (f), for all officers. The After 12/31/94 but before 1/1/97 $15,500

participation. cooperative determines who is an officer

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• Forgone interest on certain acknowledgment to the tax return, but After 12/31/93 but before 1/1/95 $14,600 below-market-rate loans (see section keep it with the cooperative’s records. If the lease term began before January 1, 1994, see Pub.

463, Travel, Entertainment, Gift, and Car Expenses, to 7872). These rules apply in addition to the filing

find out if the cooperative has an inclusion amount. The • Original issue discount on certain high requirements for Form 8283, Noncash

inclusion amount for lease terms beginning in 2004 will be yield discount obligations (see section Charitable Contributions, described later published in the Internal Revenue Bulletin in early 2004. 163(e) to figure the disqualified portion). under Contributions of property other

than cash. Line 19. Charitable contributions. See Pub. 463 for instructions on Enter contributions or gifts paid in the tax For more information on substantiation figuring the inclusion amount. year to or for the use of charitable and and recordkeeping requirements, see the

Line 17. Taxes and licenses. Enter governmental organizations described in regulations under section 170 and Pub.

taxes paid or accrued during the tax year, section 170(c), and any unused 526, Charitable Contributions.

except the following. contributions carried over from prior Contributions to organizations • Federal income taxes. years. conducting lobbying activities. • Foreign or U.S. possession income Cooperatives reporting taxable income Contributions made to an organization taxes if a tax credit is claimed (however, on the accrual method may elect to treat that conducts lobbying activities are not see the Instructions for Form 5735 for any contributions paid by the 15th day of deductible if: special rules for possession income the 3rd month after the end of the tax • The lobbying activities relate to matters taxes). year as paid during the tax year if the of direct financial interest to the donor’s • Taxes not imposed on the cooperative. contributions were authorized by the trade or business and • Taxes, including state or local sales board of directors during the tax year. • The principal purpose of the taxes, that are paid or incurred in Attach a declaration to the return stating contribution was to avoid Federal income connection with an acquisition or that the resolution authorizing the tax by obtaining a deduction for activities disposition of property (these taxes are contributions was adopted by the board of that would have been nondeductible treated as part of the cost of the acquired directors during the current tax year. The under the lobbying expense rules if property, or in the case of a disposition, declaration must include the date the conducted directly by the donor. as a reduction in the amount realized on resolution was adopted. the disposition). Contributions of property other than

• Taxes assessed against local benefits Limitation on deduction. The total cash. If a cooperative contributes

that increase the value of the property amount claimed may not be more than property other than cash and claims over

assessed (such as for paving, etc.). 10% of taxable income (line 30) a $500 deduction for the property, it must

• Taxes deducted elsewhere on the computed without regard to the following: attach a schedule to the return describing • Any deduction for contributions; return, such as those reflected in cost of the kind of property contributed and the

goods sold. • The special deductions on line 29b; method used to determine its FMV.

See section 164(d) for the rule on • Any net operating loss (NOL) carryback Generally, cooperatives must complete

apportionment of taxes on real property to the tax year under section 172; and attach Form 8283 to their returns for

between the seller and purchaser. • Any capital loss carryback to the tax all contributions of property (other than year under section 1212(a)(1); and money) if the total claimed deduction for Line 18. Interest. • The deduction allowed under section all property contributed was more than

Note. The deduction for interest is limited 249. $5,000.

when the cooperative is a policyholder or Carryover. Charitable contributions If the cooperative made a “qualified beneficiary with respect to a life over the 10% limitation may not be conservation contribution” under section

insurance, endowment, or annuity deducted for the current tax year but may 170(h), also include the FMV of the contract issued after June 8, 1997. For be carried over to the next 5 tax years. underlying property before and after the details, see section 264(f). Attach a (See section 170(d)(2) for further details.) donation, as well as the type of legal statement showing the computation of the Special rules apply if the cooperative interest contributed, and describe the deduction. has an NOL carryover to the tax year. In conservation purpose benefited by the

Do not deduct the following: donation. figuring the charitable contributions • Interest on indebtedness used to deduction for the tax year, the 10% limit is If a contribution carryover was purchase or carry exempt interest applied using the taxable income after included, show the amount and how it obligations. For exceptions, see section taking into account any deduction for the was determined. 265(b). NOL. • For cash basis taxpayers, prepaid Reduced deduction for To figure the amount of any remaining interest allocable to years following the contributions of certain property. For a NOL carryover to later years, taxable current tax year (e.g., a cash basis charitable contribution of property, the income must be modified (see sections calendar year taxpayer who in 2003 cooperative must reduce the contribution 172(b) and (d)). To the extent that prepaid interest allocable to any period by the sum of: contributions are used to reduce taxable after 2003 can deduct only the amount • The ordinary income and short-term income for this purpose and increase an allocable to 2003). capital gain that would have resulted if the NOL carryover, a contributions carryover • Interest and carrying charges on property were sold at its FMV and is not allowed. See section 170(d)(2)(B). straddles. Generally, these amounts must • For certain contributions, the long-term

be capitalized. See section 263(g). Substantiation requirements. capital gain that would have resulted if the

• Interest on debt allocable to the Generally, no deduction is allowed for any property were sold at its FMV.

production of designated property by a contribution of $250 or more unless the The reduction for the long-term capital

cooperative for its own use or for sale. cooperative gets a written gain applies to:

This interest must be capitalized. A acknowledgment from the donee • Contributions of tangible personal

cooperative must also capitalize any organization that shows the amount of property for use by an exempt

interest on debt allocable to an asset cash contributed, describes any property organization for a purpose or function

used to produce the above property. See contributed and gives an estimate of the unrelated to the basis for its exemption

section 263A(f) and Regulations sections value of any goods or services provided and

1.263A-8 through 1.263A-15 for in return for the contribution. The • Contributions of any property to or for

definitions and more information. acknowledgment must be obtained by the the use of certain private foundations,

Special rules apply to: due date (including extensions) of the except for stock, for which market

• Interest on which no tax is imposed cooperative’s return, or, if earlier, the date quotations are readily available (section

(see section 163(j)). the return is filed. Do not attach the 170(e)(5)).

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Larger deduction. A larger deduction days after the contribution and notifies the • Amortization of pollution control

is allowed for certain contributions, such donor of the contribution. For details, see facilities, organization expenses, etc. See

as: section 170(e)(6)(C). Form 4562.

• Inventory and other property donated to • For contributions of property reacquired • Insurance premiums.

certain organizations for use in the care of by the manufacturer of the property, the • Legal and professional fees.

the ill, needy, or infants (see section 3-year period begins on the date that the • Supplies used and consumed in the

170(e)(3) and Regulations section original construction of the property was business.

1.170A-4A); substantially completed. Also, the original • Utilities.

• Scientific equipment used for research use of the property may be by someone • Ordinary losses from trade or business

donated to institutions of higher learning other than the donor or the donee. activities of a partnership (from Schedule

or to certain scientific research K-1 (Form 1065 or 1065-B)). Do not offset Line 20. Depreciation. Besides organizations (other than by personal ordinary losses against ordinary income. depreciation, include on line 20 the part of holding companies and service Instead, include the income on line 10. the cost that the cooperative elected to organizations) (see section 170(e)(4)); Show the partnership’s name, address, expense under section 179 for certain and and EIN on a separate statement property placed in service during tax year • Computer technology and equipment attached to this return. If the amount 2003 or carried over from 2002. See used for educational purposes. entered is from more than one Form 4562 and its instructions.

Contributions of computer partnership, identify the amount from Line 22. Depletion. See sections 613 each partnership. technology and equipment for and 613A for percentage depletion rates educational purposes. A cooperative • Extraterritorial income exclusion (from applicable to natural deposits. Also, see may take an increased deduction under Form 8873, line 52). section 291(a)(2) for the limitation on the section 170(e)(6) for qualified depletion deduction for iron ore and coal contributions of computer technology or Do not deduct: (including lignite). equipment used for educational purposes. • Fines or penalties paid to a government

Attach Form T (Timber), Forest for violating any law. Computer technology or equipment Activities Schedule, if a deduction for • Any amount allocable to a class of means computer software, computer or depletion of timber is taken. exempt income. See section 265(b) for peripheral equipment, and fiber optic exceptions. cable related to computer use. A Foreign intangible drilling costs and Special rules apply to the following contribution is a qualified contribution if: foreign exploration and development expenses. • It is made to an eligible donee (see costs must either be added to the

below); cooperative’s basis for cost depletion Travel, meals, and entertainment.

• Substantially all of the donee property’s purposes or be deducted ratably over a Subject to limitations and restrictions

use is: 10-year period. See sections 263(i), 616, discussed below, a cooperative can

and 617 for details. deduct ordinary and necessary travel, 1. Related to the purpose or function meals, and entertainment expenses paid of the donee, Line 24. Pension, profit-sharing, etc., or incurred in its trade or business. 2. For use within the United States, plans. Enter the deduction for

and contributions to qualified pension, For details on rules that apply to

3. For educational purposes. profit-sharing, or other funded deferred deductions for gifts, skybox rentals, luxury

• The contribution is made not later than compensation plans. Employers who water travel, convention expenses, and

3 years after the date the taxpayer maintain such a plan generally must file entertainment tickets, see section 274

acquired or substantially completed the one of the forms listed below, even if the and Pub. 463.

construction of the property; plan is not a qualified plan under the Travel. The cooperative cannot

• The original use of the property is by Internal Revenue Code. The filing deduct travel expenses of any individual

the donor or the donee; requirement applies even if the accompanying a cooperative officer or

• The property is not transferred by the cooperative does not claim a deduction employee, including a spouse or

donee for money, services, or other for the current tax year. There are dependent of the officer or employee,

property, except for shipping, transfer, penalties for failure to file these forms unless:

and installation costs; timely and for overstating the pension • That individual is an employee of the

• The property fits productively into the plan deduction. See sections 6652(e) and cooperative and

donee’s education plan; and 6662(f). • His or her travel is for a bona fide

• The property meets standards, if any, Form 5500, Annual Return/Report of business purpose that would otherwise be

that may be prescribed by future Employee Benefit Plan. File this form for deductible by that individual.

regulations, to assure it meets minimum a plan that is not a one-participant plan Meals and entertainment. Generally, functionality and suitability for educational (see below). the cooperative can deduct only 50% of

purposes. Form 5500-EZ, Annual Return of the amount otherwise allowable for meals

Eligible donee. The term “eligible One-Participant (Owners and Their and entertainment expenses paid or

donee” means: Spouses) Retirement Plan. File this form incurred in its trade or business. In

• An educational organization that addition (subject to exceptions under for a plan that only covers the owner (or normally maintains a regular faculty and section 274(k)(2)): the owner and his or her spouse) but only curriculum and has a regularly enrolled • Meals must not be lavish or if the owner (or the owner and his or her body of pupils in attendance at the place extravagant; spouse) owns the entire business. where its educational activities are • A bona fide business discussion must Line 25. Employee benefit programs. regularly conducted, occur during, immediately before, or Enter the contributions to employee • A section 501(c)(3) entity organized immediately after the meal; and benefit programs not claimed elsewhere primarily for purposes of supporting • An employee must be present at the on the return (e.g., insurance, health and elementary and secondary education, or meal. welfare programs, etc.) that are not an • A public library (as described in section See section 274(n)(3) for a special rule incidental part of a pension, profit-sharing, 170(e)(6)(B)(i)(III)). that applies to meal expenses for etc., plan included on line 24. Exceptions. The following exceptions individuals subject to the hours of service

apply to the above rules for computer Line 26. Other deductions. Attach a limits of the Department of Transportaschedule, listing by type and amount, all tion. technology and equipment: allowable deductions that are not • Contributions to private foundations Membership dues. The cooperative

may qualify if the foundation contributes may deduct amounts paid or incurred for deductible elsewhere.

the property to an eligible donee within 30 Examples of items to include: membership dues in civic or public

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service organizations, professional investment in the entity. That investment For details on the NOL deduction, see

organizations, business leagues, trade consists of money and other property Pub. 542, Corporations, section 172, and

associations, chambers of commerce, contributed to the entity and amounts Form 1139, Corporation Application for

boards of trade, and real estate boards, borrowed on behalf of the entity. Tentative Refund.

unless a principal purpose of the The at-risk rules do not apply to: Line 30. Taxable income. Certain

organization is to entertain or provide • Holding real property placed in service cooperatives may need to file Form 8817. entertainment facilities for members or by the cooperative before 1987; If so, taxable income reported on line 30 their guest. In addition, cooperatives may • Equipment leasing under sections may not exceed the combined taxable not deduct membership dues in any club 465(c)(4), (5), and (6); and income shown on line 30, Form 8817. organized for business, pleasure, • Any qualifying business of a qualified Attach Form 8817 to Form 990-C.

recreation, or other social purpose. This cooperative under section 465(c)(7). includes country clubs, golf and athletic Patronage source losses cannot The at-risk rules do apply to the clubs, airline and hotel clubs, and clubs be used to offset nonpatronage holding of mineral property. operated to provide meals under CAUTION income. See Form 8817.

!

conditions favorable to business If the at-risk rules apply, complete Net operating loss. If line 30 is zero discussion. Form 6198, At-Risk Limitations, then or less, the cooperative may have an

Entertainment facilities. adjust the amount on line 28 for any The NOL that can be carried back or forward section 465(d) losses. These losses are cooperative cannot deduct an expense as a deduction to other tax years. limited to the amount for which the paid or incurred for a facility (such as a Generally, a cooperative first carries an cooperative is at risk for each separate yacht or hunting lodge) used for an NOL back 2 tax years. However, the activity at the close of the tax year. If the activity that is usually considered cooperative may elect to waive the cooperative is involved in one or more entertainment, amusement, or recreation. carryback period and instead carry the activities, any of which incurs a loss for Note. NOL forward to future tax years. To make The cooperative may be able to the year, report the losses for each the election, see the instructions for deduct the otherwise nondeductible activity separately. Attach Form 6198 Schedule N, item 19, on page 18. See expense if the amount is treated as showing the amount at risk and gross Form 1139 for details, including other compensation and reported on Form W-2 income and deductions for the activities elections that may be available, which for an employee or on Form 1099-MISC with the losses. must be made no later than 6 months for an independent contractor. after the due date (excluding extensions) If the cooperative sells or otherwise Deduction for clean-fuel vehicles and disposes of an asset or its interest (either of the cooperative’s return. certain refueling property. Section total or partial) in an activity to which the Line 32b. Estimated tax payments. 179A allows a deduction for part of the at-risk rules apply, determine the net Enter any estimated tax payments the cost of qualified clean-fuel vehicle profit or loss from the activity by cooperative made for the tax year. property and qualified clean-fuel vehicle combining the gain or loss on the sale or refueling property placed in service during Beneficiaries of trusts. If the disposition with the profit or loss from the the tax year. For more information, see cooperative is the beneficiary of a trust, activity. If the cooperative has a net loss, Pub. 535, Business Expenses. and the trust makes a section 643(g) the loss may be limited because of the election to credit its estimated tax Lobbying expenses. Generally, at-risk rules. payments to its beneficiaries, include the lobbying expenses are not deductible. Treat any loss from an activity not cooperative’s share of the estimated tax These expenses include amounts paid or allowed for the current tax year as a payment in the total amount entered on incurred in connection with:

deduction allocable to the activity in the line 32b. Write “T” and the amount of the • Influencing Federal or state legislation next tax year. payment in the blank space below line 31. (but not local legislation) or

• Any communication with certain Line 32f. Credit from refiguring tax for Line 29a. Net operating loss deduction. Federal executive branch officials in an years in which nonqualified per-unit A cooperative may use the net operating attempt to influence the official actions or retain certificates or nonqualified loss incurred in one tax year to reduce its positions of the officials. See Regulations written notices of allocation (redeemed taxable income in another year. Enter the section 1.162-29 for the definition of this year) were issued. If the total NOL carryovers from other tax years “influencing legislation.” cooperative would pay less total tax by on line 29a, but do not enter more than Dues and other similar amounts paid claiming the deduction for the redemption the cooperative’s taxable income (after to certain tax-exempt organizations may of nonqualified written notices of special deductions). Attach a schedule not be deductible. See section 162(e)(3). allocation or nonqualified per-unit retain showing the computation of the If certain in-house expenditures do not certificates in the issue year versus the deduction. Also complete item 20 on exceed $2,000, they are deductible. See current tax year, refigure the tax for the Schedule N.

section 162(e)(5)(B). For information on years the nonqualified written notices or

contributions to charitable organizations The following special rules apply. certificates were originally issued

that conduct lobbying activities, see • If an ownership change occurs, the (deducting them in the issue year), then

Contributions to organizations amount of taxable income of a “loss” enter the amount of the reduction in the

conducting lobbying activities on page cooperative that may be offset by the issue years’ taxes on this line. Attach a

9. For more information on lobbying pre-change NOL carryovers may be schedule showing how the credit was

expenses, see section 162(e). limited (see section 382 and the related figured. This credit is treated as a regulations). A loss cooperative must file payment, and any amount that is more Line 28 an information statement with its income than the tax on line 31 will be refunded.

Taxable income before NOL tax return for each tax year that certain Line 32g. Credit for federal tax on deduction and special deductions ownership shifts occur (see Temporary fuels. Enter the credit from Form 4136, Regulations section 1.382-2T(a)(2)(ii) for At-risk rules. Special at-risk rules under Credit for Federal Tax Paid on Fuels, if details). See Regulations section section 465 generally apply to closely the cooperative qualifies to take this 1.382-6(b) for details on how to make the held cooperatives (see Passive activity credit. Attach Form 4136. closing-of-the-books election. limitations on page 8) engaged in any Line 32h. Total payments. Add the • If a cooperative acquires control of activity as a trade or business or for the amounts on lines 32d through 32g and another cooperative (or acquires its production of income. These cooperatives enter the total on line 32h. assets in a reorganization), the amount of may have to adjust the amount on line 28. pre-acquisition losses that may offset Backup withholding. If the cooperative

A taxpayer is generally considered recognized built-in gain may be limited had federal income tax withheld from any

“at-risk” for an amount equal to his or her (see sections 384 and 1388(j)(2)). payments it received, because, for

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example, it failed to give the payer its A qualifying small business Line 6a. An entry is required on this line

correct EIN, include the amount withheld taxpayer is a taxpayer (a) that, for each only by cooperatives electing a simplified

in the total for line 32h. Write the amount prior tax year ending on or after method of accounting.

withheld and the words “Backup December 31, 2000, has average annual For cooperatives that have elected the withholding” in the blank space above line gross receipts of $10 million or less for simplified production method, 32h. the 3-tax-year period ending with that additional section 263A costs are

Line 33. Estimated tax penalty. A prior tax year and (b) whose principal generally those costs, other than interest,

cooperative that does not make estimated business activity is not an ineligible that were not capitalized under the

tax payments when due may be subject activity. See Rev. Proc. 2002-28, 2002-18 cooperative’s method of accounting I.R.B. 815 for details. immediately prior to the effective date of to an underpayment penalty for the period

of underpayment. Generally, a Under this accounting method, section 263A that are now required to be

cooperative is subject to the penalty if its inventory costs for raw materials capitalized under the simplified production

tax liability is $500 or more and it did not purchased for use in producing finished method. For details, see Regulations

section 1.263A-2(b). timely pay the smaller of: goods, and merchandise purchased for • Its tax liability for 2003 or resale, are deductible in the year the For cooperatives that have elected the • Its prior year’s tax. finished goods or merchandise are sold simplified resale method, additional

See section 6655 for details and (but not before the year the cooperative section 263A costs are generally those

exceptions including special rules for pays for the raw materials or merchandise costs incurred with respect to the

large cooperatives. if it is also using the cash method). For following categories:

Use Form 2220, Underpayment of additional guidance on this method of • Off-site storage or warehousing. Estimated Tax by Corporations, to see if accounting for inventoriable items, see • Purchasing; handling, such as

the cooperative owes a penalty and to Pub. 538. processing, assembly, repackaging, and

figure the amount of the penalty. transporting. Enter amounts paid for all raw Generally, the cooperative does not have • General and administrative costs materials and merchandise on line 2. The to file this form because the IRS can (mixed service costs). amount the cooperative can deduct for figure the amount of any penalty and bill For details, see Regulations section the tax year is figured on line 9. the cooperative for it. However, even if 1.263A-3(d).

the cooperative does not owe the penalty, All filers not using the cash method of Enter on line 6a the balance of section complete and attach Form 2220 if: accounting should see Section 263A 263A costs paid or incurred during the tax • The annualized income or adjusted uniform capitalization rules on page 7 year not includable on lines 2, 3, and 6b. seasonal installment method is used or before completing Schedule A. Line 6b. Enter on line 6b any costs paid • The cooperative is a large corporation Line 1. Inventory at beginning of year. or incurred during the tax year not computing its first required installment Beginning inventory will generally equal entered on lines 2 through 6a. based on the prior year’s tax. (See the

Instructions for Form 2220 for the ending inventory from last year’s return. If Line 8. Inventory at end of year. See

definition of a large corporation.) this is your initial year, do not make an Regulations sections 1.263A-1 through entry on line 1. If Form 2220 is attached, check the 1.263A-3 for details on figuring the

box on line 33, and enter the amount of If the cooperative is changing its amount of additional section 263A costs

any penalty on this line. method of accounting for the current tax to be included in ending inventory.

year, it must refigure last year’s closing If the cooperative accounts for Line 36. Direct deposit of refund. If the inventory using the newly adopted inventoriable items in the same manner cooperative has a refund of $1 million or method of accounting and enter the result as materials and supplies that are not more and wants it directly deposited into on line 1. If there is a difference between incidental, enter on line 8 the portion of its its checking or savings account at any last year’s closing inventory and the raw materials and merchandise U.S. bank or other financial institution refigured amount, attach an explanation. purchased for resale that is included on instead of having a check sent to the Take the difference into account when line 7 and was not sold during the year. cooperative, complete Form 8302 and figuring the cooperative’s section 481(a) attach it to the cooperative’s tax return. Lines 10a through 10f adjustment (explained on page 4).

Inventory valuation methods. Line 4a. Qualified per-unit retain Inventories can be valued at: Schedule A certificates are issued to patrons who • Cost, have agreed to include the stated dollar • Cost or market value (whichever is Cost of Goods Sold amount on the certificate in current lower), or income. Generally, inventories are required at the • Any other method approved by the IRS beginning and end of each tax year if the Line 5. Enter the amount paid in money that conforms to the requirements of the production, purchase, or sale of or other property (except per-unit retain applicable regulations cited below. merchandise is an income-producing certificates) to patrons to redeem The cooperative is required to use factor. See Regulations section 1.471-1. nonqualified per-unit retain certificates. cost if it is using the cash method of

However, if the cooperative is a No deduction is allowed at the time of accounting. issuance for a nonqualified per-unit retain qualifying taxpayer, or a qualifying small Cooperatives that account for certificate. However, the cooperative may business taxpayer (defined below), it may inventory in the same manner as take a deduction in the year the adopt or change its accounting method to materials and supplies that are not certificate is redeemed, subject to the account for inventoriable items in the incidental may currently deduct stated dollar amount of the certificate. same manner as materials and supplies expenditures for direct labor and all

that are not incidental (unless its business The cooperative may also choose to indirect costs that would otherwise be

is a tax shelter (as defined in section deduct the amount paid to redeem the included in inventory costs.

448(d)(3))). certificate in the prior year if redemption The average cost (rolling average) occurs within the payment period for that method of valuing inventories generally A qualifying taxpayer is a taxpayer preceding year. See section 1382(b). does not conform to the requirements of that, for each prior tax year ending after

December 16, 1998, has average annual See section 1383 and the instructions the regulations. See Rev. Rul. 71-234,

gross receipts of $1 million or less for the for line 32f on page 11 for a special rule 1971-1 C.B. 148.

3-tax-year period ending with that prior for figuring the cooperative’s tax in the Cooperatives that use erroneous

tax year. See Rev. Proc. 2001-10, 2001-2 year of redemption of a nonqualified valuation methods must change to a

I.R.B. 272 for details. per-unit retain certificate. method permitted for Federal income tax

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purposes. Use Form 3115 to make this • Are received from Line 4, Column (a). Enter dividends

change. less-than-20%-owned domestic received on the preferred stock of a

corporations subject to income tax and less-than-20%-owned public utility that is On line 10a, check the method(s) used • Qualify for the 70% deduction under subject to income tax and is allowed the for valuing inventories. Under lower of section 243(a)(1). deduction provided in section 247 for cost or market, the term “market” (for dividends paid. normal goods) means the current bid Also include on line 1:

price prevailing on the inventory valuation • Taxable distributions from an IC-DISC Line 5, Column (a). Enter dividends date for the particular merchandise in the or former DISC that are designated as received on preferred stock of a volume usually purchased by the eligible for the 70% deduction, and certain 20%-or-more-owned public utility that is taxpayer. For a manufacturer, market dividends of Federal Home Loan Banks. subject to income tax and is allowed the applies to the basic elements of cost— See section 246(a)(2). deduction provided in section 247 for raw materials, labor, and burden. If • Dividends (except those received on dividends paid. section 263A applies to the taxpayer, the debt-financed stock acquired after July basic elements of cost must reflect the 18, 1984) from a regulated investment Line 6, Column (a). Enter the

current bid price of all direct costs and all company (RIC). The amount of dividends U.S.-source portion of dividends that: indirect costs properly allocable to goods eligible for the dividends-received • Are received from on hand at the inventory date. deduction under section 243 is limited by less-than-20%-owned foreign

Inventory may be valued below cost section 854(b). The cooperative should corporations and

when the merchandise is unsalable at receive a notice from the RIC specifying • Qualify for the 70% deduction under

normal prices or unsalable in the normal section 245(a). the amount of dividends that qualify for

way because the goods are subnormal the deduction. To qualify for the 70% deduction, the

due to damage, imperfections, shop wear, Generally, debt-financed stock is stock cooperative must own at least 10% of the

etc., within the meaning of Regulations that the cooperative acquired by incurring stock of the foreign corporation by vote section 1.471-2(c). The goods may be a debt (e.g., it borrowed money to buy the and value.

valued at a current bona fide selling price, stock). Also include dividends received from

minus direct cost of disposition (but not Report dividends or earnings received a less-than-20%-owned FSC that:

less than scrap value) if such a price can from mutual savings banks, etc., as • Are attributable to income treated as be established. effectively connected with the conduct of interest income. Do not treat them as

If this is the first year the Last-in, dividends. a trade or business within the United

First-out (LIFO) inventory method was States (excluding foreign trade income)

either adopted or extended to inventory Line 2, Column (a). Enter on line 2: and

goods not previously valued under the • Dividends (except those received on • Qualify for the 70% deduction provided

LIFO method provided for in section 472, debt-financed stock acquired after July in section 245(c)(1)(B).

attach Form 970, Application To Use 18, 1984) that are received from LIFO Inventory Method, or a statement Line 7, Column (a). Enter the 20%-or-more-owned domestic

with the information required by Form U.S.-source portion of dividends that are corporations subject to income tax and 970. Also check the LIFO box on line 10c. received from 20%-or-more-owned that are subject to the 80% deduction On line 10d, enter the amount or the foreign corporations and that qualify for under section 243(c) and percent of total closing inventories the 80% deduction under section 245(a). • Taxable distributions from an IC-DISC covered under section 472. Estimates are Also include dividends received from a or former DISC that are considered acceptable. 20%-or-more-owned FSC that: eligible for the 80% deduction. • Are attributable to income treated as If the cooperative changed or effectively connected with the conduct of extended its inventory to LIFO and had to Line 3, Column (a). Enter dividends that

a trade or business within the United write up its opening inventory to cost in are: States (excluding foreign trade income) the year of election, report the effect of • Received on debt-financed stock and this write-up as income (line 10, page 1) acquired after July 18, 1984, that are • Qualify for the 80% deduction provided proportionately over a 3-year period received from domestic and foreign in section 245(c)(1)(B). beginning with the year of the LIFO corporations subject to income tax that

election (section 472(d)). would otherwise be subject to the Line 8, Column (a). Enter dividends dividends-received deduction under For more information on inventory received from wholly owned foreign sections 243(a)(1), 243(c), or 245(a). valuation methods, see Pub. 538. subsidiaries that are eligible for the 100% • Received from a RIC on debt-financed deduction provided in section 245(b). stock. The amount of dividends eligible

Schedule C for the dividends-received deduction is In general, the deduction under section

limited by section 854(b). The cooperative 245(b) applies to dividends paid out of the

Dividends and Special should receive a notice from the RIC earnings and profits of a foreign

specifying the amount of dividends that corporation for a tax year during which: Deductions qualify for the deduction. • All of its outstanding stock is owned For purposes of the 20% ownership test (directly or indirectly) by the domestic on lines 1 through 7, the percentage of Line 3, Columns (b) and (c). Dividends cooperative receiving the dividends and stock owned by the cooperative is based received on debt-financed stock acquired • All of its gross income from all sources on voting power and value of the common after July 18, 1984, are not entitled to the is effectively connected with the conduct stock. Preferred stock described in full 70% or 80% dividends-received of a trade or business within the United section 1504(a)(4) is not taken into deduction. The 70% or 80% deduction is States. account. Cooperatives filing a reduced by a percentage that is related to consolidated return should see the amount of debt incurred to acquire the Line 9, Column (c). Generally, line 9, Regulations sections 1.1502-13, stock. See section 246A. Also see section column (c), may not exceed the amount 1.1502-26, and 1.1502-27 before 245(a) before making this computation for from the worksheet below. However, in a completing Schedule C. an additional limitation that applies to year in which an NOL occurs, this

Line 1, Column (a). Enter dividends dividends received from foreign limitation does not apply even if the loss

(except those received on debt-financed corporations. Attach a schedule to Form is created by the dividends-received

stock acquired after July 18, 1984—see 990-C showing how the amount on line 3, deduction. See sections 172(d) and

section 246A) that: column (c), was figured. 246(b).

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income reported on Schedule I, Form Special rules also apply if a Worksheet for Schedule C, line 9 5471. cooperative has acquired the assets of (keep for your records) another cooperative under a section Line 14, Column (a). Include gross-up 381(a) transaction. See section 1388(j) 1. Refigure line 28, page 1, Form for taxes deemed paid under sections 902 for more information. Cooperatives may 990-C, without any adjustment and 960. net earnings and losses under section under section 1059 and without

Line 15, Column (a). Enter taxable 1388(j) and still be eligible for tax-exempt any capital loss carryback to the

distributions from an IC-DISC or former treatment. See section 521(b)(6). tax year under section

1212(a)(1) .............. DISC that are designated as not eligible If the cooperative sells qualifying 2. Complete lines 10 and 11, for a dividends-received deduction. foreign trade property, no deduction is column (c) and enter the total No deduction is allowed under section allowed for patronage dividends, per-unit here .................. retain allocations, and nonpatronage 3. Subtract line 2 from line 1 .... 243 for a dividend from an IC-DISC or distributions related to foreign trade 4. Multiply line 3 by 80% ....... former DISC (as defined in section income. For details, see section 5. Add lines 2, 5, 7, and 8, column 992(a)) to the extent the dividend: 941(b)(2). (c) and the part of the deduction 1. Is paid out of the cooperative’s on line 3, column (c) that is accumulated IC-DISC income or Any patronage dividends or per-unit attributable to dividends previously taxed income or retain allocations that are allocated to received from 2. Is a deemed distribution under qualifying foreign trade income of the 20%-or-more-owned section 995(b)(1). cooperative may be treated as qualifying corporations ............. foreign trade income of the patron. In 6. Enter the smaller of line 4 or line Line 16, Column (a). Include the order to qualify, the amount must be 5. If line 5 is greater than line 4, following: designated by the cooperative in a written stop here; enter the amount

from line 6 on line 9, column (c). notice mailed to its patrons not later than 1. Dividends (other than capital gain

Do not complete the rest of this the 15th day of the 9th month following distributions reported on Schedule D

worksheet .............. the close of the tax year. For more (Form 1120) and exempt-interest 7. Enter the total amount of details, see section 943(g). dividends) that are received from RICs dividends received from and that are not subject to the 70% Note. Lines 1 and 2 apply only to section 20%-or-more-owned deduction. 521 cooperatives. corporations that are included 2. Dividends from tax-exempt on lines 2, 3, 5, 7, and 8, Line 1. Enter the amount actually or organizations. column (a) .............. constructively paid as dividends during 3. Dividends (other than capital gain 8. Subtract line 7 from line 3 .... the tax year on: distributions) received from a REIT that, 9. Multiply line 8 by 70% ....... • Common stock (whether voting or for the tax year of the trust in which the 10. Subtract line 5 from line 9, nonvoting), dividends are paid, qualifies under column (c) .............. • Preferred stock, sections 856 through 860. 11. Enter the smaller of line 9 or line • Capital retain certificates, 10 . . . . . . . . . . . . . . . . . . . . 4. Dividends not eligible for a • Revolving fund certificates, 12. Dividends-received deduction dividends-received deduction because of • Letters of advice, or after limitation (section 246(b)). the holding period of the stock or an • Other documentary evidence of a Add lines 6 and 11. Enter the obligation to make corresponding proprietary interest in the cooperative result here and on line 9, payments with respect to similar stock. association. column (c) .............. Two situations in which the See Regulations section 1.1382-3(b) dividends-received deduction will not be for more information. Line 10, Column (a). Enter dividends allowed on any share of stock are: from FSCs that are attributable to foreign • If the cooperative held it for less Line 2. Enter nonpatronage income trade income and that are eligible for the allocated to patrons. Payment may be in: than 46 days during the 90-day period 100% deduction provided in section beginning 45 days before the stock • Money, 245(c)(1)(A). became ex-dividend with respect to the • Qualified written notices of allocation,

Line 11, Columns (a) and (c). Enter only dividend (see section 246(c)(1)(A)) or or

those dividends that qualify under section • To the extent the cooperative is • Other property (except nonqualified

243(b) for the 100% dividends-received under an obligation to make related written notices of allocation).

deduction described in section 243(a)(3). payments for substantially similar or The amounts must be paid during the

Cooperatives taking this deduction are related property. payment period that begins on the first

subject to the provisions of section 1561. 5. Any other taxable dividend income day of the tax year and ends on the 15th

not properly reported above (including day of the 9th month after the end of the The 100% deduction does not apply to distributions under section 936(h)(4)). tax year in which the income was earned. affiliated group members that are joining

in the filing of a consolidated return. Nonpatronage income includes

incidental income from sources not Line 12, Column (a). Enter foreign directly related to: dividends not reportable on lines 3, 6, 7, Schedule H • Marketing, 8, or 10 of column (a). Include on line 12 • Purchasing, the cooperative’s share of the ordinary Deductions and Adjustments • Service activities of the cooperative earnings of a qualified electing fund from Under Section 1382 (such as income from the lease of Form 8621, Return by a Shareholder of a Cooperatives may, under section premises, investments, or from the sale or Passive Foreign Investment Company or 1388(j)(1), use losses from one or more exchange of capital assets), or Qualified Electing Fund, line 1c. Exclude allocation units to offset earnings of one • Income from business done with or for distributions of amounts constructively or more other allocation units, as the U.S. Government, or any of its taxed in the current year or in prior years permitted by their bylaws, but only to the agencies. under subpart F (sections 951 through extent that the earnings and losses are See Patronage dividends on page 15 964). from business done with or for patrons. If for a definition of “qualified written notice

Line 13, Column (a). Include income a cooperative exercises this option, it of allocation.” See section 1382(c)(2)(B)

constructively received from controlled must provide the information specified in for deductibility of amounts paid in

foreign corporations under subpart F. This section 1388(j)(3) by written notice to its redemption of “nonqualified written

amount should equal the total subpart F patrons. notices of allocation.” See section 1388

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(d) for a definition of a nonqualified written than written notices of allocation) which amount in each taxable income bracket

notice of allocation. do not exceed the stated dollar amounts equally among themselves. For example,

of the nonqualified written notices of Controlled Group AB consists of Line 3. To be deductible, patronage allocation. See section 1382(b), Cooperative A and Cooperative B. They dividends must be paid during the Regulations section 1.1382-2 and section do not elect an apportionment plan. payment period that begins on the first 1383. Therefore, each cooperative is entitled to: day of the tax year in which the patronage

See Rev. Rul. 81-103, 1981-1 C.B. • $25,000 (one-half of $50,000) on line occurs and ends on the 15th day of the

447, for the redemption of nonqualified 2a(1), 9th month after the end of that tax year.

written notices of allocation issued to • $12,500 (one-half of $25,000) on line See sections 1382(e) and (f) for patrons by a payment of cash and a 2a(2), and special rules for the time when patronage crediting of accounts receivable due from • $4,962,500 (one-half of $9,925,000) on occurs if products are marketed under a patrons. line 2a(3). pooling arrangement, or if earnings are Note. See section 1383 for special rules Unequal apportionment plan. Members includible in the gross income of the for figuring the cooperative’s tax in the of a controlled group may elect an cooperative for a tax year after the year in year nonqualified written notices of unequal apportionment plan and divide which the patronage occurred. allocation are redeemed. The cooperative the taxable income brackets as they want. Patronage dividends include any is entitled to: There is no need for consistency among amount paid to a patron by a cooperative taxable income brackets. Any member (a) A deduction in the tax year the based on the quantity or value of may be entitled to all, some, or none of nonqualified written notices of allocation business done with or for that patron the taxable income bracket. However, the are redeemed (if permitted under section under a pre-existing obligation to pay that total amount for all members cannot 1382(b)(2) or (4) or section 1382(c)(2)(B)) amount. The amount is determined by exceed the total amount in each taxable or reference to the net earnings of the income bracket. 

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

or Amounts paid to patrons are not based on the part of the amount used in

• Other property (except nonqualified patronage dividends if paid: each taxable income bracket to reduce

written notices of allocation). 1. Out of earnings not from business that member’s tax. See section 1561(a). If

A written notice of allocation means: done with or for patrons; an additional tax applies, attach a

• Any capital stock, 2. Out of earnings from business done schedule showing the taxable income of

• Revolving fund certificate, with or for other patrons to whom no the entire group and how the cooperative

• Retain certificate, amounts or smaller amounts are paid for figured its share of the additional tax.

• Certificate of indebtedness, substantially identical transactions; Line 2b(1). Enter the cooperative’s • Letter of advice, or 3. To redeem capital stock, share of the additional 5% tax on line • Other written notice, which states the certificates of indebtedness, revolving 2b(1). dollar amount allocated to the patron by fund certificates, retain certificates, letters Line 2b(2). Enter the cooperative’s the cooperative and the part, if any, which of advice, or other similar documents; or share of the additional 3% tax on line is a patronage dividend. 4. Without reference to the net 2b(2). In general, a qualified written notice earnings of the cooperative organization of allocation is a written notice of from business done with or for its patrons. Line 3

allocation that is: Tax Computation Worksheet for • Paid as part of a patronage dividend, in Members of a Controlled Group money or by qualified check equal to at Schedule J (keep for your records) least 20% of the patronage dividend, and

• One of the following conditions is met: Tax Computation Note. Each member of a controlled group must 1. The patron must have at least 90 compute its tax using this worksheet. days from the date the written notice of Lines 1 and 2 1. Enter taxable income (line 30, allocation is paid to redeem it in cash, Members of a controlled group. A page 1) ................. and must receive written notice of the member of a controlled group, as defined right of redemption at the time the patron 2. Enter line 1 or the cooperative’s in section 1563, must check the box on receives the allocation; or share of the $50,000 taxable line 1 and complete lines 2a and 2b, as 2. The patron must agree to have the income bracket, whichever is applicable. allocation treated as constructively less ...................

received and reinvested in the Line 2a. Members of a controlled group 3. Subtract line 2 from line 1 .... cooperative. See section 1388(c)(2) and are entitled to share one $50,000, one

$25,000, and one $9,925,000 taxable 4. Enter line 3 or the cooperative’s the related regulations for information on income bracket amount (in that order). share of the $25,000 taxable how this consent must be made.

When a controlled group adopts or income bracket, whichever is

If a written notice of allocation does not less ................... later amends an apportionment plan, qualify, no deduction is allowable at the each member must attach to its tax return 5. Subtract line 4 from line 3 .... time it is issued. However, the a copy of its consent to this plan. cooperative is entitled to a deduction or 6. Enter line 5 or the cooperative’s

refund of tax when the nonqualified The copy (or an attached statement) share of the $9,925,000 taxable

written notice of allocation is finally must show the part of the amount in each income bracket, whichever is

taxable income bracket apportioned to less ................... redeemed, if that notice was paid as a

patronage dividend during the payment that member. See Regulations section 7. Subtract line 6 from line 5 .... period for the tax year during which the 1.1561-3(b) for other requirements and

for the time and manner of making the 8. Multiply line 2 by 15% ....... patronage occurred. The deduction or consent. refund is allowed, but only to the extent 9. Multiply line 4 by 25% .......

that amounts paid to redeem the Equal apportionment plan. If no 10. Multiply line 6 by 34% ....... nonqualified written notices of allocation apportionment plan is adopted, members

are paid in money or other property (other of a controlled group must divide the 11. Multiply line 7 by 35% .......

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must file Form 4626 if its taxable income cooperative is not required to file Form 12. If the taxable income of the (or loss) before the NOL deduction 3800, check the “Form(s)” box, write the controlled group exceeds combined with these adjustments and tax form number (from the list below) in the $100,000, enter this member’s preference items is more than the lesser space provided, and include on line 6c share of the smaller of: 5% of

the taxable income in excess of of: the allowable credit from the applicable

$100,000, or $11,750. See • $40,000 or form.

instructions for line 2b ....... • The cooperative’s allowable exemption Note. Any excess energy investment amount (from Form 4626). 13. If the taxable income of the credit, work opportunity credit, Indian See Form 4626 for details. controlled group exceeds $15 employment credit, empowerment zone

million, enter this member’s Exemption for small corporations. or renewal community employment credit,

share of the smaller of: 3% of A cooperative is treated as a small welfare-to-work credit, or new markets

the taxable income in excess of corporation exempt from the AMT for its credit not used by the cooperative $15 million, or $100,000. See tax year beginning in 2003 if that year is (because of the tax liability limitation) instructions for line 2b ....... the cooperative’s first tax year in must be passed through to the patrons.

14. Add lines 8 through 13. Enter existence (regardless of its gross These credits cannot be carried back

here and on Schedule J, line 3. receipts) or: or over by the cooperative. See Forms

1. It was treated as a small 3468, 5884, 8844, 8845, 8861, and 8874

corporation exempt from the AMT for all for details.

Note. Members of a controlled group prior tax years beginning after 1997 and • Investment Credit (Form 3468). must attach to Form 990-C a statement 2. Its average annual gross receipts • Work Opportunity Credit (Form 5884). showing the computation of the tax for the 3-tax-year period (or portion • Credit for Alcohol Used as Fuel (Form entered on Schedule J, line 3. thereof during which the cooperative was 6478).

Most cooperatives figure their tax by in existence) ending before its tax year • Credit for Increasing Research

using the Tax Rate Schedule below. beginning in 2003 did not exceed $7.5 Activities (Form 6765).

Exceptions apply to members of a million ($5 million if the cooperative had • Low-Income Housing Credit (Form

controlled group (see the worksheet only 1 prior tax year). 8586).

above). For more details, see the Instructions • Orphan Drug Credit (Form 8820).

• Disabled Access Credit (Form 8826). for Form 4626. Tax Rate Schedule • Enhanced Oil Recovery Credit (Form Line 6a. Foreign tax credit. To find out If taxable income on line 30, page 1, 8830). when a cooperative can take the credit for Form 990-C is: • Renewable Electricity Production Credit payment of income tax to a foreign (Form 8835). country or U.S. possession, see Form Over — But not Tax is: Of the • Indian Employment Credit (Form 8845). 1118, Foreign Tax Credit—Corporations. over — amount • Credit for Employer Social Security and over — Line 6b. Other Credits Medicare Taxes Paid on Certain

$0 $50,000 15% $0 Employee Tips (Form 8846). Possessions tax credit. The Small 50,000 75,000 $ 7,500 + 25% 50,000 • Credit for Contributions to Selected

75,000 100,000 13,750 + 34% 75,000 Business Job Protection Act of 1996 Community Development Corporations

100,000 335,000 22,250 + 39% 100,000 repealed the possessions credit. (Form 8847).

335,000 10,000,000 113,900 + 34% 335,000 However, existing credit claimants may • Welfare-to-Work Credit (Form 8861). 10,000,000 15,000,000 3,400,000 + 10,000,000 qualify for a credit under the transitional • New Markets Credit (Form 8874). 35% rules. See Form 5735, Possessions • Credit for Small Employer Pension Plan 15,000,000 18,333,333 5,150,000 + 15,000,000 Corporation Tax Credit (Under Sections Startup Costs (Form 8881). 38% 936 and 30A). 18,333,333 - - - - - 35% 0 • Credit for Employer-Provided Childcare

Nonconventional source fuel credit. A Facilities and Services (Form 8882).

credit is allowed for the sale of qualified Deferred tax under section 1291. If the Line 6d. Credit for prior year minimum fuels produced from a nonconventional cooperative was a shareholder in a tax. To figure the minimum tax credit and source. Section 29 contains a definition of passive foreign investment company any carryforward of that credit, use Form qualified fuels, provisions for figuring the (PFIC), and the cooperative received an 8827, Credit for Prior Year Minimum credit, and other special rules. Attach a excess distribution or disposed of its Tax—Corporations. separate schedule to Form 990-C investment in the PFIC during the year, it showing the computation of the credit. Also see Form 8827 if any of the must include the total increase in taxes Qualified electric vehicle (QEV) credit. cooperative’s 2002 nonconventional due under section 1291(c)(2) in the source fuel credit, orphan drug credit, or amount entered on line 3, Schedule J. On Include on line 6b any credit from Form qualified electric vehicle credit was 8834, Qualified Electric Vehicle Credit. the dotted line next to line 3, Schedule J, disallowed solely because of the tentative write “Section 1291” and the amount. Vehicles that qualify for this credit are not minimum tax limitation. See section 53(d). eligible for the deduction for clean-fuel Do not include on line 3 any interest vehicles under section 179A. Line 9. Other taxes. Include any of the due under section 1291(c)(3). Instead, Line 6c. General business credit. Enter following taxes and interest in the total on show the amount of interest owed in the line 9. Check the appropriate box(es) for the cooperative’s total general business bottom margin of page 1, Form 990-C, credit. the form, if any, used to compute the and write “Section 1291 interest.” If the total. cooperative has a tax due, include the If the cooperative is filing Form 8844,

interest due in the payment. If you would Empowerment Zone and Renewal Recapture of investment credit. If the

otherwise receive a refund, reduce the Community Employment Credit, or Form cooperative disposed of investment credit

refund by the interest due. For details, 8884, New York Liberty Zone Business property or changed its use before the

see Form 8621. Employee Credit, check the “Form(s)” end of its useful life or recovery period,

box, write the form number in the space see Form 4255, Recapture of Investment Line 4. Alternative minimum tax (AMT). provided, and include the allowable credit Credit, for details. Unless the cooperative is treated as a on line 6c. small corporation exempt from the AMT, it Recapture of low-income housing

may owe AMT if it has any of the If the cooperative is required to file credit. If the cooperative disposed of

adjustments and tax preference items Form 3800, General Business Credit, property (or there was a reduction in the

listed on Form 4626, Alternative Minimum check the “Form 3800” box and include qualified basis of the property) for which it

Tax—Corporations. The cooperative the allowable credit on line 6c. If the took the low-income housing credit, it may

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owe a tax. See Form 8611, Recapture of • State and local government obligations, 1. At any time during the 2003

Low-Income Housing Credit. the interest on which is excludable from calendar year, the cooperative had an

Other. Additional taxes and interest gross income under section 103(a) and interest in or signature or other authority

• Stock in a mutual fund or other RIC that over a bank, securities, or other financial amounts may be included in the total

entered on line 9. Check the box for distributed exempt-interest dividends account in a foreign country (see Form

during the tax year of the cooperative. TD F 90–22.1, Report of Foreign Bank “Other” if the cooperative includes any of and Financial Accounts); and the taxes and interest discussed below. Line 24. Adjustments to shareholders’

See How to report, • The combined value of the accounts below, for details on equity. Some examples of items to report was more than $10,000 at any time reporting these amounts on an attached on this line include: during the calendar year and schedule. • Unrealized gains and losses on • The account was not with a U.S. • Recapture of the qualified electric securities held “available for sale.” military banking facility operated by a U.S. vehicle (QEV) credit. The cooperative • Foreign currency translation

must recapture part of the QEV credit financial institution. adjustments. 2. The cooperative owns more than claimed in a prior year, if, within 3 years • The excess of additional pension 50% of the stock in any corporation that of the date the vehicle was placed in liability over unrecognized prior service would answer “Yes” to item 1 above. service, it ceases to qualify for the credit. cost.

See Regulations section 1.30-1 for details • Guarantees of employee stock (ESOP) If “Yes” is checked for this question: on how to figure the recapture. debt. • Enter the name(s) of the foreign • Recapture of the Indian employment • Compensation related to employee country or countries. Attach a separate credit. Generally, if an employer stock award plans. sheet if more space is needed. terminates the employment of a qualified If the total adjustment to be entered on • File Form TD F 90-22.1 by June 30, employee less than 1 year after the date line 24 is a negative amount, enter it in 2004, with the Department of the of initial employment, any Indian parentheses. Treasury at the address shown on the employment credit allowed for a prior tax form. Do not file it with Form 990-C.

year because of wages paid or incurred to You can order Form TD F 90-22.1 by that employee must be recaptured. For Schedule M-1 calling 1-800-TAX-FORM details, see Form 8845 and section 45A. (1-800-829-3676) or you can download it • Recapture of new markets credit (see Reconciliation of Income (Loss) from the IRS website at www.irs.gov. Form 8874).

• Recapture of employer-provided per Books With Income per Question 14 Return childcare facilities and services credit The cooperative may be required to file

(see Form 8882). Line 5c. Travel and entertainment. Form 3520, Annual Return To Report

• Interest on deferred tax attributable to Include on line 5c any of the following: Transactions with Foreign Trusts and

(a) installment sales of certain timeshares • Meals and entertainment not deductible Receipt of Certain Foreign Gifts, if:

and residential lots (section 453(l)(3)) and under section 274(n). • It directly or indirectly transferred (b) certain nondealer installment • Expenses for the use of an money or property to a foreign trust. For obligations (section 453A(c)). entertainment facility. this purpose, any U.S. person who • Interest due on deferred gain (section • The part of business gifts over $25. created a foreign trust is considered a 1260(b)). • Expenses of an individual in excess of transferor.

How to report. If the cooperative $2,000, which are allocable to • It is treated as the owner of any part of conventions on cruise ships. checked the “Other” box, attach a the assets of a foreign trust under the

schedule showing the computation of • Employee achievement awards over grantor trust rules.

each item included in the total for line 9, $400. • It received a distribution from a foreign • The cost of entertainment tickets over identify the applicable Code section and trust.

the type of tax or interest. their face value (also subject to 50% limit For more information, see the under section 274(n)). Instructions for Form 3520. Line 10. Total tax. Include any deferred • The cost of skyboxes over the face Note. An owner of a foreign trust must tax on the termination of a section 1294 value of nonluxury box seat tickets. election applicable to shareholders in a ensure that the trust files an annual • The part of luxury water travel not qualified electing fund in the amount information return on Form 3520-A, deductible under section 274(m). entered on line 10. See Form 8621, Part Annual Information Return of Foreign • Expenses for travel as a form of V and How to report below. Trust with a U.S. Owner. For details, see education. Form 3520-A. Subtract any deferred tax on the • Other nondeductible expenses for

cooperative’s share of undistributed travel and entertainment. Item 15

earnings of a qualified electing fund (see For more information, see Pub. 542. Show any tax-exempt interest income Form 8621, Part II). Line 7. Tax-exempt interest. Include as received or accrued. Include any

How to report. If deferring tax, attach interest on line 7, any exempt-interest exempt-interest dividends received as a

a schedule showing the computation of dividends received as a shareholder in a shareholder in a mutual fund or RIC.

each item included in, or subtracted from, mutual fund or RIC. Question 17 the total for line 10. On the dotted line

next to line 10, specify (a) the applicable Check the “Yes” box if:

Code section, (b) the type of tax, and (c) Schedule N 1. The cooperative is a subsidiary in the amount of tax. an affiliated group (defined below), but is

Other Information not filing a consolidated return for the tax

year with that group or The following instructions apply to Form Schedule L 2. The cooperative is a subsidiary in a 990-C, page 5, Schedule N. Be sure to parent-subsidiary controlled group complete all the items that apply to the Balance Sheets per Books (defined below). cooperative. The balance sheet should agree with the Any cooperative that meets either of cooperative’s books and records. Include Question 13 the above requirements should check the certificates of deposit as cash on line 1, Foreign financial account. Check the “Yes” box. This applies even if the Schedule L. “Yes” box if either 1 or 2 below applies to cooperative is a subsidiary member of

Line 5. Tax-exempt securities. Include the cooperative. Otherwise, check the one group and the parent corporation of

on this line: “No” box. another.

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Note. If the cooperative is an “excluded group (except the parent) must be owned

member” of a controlled group (see by one or more of the other corporations Paperwork Reduction Act Notice. We

section 1563(b)(2)), it is still considered a in the group and ask for the information on this form to

member of a controlled group for this 2. The common parent must own at carry out the Internal Revenue laws of the

purpose. least 80% of the total combined voting United States. You are required to give us

Affiliated group. power of all classes of stock entitled to the information. We need it to ensure that The term “affiliated vote or at least 80% of the total value of you are complying with these laws and to group” means one or more chains of all classes of stock of one or more of the allow us to figure and collect the right includible corporations (section 1504(a)) other corporations in the group. Stock amount of tax. connected through stock ownership with a owned directly by other members of the common parent corporation. The common group is not counted when computing the You are not required to provide the parent must be an includible corporation voting power or value. information requested on a form that is and the following requirements must be subject to the Paperwork Reduction Act met: See section 1563(d)(1) for the unless the form displays a valid OMB 1. The common parent must directly definition of “stock” for purposes of control number. Books or records relating own stock that represents at least 80% of determining stock ownership above. to a form or its instructions must be the total voting power and at least 80% of Item 19 retained as long as their contents may the total value of the stock of at least one become material in the administration of of the other includible corporations, and If the cooperative has an NOL for its 2003 any Internal Revenue law. Generally, tax 2. Stock that represents at least 80% tax year, it may elect, under section returns and return information are of the total voting power and at least 80% 172(b)(3), to waive the entire carryback confidential, as required by section 6103. of the total value of the stock of each of period for the NOL and instead carry the

the other corporations (except for the NOL forward to future tax years. To do The time needed to complete and file common parent) must be owned directly so, check the box in item 19 and file the this form will vary depending on individual by one or more of the other includible return by its due date, including circumstances. The estimated average corporations. extensions (do not attach the statement time is: described in Temporary Regulations For this purpose, stock generally does section 301.9100-12T). Once made, the Recordkeeping . . . . . . . . 75 hr., 34 min. not include any stock that (a) is election is irrevocable. See Pub. 542, Learning about the law or nonvoting, (b) is nonconvertible, (c) is section 172, and Form 1139 for more the form . . . . . . . . . . . . . 24 hr., 55 min. limited and preferred as to dividends and details. Preparing the form . . . . . . 43 hr., 5 min. does not participate significantly in Cooperatives filing a consolidated Copying, assembling, and corporate growth, and (d) has redemption sending the form to the IRS 4 hr., 33 min. return must check the box and attach the and liquidation rights that do not exceed statement required by Temporary the issue price of the stock (except for a Regulations section 1.1502-21T(b)(3)(i) or If you have comments concerning the reasonable redemption or liquidation (ii). accuracy of these time estimates or premium). See section 1504(a)(4). suggestions for making this form simpler, Parent-subsidiary controlled group. Item 20 we would be happy to hear from you. You The term “parent-subsidiary controlled Enter the amount of the NOL carryover to can write to the Tax Products group” means one or more chains of the tax year from prior years, even if Coordinating Committee, Western Area corporations connected through stock some of the loss is used to offset income Distribution Center, Rancho Cordova, CA ownership (section 1563(a)(1)). Both of on this return. The amount to enter is the 95743-0001. the following requirements must be met: total of all NOLs generated in prior years

1. At least 80% of the total combined but not used to offset income (either as a Do not send the tax form to this office.

voting power of all classes of voting stock carryback or carryover) in a tax year prior Instead, see Where To File on page 2. or at least 80% of the total value of all to 2003. Do not reduce the amount by

classes of stock of each corporation in the any NOL deduction reported on line 29a.

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Index

AENS

Accounting methods ......4 Electronic Federal Tax Name change ..........6 Salaries and wages ......8

Accounting periods ......4 Payment System Net operating loss . . . . . . 11 Schedule:

Address change .........6 (EFTPS) ............5 Nonaccrual experience A . . . . . . . . . . . . . . . . . 12

Affiliated group . . . . . . . . 18 Employee benefit C method .............4 . . . . . . . . . . . . . . . . . 13

Alternative minimum programs . . . . . . . . . . . 10 H . . . . . . . . . . . . . . . . . 14 Nonpatronage income . . . 14 Employer identification J . . . . . . . . . . . . . . . . . 15 tax . . . . . . . . . . . . . . . . 16

number (EIN) .........6 L . . . . . . . . . . . . . . . . . 17 Amended return .........6

Estimated tax payments . . . 5 O M-1 . . . . . . . . . . . . . . . 17 Assembling the return . . . . 4 Other deductions . . . . . . . 10 N . . . . . . . . . . . . . . . . . 17

Other income ...........7

B F Other taxes: T Backup withholding . . . . . 11 Final return ............6 Recapture . . . . . . . . . . 16 Tax Computation . . . . . . . 15 Bad debts Foreign financial .............8

account . . . . . . . . . . . . 17 Tax issues, unresolved . . . . 1 Balance sheets . . . . . . . . 17 P Foreign tax credit . . . . . . . 16 Tax rate schedule . . . . . . 16 Business start-up Paid preparer Forms and publications, Taxes and licenses ......9 expenses ............8 authorization .........2 how to get ...........1 Travel, meals, and Passive activity entertainment . . . . . . . . 10

C limitations ............8

Capital gain net income . . . 7 G Patronage dividends . . . . 15 General business Penalty: W Charitable contributions . . . 9 credit . . . . . . . . . . . . . . 16 Estimated tax When to file ............2 Closely held cooperative . . . 8 . . . . . . . . 12

Golden parachute Late filing ............5 Where to file ...........2 Compensation of payments ............8 Late payment .........5 Who must file ..........1 officers ..............8 Gross receipts ..........6 Pension, profit-sharing, Who must sign ..........2 Consolidated return ......4 Gross rents ............7 etc., plans . . . . . . . . . . 10 Worksheet: Controlled group: Private delivery services . . . 2 Schedule C . . . . . . . . . 13 Member of . . . . . . . . . . 15 Worksheets: Cost of goods sold I . . . . . . 12 Controlled group Income ...............6 Q members, tax Initial return ............6 Qualified written notice of D computation . . . . . . . 15 Interest and Penalties .....5 allocation . . . . . . . . . . . 15 Deductions ............7 Written notice of Interest expense ........9 Deductions and allocation . . . . . . . . . . . 15

Adjustments under Interest income .........7 R

Section 1382 . . . . . . . . 14 Inventory: Reconciliation of income ■

Depletion . . . . . . . . . . . . . 10 Valuation methods . . . . 12 (Sch M-1) . . . . . . . . . . . 17

Depository method of tax Recordkeeping .........5

payment .............5 L Related taxpayer

Depreciation . . . . . . . . . . 10 Limitations on deductions: transactions ..........8

Direct deposit of refund . . 12 Section 263A uniform Rents (expense) ........8

Dividends .............7 capitalization rules....7 Repairs and

Dividends and Special Lobbying expenses . . . . . 11 maintenance .........8

Deductions . . . . . . . . . . 13

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