Department of the Treasury 2004 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 • Cooperatives can allocate on new be less than its inversion gain for the tax

What’s New .................... 1 Form 8896, Low Sulfur Diesel Fuel year. See section 7874.

Photographs of Missing Children . . . . 1 Production Credit, any or all of its credit to

Unresolved Tax Issues ............ 1 patrons for any tax year ending after Photographs of Missing December 31, 2002. See section 45H and How To Get Forms and the instructions for Schedule J, line 6c. Children Publications .................. 2 • Cooperatives can file new Form 8895, The Internal Revenue Service is a proud General Instructions ............. 2 Section 965(f) Election for Corporations partner with the National Center for Purpose of Form ................ 2 that are U.S. Shareholders of a Controlled Missing and Exploited Children. Who Must File .................. 2 Foreign Corporation, to elect the 85% Photographs of missing children selected When To File ................... 2 dividends-received deduction on by the Center may appear in instructions Where To File .................. 2 repatriated dividends received under on pages that would otherwise be blank.

Who Must Sign ................. 2 section 965. Changes are made to Form You can help bring these children home

Paid Preparer Authorization ........ 2 990-C, Schedule C, lines 10 and 11. by looking at the photographs and calling

Assembling the Return ............ 3 • For tax years beginning after October 1-800-THE-LOST (1-800-843-5678) if you

Accounting Methods 22, 2004, cooperatives can elect to be recognize a child. .............. 3

Accounting Periods .............. 3 taxed on income from qualifying shipping

Rounding Off to Whole Dollars . . . . . . 4 activities using an alternative tax method. Unresolved Tax Issues

See page 8. Recordkeeping .................. 4 If the cooperative has attempted to deal

Depository Methods of Tax • Cooperatives can elect to deduct a with an IRS problem unsuccessfully, it

Payment limited amount of business start-up and should contact the Taxpayer Advocate. .................... 4

Estimated Tax Payments organizational costs paid or incurred after The Taxpayer Advocate independently .......... 4 October 22, 2004. See page 9. represents the cooperative’s interests and Interest and Penalties ............. 4 • Cooperatives cannot deduct certain concerns within the IRS by protecting its Other Forms and Statements interest paid or incurred in tax years rights and resolving problems that have That May Be Required .......... 5 beginning after October 22, 2004, on an not been fixed through normal channels. Specific Instructions ............ 7 underpayment of tax from certain Period Covered While Taxpayer Advocates cannot ................. 7 undisclosed transactions. See page 11. change the tax law or make a technical Address ....................... 7 • For charitable contributions of certain tax decision, they can clear up problems Business Activity With the property made after June 3, 2004, a that resulted from previous contacts and Largest Total Receipts .......... 7 cooperative must file Form 8283 and ensure that the cooperative’s case is Employer Identification Number obtain a qualified appraisal if claiming a given a complete and impartial review. (EIN) ....................... 7 deduction of more than $5,000. See page

Consolidated Return 11. The cooperative’s assigned personal .............. 7 • For charitable contributions of patents advocate will listen to its point of view and Type of Cooperative .............. 7

and certain other intellectual property will work with the cooperative to address Initial Return, Final Return, made after June 3, 2004, cooperatives its concerns. The cooperative can expect Name Change, Address will receive a reduced deduction but can the advocate to provide: Change, or Amended Return . . . . . . 7 deduct certain qualified donee income. • A “fresh look” at a new or ongoing Income ....................... 8 See page 11. problem. Deductions .................... 9 • Special rules apply to charitable • Timely acknowledgement. Schedule A . . . . . . . . . . . . . . . . . . . 14 contributions after 2004 of used motor • The name and phone number of the

Schedule C . . . . . . . . . . . . . . . . . . . 15 vehicles, boats, or airplanes with a individual assigned to its case.

Worksheet for Schedule C . . . . . . . 16 claimed value of more than $500. See • Updates on progress.

Schedule H . . . . . . . . . . . . . . . . . . . 16 section 179(f)(12). • Timeframes for action.

Schedule J • Speedy resolution. . . . . . . . . . . . . . . . . . . . 17 • Cooperatives can elect to deduct up to • Courteous service. Worksheet for Members of a $10,000 of reforestation costs paid or

Controlled Group . . . . . . . . . . . . 18 incurred after October 22, 2004. The When contacting the Taxpayer

Schedule L . . . . . . . . . . . . . . . . . . . 19 reforestation credit (see Form 3468) is Advocate, the cooperative should be

Schedule M-1 . . . . . . . . . . . . . . . . . 20 repealed for expenses paid or incurred prepared to provide the following

Schedule N after this date. See Other Deductions on information. . . . . . . . . . . . . . . . . . . . 20

page 12. • The cooperative’s name, address, and Index . . . . . . . . . . . . . . . . . . . . . . . . 22 • The deduction for certain travel, meals, employer identification number (EIN).

and entertainment expenses incurred • The name and telephone number of an What’s New after October 22, 2004, is limited to the authorized contact person and the hours

• Cooperatives can allocate on Form he or she can be reached. amount treated as compensation to

6478, Credit for Alcohol Used as Fuel, officers, directors, and more-than-10% • The type of tax return and year(s)

any or all of its small ethanol producer involved. shareholders. See section 274(e)(2).

credit to patrons for any tax year ending • If the cooperative is an expatriated • A detailed description of the problem.

after October 22, 2004. See the entity or a partner in an expatriated entity, • Previous attempts to solve the problem

instructions for Schedule J, line 6c. the cooperative’s taxable income cannot and the office that was contacted.

Cat. No. 11288M
• A description of the hardship the Generally, a farmers’ cooperative is a Worldwide Express Plus, and UPS

cooperative is facing and verifying farmers, fruit growers, or like association Worldwide Express.

documentation (if applicable). organized and operated on a cooperative The private delivery service can tell basis to: you how to get written proof of the mailing The cooperative can contact a 1. Market the products of members or date. Taxpayer Advocate by calling other producers and return to them the 1-877-777-4778 (toll free). Persons who Private delivery services cannot proceeds of sales, less necessary have access to TTY/TDD equipment can deliver items to P.O. boxes. You marketing expenses, on the basis of call 1-800-829-4059 and ask for Taxpayer CAUTION must use the U.S. Postal Service

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either the quantity or value of their Advocate assistance. If the cooperative to mail any item to an IRS P.O. box products; or prefers, it can call, write, or fax the address. 2. Purchase supplies and equipment Taxpayer Advocate office in its area. See Extension. File Form 7004, Application for the use of members or other persons Pub. 1546 for a list of addresses and fax for Automatic Extension of Time To File and turn over the supplies and equipment numbers. Corporation Income Tax Return, to to them at actual cost, plus necessary request a 6-month extension of time to expenses. How To Get Forms and file. The 6-month extension of time to file

is available for all timely filed income tax Publications A member is anyone who shares in the returns without regard to the requirements profits of a cooperative association and is Personal computer. You can access the of section 6072(d). entitled to participate in the management IRS website 24 hours a day, 7 days a of the association.

week, at www.irs.gov to: Where To File • Order IRS products online. A producer is a person who, as owner File Form 990-C with the Internal • Download forms, instructions, and or tenant, bears the risk of production and Revenue Service, Ogden, UT

publications. receives income based on farm 84201-0027. • Research your tax questions online. production rather than fixed

• Search publications online by topic or compensation. For example, if a Who Must Sign cooperative leases its land to a tenant keyword. The return must be signed and dated by: • View Internal Revenue Bulletins (IRBs) farmer who agrees to pay a rental fee • The president, vice president, published in the last few years. based on a percentage of the farm crops treasurer, assistant treasurer, chief • Sign up to receive local and national produced, both the landowner and the accounting officer or tenant farmer qualify as producers. tax news by email. • Any other cooperative officer (such as • Get information on starting and Cooperatives organized and tax officer) authorized to sign. operating a small business. operated for purposes other than If a return is filed on behalf of a

CD-ROM. Order Pub. 1796, IRS Federal those described above should not cooperative by a receiver, trustee, or CAUTION

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Tax Products CD-ROM, and obtain: file Form 990-C. Instead, file Form 1120, assignee, the fiduciary must sign the

• Current-year forms, instructions, and U.S. Corporation Income Tax Return, or return, instead of the cooperative officer.

publications. Form 1120-A, U.S. Corporation Returns and forms signed by a receiver or

• Prior-year forms, instructions. Short-Form Income Tax Return (if trustee in bankruptcy on behalf of a

• Frequently requested tax forms that applicable). cooperative must be accompanied by a

can be filled in electronically, printed out copy of the order or instructions of the

for submission, and saved for When To File court authorizing signing of the return or

recordkeeping. form. A cooperative may file its income tax • The Internal Revenue Bulletins. If an employee of the cooperative return by the 15th day of the 9th month completes Form 990-C, the paid Buy the CD-ROM from the National after the end of its tax year provided it

meets the requirements of section preparer’s space should remain blank. Technical Information Service (NTIS) at Anyone who prepares Form 990-C but www.irs.gov/cdorders for $22 (no 6072(d) prior to filing. Any cooperative not

meeting the requirements of section does not charge the cooperative should handling fee) or call 1-877-CDFORMS not complete that section. Generally, (1-877-233-6767) toll free to buy the 6072(d) must file its income tax return by anyone who is paid to prepare the return CD-ROM for $22 (plus a $5 handling fee). the 15th day of the 3rd month after the must sign it and fill in the “Paid Preparer’s The first release is available in early end of its tax year. Use Only” area. January and the final release is available If the due date falls on a Saturday, in late February. The paid preparer must complete the Sunday, or legal holiday, the cooperative required preparer information and— By phone and in person. You can order can file on the next business day. • Sign the return in the space provided forms and publications by calling Private delivery services. Cooperatives for the preparer’s signature. 1-800-TAX-FORM (1-800-829-3676). You can use certain private delivery services • Give a copy of the return to the can also get most forms and publications designated by the IRS to meet the “timely taxpayer. at your local IRS office. mailing as timely filing/paying” rule for tax Note. A paid preparer may sign original

returns and payments. These private returns, amended returns, or requests for General Instructions delivery services include only the filing extensions by rubber stamp,

following. mechanical device, or computer software

Purpose of Form • DHL Express (DHL): DHL Same Day program. Service, DHL Next Day 10:30 am, DHL Use Form 990-C, Farmers’ Cooperative Next Day 12:00 pm, DHL Next Day 3:00 Paid Preparer Authorization

Association Income Tax Return, to report pm, and DHL 2nd Day Service. If the cooperative wants to allow the IRS income, gains, losses, deductions, • Federal Express (FedEx): FedEx to discuss its 2004 tax return with the paid credits, and to figure the income tax Priority Overnight, FedEx Standard preparer who signed it, check the “Yes” liability of the cooperative. Overnight, FedEx 2Day, FedEx box in the signature area of the return.

International Priority, and FedEx This authorization applies only to the Who Must File International First. individual whose signature appears in the

Every farmers’ cooperative must file Form • United Parcel Service (UPS): UPS Next “Paid Preparer’s Use Only” section of the

990-C whether or not it has taxable Day Air, UPS Next Day Air Saver, UPS cooperative’s return. It does not apply to

income (Regulations section 1.6012-2(f)). 2nd Day Air, UPS 2nd Day Air A.M., UPS the firm, if any, shown in that section.

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If the “Yes” box is checked, the Accrual method. Generally, a Percentage-of-completion method.

cooperative is authorizing the IRS to call cooperative must use the accrual method Long-term contracts (except for certain

the paid preparer to answer any of accounting if its average annual gross real property construction contracts) must

questions that may arise during the receipts exceed $5 million. For details, generally be accounted for using the

processing of its return. The cooperative see section 448(c). Generally, a percentage-of-completion method

is also authorizing the paid preparer to: cooperative engaged in farming described in section 460. See section 460

• Give the IRS any information that is operations also must use the accrual and the regulations for general rules on

missing from the return, method. For exceptions, see section 447. long-term contracts.

• Call the IRS for information about the Completed crop pool method of If inventories are required, the accrual processing of the return or the status of accounting. Cooperatives may be able method generally must be used for sales any related refund or payment(s), and to use the completed crop pool method of and purchases of merchandise. However, • Respond to certain IRS notices that the accounting for crop pools opened before qualifying taxpayers and eligible cooperative has shared with the preparer March 1, 1978. See section 1382(g) for businesses of qualifying small business about math errors, offsets, and return more information. taxpayers are excepted from using the preparation. The notices will not be sent accrual method and may account for Change in accounting method. To to the preparer. inventoriable items as materials and change its method of accounting used to

The cooperative is not authorizing the supplies that are not incidental. See Cost report taxable income (for income as a

paid preparer to receive any refund of Goods Sold on page 14. whole or for the treatment of any material

check, bind the cooperative to anything item), the cooperative must file Form

(including any additional tax liability), or Under the accrual method, an amount 3115, Application for Change in

otherwise represent the cooperative is includible in income when: Accounting Method. For more

before the IRS. If the cooperative wants 1. All the events have occurred that fix information, see Form 3115 and Pub.

to expand the paid preparer’s the right to receive the income, which is 538, Accounting Periods and Methods.

authorization, see Pub. 947, Practice the earliest of the date: (a) the required Section 481(a) adjustment. The Before the IRS and Power of Attorney. performance takes place, (b) payment is cooperative may have to make an

The authorization cannot be revoked. adjustment under section 481(a) to due, or (c) payment is received, and

However, the authorization will prevent amounts of income or expense 2. The amount can be determined

automatically end no later than the due from being duplicated or omitted. with reasonable accuracy.

date (excluding extensions) for filing the Cooperatives generally must take the

cooperative’s 2005 tax return. section 481(a) adjustment into account in See Regulations section 1.451-1(a) for

details. the year of change. The cooperative must

Assembling the Return complete the appropriate lines of Form Generally, an accrual basis taxpayer 3115 to figure the amount of the To ensure that the cooperative’s tax can deduct accrued expenses in the tax adjustment. return is correctly processed, attach all year when: schedules and other forms after page 5, Include any net positive section 481(a) • All events that determine the liability Form 990-C, in the following order. adjustment on page 1, line 10. If the net have occurred, section 481(a) adjustment is negative, 1. Form 8302. • The amount of the liability can be report it on page 1, line 26. 2. Form 4136. figured with reasonable accuracy, and

3. Form 4626. • Economic performance takes place

4. Form 851. with respect to the expense. Accounting Periods

5. Additional schedules in alphabetical A cooperative must figure its taxable There are exceptions to the economic order. income on the basis of a tax year. A tax performance rule for certain items, 6. Additional forms in numerical order. year is the annual accounting period a including recurring expenses. See section cooperative uses to keep its records and 461(h) and the related regulations for the Complete every applicable entry space report its income and expenses. rules for determining when economic on Form 990-C. Do not write “See Generally, cooperatives can use a performance takes place. Attached” instead of completing the entry calendar year or a fiscal year. spaces. If more space is needed on the If all events have occurred that fix an

For more information about accounting forms or schedules, attach separate item of income or expense and if the periods, see Pub. 538. amount of income or expense is (a) sheets, using the same size and format unknown at year end due to the lack of Calendar year. If the calendar year is as the printed forms. If there are timely information; and (b) determined adopted as the annual accounting period, supporting statements and attachments, with reasonable accuracy before the tax the cooperative must maintain its books arrange them in the same order as the return filing deadline for the year and records and report its income and schedules or forms they support and (including extensions), then it is expenses for the period from January 1 attach them last. Show the totals on the

appropriate to accrue the amount of through December 31 of each year. printed forms. Also be sure to enter the

cooperative’s name and EIN on each income or expense for the year. Fiscal year. A fiscal year is 12

supporting statement or attachment. consecutive months ending on the last Nonaccrual experience method. day of any month except December. A Accrual method cooperatives whose Accounting Methods 52-53-week year is a fiscal year that average annual gross receipts for the 3 varies from 52 to 53 weeks. An accounting method is a set of rules prior tax years do not exceed $5 million,

used to determine when and how income are not required to accrue certain Adoption of tax year. A cooperative

and expenses are reported. Figure amounts to be received from the adopts a tax year when it files its first

taxable income using the method of performance of services that, on the basis income tax return. It must adopt a tax

accounting regularly used in keeping the of experience, will not be collected. This year by the due date (not including

cooperative’s books and records. In all provision does not apply to any amount if extensions) of its first income tax return.

cases, the method used must clearly interest is required to be paid on the Change in tax year. Generally, a

show taxable income. Permissible amount or if there is any penalty for cooperative must get the consent of the

methods include: failure to timely pay the amount. For more IRS before changing its tax year by filing

• Cash, information, see section 448(d)(5) and Form 1128, Application To Adopt,

• Accrual, or Temporary Regulations section 1.448-2T. Change, or Retain a Tax Year. However,

• Any other method authorized by the See Nonaccrual experience method on under certain conditions, a cooperative

Internal Revenue Code. page 8 for reporting requirements. can change its tax year without getting

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consent. For more information on change estimated tax payments) with Form 8109, at least 10% of expected income tax

of tax year, see Form 1128, Regulations Federal Tax Deposit Coupon. If you do liability and be at least $500. File Form

section 1.442-1, and Pub. 538. not have a preprinted Form 8109, use 4466 after the end of the cooperative’s

Form 8109-B to make deposits. You can tax year, and no later than the 15th day of

Rounding Off to Whole get this form by calling 1-800-829-4933. the third month after the end of the tax

Be sure to have your EIN ready when you year. Form 4466 must be filed before the Dollars call. cooperative files its tax return.

The cooperative can round off cents to Do not send deposits directly to an IRS whole dollars on its return and schedules.

If the cooperative does round to whole office; otherwise, the cooperative may Interest and Penalties

have to pay a penalty. Mail or deliver the dollars, it must round all amounts. To Interest. Interest is charged on taxes completed Form 8109 with the payment round, drop amounts under 50 cents and paid late even if an extension of time to to an authorized depositary (a commercial increase amounts from 50 to 99 cents to file is granted. Interest is also charged on bank or other financial institution the next dollar (for example, $1.39 penalties imposed for failure to file, authorized to accept federal tax deposits). becomes $1 and $2.50 becomes $3.) negligence, fraud, substantial valuation Make checks or money orders payable to misstatements, and substantial If two or more amounts must be added the depositary. to figure the amount to enter on a line, understatements of tax from the due date

If the cooperative prefers, it may mail (including extensions) to the date of include cents when adding the amounts

and round off only the total. the coupon and payment to: Financial payment. The interest charge is figured at

Agent, Federal Tax Deposit Processing, a rate determined under section 6621.

Recordkeeping P.O. Box 970030, St. Louis, MO 63197.

Make the check or money order payable Penalty for late filing of return. A

Keep the cooperative’s records for as to “Financial Agent.” cooperative that does not file its tax return long as they may be needed for the by the due date, including extensions, administration of any provision of the To help ensure proper crediting, enter may be penalized 5% of the unpaid tax Internal Revenue Code. Usually, records the cooperative’s EIN, the tax period to for each month or part of a month the that support an item of income, deduction, which the deposit applies, and “Form return is late, up to a maximum of 25% of or credit on the return must be kept for 3 990-C” on the check or money order. Be the unpaid tax. The minimum penalty for years from the date the return is due or sure to darken the “990-C” box under a return that is over 60 days late is the filed, whichever is later. Keep records that “Type of Tax” and the appropriate smaller of the tax due or $100. The

verify the cooperative’s basis in property “Quarter” box under “Tax Period” on the penalty will not be imposed if the for as long as they are needed to figure coupon. Records of these deposits will be cooperative can show that the failure to the basis of the original or replacement sent to the IRS. For more information, see file on time was due to reasonable cause.

property. “Marking the Proper Tax Period” in the Cooperatives that file late should attach a

The cooperative should also keep instructions for Form 8109. statement explaining the reasonable

copies of all returns. They help in cause. If the cooperative owes tax when it preparing future and amended returns. files Form 990-C, do not include Penalty for late payment of tax. A

the payment with the tax return. cooperative that does not pay the tax CAUTION

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Depository Methods of Tax Instead, mail or deliver the payment with when due generally may be penalized 1

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Payment Form 8109 to an authorized depositary or of 1% of the unpaid tax for each month or use EFTPS, if applicable. part of a month the tax is not paid, up to a The cooperative must pay the tax due in maximum of 25% of the unpaid tax. The full no later than the 15th day of the 9th

month after the end of the tax year. The Estimated Tax Payments penalty will not be imposed if the

cooperative can show that the failure to two methods of depositing cooperative Generally, the following rules apply to the pay on time was due to reasonable income taxes are discussed below. cooperative’s payments of estimated tax. cause. Electronic Deposit Requirement. The • The cooperative must make installment

cooperative must make electronic payments of estimated tax if it expects its Trust fund recovery penalty. This

deposits of all depository taxes (such as total tax for the year (less applicable penalty may apply if certain excise, employment tax, excise tax, and credits) to be $500 or more. income, social security, and Medicare corporate income tax) using the • The installments are due by the 15th taxes that must be collected or withheld

Electronic Federal Tax Payment System day of the 4th, 6th, 9th, and 12th months are not collected or withheld, or these (EFTPS) in 2005 if: of the tax year. If any date falls on a taxes are not paid. These taxes are • The total deposits of such taxes in Saturday, Sunday, or legal holiday, the generally reported on Forms 720, 941, 2003 were more than $200,000 or installment is due on the next regular 943, or 945 (see Other Forms and • The cooperative was required to use business day. Statements That May Be Required, later). EFTPS in 2004. • Use Form 1120-W, Estimated Tax for The trust fund recovery penalty may be Corporations, as a worksheet to compute If the cooperative is required to use imposed on all persons who are estimated tax. EFTPS and fails to do so, it may be determined by the IRS to have been • If the cooperative does not use EFTPS, subject to a 10% penalty. If the responsible for collecting, accounting for, use the deposit coupons (Form 8109) to cooperative is not required to use EFTPS, and paying over these taxes, and who make deposits of estimated tax. it can participate voluntarily. To enroll in acted willfully in not doing so. The penalty

or get more information about EFTPS, For more information on estimated tax is equal to the unpaid trust fund tax. See

call 1-800-555-4477 or 1-800-945-8400. payments, including penalties that apply if the instructions for Form 720, Pub. 15

To enroll online, visit www.eftps.gov (Circular E), Employer’s Tax Guide, or . the cooperative fails to make required

payments, see the instructions for line 33 Pub. 51 (Circular A), Agricultural Depositing on time. For EFTPS

on page 13. Employer’s Tax Guide, for details, deposits to be made timely, the including the definition of responsible cooperative must initiate the transaction Overpaid estimated tax. If the persons. at least 1 business day before the date cooperative overpaid estimated tax, it the deposit is due. may be able to get a quick refund by filing Other penalties. Other penalties can be

Deposit with Form 8109. If the Form 4466, Corporation Application for imposed for negligence, substantial

cooperative does not use EFTPS, deposit Quick Refund of Overpayment of understatement of tax, and fraud. See

cooperative income tax payments (and Estimated Tax. The overpayment must be sections 6662 and 6663.

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Other Forms and Statements That May Be Required.

Forms Use this to—

W-2 and W-3 - Wage and Tax Statement Report wages, tips, other compensation, and withheld income, social security, and Medicare taxes for

and Transmittal of Wage and Tax employees.

Statement

720 - Quarterly Federal Excise Tax Report and pay environmental excise taxes, fuel taxes, communications and air transportation taxes,

Return ship passenger taxes, manufacturers’ taxes, and certain other excise taxes.

851 - Affiliations Schedule The parent corporation of an affiliated group of corporations must attach this form to its consolidated

return. If this is the first year one or more subsidiaries are being included in a consolidated return, also

see Form 1122, later.

926 - Return by a U.S. Transferor of Report certain transfers to foreign corporations under section 6038B.

Property to a Foreign Corporation

940 or 940-EZ - Employer’s Annual Report and pay FUTA tax if the cooperative either: Federal Unemployment (FUTA) Tax 1. Paid wages of $1,500 or more in any calendar quarter during 2003 or 2004, or Return 2. Had one or more employees working for the cooperative for at least some part of a day in any

20 different weeks during 2003 or 2004.

941 - Employer’s Quarterly Federal Tax Report income tax withheld on wages and employer and employee social security and Medicare taxes.

Return Also see Trust Fund Recovery Penalty on page 4.

945 - Annual Return of Withheld Federal Report income tax withheld from nonpayroll payments, including pensions, annuities, individual

Income Tax retirement accounts (IRAs), gambling winnings, and backup withholding. Also see Trust fund recovery

penalty on page 4.

966 - Corporate Dissolution or Liquidation Report the adoption of a resolution or plan to dissolve the cooperative or liquidate any of its stock.

1042 and 1042-S - Annual Withholding Report withheld tax on payments or distributions made to nonresident alien individuals, foreign

Tax Return for U.S. Source Income of partnerships, or foreign corporations to the extent these payments or distributions constitute gross

Foreign Persons and Foreign Person’s income from sources within the United States that is not effectively connected with a U.S. trade or

U.S. Source Income Subject to business. See Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Withholding

1042-T - Annual Summary and Transmit paper Forms 1042-S to the IRS.

Transmittal of Forms 1042-S

1096 - Annual Summary and Transmittal Transmit paper Forms 1099, 1098, 5498, and W-2G to the IRS.

of U.S. Information Returns

1098 - Mortgage Interest Statement Report the receipt from any individual of $600 or more of mortgage interest (including certain points) in

the course of the cooperative’s trade or business.

1099-A, B, C, DIV, INT, MISC, OID, Report the following:

PATR, and R • Acquisitions or abandonments of secured property;

• Proceeds from broker and barter exchange transactions; Important: Every cooperative must file

Forms 1099-MISC if, in the course of its • Cancellation of debt;

trade or business, it makes payments of • Dividends and distributions;

rents, commissions, or other fixed or • Interest income;

determinable income (see section 6041) • Miscellaneous income (payments of rents or royalties, nonemployee compensation, etc.); totaling $600 or more to any one person • Original issue discount; during the calendar year.

• Taxable distributions received from cooperatives;

• Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts,

etc.

For more details, see the General Instructions for Forms 1099, 1098, 5498, and W-2G.

1122 - Authorization and Consent of For the first year a subsidiary corporation is being included in a consolidated return, attach this form to

Subsidiary Corporation To Be Included in the parent’s consolidated return. Attach a separate Form 1122 for each subsidiary being included in the

a Consolidated Income Tax Return consolidated return.

5452 - Corporate Report of Nondividend Report nondividend distribution.

Distributions

5471 - Information Return of U.S. The cooperative may have to file this form if it controls a foreign corporation; acquires, disposes of, or

Persons With Respect to Certain Foreign owns 10% or more in value of the outstanding stock of a foreign corporation; or had control of a foreign

Corporations corporation for an uninterrupted period of at least 30 days during the annual accounting period of the

foreign corporation and it owned that stock on the last day of that year.

5713 - International Boycott Report Report operations in, or related to, a “boycotting” country, company, or national of a country and to

figure the loss of certain tax benefits.

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Forms Use this to—

8264 - Application for Registration of a Get a tax shelter registration number from the IRS. Until further guidance is issued, material advisors

Tax Shelter who provide material aid, assistance, or advice with respect to any reportable transactions after

October 22, 2004, must use Form 8264 to disclose reportable transactions in accordance with interim

guidance provided in Notice 2004-80, 2004-50 I.R.B. 963.

8271 - Investor Reporting of Tax Shelter Report the registration number for a tax shelter that is required to be registered. Attach Form 8271 to

Registration Number any return (including an application for tentative refund (Form 1139) and an amended return) on which

a deduction, credit, loss, or other tax benefit attributable to a tax shelter is taken or any income

attributable to a tax shelter is reported.

You are not required to file Form 8271 for tax shelters involving reportable transactions required to be

disclosed by a material advisor who provided material aid, assistance, or advice after October 22,

2004.

8275 - Disclosure Statement Disclose items or positions, except those contrary to a regulation, that are not otherwise adequately

disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty

imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for disclosures

related to preparer penalties for understatements due to unrealistic positions or disregard of rules.

8275-R - Regulation Disclosure Disclose any item on a tax return for which a position has been taken that is contrary to Treasury

Statement regulations.

8300 - Report of Cash Payments Over Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of

$10,000 Received in a Trade or Business related transactions.

8302 - Electronic Deposit of Tax Refund Request an electronic deposit of a tax refund of $1 million or more.

of $1 Million or More

8594 - Asset Acquisition Statement Under Report a sale of assets that make up a trade or business if goodwill or going concern value attaches

Section 1060 and if the buyer’s basis is determined only by the amount paid for the assets. Both the seller and buyer

must use this form.

8810 - Corporate Passive Activity Loss Closely held cooperatives must use this form to compute the passive activity loss and credit allowed

and Credit Limitations under section 469.

8817 - Allocation of Patronage and Figure and report patronage and nonpatronage income and deductions (used by taxable cooperatives).

Nonpatronage Income and Deductions

8842 - Election To Use Different Elect one of the annualization periods in section 6655(e)(2) for figuring estimated tax payments under

Annualization Periods for Corporate the annualized income installment method.

Estimated Tax

8849 - Claim for Refund of Excise Taxes Claim a refund of certain excise taxes.

8865 - Return of U.S. Person With Report an interest in a foreign partnership. A domestic cooperative may have to File Form 8865 if it: Respect To Certain Foreign Partnerships 1. Controlled a foreign partnership (owned more than 50% direct or indirect interest in the

partnership).

2. Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons

controlled that partnership.

3. Had an acquisition, disposition, or change in proportional interest of a foreign partnership that:

 a. Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less

than 10% or

 b. Changed its direct interest by at least a 10% interest.

4. Contributed property to a foreign partnership in exchange for a partnership interest if:

 a. Immediately after the contribution, the partnership directly or indirectly owned, at least a 10%

interest in the foreign partnership or

 b. The FMV of the property the cooperative contributed to the foreign partnership in exchange for

a partnership interest exceeds $100,000, when added to other contributions of property made to the

foreign partnership during the preceding 12-month period.

The domestic cooperative may also have to file Form 8865 to report certain dispositions by a foreign

partnership of property it previously contributed to that foreign partnership if it was a partner at the time

of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and

its separate instructions.

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Forms Use this to—

8886 - Reportable Transaction Disclosure Disclose information for each reportable transaction in which the cooperative participated. Form 8886

Statement must be filed for each tax year that the federal income tax liability of the cooperative is affected by its

participation in the transaction. The cooperative may have to pay a penalty if it is required to file Form

8886 and does not do so. The following are reportable transactions.

1. Any listed transaction which is a transaction that is the same as or substantially similar to tax

avoidance transactions identified by the IRS.

2. Any transaction offered under conditions of confidentiality for which the cooperative paid the

advisor a fee of at least $250,000.

3. Certain transactions for which the cooperative has contractual protection against disallowance of

the tax benefits.

4. Certain transactions resulting in a loss of at least $10 million in any single year or $20 million in

any combination of years.

5. Certain transactions resulting in a book-tax difference of more than $10 million on a gross basis.

6. Certain transactions resulting in a tax credit of more than $250,000, if the cooperative held the

asset generating the credit for 45 days or less.

8895 - Section 965(f) Election for Elect the 85% dividends-received deduction on repatriated dividends received under section 965.

Corporations that are U.S. Shareholders

of a Controlled Foreign Corporation

• The 2005 Form 990-C is not available If the cooperative has not received its Statements at the time the cooperative is required to EIN by the time the return is due, enter

file its return. “Applied for” in the space for the EIN. For Consolidated returns. File supporting more details, see Pub. 583. statements for each cooperative included The cooperative must show its 2005 in the consolidated return. Do not use tax year on the 2004 Form 990-C and The online application process is not

Form 990-C as a supporting statement. take into account any tax law changes yet available for cooperatives with

On the supporting statement, use that are effective for tax years beginning addresses in foreign countries or Puerto

columns to show the following both before after December 31, 2004. Rico.

and after adjustments.

1. Items of gross income and Address Item C. Consolidated

deductions. Include the suite, room, or other unit Return 2. A computation of taxable income. number after the street address. If the Cooperatives filing a consolidated return 3. Balance sheets as of the beginning Post Office does not deliver mail to the must attach Form 851 and other and end of the tax year. street address and the cooperative has a supporting statements to the return. For 4. A reconciliation of income per P.O. box, show the box number. details, see Other Forms and Statements books with income per return. That May Be Required, earlier. Do not If the cooperative receives its mail in 5. A reconciliation of retained check this box if the “Tax exempt” box is care of a third party (such as an earnings. checked in Item D. accountant or an attorney), enter on the

street address line “C/O” followed by the The cooperative does not have to third party’s name and street address or Item D. Type of complete items 3, 4, and 5, if its P.O. box.

total receipts (line 1a plus lines 4 Cooperative TIP

through 10 on page 1 of the return) and Check the “Tax exempt” (section 521) box Item A. Business Activity its total assets at the end of the tax year if the cooperative is a tax-exempt

are less than $250,000. With the Largest Total farmers’, fruit growers’, or like

association, organized and operated on a Enter the totals for the consolidated Receipts cooperative basis and is described in group on Form 990-C. Attach Identify the business activity from which section 521. consolidated balance sheets and a the cooperative receives the largest total reconciliation of consolidated retained If the cooperative has submitted Form receipts (that is, wholesale marketing of earnings. For more information on 1028, Application for Recognition of meat, drying fruit, grain storage, consolidated returns, see the regulations Exemption, but has not received a wholesale purchasing of fertilizers, cattle under section 1502. determination letter from the IRS, check breeding, etc.). the “Tax exempt” box, and enter

“Application Pending” on Form 990-C, at Item B. Employer the top of page 1. Specific Instructions Identification Number (EIN) Farmers’ cooperatives without section

Enter the cooperative’s EIN. If the 521 exempt status, organized and

Period Covered operated as described under Who Must cooperative does not have an EIN, it must

apply for one. An EIN can be applied for: File on page 2 of the instructions, should File the 2004 return for calendar year • Online–Click on the EIN link at check the “Nonexempt” box. 2004 and fiscal years that begin in 2004

and end in 2005. For a fiscal year return, www.irs.gov/businesses/small. The EIN is

issued immediately once the application Item E. Initial Return, Final fill in the tax year space at the top of the information is validated. form. Return, Name Change, • By telephone at 1-800-829-4933 from The 2004 Form 990-C may also be 7:00 a.m. to 10:00 p.m. in the Address Change, or used if: cooperatives local time zone.

• The cooperative has a tax year of less • By mailing or faxing Form SS-4, Amended Return

than 12 months that begins and ends in Application for Employer Identification • If this is the cooperative’s first return,

2005, and Number. check the “Initial return” box.

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• If the cooperative ceases to exist, file income required to be reported on lines Line 2. Cost of Goods Sold

Form 990-C and check the “Final return” 4a through 10. In general, advance Enter the cost of goods sold on line 2, box. payments are reported in the year of page 1. Before making this entry, • If the cooperative changed its name receipt. For how to report income from complete Form 990-C, Schedule A, on since it last filed a return, check the long-term contracts, see section 460. For page 2. See the Schedule A instructions “Name change” box. Generally, a special rules for reporting certain advance on page 14. cooperative also must have amended its payments for goods and long-term

articles of incorporation and filed the contracts, see Regulations section Line 4a. Income from Patronage amendment with the state in which it was 1.451-5. For permissible methods for Dividends and Per-unit Retain incorporated. reporting certain advance payments for

• If the cooperative has changed its services by an accrual method Allocations

address since it last filed a return cooperative, see Rev. Proc. 2004-34, Attach a schedule listing the name of

(including a change to an “in care of” 2004-22 I.R.B. 991. each declaring association from which the

address), check the “Address change” cooperative received income from Installment sales. Generally, the box. If a change in address occurs after patronage dividends and per-unit retain installment method cannot be used for the return is filed, use Form 8822, allocations, and the total amount received dealer dispositions of property. A “dealer Change of Address, to notify the IRS of from each association. disposition” is: (a) any disposition of the new address. personal property by a person who Include the items listed below: • If the cooperative must change their regularly sells or otherwise disposes of originally filed return for any year, it 1. Patronage dividends received in: personal property of the same type on the should file a new return including any • Money, installment plan or (b) any disposition of • Qualified written notices of required attachments. Use the revision of real property held for sale to customers in Form 990-C applicable to the year being allocation, or the ordinary course of the taxpayer’s amended. The amended return must • Other property (except nonqualified trade or business. provide all the information called for by written notices of allocation).

the form and instructions, not just the new These restrictions on using the 2. Nonpatronage distributions

or corrected information. Check the installment method do not apply to received on a patronage basis from

dispositions of property used or produced tax-exempt farmers’ cooperatives in: “Amended return” box. • Money, in a farming business or sales of • Qualified written notices of Income timeshares and residential lots for which

the cooperative elects to pay interest allocation, or Except as otherwise provided in the under section 453(I)(3). • Other property (except nonqualified Internal Revenue Code, gross income written notices of allocation), based on includes all income from whatever source For sales of timeshares and residential earnings of that cooperative either from derived. lots reported under the installment business done with or for the United

Extraterritorial income. Gross income method, the cooperative’s income tax is States or any of its agencies (or from increased by the interest payable under generally does not include extraterritorial sources other than patronage, such as section 453(l)(3). To report this addition to income that is qualifying foreign trade investment income). tax, see the instructions for Schedule J, income. However, the extraterritorial 3. Qualified written notices of line 9, on page 19. income exclusion is reduced by 20% for allocation at their stated dollar amounts

transactions after 2004, unless made Enter on line 1 (and carry to line 3), the and property at its fair market value

under a binding contract with an unrelated gross profit on collections from installment (FMV).

person in effect on September 17, 2003, sales for any of the following: 4. Amounts received on the

and at all times thereafter. Use Form • Dealer dispositions of property before redemption, sale, or other disposition of

8873, Extraterritorial Income Exclusion, to March 1, 1986. nonqualified written notices of allocation.

figure the exclusion. Include the exclusion • Dispositions of property used or Generally, patronage dividends from in the total for Other deductions on line produced in the trade or business of purchases of capital assets or 26, Form 990-C. farming. depreciable property are not includible in

Income from qualifying shipping • Certain dispositions of timeshares and income but must be used to reduce the

activities. For tax years beginning after residential lots reported under the basis of the assets. See section 1385(b)

October 22, 2004, the cooperative’s gross installment method. and the related regulations.

income does not include income from 5. Amounts received (or the stated Attach a schedule showing the qualifying shipping activities (as defined in dollar value of qualified per-unit retain following information for the current and section 1356) if the cooperative makes an certificates received) from the sale or the 3 preceding years: (a) gross sales, (b) election under section 1354 to be taxed redemption of nonqualified per-unit retain cost of goods sold, (c) gross profits, (d) on its notional shipping income (as certificates. percentage of gross profits to gross sales, defined in section 1353) at the highest 6. Per-unit retain allocations received (e) amount collected, and (f) gross profit corporate rate (35%). If the election is (except nonqualified per-unit retain on the amount collected. made, the cooperative generally may not certificates). See section 1385.

claim any loss, deduction, or credit with Nonaccrual experience method.

respect to qualifying shipping activities. A Cooperatives that qualify to use the Payments from the Commodity Credit

cooperative making this election also may nonaccrual experience method (explained Corporation to a farmers’ cooperative for

elect to defer gain on the disposition of a on page 3) should attach a schedule certain expenses of the co-op’s

qualifying vessel under section 1359. showing total gross receipts, the amount farmers-producers under a “reseal” not accrued as a result of the application program of the U.S. Department of Report the 1352(1) tax on Schedule J,

line 3, and report the section 1352(2) tax of section 448(d)(5), and the net amount Agriculture are patronage-source income accrued. Enter the net amount on line 1a. on Schedule J, line 9. For Schedule J, that may give rise to patronage dividends

Certain cooperatives that have gross under section 1382(b)(1). See Rev. Rul. line 9, check the Other box and attach a

schedule that shows the computation of receipts of $10 million or more and have 89-97, 1989-2 C.B. 217, for more

patronage and nonpatronage source information. the section 1352(2) amount.

income and deductions must complete Line 1. Gross Receipts Line 4b. Dividends and attach Form 8817, Allocation of

Enter gross receipts or sales from all Patronage and Nonpatronage Income See the instructions for Schedule C on

business operations except items of and Deductions, to their return. page 15, then complete Schedule C and

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enter on line 4b, the amount from foreign sales corporation (FSC), include Interest expense paid or incurred

Schedule C, line 17. the nonexempt portion of foreign trade during the production period of

income from the sale or other disposition designated property must be capitalized Line 5. Interest of agricultural or horticultural products by and is governed by special rules. For Enter taxable interest on U.S. obligations the FSC for the tax year that includes the more details, see Regulations sections and on loans, notes, mortgages, bonds, last day of the FSC’s tax year, even 1.263A-8 through 1.263A-15. bank deposits, corporate bonds, tax though the FSC is not required to The costs required to be capitalized refunds, etc. Do not offset interest distribute such income until the due date under section 263A are not deductible expense against interest income. Special of its income tax return. until the property (to which the costs rules apply to interest income from certain 7. Ordinary income from trade or relate) is sold, used, or otherwise below-market rate loans. See section business activities of a partnership (from disposed of by the cooperative. 7872 for more information. Schedule K-1 (Form 1065 or 1065-B)). Do Exceptions. Section 263A does not Interest income is generally not offset ordinary losses against ordinary apply to: nonpatronage income to nonexempt income. Instead, include the losses on • Personal property acquired for resale if cooperatives (Regulations section Form 990-C, line 26. Show the the cooperative’s average annual gross 1.1382-3(c)(2)). As such, a patronage partnership’s name, address, and EIN on receipts for the 3 prior tax years were $10 dividend deduction may not be allowable. a separate statement attached to this million or less. return. If the amount entered is from more Note. Report tax-exempt interest income • Timber. than one partnership, identify the amount on Schedule N, item 15. Also, if required, • Most property produced under a from each partnership. include the same amount on Schedule long-term contract. M-1, line 7. • Certain property produced in a farming

Line 6. Gross Rents Deductions business.

• Research and experimental costs Enter the gross amount received from the Limitations on Deductions under section 174. rental of property. Deduct expenses such • Intangible drilling costs for oil, gas, and as repairs, interest, taxes, and Section 263A uniform capitalization geothermal property. depreciation on the applicable lines. rules. The uniform capitalization • Mining exploration and development Generally, gross rents are considered (UNICAP) rules of section 263A generally costs.

nonpatronage income to nonexempt require cooperatives to capitalize, or • Inventoriable items accounted for in the

cooperatives (Regulations section include in inventory, certain costs incurred same manner as materials and supplies 1.1382(c)(2)). As such, a patronage in connection with: that are not incidental. See Cost of Goods

dividend deduction may not be allowable. • The production of real property and Sold on page 14 for details. tangible personal property held in Line 8. Capital Gain Net Income For more details on the UNICAP rules, inventory or held for sale in the ordinary

Every sale or exchange of a capital asset course of business. see Regulations sections 1.263A-1

must be reported in detail on Schedule D • Real property or personal property through 1.263A-3. See Regulations

(tangible and intangible) acquired for section 1.263A-4 and Pub. 225, Farmer’s (Form 1120), Capital Gains and Losses,

even if there is no gain or loss. Generally, resale. Tax Guide, for rules for property produced

• The production of real property and in a farming business. capital gains and losses are considered

nonpatronage source. tangible personal property by a Transactions between related

cooperative for use in its trade or taxpayers. Generally, an accrual basis Line 10. Other Income business or in an activity engaged in for taxpayer can only deduct business Enter any other taxable income not profit. expenses and interest owed to a related reported on lines 1 through 9. List the party in the year payment is included in Tangible personal property produced type and amount of income on an the income of the related party. See by a cooperative includes a film, sound attached schedule. If the cooperative has sections 163(e)(3), 163(j), and 267 for the recording, videotape, book, or similar only one item of other income, describe it limitations on deductions for unpaid property. in parentheses on line 10. Examples of interest and expenses. other income to report on line 10 are: Cooperatives subject to the UNICAP Section 291 limitations. Cooperatives 1. Recoveries of bad debts deducted rules are required to capitalize not only may be required to adjust deductions for in prior years under the specific direct costs but an allocable part of most depletion of iron ore and coal, intangible charge-off method. indirect costs (including taxes) that (a) drilling, exploration and development 2. The amount included in income benefit the assets produced or acquired costs, and the amortizable basis of from Form 6478, Credit for Alcohol Used for resale or (b) are incurred by reason of pollution control facilities. See section 291 as Fuel. the performance of production or resale to determine the amount of the 3. The amount included in income activities. adjustment. Also, see section 43. from Form 8864, Biodiesel Fuels Credit. For inventory, some of the indirect Golden parachute payments. A portion 4. Refunds of taxes deducted in prior expenses that must be capitalized are: of the payments made by a cooperative to years to the extent they reduced income • Administration expenses. key personnel that exceeds their usual subject to tax in the year deducted (see • Taxes. compensation may not be deductible. section 111). Do not offset current year • Depreciation. This occurs when the cooperative has an taxes against any tax refunds. • Insurance. agreement (golden parachute) with these 5. The amount of any deduction • Compensation paid to officers key employees to pay them these excess previously taken under section 179A that attributable to services. amounts if control of the cooperative is subject to recapture. The cooperative

must recapture the benefit of any • Reworked labor. changes. See section 280G and • Contributions to pension, stock bonus, Regulations section 1.280G-1. allowable deduction for clean-fuel vehicle and certain profit-sharing, annuity, or property (or clean-fuel vehicle refueling Business start-up and organizational deferred compensation plans. property) if, within 3 years of the date the costs. Business start-up and

property was placed in service, it ceases Regulations section 1.263A-1(e)(3) organizational costs must be capitalized

to qualify. See Regulations section specifies other indirect costs that relate to unless an election is made to deduct or

1.179A-1 for details. production or resale activities that must amortize them. For costs paid or incurred

6. For cooperatives described in be capitalized, and those that may be before October 23, 2004, the cooperative

section 1381 that are shareholders in a currently deductible. must capitalize them unless it elects to

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amortize these costs over a period of 60 section 1.163-8T, which provides rules for • Form 5884, Work Opportunity Credit,

months or more. For costs paid or allocating interest expense among line 2,

incurred after October 22, 2004, the activities. If a passive activity is also • Form 8844, Empowerment Zone and

following rules apply separately to each subject to the earnings stripping rules of Renewal Community Employment Credit,

category of costs. section 163(j) or the at-risk rules of line 2,

• The cooperative can elect to deduct up section 465, those rules apply before the • Form 8845, Indian Employment Credit,

to $5,000 of such costs for the year the passive loss rules. For more information, line 4,

cooperative begins business operations. see section 469, the related regulations, • Form 8861, Welfare-to-Work Credit,

• The $5,000 deduction is reduced (but and Pub. 925, Passive Activity and line 2, and

not below zero) by the amount the total At-Risk Rules. • Form 8884, New York Liberty Zone

cost exceeds $50,000. If the total costs Business Employee Credit, line 2. Reducing certain expenses for which are $55,000 or more, the deduction is credits are allowable. For each credit Do not include salaries and wages reduced to zero. listed below, the cooperative may have to deductible elsewhere on the return, such • If the election is made, any costs that reduce the otherwise allowable as amounts included in cost of goods are not deductible must be amortized deductions for expenses used to figure sold, elective contributions to a section ratably over a 180-month period the credit, by the amount of the current 401(k) cash or deferred arrangement, or beginning with the month the cooperative year credit generated by the cooperative. amounts contributed under a salary begins business operations. • Work opportunity credit. reduction SEP agreement or a SIMPLE For more details on the election for • Research credit. IRA plan.

business start-up costs, see section 195 • Orphan drug credit. and attach the statement required by If the cooperative provided taxable • Disabled access credit.

Regulations section 1.195-1(b). For more fringe benefits to its employees, • Enhanced oil recovery credit. details on the election for organizational CAUTION such as personal use of a car, do

! • Empowerment zone and renewal costs, see section 248 and attach the not deduct as wages the amount community employment credit. statement required by Regulations allocated for depreciation, and other • Indian employment credit. section 1.248-1(c). Report the deductible expenses claimed on lines 20 and 26. • The employer credit for social security amount of these costs and any and Medicare taxes paid on certain Line 14. Repairs and amortization on line 26. For amortization employee tips. that begins during the 2004 tax year, Maintenance • Welfare-to-work credit.

complete and attach Form 4562. • Credit for small employer pension plan Enter the cost of incidental repairs, such

Passive activity limitations. Limitations start-up costs. as labor and supplies, that do not add to

on passive activity losses and credits • Credit for employer-provided childcare the value of the property or appreciably

under section 469 apply to closely held facilities and services. prolong its life. New buildings, machinery,

cooperatives. • New York Liberty Zone business or permanent improvements that increase

employee credit. the value of the property are not A cooperative is a “closely held • Low sulfur diesel fuel production credit. deductible here. They must be cooperative” (as defined at section depreciated or amortized. 469(j)(1)) if at any time during the last half If the cooperative has any of these

of the tax year more than 50% in value of credits, first figure each current year Line 15. Bad Debts

its outstanding stock is owned, directly or credit generated by the cooperative, then Enter the total debts that became indirectly, by or for not more than 5 figure the remaining deduction for the worthless in whole or in part during the individuals. Certain organizations are expense upon which the credit is based. tax year. A cash method taxpayer cannot treated as individuals for purposes of this claim a bad debt deduction unless the test. See section 542(a)(2). For rules of Line 12. Compensation of amount was previously included in determining stock ownership, see section Officers income. 544 (as modified by section 465(a)(3)). Enter deductible officer’s compensation

Generally, the two kinds of passive on line 12. Before entering an amount on Line 16. Rents

activities are: line 12, complete Schedule E if the If the cooperative rented or leased a • Trade or business activities in which cooperative’s total receipts (line 1a plus vehicle, enter the total annual rent or

the cooperative did not materially lines 4 through 10, page 1) are $500,000 lease expense paid or incurred during the

participate, and or more. Do not include compensation year. Also complete Form 4562, • Rental activities, regardless of its deductible elsewhere on the return, such Depreciation and Amortization, Part V. If

participation. as amounts included in cost of goods the cooperative leased a vehicle for a

For exceptions, see Form 8810, sold, elective contributions to a section term of 30 days or more, the deduction for

Corporate Passive Activity Loss and 401(k) cash or deferred arrangement, or vehicle lease expense may have to be

Credit Limitations. amounts contributed under a salary reduced by an amount called the reduction SEP agreement or a SIMPLE inclusion amount. The cooperative may An activity is a trade or business IRA plan. have an inclusion amount if: activity if it is not a rental activity, and

• The activity involves the conduct of a Include only the deductible part of And the vehicle’s FMV on

trade or business (deductions from the each officer’s compensation on Schedule The lease term the first day of the lease

activity would be allowable under section E. Complete Schedule E, line 1, columns began: exceeded:

162 if other limitations, such as the (a) through (f), for all officers. The

passive loss rules, did not apply), or cooperative determines who is an officer After 12/31/03 but before 1/1/05 $17,500

• The activity involves research and under the laws of the state where it is After 12/31/02 but before 1/1/04 $18,000 experimental costs that are deductible incorporated.

under section 174 (or would be deductible After 12/31/98 but before 1/1/03 $15,500 If a consolidated return is filed, each If the lease term began before January 1, 1999, see Pub. if the cooperative chose to deduct rather member of an affiliated group must 463, Travel, Entertainment, Gift, and Car Expenses, to than capitalize them). furnish this information. find out if the cooperative has an inclusion amount. The

inclusion amount for lease terms beginning in 2005 will be Cooperatives subject to the passive Line 13. Salaries and Wages published in the Internal Revenue Bulletin in early 2005. activity limitations must complete Form

8810 to compute their allowable passive Enter the salaries and wages paid for the

activity loss and credit. Before completing tax year, reduced by the total amount See Pub. 463 for instructions on

Form 8810, see Temporary Regulations claimed on: figuring the inclusion amount.

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Line 17. Taxes and Licenses Line 19. Charitable Form 8283, Noncash Charitable

Contributions Contributions, discussed below. Enter taxes paid or accrued during the tax

year, except the following. Enter contributions or gifts paid within the For more information on charitable

• Federal income taxes. tax year to or for the use of charitable and contributions, including substantiation and

• Foreign or U.S. possession income governmental organizations described in recordkeeping requirements, see section

section 170(c), and any unused 170, the related regulations, and Pub. taxes if a tax credit is claimed (however,

see the Instructions for Form 5735 for contributions carried over from prior 526, Charitable Contributions.

special rules for possession income years. Contributions of property other than taxes). Cooperatives reporting taxable income cash. If a cooperative contributes • Taxes not imposed on the cooperative. on the accrual method can elect to treat property other than cash and claims over

• Taxes, including state or local sales as paid during the tax year any a $500 deduction for the property, it must

taxes, that are paid or incurred in contributions paid by the 15th day of the attach a schedule to the return describing

connection with an acquisition or 3rd month after the end of the tax year if the kind of property contributed and the

disposition of property (these taxes are the contributions were authorized by the method used to determine its fair market

treated as part of the cost of the acquired board of directors during the tax year. value (FMV). Cooperatives generally

property, or in the case of a disposition, Attach a declaration to the return stating must complete and attach Form 8283 to

as a reduction in the amount realized on that the resolution authorizing the their returns for contributions of property

the disposition). contributions was adopted by the board of (other than money) if the total claimed

• Taxes assessed against local benefits directors during the current tax year. The deduction for all property contributed was

that increase the value of the property declaration must include the date the more than $5,000.

assessed (such as for paving, etc.). resolution was adopted. Contributions after June 3, 2004. • Taxes deducted elsewhere on the Limitation on deduction. The total For contributions of certain property made return, such as those reflected in cost of amount claimed may not be more than after June 3, 2004, a cooperative must file goods sold. 10% of taxable income (line 30) Form 8283 and get a qualified appraisal if computed without regard to the following: claiming a deduction of more than $5,000. See section 164(d) for the rule on • Any deduction for contributions; Do not attach the appraisal to the tax apportionment of taxes on real property • The special deductions on line 29b; return unless claiming a deduction of between the seller and purchaser. • Any net operating loss (NOL) carryback more than $500,000 or, for art, a to the tax year under section 172; Line 18. Interest deduction of $20,000 or more. See Form • Any capital loss carryback to the tax 8283. Do not offset interest income against year under section 1212(a)(1); and Contributions of used vehicles. interest expense. • The deduction allowed under section

249. Special rules apply to contributions after Do not deduct the following: 2004 of used motor vehicles, boats, or Carryover. Charitable contributions • Interest on indebtedness used to airplanes with a claimed value of more over the 10% limitation cannot be purchase or carry exempt interest than $500. See section 170(f)(12). deducted for the current tax year but may obligations. For exceptions, see section be carried over to the next 5 tax years. Reduced deduction for 265(b). contributions of certain property. For a • For cash basis taxpayers, prepaid Special rules apply if the cooperative charitable contribution of property, the interest allocable to years following the has an NOL carryover to the tax year. In cooperative must reduce the contribution current tax year (that is, a cash basis figuring the charitable contributions by the sum of: calendar year taxpayer who in 2004 deduction for the tax year, the 10% limit is

applied using the taxable income after • The ordinary income and short-term prepaid interest allocable to any period capital gain that would have resulted if the after 2004 can deduct only the amount taking into account any deduction for the property were sold at its FMV, and allocable to 2004). NOL. • For certain contributions, the long-term • Interest and carrying charges on To figure the amount of any remaining capital gain that would have resulted if the straddles. Generally, these amounts must NOL carryover to later years, taxable property were sold at its FMV. be capitalized. See section 263(g). income must be modified (see sections

172(b)). To the extent that contributions The reduction for the long-term capital • Interest paid or incurred on any portion

are used to reduce taxable income for this gain applies to: of an underpayment of tax that is purpose and increase an NOL carryover, • Contributions of tangible personal attributable to an understatement arising

a contributions carryover is not allowed. property for use by an exempt from an undisclosed listed transaction or

See section 170(d)(2)(B). organization for a purpose or function an undisclosed reportable avoidance unrelated to the basis for its exemption, transaction (other than a listed Substantiation requirements. • Contributions of any property to or for transaction) entered into in tax years Generally, no deduction is allowed for any the use of certain private foundations beginning after October 22, 2004. contribution of $250 or more unless the except for stock for which market cooperative gets a written Special rules apply to: quotations are readily available (section acknowledgment from the donee • Interest on which no tax is imposed 170(e)(5)), and organization that shows the amount of (see section 163(j)). • Any patent or certain other intellectual cash contributed, describes any property • Forgone interest on certain property contributed after June 3, 2004. contributed, and either gives a description below-market-rate loans (see section See section 170(e)(1)(B). However, the and a good faith estimate of the value of 7872). cooperative can deduct certain qualified any goods or services provided in return donee income from this property. See • Original issue discount on certain high for the contribution or states that no section 170(m). yield discount obligations (see section goods or services were provided in return 163(e) to figure the disqualified portion). for the contribution. The acknowledgment Larger deduction. A larger deduction

• Interest which is allocable to must be obtained by the due date is allowed for certain contributions of:

unborrowed policy cash values of life (including extensions) of the cooperative’s • Inventory and other property to certain

insurance, endowment, or annuity return, or, if earlier, the date the return is organizations for use in the care of the ill,

contracts issued after June 8, 1997. See filed. Do not attach the acknowledgment needy, or infants. See section 170(e)(3)

section 264(f). Attach a statement to the tax return, but keep it with the and Regulations section 1.170A-4A;

showing the computation of the cooperative’s records. These rules apply • Scientific equipment used for research

deduction. in addition to the filing requirements for to institutions of higher learning or to

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certain scientific research organizations. Examples of items to include: • Meals must not be lavish or

See section 170(e)(4); and • Amortization. See Form 4562. extravagant;

• Computer technology and equipment • Certain business start-up and • A bona fide business discussion must

for educational purposes. See section organizational costs that the cooperative occur during, immediately before, or

170(e)(6). elects to deduct. See page 9 of the immediately after the meal; and

instructions. • An employee must be present at the Line 20. Depreciation • Insurance premiums. meal. Include on line 20 depreciation and the • Legal and professional fees. See section 274(n)(3) for a special rule part of the cost of certain property that the • Supplies used and consumed in the that applies to meal expenses for cooperative elected to expense under business. individuals subject to the hours of service section 179. See Form 4562 and its • Utilities. limits of the Department of instructions. • Ordinary losses from trade or business Transportation. activities of a partnership (from Schedule Line 22. Depletion K-1 (Form 1065 or 1065-B)). Do not offset Membership dues. The cooperative

See sections 613 and 613A for can deduct amounts paid or incurred for ordinary losses against ordinary income. percentage depletion rates applicable to membership dues in civic or public Instead, include the income on line 10. natural deposits. Also, see section Show the partnership’s name, address, service organizations, professional

291(a)(2) for the limitation on the organizations, business leagues, trade and EIN on a separate statement depletion deduction for iron ore and coal associations, chambers of commerce, attached to this return. If the amount (including lignite). boards of trade, and real estate boards, entered is from more than one

Attach Form T (Timber), Forest unless a principal purpose of the partnership, identify the amount from

Activities Schedule, if a deduction for organization is to entertain or provide each partnership.

depletion of timber is taken. entertainment facilities for members or • Extraterritorial income exclusion (from their guest. In addition, cooperatives may Foreign intangible drilling costs and Form 8873, line 52). not deduct membership dues in any club foreign exploration and development • Reforestation costs. The cooperative organized for business, pleasure, costs must either be added to the can elect to deduct up to $10,000 of recreation, or other social purpose. This cooperative’s basis for cost depletion qualified reforestation expenses paid or includes country clubs, golf and athletic purposes or be deducted ratably over a incurred after October 22, 2004, for each clubs, airline and hotel clubs, and clubs 10-year period. See sections 263(i), 616, qualifying timber property. The operated to provide meals under and 617 for details. See Pub. 535 for cooperative can elect to amortize over 84

months any amount not deducted. conditions favorable to business more information on depletion. discussion. • Deduction for clean-fuel vehicle and Line 24. Pension, certain refueling property. See Pub. 535. Entertainment facilities. The

Profit-sharing, etc., Plans cooperative cannot deduct an expense See section 404(k) for more details Enter the deduction for contributions to paid or incurred for use of a facility (such and the limitation on certain dividends. qualified pension, profit-sharing, or other as a yacht or hunting lodge) for an activity Do not deduct: that is usually considered entertainment, funded deferred compensation plans. • Fines or penalties paid to a government Employers who maintain such a plan amusement, or recreation. for violating any law. generally must file one of the forms listed • Any amount allocable to a class of Travel, meals, and entertainment as below, even if the plan is not a qualified exempt income. See section 265(b) for compensation. Generally, the plan under the Internal Revenue Code. exceptions. cooperative may be able to deduct the The filing requirement applies even if the otherwise nondeductible travel, meals,

cooperative does not claim a deduction Special rules and entertainment expenses if the for the current tax year. There are amounts are treated as compensation to Travel, meals, and entertainment. penalties for failure to file these forms the recipient and reported on Form W-2 Subject to limitations and restrictions timely and for overstating the pension for an employee or on Form 1099-MISC discussed below, a cooperative can plan deduction. See sections 6652(e) and for an independent contractor. deduct ordinary and necessary travel, 6662(f). meals, and entertainment expenses paid However, if the recipient is an officer, Form 5500, Annual Return/Report of or incurred in its trade or business. director, or beneficial owner (directly or Employee Benefit Plan. File this form for indirectly) of more than 10% of any class a plan that is not a one-participant plan For details on rules that apply to of stock, the deduction for otherwise (see below). deductions for gifts, skybox rentals, luxury nondeductible travel, meals, and

Form 5500-EZ, Annual Return of water travel, convention expenses, and entertainment expenses incurred after

One-Participant (Owners and Their entertainment tickets, see section 274 October 22, 2004, is limited to the amount

Spouses) Retirement Plan. File this form and Pub. 463. treated as compensation. See section

for a plan that only covers the owner (or Travel. The cooperative cannot 274(e)(2) and Pub. 535.

the owner and his or her spouse) but only deduct travel expenses of any individual Lobbying expenses. Generally, if the owner (or the owner and his or her accompanying a cooperative officer or lobbying expenses are not deductible. spouse) owns the entire business. employee, including a spouse or These expenses include amounts paid or dependent of the officer or employee, Line 25. Employee Benefit incurred in connection with:

Programs unless: • Influencing federal or state legislation • That individual is an employee of the (but not local legislation), or Enter the contributions to employee cooperative, and • Any communication with certain federal benefit programs not claimed elsewhere • His or her travel is for a bona fide executive branch officials in an attempt to on the return (that is, insurance, health business purpose that would otherwise be influence the official actions or positions and welfare programs, etc.) that are not deductible by that individual. of the officials. See Regulations section an incidental part of a pension, Meals and entertainment. Generally, 1.162-29 for the definition of “influencing profit-sharing, etc., plan included on line legislation.” 24. the cooperative can deduct only 50% of

the amount otherwise allowable for meals Dues and other similar amounts paid Line 26. Other Deductions and entertainment expenses paid or to certain tax-exempt organizations may

Attach a schedule, listing by type and incurred in its trade or business. In not be deductible. See section 162(e)(3).

amount, all allowable deductions that are addition (subject to exceptions under If certain in-house expenditures do not

not deductible elsewhere. section 274(k)(2)): exceed $2,000, they are deductible. See

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section 162(e)(5)(B). For information on deduction. Also complete item 20 on See Form 1139 for details, including

contributions to charitable organizations Schedule N. other elections that may be available,

that conduct lobbying activities, see which must be made no later than 6 • A personal service corporation may not section 170(f)(9). For more information on months after the due date (excluding carry back an NOL to or from any tax year other deductions that may apply to extensions) of the cooperative’s return. to which an election under section 444 to cooperatives, see Pub. 535. have a tax year other than a required tax Line 32b. Estimated Tax

Line 28. Taxable Income Before year applies. Payments

NOL Deduction and Special • A corporate equity reduction interest Enter any estimated tax payments the loss may not be carried back to a tax year Deductions cooperative made for the tax year. preceding the year of the equity reduction

At-risk rules. Special at-risk rules under transaction (see section 172(b)(1)(E)). Beneficiaries of trusts. If the

section 465 generally apply to closely • cooperative is the beneficiary of a trust, If an ownership change occurs, the

held cooperatives (see Passive activity amount of the taxable income of a loss and the trust makes a section 643(g)

limitations on page 10) engaged in any corporation that may be offset by the election to credit its estimated tax

activity as a trade or business or for the pre-change NOL carryovers may be payments to its beneficiaries, include the

production of income. These cooperatives limited (see section 382 and the related cooperative’s share of the estimated tax

may have to adjust the amount on line 28. regulations). A loss corporation must file payment in the total amount entered on

an information statement with its income line 32b. Enter “T” and the amount of the A taxpayer is generally considered payment in the blank space below line 31. tax return for each tax year that certain “at-risk” for an amount equal to his or her ownership shifts occur (see Temporary investment in the entity. That investment Line 32f. Credit from Refiguring Regulations section 1.382-2T(a)(2)(ii) for consists of money and other property Tax for Years in which details). See Regulations section contributed to the entity and amounts 1.382-6(b) for details on how to make the Nonqualified Per-unit Retain borrowed on behalf of the entity. closing-of-the-books election. Certificates or Nonqualified

 The at-risk rules do not apply to: • If a corporation acquires control of Written Notices of Allocation • Holding real property placed in service another corporation (or acquires its (redeemed this year) were by the cooperative before 1987; assets in a reorganization), the amount of issued • Equipment leasing under sections pre-acquisition losses that may offset

465(c)(4), (5), and (6); and If the cooperative would pay less total tax recognized built-in gain may be limited • Any qualifying business of a qualified by claiming the deduction for the (see section 384).

cooperative under section 465(c)(7). redemption of nonqualified written notices

For details on the NOL deduction, see of allocation or nonqualified per-unit retain The at-risk rules do apply to the Pub. 542, Corporations, section 172, and certificates in the issue year versus the holding of mineral property. Form 1139, Corporation Application for current tax year, refigure the tax for the

If the at-risk rules apply, complete Tentative Refund. years the nonqualified written notices or

Form 6198, At-Risk Limitations, then certificates were originally issued

adjust the amount on line 28 for any Line 30. Taxable Income (deducting them in the issue year), then

section 465(d) losses. These losses are Certain cooperatives may need to file enter the amount of the reduction in the

limited to the amount for which the Form 8817. If so, taxable income reported issue years’ taxes on this line. Attach a

cooperative is at risk for each separate on line 30 may not exceed the combined schedule showing how the credit was

activity at the close of the tax year. If the taxable income shown on line 30, Form figured. This credit is treated as a

cooperative is involved in one or more 8817. Attach Form 8817 to Form 990-C. payment, and any amount that is more

activities, any of which incurs a loss for than the tax on line 31 will be refunded.

Patronage source losses cannot the year, report the losses for each be used to offset nonpatronage Line 32g. Credit for Federal Tax activity separately. Attach Form 6198 CAUTION income. See Form 8817. on Fuels !

showing the amount at risk and gross

income and deductions for the activities Enter the credit from Form 4136, Credit Minimum taxable income. The with the losses. for Federal Tax Paid on Fuels, if the cooperative’s taxable income cannot be cooperative qualifies to take this credit. If the cooperative sells or otherwise less than the largest of the following Attach Form 4136 to Form 990-C. disposes of an asset or its interest (either amounts.

total or partial) in an activity to which the • The amount of nondeductible CFC Line 32h. Total Payments at-risk rules apply, determine the net dividends under section 965. This amount Add the amounts on lines 32d through profit or loss from the activity by is equal to the difference between 32g and enter the total on line 32h. combining the gain or loss on the sale or columns (a) and (c) of Form 990, Backup withholding If the cooperative disposition with the profit or loss from the Schedule C, line 11. had federal income tax withheld from any activity. If the cooperative has a net loss, • The inversion gain of the cooperative payments it received, because, for the loss may be limited because of the for the tax year, if the cooperative is an example, it failed to give the payer its at-risk rules. expatriated entity or a partner in an correct EIN, include the amount withheld expatriated entity. For details, see section Treat any loss from an activity not in the total for line 32h. Enter the amount 7874. allowed for the current tax year as a withheld and the words “Backup deduction allocable to the activity in the Net operating loss. If line 30 (figured withholding” in the blank space above line next tax year. without regard to the minimum taxable 32h.

income rule stated above) is zero or less, Line 29a. Net Operating Loss the cooperative can have an NOL that Line 33. Estimated Tax Penalty Deduction can be carried back or forward as a A cooperative that does not make

A cooperative can use the net operating deduction to other tax years. Generally, a estimated tax payments when due may

loss incurred in one tax year to reduce its cooperative first carries an NOL back 2 be subject to an underpayment penalty

taxable income in another year. Enter the tax years. However, the cooperative can for the period of underpayment.

total NOL carryovers from other tax years elect to waive the carryback period and Generally, a cooperative is subject to the

on line 29a, but do not enter more than instead carry the NOL forward to future penalty if its tax liability is $500 or more

the cooperative’s taxable income (after tax years. To make the election, see the and it did not timely pay the smaller of:

special deductions). Attach a schedule instructions for Schedule N, item 19, on • Its tax liability for 2004, or

showing the computation of the page 20. • Its prior year’s tax.

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See section 6655 for details and finished goods or merchandise are sold Line 6a. Additional Section

exceptions including special rules for (but not before the year the cooperative 263A Costs large cooperatives. pays for the raw materials or merchandise An entry is required on this line only by Use Form 2220, Underpayment of if it is also using the cash method). For cooperatives electing a simplified method additional guidance on this method of Estimated Tax by Corporations, to see if of accounting. accounting for inventoriable items, see the cooperative owes a penalty and to Pub. 538 and the Instructions for Form For cooperatives that have elected the figure the amount of the penalty. 3115. simplified production method, additional Generally, the cooperative does not have section 263A costs are generally those to file this form because the IRS can Enter amounts paid for all raw costs, other than interest, that were not figure the amount of any penalty and bill materials and merchandise on line 2. The capitalized under the cooperative’s the cooperative for it. However, even if amount the cooperative can deduct for method of accounting immediately prior to the cooperative does not owe the penalty, the tax year is figured on line 9. the effective date of section 263A but are complete and attach Form 2220 if: now required to be capitalized under • The annualized income or adjusted All filers not using the cash method of section 263A. For details, see seasonal installment method is used, or accounting should see Section 263A Regulations section 1.263A-2(b). • The cooperative is a large corporation uniform capitalization rules on page 9 computing its first required installment For cooperatives that have elected the before completing Schedule A. based on the prior year’s tax. (See the simplified resale method, additional

Instructions for Form 2220 for the section 263A costs are generally those Line 1. Inventory at Beginning definition of a large corporation.) costs incurred with respect to the of Year following categories: If Form 2220 is attached, check the Beginning inventory will generally equal • Off-site storage or warehousing. box on line 33, and enter the amount of ending inventory from last year’s return. If • Purchasing; handling, such as any penalty on this line. this is your initial year, do not make an processing, assembly, repackaging, and

Line 36. Direct Deposit of entry on line 1. transporting.

Refund • General and administrative costs

If the cooperative is changing its (mixed service costs). If the cooperative has a refund of $1 method of accounting for the current tax million or more and wants it directly For details, see Regulations section year, it must refigure last year’s closing 1.263A-3(d). deposited into its checking or savings inventory using its new method of account at any U.S. bank or other Enter on line 6a the balance of section accounting and enter the result on line 1. financial institution instead of having a 263A costs paid or incurred during the tax If there is a difference between last year’s check sent to the cooperative, complete year not includable on lines 2, 3, and 6b. closing inventory and the refigured Form 8302 and attach it to the amount, attach an explanation. Take the Line 6b. Other Costs cooperative’s tax return. difference into account when figuring the Enter on line 6b any costs paid or cooperative’s section 481(a) adjustment incurred during the tax year not entered (explained on page 3). Schedule A on lines 2 through 6a.

Line 4a. Per-unit Retain Line 8. Inventory at End of Year Cost of Goods Sold Allocations paid in Qualified See Regulations sections 1.263A-1 Generally, inventories are required at the Per-unit Retain Certificates through 1.263A-3 for details on figuring beginning and end of each tax year if the the amount of additional section 263A Qualified per-unit retain certificates are production, purchase, or sale of costs to be included in ending inventory. merchandise is an income-producing issued to patrons who have agreed to

include the stated dollar amount on the If the cooperative accounts for factor. See Regulations section 1.471-1. certificate in current income. inventoriable items in the same manner

However, if the cooperative is a as materials and supplies that are not qualifying taxpayer, or a qualifying small Line 5. Per-unit Retain incidental, enter on line 8 the portion of its business taxpayer (defined below), it can Allocations paid in Money or raw materials and merchandise

adopt or change its accounting method to purchased for resale that is included on account for inventoriable items in the Other Properties (except line 7 and was not sold during the year. same manner as materials and supplies Nonqualified Per-unit Lines 10a through 10f. that are not incidental (unless its business Certificates

is a tax shelter as defined in section Inventory Valuation Methods Enter the amount paid in money or other 448(d)(3)). property (except per-unit retain Inventories can be valued at:

• Cost, A “qualifying taxpayer” is a taxpayer certificates) to patrons to redeem

that, for each prior tax year ending after nonqualified per-unit retain certificates. • Cost or market value (whichever is

December 16, 1998, has average annual No deduction is allowed at the time of lower), or

gross receipts of $1 million or less for the issuance for a nonqualified per-unit retain • Any other method approved by the IRS

3-tax-year period ending with that prior certificate. However, the cooperative may that conforms to the requirements of the

applicable regulations cited below. tax year. take a deduction in the year the certificate

is redeemed, subject to the stated dollar The cooperative is required to use cost A “qualifying small business taxpayer” amount of the certificate. if it is using the cash method of is a taxpayer (a) that, for each prior tax

year ending on or after December 31, accounting. The cooperative can also choose to 2000, has average annual gross receipts Cooperatives that account for deduct the amount paid to redeem the of $10 million or less for the 3-tax-year inventory in the same manner as certificate in the prior year if redemption period ending with that prior tax year and materials and supplies that are not occurs within the payment period for that (b) whose principal business activity is not incidental may currently deduct preceding year. See section 1382(b). an ineligible activity. expenditures for direct labor and all

Under this accounting method, See section 1383 and the instructions indirect costs that would otherwise be

included in inventory costs. inventory costs for raw materials for line 32f on page 13 for a special rule

purchased for use in producing finished for figuring the cooperative’s tax in the The average cost (rolling average)

goods, and merchandise purchased for year of redemption of a nonqualified method of valuing inventories generally

resale, are deductible in the year the per-unit retain certificate. does not conform to the requirements of

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the regulations. See Rev. Rul. 71-234, 1.1502-26, and 1.1502-27 before section 246A. Also see section 245(a)

1971-1 C.B. 148. completing Schedule C. before making this computation for an

additional limitation that applies to Cooperatives that use erroneous Line 1. Column (a) dividends received from foreign valuation methods must change to a Enter dividends (except those received on corporations. Attach a schedule to Form method permitted for federal income tax debt-financed stock acquired after July 990-C showing how the amount on line 3, purposes. Use Form 3115 to make this 18, 1984–see section 246A) that: column (c), was figured. change. • Are received from

On line 10a, check the method(s) used less-than-20%-owned domestic Line 4. Column (a)

for valuing inventories. Under lower of corporations subject to income tax, and Enter dividends received on preferred cost or market, the term “market” (for • Qualify for the 70% deduction under stock of a less-than-20%-owned public normal goods) means the current bid section 243(a)(1). utility that is subject to income tax and is price prevailing on the inventory valuation Also include on line 1: allowed the deduction provided in section date for the particular merchandise in the • Taxable distributions from an IC-DISC 247 for dividends paid. volume usually purchased by the or former DISC that are designated as taxpayer. For a manufacturer, market Line 5. Column (a) eligible for the 70% deduction, and certain applies to the basic elements of cost— dividends of Federal Home Loan Banks. Enter dividends received on preferred raw materials, labor, and burden. If See section 246(a)(2). stock of a 20%-or-more-owned public section 263A applies to the taxpayer, the • Dividends (except those received on utility that is subject to income tax and is basic elements of cost must reflect the debt-financed stock acquired after July allowed the deduction provided in section current bid price of all direct costs and all 18, 1984) from a regulated investment 247 for dividends paid. indirect costs properly allocable to goods company (RIC). The amount of dividends on hand at the inventory date. Line 6. Column (a) eligible for the dividends-received

Inventory may be valued below cost deduction under section 243 is limited by Enter the U.S.-source portion of dividends

when the merchandise is unsalable at section 854(b). The cooperative should that:

normal prices or unsalable in the normal receive a notice from the RIC specifying • Are received from

way because the goods are subnormal the amount of dividends that qualify for less-than-20%-owned foreign

due to damage, imperfections, shop wear, the deduction. Generally, debt-financed corporations, and

etc., within the meaning of Regulations stock is stock that the cooperative • Qualify for the 70% deduction under

section 1.471-2(c). The goods may be acquired by incurring a debt (e.g., it section 245(a).

valued at a current bona fide selling price, borrowed money to buy the stock). To qualify for the 70% deduction, the

minus direct cost of disposition (but not cooperative must own at least 10% of the Report so-called dividends or earnings less than scrap value) if such a price can stock of the foreign corporation by vote received from mutual savings banks, etc., be established. and value. as interest income. Do not treat them as

If this is the first year the Last-in, dividends. Also include dividends received from

First-out (LIFO) inventory method was a less-than-20%-owned FSC that: Line 2. Column (a) either adopted or extended to inventory • Are attributable to income treated as

goods not previously valued under the Enter: effectively connected with the conduct of

LIFO method provided for in section 472, • Dividends (except those received on a trade or business within the United

attach Form 970, Application To Use debt-financed stock acquired after July States (excluding foreign trade income),

LIFO Inventory Method, or a statement 18, 1984) that are received from and

with the information required by Form 20%-or-more-owned domestic • Qualify for the 70% deduction provided

970. Also check the LIFO box on line 10c. corporations subject to income tax and in section 245(c)(1)(B).

On line 10d, enter the amount or the that are subject to the 80% deduction

percent of total closing inventories under section 243(c), and Line 7. Column (a)

covered under section 472. Estimates are • Taxable distributions from an IC-DISC Enter the U.S.-source portion of dividends

acceptable. or former DISC that are considered that:

eligible for the 80% deduction. • Are received from 20%-or-more-owned If the cooperative changed or foreign corporations, and extended its inventory to LIFO and had to Line 3. Column (a) • Qualify for the 80% deduction under write up its opening inventory to cost in Enter dividends that are: section 245(a). the year of election, report the effect of • Received on debt-financed stock Also include dividends received from a this write-up as income (line 10, page 1) acquired after July 18, 1984, that are 20%-or-more-owned FSC that: proportionately over a 3-year period received from domestic and foreign • Are attributable to income treated as beginning with the year of the LIFO corporations subject to income tax that effectively connected with the conduct of election (section 472(d)). would otherwise be subject to the a trade or business within the United

For more information on inventory dividends-received deduction under States (excluding foreign trade income), valuation methods, see Pub. 538. sections 243(a)(1), 243(c), or 245(a). and • Received from a RIC on debt-financed • Qualify for the 80% deduction under stock. The amount of dividends eligible section 245(c)(1)(B). for the dividends-received deduction is Schedule C limited by section 854(b). The cooperative Line 8. Column (a) should receive a notice from the RIC Dividends and Special Enter dividends received from wholly specifying the amount of dividends that Deductions owned foreign subsidiaries that are qualify for the deduction. eligible for the 100% deduction under For purposes of the 20% ownership test Line 3. Columns (b) and (c) section 245(b). on lines 1 through 7, the percentage of

stock owned by the cooperative is based Dividends received on debt-financed In general, the deduction under section

on voting power and value of the common stock acquired after July 18, 1984, are not 245(b) applies to dividends paid out of the

stock. Preferred stock described in entitled to the full 70% or 80% earnings and profits of a foreign

section 1504(a)(4) is not taken into dividends-received deduction. The 70% corporation for a tax year during which:

account. Cooperatives filing a or 80% deduction is reduced by a • All of its outstanding stock is directly or

consolidated return should see percentage that is related to the amount indirectly owned by the domestic

Regulations sections 1.1502-13, of debt incurred to acquire the stock. See cooperative receiving the dividends, and

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• All of its gross income from all sources cooperative held the stock, you cannot Line 12. Column (a) is effectively connected with the conduct count certain days during which the Enter foreign dividends not reportable on of a trade or business within the United cooperative’s risk of loss was diminished. lines 3, 6, 7, 8, 10, or 11 of column (a). States. See section 264(c)(4) and Regulations Include on line 12 the cooperative’s share section 1.264-5 for more details. Line 9. Column (c) of the ordinary earnings of a qualified Preferred dividends attributable to periods electing fund from line 1c of Form 8621, Generally, line 9, column (c), cannot totaling less than 367 days are subject to Return by a Shareholder of a Passive exceed the amount from the worksheet the 46-day holding period above. Foreign Investment Company or Qualified below. However, in a year in which an c. Dividends on any share of stock to Electing Fund. Exclude distributions of NOL occurs, this limitation does not apply the extent the cooperative is under an amounts constructively taxed in the even if the loss is created by the obligation (including a short sale) to make current year or in prior years under dividends-received deduction. See related payments with respect to positions subpart F (sections 951 through 964). sections 172(d) and 246(b). in substantially similar or related property.

Line 13. Column (a) 5. Any other taxable dividend income Worksheet for Schedule C, line 9 not properly reported above (including Include income constructively received (keep for your records) distributions under section 936(h)(4)). from CFCs under subpart F. This amount

should equal the total subpart F income 1. Refigure line 28, page 1, Form reported on Form 5471, Schedule I. 990-C, without any adjustment

under section 1059 and without Line 14. Column (a) Schedule H

any capital loss carryback to the Include gross-up for taxes deemed paid tax year under section Deductions and Adjustments under sections 902 and 960. 1212(a)(1) .............. Under Section 1382

2. Enter the amount from line 10, Line 15. Column (a) Cooperatives may, under section column (c) .............. Enter taxable distributions from an 1388(j)(1), use losses from one or more 3. Subtract line 2 from line 1 .... IC-DISC or former DISC that are allocation units to offset earnings of one 4. Multiply line 3 by 80% ....... designated as not eligible for a or more other allocation units, as 5. Add lines 2, 5, 7, and 8, column dividends-received deduction. permitted by their bylaws, but only to the (c) and the part of the deduction

on line 3, column (c) that is No deduction is allowed under section extent that the earnings and losses are

attributable to dividends from business done with or for patrons. If 243 for a dividend from an IC-DISC or

received from a cooperative exercises this option, it former DISC (as defined in section 20%-or-more-owned must provide the information specified in 992(a)) to the extent the dividend: corporations ............. section 1388(j)(3) by written notice to its 1. Is paid out of the cooperative’s 6. Enter the smaller of line 4 or line patrons. accumulated IC-DISC income or 5. If line 5 is greater than line 4, previously taxed income, or Special rules also apply if a stop here; enter the amount 2. Is a deemed distribution under cooperative has acquired the assets of from line 6 on line 9, column (c). section 995(b)(1). another cooperative under a section Do not complete the rest of this 381(a) transaction. See section 1388(j) worksheet ..............

Line 16. Column (a) for more information. Cooperatives may 7. Enter the total amount of net earnings and losses under section dividends received from Include the following: 1388(j) and still be eligible for tax-exempt 20%-or-more-owned

corporations that are included 1. Dividends (other than capital gain treatment. See section 521(b)(6). distributions reported on Schedule D on lines 2, 3, 5, 7, and 8, If the cooperative sells qualifying (Form 1120) and exempt-interest column (a) .............. foreign trade property, no deduction is dividends) that are received from RICs 8. Subtract line 7 from line 3 .... allowed for patronage dividends, per-unit 9. Multiply line 8 by 70% ....... and that are not subject to the 70% retain allocations, and nonpatronage 10. Subtract line 5 from line 9, deduction. distributions related to foreign trade column (c) .............. 2. Dividends from tax-exempt income. For details, see section 11. Enter the smaller of line 9 or line organizations. 941(b)(2). 10 . . . . . . . . . . . . . . . . . . . . 3. Dividends (other than capital gain

12. Dividends-received deduction distributions) received from a REIT that, Any patronage dividends or per-unit

after limitation (section 246(b)). for the tax year of the trust in which the retain allocations that are allocated to

Add lines 6 and 11. Enter the dividends are paid, qualifies under qualifying foreign trade income of the

result here and on line 9, sections 856 through 860. cooperative may be treated as qualifying

column (c) .............. 4. Dividends not eligible for a foreign trade income of the patron. In

dividends-received deduction, which order to qualify, the amount must be

Line 10. Columns (a) and (c) include the following. designated by the cooperative in a written

notice mailed to its patrons not later than Enter dividends from FSCs that are a. Dividends received on any share of the 15th day of the 9th month following attributable to foreign trade income and stock held for less than 46 days during the close of the tax year. For more that are eligible for the 100% deduction the 91-day period beginning 45 days details, see section 943(g). provided in section 245(c)(1)(A). before the ex-dividend date. When

counting the number of days the Lines 1 and 2 apply only to section 521 Enter dividends that qualify under cooperative held the stock, you cannot cooperatives. section 243(b) for the 100%

dividends-received deduction described in count certain days during which the Line 1. Dividends Paid on

section 243(a)(3). Cooperatives taking cooperative’s risk of loss was diminished. Capital Stock (Section 521 this deduction are subject to the See section 246(c)(4) and Regulations Cooperatives Only) provisions of section 1561. The 100% section 1.246-5 for more details.

deduction does not apply to affiliated b. Dividends attributable to periods Enter the amount actually or

group members that are joining in the totaling more than 366 days that the constructively paid as dividends during

cooperative received on any share of the tax year on: filing of a consolidated return. preferred stock held for less than 91 days • Common stock (whether voting or Line 11. Columns (a) and (c) during the 181-day period that began 90 nonvoting),

Enter qualifying dividends from Form days before the ex-dividend date. When • Preferred stock,

8895. counting the number of days the • Capital retain certificates,

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• Revolving fund certificates, dividends are in addition to amounts are redeemed (if permitted under section

• Letters of advice, or otherwise payable to patrons derived from 1382(b)(2) or (4) or section 1382(c)(2)(B),

• Other documentary evidence of a business done with or for patrons. or

proprietary interest in the cooperative 2. A tax credit based on a Patronage dividends may be paid in: association. recomputation of tax for the year(s) the • Money, nonqualified written notices of allocation See Regulations section 1.1382-3(b) • Qualified written notices of allocation, were issued. See the instructions for line for more information. or 32f. • Other property (except nonqualified Line 2. Nonpatronage Income written notices of allocation). Allocated to Patrons (Section Amounts paid to patrons are not

A written notice of allocation means: patronage dividends if paid: 521 Cooperatives Only) • Any capital stock, 1. Out of earnings not from business Enter nonpatronage income allocated to • Revolving fund certificate, done with or for patrons; patrons. Payment may be in: • Retain certificate, 2. Out of earnings from business done • Money, • Certificate of indebtedness, with or for other patrons to whom no • Qualified written notices of allocation, • Letter of advice, or amounts or smaller amounts are paid for or • Other written notice, which states the substantially identical transactions; • Other property (except nonqualified dollar amount allocated to the patron by 3. To redeem capital stock, written notices of allocation). the cooperative and the part, if any, which certificates of indebtedness, revolving is a patronage dividend. The amounts must be paid during the fund certificates, retain certificates, letters

payment period that begins on the first of advice, or other similar documents; or In general, a qualified written notice of day of the tax year and ends on the 15th allocation is a written notice of allocation 4. Without reference to the net

day of the 9th month after the end of the that is: earnings of the cooperative organization

tax year in which the income was earned. • Paid as part of a patronage dividend, in from business done with or for its patrons.

Nonpatronage income. money or by qualified check equal to at

Nonpatronage income includes incidental least 20% of the patronage dividend, and

income from sources not directly related • One of the following conditions is met: Schedule J to: 1. The patron must have at least 90 • Marketing, days from the date the written notice of Tax Computation • Purchasing, allocation is paid to redeem it in cash, and • Service activities of the cooperative must receive written notice of the right of Line 1. Members of a Controlled

(such as income from the lease of redemption at the time the patron Group premises, investments, or from the sale or receives the allocation; or A member of a controlled group, as exchange of capital assets), or 2. The patron must agree to have the defined in section 1563, must check the • Income from business done with or for allocation treated as constructively box on line 1 and complete lines 2a and the U.S. Government, or any of its received and reinvested in the 2b, as applicable. agencies. cooperative. See section 1388(c)(2) and

See the line 3 instructions, below, for a the related regulations for information on Line 2a. Income Brackets

definition of “qualified written notice of how this consent must be made. Members of a controlled group are

allocation.” See section 1382(c)(2)(B) for entitled to share one $50,000, one

deductibility of amounts paid in If a written notice of allocation does not $25,000, and one $9,925,000 taxable

redemption of nonqualified written notices qualify, no deduction is allowable at the income bracket amount (in that order).

of allocation. See section 1388 (d) for a time it is issued. However, the When a controlled group adopts or definition of a nonqualified written notice cooperative is entitled to a deduction or later amends an apportionment plan, of allocation. refund of tax when the nonqualified each member must attach to its tax return written notice of allocation is finally a copy of its consent to this plan. Line 3. Patronage Dividends redeemed, if that notice was paid as a The copy (or an attached statement) To be deductible, patronage dividends patronage dividend during the payment must show the part of the amount in each must be paid during the payment period period for the tax year during which the taxable income bracket apportioned to that begins on the first day of the tax year patronage occurred. The deduction or that member. See Regulations section in which the patronage occurs and ends refund is allowed, but only to the extent 1.1561-3(b) for other requirements and on the 15th day of the 9th month after the that amounts paid to redeem the for the time and manner of making the end of that tax year. nonqualified written notices of allocation consent. are paid in money or other property (other See sections 1382(e) and (f) for than written notices of allocation) which Equal apportionment plan. If no special rules for the time when patronage do not exceed the stated dollar amounts apportionment plan is adopted, members occurs if products are marketed under a of the nonqualified written notices of of a controlled group must divide the pooling arrangement, or if earnings are allocation. See section 1382(b), amount in each taxable income bracket includible in the gross income of the Regulations section 1.1382-2, and section equally among themselves. For example, cooperative for a tax year after the year in 1383. Controlled Group AB consists of which the patronage occurred. Cooperative A and Cooperative B. They See Rev. Rul. 81-103, 1981-1 C.B. Patronage dividends include any do not elect an apportionment plan. 447, for the redemption of nonqualified amount paid to a patron by a cooperative Therefore, each cooperative is entitled to: written notices of allocation issued to based on the quantity or value of • $25,000 (one-half of $50,000) on line patrons by a payment of cash and a business done with or for that patron 2a(1),

under a pre-existing obligation to pay that crediting of accounts receivable due from • $12,500 (one-half of $25,000) on line patrons. amount. The amount is determined by 2a(2), and

reference to the net earnings of the See section 1383 for special rules for • $4,962,500 (one-half of $9,925,000) on

organization from business done with or figuring the cooperative’s tax in the year line 2a(3).

for its patrons. nonqualified written notices of allocation Unequal apportionment plan. Members

Note. Net earnings are not reduced by of a controlled group can elect an unequal are redeemed. The cooperative is entitled

dividends paid on capital stock of the apportionment plan and divide the taxable to:

organization if there is a legally 1. A deduction in the tax year the income brackets as they want. There is

enforceable agreement that such nonqualified written notices of allocation no need for consistency among taxable

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income brackets. Any member may be the cooperative’s first tax year in 6. Enter line 5 or the cooperative’s entitled to all, some, or none of the existence (regardless of its gross share of the $9,925,000 taxable taxable income bracket. However, the receipts) or: income bracket, whichever is total amount for all members cannot less ................... 1. It was treated as a small

exceed the total amount in each taxable corporation exempt from the AMT for all 7. Subtract line 6 from line 5 .... income bracket. prior tax years beginning after 1997, and

8. Multiply line 2 by 15% ....... 2. Its average annual gross receipts Line 2b. Enter Cooperative’s for the 3-tax-year period (or portion 9. Multiply line 4 by 25% ....... Share thereof during which the cooperative was 10. Multiply line 6 by 34% ....... Members of a controlled group are in existence) ending before its tax year

treated as one group to figure the 11. Multiply line 7 by 35% ....... beginning in 2004 did not exceed $7.5

applicability of the additional 5% tax and million ($5 million if the cooperative had 12. If the taxable income of the only 1 prior tax year). the additional 3% tax. If an additional tax controlled group exceeds applies, each member will pay that tax $100,000, enter this member’s For more details, see the Instructions based on the part of the amount used in share of the smaller of: 5% of for Form 4626. each taxable income bracket to reduce the taxable income in excess of

that member’s tax. See section 1561(a). If $100,000, or $11,750. See Line 6a. Foreign Tax Credit an additional tax applies, attach a instructions for line 2b ....... To find out when a cooperative can take schedule showing the taxable income of 13. If the taxable income of the the credit for payment of income tax to a the entire group and how the cooperative controlled group exceeds $15 foreign country or U.S. possession, see figured its share of the additional tax. million, enter this member’s Form 1118, Foreign Tax

share of the smaller of: 3% of Credit–Corporations. Line 2b(1). Enter the cooperative’s share the taxable income in excess of of the additional 5% tax on line 2b(1). $15 million, or $100,000. See Line 6b. Other Credits

instructions for line 2b ....... Line 2b(2). Enter the cooperative’s share Possessions tax credit. The Small

of the additional 3% tax on line 2b(2). 14. Add lines 8 through 13. Enter Business Job Protection Act of 1996

here and on Schedule J, line 3. repealed the possessions credit.

Line 3. Income Tax However, existing credit claimants may

Most cooperatives figure their tax by qualify for a credit under the transitional

using the Tax Rate Schedule next. rules. See Form 5735, Possessions Deferred tax under section 1291. If the

Exceptions apply to members of a Corporation Tax Credit (Under Sections cooperative was a shareholder in a 936 and 30A). controlled group (see the worksheet ). passive foreign investment company

(PFIC), and the cooperative received an Nonconventional source fuel credit. A Tax Rate Schedule excess distribution or disposed of its credit is allowed for the sale of qualified

fuels produced from a nonconventional If taxable income on Form 990-C, line 30, is: investment in the PFIC during the year, it

must include the total increase in taxes source. Section 29 contains a definition of

Of the due under section 1291(c)(2) in the qualified fuels, provisions for figuring the

But not amount amount entered on line 3, Schedule J. On credit, and other special rules. Attach a Over — over — Tax is: over — the dotted line next to line 3, Schedule J, separate schedule to Form 990-C

enter “Section 1291” and the amount. showing the computation of the credit. $0 $50,000 15% $0

50,000 75,000 $ 7,500 + 25% 50,000 Do not include on line 3 any interest Qualified electric vehicle (QEV) credit.

75,000 100,000 13,750 + 34% 75,000 due under section 1291(c)(3). Instead, Include on line 6b any credit from Form

100,000 335,000 22,250 + 39% 100,000 show the amount of interest owed in the 8834, Qualified Electric Vehicle Credit.

335,000 10,000,000 113,900 + 34% 335,000 bottom margin of page 1, Form 990-C, Vehicles that qualify for this credit are not

10,000,000 15,000,000 3,400,000 + 35% 10,000,000 and enter “Section 1291 interest.” If the eligible for the deduction for clean-fuel

15,000,000 18,333,333 5,150,000 + 38% 15,000,000 cooperative has a tax due, include the vehicles under section 179A.

18,333,333 - - - - - 35% 0 interest due in the payment. If you would Line 6c. General Business otherwise receive a refund, reduce the Credit

Members of a controlled group must refund by the interest due. For details,

see Form 8621. Enter the cooperative’s total general attach to Form 990-C a statement business credit. showing the computation of the tax

entered on Schedule J, line 3. Line 4. Alternative Minimum If the cooperative is filing Form 8844, Tax (AMT) Empowerment Zone and Renewal Tax Computation Worksheet for Unless the cooperative is treated as a Community Employment Credit, Form Members of a Controlled Group small corporation exempt from the AMT, it 8884, New York Liberty Zone Business

(keep for your records) may owe AMT if it has any of the Employee Credit, or Form 8835 (see list

adjustments and tax preference items below) with a credit from Section B, check

Note. Each member of a controlled group must listed on Form 4626, Alternative Minimum the “Form(s)” box, enter the form number

compute its tax using this worksheet. Tax–Corporations. The cooperative must in the space provided, and include the

1. Enter taxable income (line 30, file Form 4626 if its taxable income (or allowable credit on line 6c.

page 1) ................. loss) before the NOL deduction combined If the cooperative is required to file with these adjustments and tax Form 3800, General Business Credit, 2. Enter line 1 or the cooperative’s preference items is more than the lesser share of the $50,000 taxable check the “Form 3800” box and include of: income bracket, whichever is the allowable credit on line 6c. If the • $40,000, or less ................... cooperative is not required to file Form • The cooperative’s allowable exemption 3800, check the “Form(s)” box, enter the 3. Subtract line 2 from line 1 .... amount (from Form 4626). form number (from the list below) in the

4. Enter line 3 or the cooperative’s See Form 4626 for details. space provided, and include on line 6c

share of the $25,000 taxable Exemption for small corporations. A the allowable credit from the applicable

income bracket, whichever is form. cooperative is treated as a small less ................... corporation exempt from the AMT for its • Investment Credit (Form 3468).

5. Subtract line 4 from line 3 .... tax year beginning in 2004 if that year is • Work Opportunity Credit (Form 5884).

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• Credit for Alcohol Used as Fuel (Form 8827, Credit for Prior Year Minimum cooperative, not the patron. See section

6478). For any tax year ending after Tax–Corporations. 40(g)(6)(B)(iii) for how to figure the tax.

October 22, 2004, the cooperative may • Recapture of allocation of low sulfur Also see Form 8827 if any of the allocate any or all of its small ethanol diesel fuel production credit to patrons. If cooperative’s 2003 nonconventional producer credit to patrons. The the amount of credit apportioned to any source fuel credit, orphan drug credit, or cooperative must attach a statement to patron is decreased, there is a tax qualified electric vehicle credit was the Form 6478 making an election to imposed on the cooperative, not the disallowed solely because of the tentative apportion the credit among the patrons. patron. See section 45H(g)(3) for how to minimum tax limitation. See section 53(d). For more information on making the figure the tax.

election, see section 40(g)(6)(A). The Line 9. Other Taxes How to report. If the cooperative credit amount allocated to patrons cannot checked the “Other” box, attach a Include any of the following taxes and be included in line 6c. For more schedule showing the computation of interest in the total on line 9. Check the information on the credit and its each item included in the total for line 9, appropriate box(es) for the form, if any, allocation, see the instructions for Form identify the applicable Code section and used to compute the total. 6478. For a tax associated with the the type of tax or interest. allocation to patrons, see Other below. Recapture of investment credit. If the • Credit for Increasing Research cooperative disposed of investment credit Line 10. Total Tax

Activities (Form 6765). property or changed its use before the Include any deferred tax on the • Low-Income Housing Credit (Form end of its useful life or recovery period, termination of a section 1294 election

8586). see Form 4255, Recapture of Investment applicable to shareholders in a qualified • Orphan Drug Credit (Form 8820). Credit, for details. electing fund in the amount entered on • Disabled Access Credit (Form 8826). line 10. See Form 8621, Part V and How Recapture of low-income housing • Enhanced Oil Recovery Credit (Form to report, below. credit. If the cooperative disposed of 8830). property (or there was a reduction in the Subtract any deferred tax on the • Renewable Electricity and Refined Coal qualified basis of the property) for which it cooperative’s share of undistributed Production Credit (Form 8835). took the low-income housing credit, it may earnings of a qualified electing fund (see • Indian Employment Credit (Form 8845). owe a tax. See Form 8611, Recapture of Form 8621, Part II). • Credit for Employer Social Security and Low-Income Housing Credit. Medicare Taxes Paid on Certain How to report. If deferring tax, attach a

Other. Additional taxes and interest schedule showing the computation of Employee Tips (Form 8846). amounts can be included in the total each item included in, or subtracted from, • Credit for Contributions to Selected

entered on line 9. Check the box for the total for line 10. On the dotted line Community Development Corporations “Other” if the cooperative includes any next to line 10, specify (a) the applicable (Form 8847). additional taxes and interest such as the Code section, (b) the type of tax, and (c) • Welfare-to-Work Credit (Form 8861). the amount of tax. items discussed below. See How to • Biodiesel Fuels Credit (Form 8864). report, below, for details on reporting • New Markets Credit (Form 8874). these amounts on an attached schedule. • Credit for Small Employer Pension Plan

Startup Costs (Form 8881). • Recapture of the qualified electric Schedule L

vehicle (QEV) credit. The cooperative • Credit for Employer-Provided Childcare must recapture part of the QEV credit Balance Sheets per Books Facilities and Services (Form 8882). claimed in a prior year if, within 3 years of • Low Sulfur Diesel Fuel Production The balance sheet should agree with the the date the vehicle was placed in Credit (Form 8896). The cooperative may cooperative’s books and records. Include service, it ceases to qualify for the credit. allocate any or all of its low sulfur diesel certificates of deposit as cash on line 1, See Regulations section 1.30-1 for details Schedule L. fuel production credit to patrons. The on how to figure the recapture. cooperative must attach a statement to • Recapture of the Indian employment Line 5. Tax-exempt Securities the Form 8896 making an election to credit. Generally, if an employer Include on this line: apportion the credit among the patrons. terminates the employment of a qualified For more information on making the • State and local government obligations, employee less than 1 year after the date election, see section 45H(g)(1). The credit the interest on which is excludable from of initial employment, any Indian gross income under section 103(a), and amount allocated to patrons cannot be employment credit allowed for a prior tax • Stock in a mutual fund or other included in line 6c. For more information year because of wages paid or incurred to Regulated Investment Companies (RIC) on the credit and its allocation, see the that employee must be recaptured. For that distributed exempt-interest dividends instructions for Form 8896. For a tax details, see Form 8845 and section 45A. during the tax year of the cooperative. associated with the allocation to patrons, • Recapture of new markets credit (see

see Other below. Form 8874). Line 24. Adjustments to

Any excess investment credit, • Recapture of employer-provided Shareholders’ Equity childcare facilities and services credit work opportunity credit, Indian Some examples of items to report on this (see Form 8882). CAUTION employment credit, empowerment line include: ! • Interest on deferred tax attributable to zone or renewal community employment • Unrealized gains and losses on (a) installment sales of certain timeshares credit, welfare-to-work credit, or new securities held “available for sale.” and residential lots (section 453(l)(3)) and markets credit not used by the • Foreign currency translation (b) certain nondealer installment cooperative (because of the tax liability adjustments. obligations (section 453A(c)). limitation) must be passed through to the • The excess of additional pension • Interest due on deferred gain (section patrons. These credits cannot be carried liability over unrecognized prior service 1260(b)). back or over by the cooperative. See cost. • For tax years beginning after October Forms 3468, 8844, 8845, 8861 and 8874 • Guarantees of employee stock (ESOP) 22, 2004, tax on income from notional for details. debt. shipping income. See Income from • Compensation related to employee qualifying shipping activities on page 8. Line 6d. Credit for Prior Year stock award plans. • Recapture of allocation of small ethanol Minimum Tax producer credit to patrons. If the amount If the total adjustment to be entered on

To figure the minimum tax credit and any of credit apportioned to any patron is line 24 is a negative amount, enter it in

carryforward of that credit, use Form decreased, there is a tax imposed on the parentheses.

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a. Enter the name(s) of the foreign 1. The common parent must directly

country or countries. Attach a separate own stock that represents at least 80% of Schedule M-1 sheet if more space is needed. the total voting power and at least 80% of

b. File Form TD F 90-22.1 by June 30, the total value of the stock of at least one Reconciliation of Income (Loss) 2005, with the Department of the of the other includible corporations, and per Books With Income per Treasury at the address shown on the 2. Stock that represents at least 80%

Return form. Do not file it with Form 990-C. of the total voting power and at least 80%

of the total value of the stock of each of

You can order Form TD F 90-22.1 by Line 5c. Travel and the other corporations (except for the

Entertainment calling 1-800-TAX-FORM common parent) must be owned directly (1-800-829-3676) or you can download it by one or more of the other includible Include on line 5c any of the following: from the IRS website at www.irs.gov. corporations. • Meals and entertainment not deductible

under section 274(n). Question 14 For this purpose, stock generally does • Expenses for the use of an The cooperative may be required to file not include any stock that (a) is entertainment facility. Form 3520, Annual Return To Report nonvoting, (b) is nonconvertible, (c) is • The part of business gifts over $25. Transactions with Foreign Trusts and limited and preferred as to dividends and • Expenses of an individual in excess of Receipt of Certain Foreign Gifts, if: does not participate significantly in $2,000, which are allocable to • It directly or indirectly transferred corporate growth, and (d) has redemption conventions on cruise ships. money or property to a foreign trust. For and liquidation rights that do not exceed • Employee achievement awards over this purpose, any U.S. person who the issue price of the stock (except for a $400. created a foreign trust is considered a reasonable redemption or liquidation • The cost of entertainment tickets over transferor. premium). See section 1504(a)(4). their face value (also subject to 50% limit • It is treated as the owner of any part of Parent-subsidiary controlled group. under section 274(n)). the assets of a foreign trust under the The term “parent-subsidiary controlled • The cost of skyboxes over the face grantor trust rules. group” means one or more chains of value of nonluxury box seat tickets. • It received a distribution from a foreign corporations connected through stock • The part of luxury water travel not trust. ownership (section 1563(a)(1)). Both of deductible under section 274(m). For more information, see the the following requirements must be met: • Expenses for travel as a form of Instructions for Form 3520. education. 1. At least 80% of the total combined

• Other nondeductible expenses for An owner of a foreign trust must voting power of all classes of voting stock

travel and entertainment. ensure that the trust files an annual or at least 80% of the total value of all

information return on Form 3520-A, classes of stock of each corporation in the For more information, see Pub. 542. Annual Information Return of Foreign group (except the parent) must be owned

Line 7. Tax-exempt Interest Trust with a U.S. Owner. For details, see by one or more of the other corporations

Form 3520-A. in the group, and Show any tax-exempt interest received or 2. The common parent must own at accrued including any exempt-interest Item 15 least 80% of the total combined voting dividends received as a shareholder in a Show any tax-exempt interest income power of all classes of stock entitled to mutual fund or RIC. Also report this same received or accrued. Include any vote or at least 80% of the total value of amount on Schedule N, item 15. exempt-interest dividends received as a all classes of stock of one or more of the

shareholder in a mutual fund or RIC. Also, other corporations in the group. Stock if required, include the same amount on owned directly by other members of the Schedule N Schedule M-1, line 7. group is not counted when computing the

Question 17 voting power or value. Other Information

Check the “Yes” box if: The following instructions apply to Form See section 1563(d)(1) for the

990-C, page 5, Schedule N. Be sure to 1. The cooperative is a subsidiary in definition of “stock” for purposes of

complete all the items that apply to the an affiliated group (defined below), but is determining stock ownership above.

not filing a consolidated return for the tax cooperative. year with that group, or Item 19

Question 13 2. The cooperative is a subsidiary in a If the cooperative has an NOL for its 2004

parent-subsidiary controlled group tax year, it may elect, under section Foreign financial account. Check the (defined below). 172(b)(3), to waive the entire carryback “Yes” box if either 1 or 2 below applies to period for the NOL and instead carry the the cooperative. Otherwise, check the Any cooperative that meets either of NOL forward to future tax years. To do “No” box. the above requirements should check the so, check the box in item 19 and file the 1. At any time during the 2004 “Yes” box. This applies even if the return by its due date, including calendar year, the cooperative had an cooperative is a subsidiary member of extensions (do not attach the statement interest in or signature or other authority one group and the parent corporation of described in Temporary Regulations over a bank, securities, or other financial another. section 301.9100-12T). Once made, the account in a foreign country (see Form If the cooperative is an “excluded election is irrevocable. See Pub. 542, TD F 90–22.1, Report of Foreign Bank member” of a controlled group (see section 172, and Form 1139 for more and Financial Accounts), and section 1563(b)(2)), it is still considered a details.

a. The combined value of the member of a controlled group for this Cooperatives filing a consolidated accounts was more than $10,000 at any purpose. return must check the box and attach the time during the calendar year, and Affiliated group. The term “affiliated statement required by Temporary b. The account was not with a U.S. group” means one or more chains of Regulations section 1.1502-21T(b)(3)(i) or military banking facility operated by a U.S. includible corporations (section 1504(a)) (ii). financial institution. connected through stock ownership with a 2. The cooperative owns more than common parent corporation. The common Item 20

50% of the stock in any corporation that parent must be an includible corporation Enter the amount of the NOL carryover to would answer “Yes” to item 1 above. and the following requirements must be the tax year from prior years, even if

If “Yes” is checked for this question: met: some of the loss is used to offset income

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on this return. The amount to enter is the You are not required to provide the Preparing the form . . . . . . 45 hr., 34 min.

total of all NOLs generated in prior years information requested on a form that is Copying, assembling, and

but not used to offset income (either as a subject to the Paperwork Reduction Act sending the form to the IRS 4 hr., 33 min.

carryback or carryover) in a tax year prior unless the form displays a valid OMB

to 2004. Do not reduce the amount by control number. Books or records relating

any NOL deduction reported on line 29a. to a form or its instructions must be If you have comments concerning the

retained as long as their contents may accuracy of these time estimates or

become material in the administration of suggestions for making this form simpler,

Privacy Act and Paperwork Reduction any Internal Revenue law. Generally, tax we would be happy to hear from you. You

Act Notice. We ask for the information returns and return information are can write to the Internal Revenue Service,

on this form to carry out the Internal confidential, as required by section 6103. Tax Products Coordinating Committee, Revenue laws of the United States. You The time needed to complete and file SE:W:CAR:MP:T:T:SP, 1111 Constitution are required to give us the information. this form will vary depending on individual Ave. NW, IR-6406, Washington, DC We need it to ensure that you are circumstances. The estimated average 20224. Do not send the tax form to this complying with these laws and to allow us time is: office. Instead, see Where To File on to figure and collect the right amount of page 2. tax. Section 6109 requires return Recordkeeping . . . . . . . . 75 hr., 34 min.

preparers to provide their identifying Learning about the law or

numbers on the return. the form . . . . . . . . . . . . . 27 hr., 19 min.

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Index

A Dividends and special L R

Accounting methods ........3 deductions . . . . . . . . . . . . . . 15 Limitations on deductions: Reconciliation of income (Sch

Accounting periods .........3 Section 263A uniform M-1). . . . . . . . . . . . . . . . . . . . . 20

Address change ............7 E capitalization rules .....9 Recordkeeping .............4

Affiliated group . . . . . . . . . . . . 20 Electronic Federal Tax Lobbying expenses . . . . . . . . 12 Related taxpayer

Alternative minimum Payment System transactions ..............9

tax . . . . . . . . . . . . . . . . . . . . . . 18 (EFTPS) .................4 N Rents (expense) . . . . . . . . . . . 10

Amended return ............7 Employee benefit Name change ..............7 Repairs and

Assembling the return ......3 programs . . . . . . . . . . . . . . . . 12 Net operating loss maintenance . . . . . . . . . . . . 10 . . . . . . . . . 13

Employer identification Nonaccrual experience

B number (EIN) .............7 method ...................3 S

Backup withholding . . . . . . . . 13 Estimated tax payments ....4 Nonpatronage income . . . . . 17 Salaries and wages . . . . . . . . 10

Bad debts Extraterritorial income .......8 Schedule: . . . . . . . . . . . . . . . . . 10

Balance sheets O A . . . . . . . . . . . . . . . . . . . . . . . . 14 . . . . . . . . . . . . 19

F C . . . . . . . . . . . . . . . . . . . . . . . . 15 Business start-up and Organizational costs,

Final return H . . . . . . . . . . . . . . . . . . . . . . . . 16 organizational costs ......9 .................7 Business start-up and ....9 J . . . . . . . . . . . . . . . . . . . . . . . . 17 Foreign financial Other deductions . . . . . . . . . . 12 L . . . . . . . . . . . . . . . . . . . . . . . . 19

C account . . . . . . . . . . . . . . . . . 20 Other income ...............9 M-1 . . . . . . . . . . . . . . . . . . . . . 20

Capital gain net income Foreign tax credit . . . . . . . . . . 18 Other taxes: .....9 N . . . . . . . . . . . . . . . . . . . . . . . . 20

Charitable Forms and publications, How Recapture . . . . . . . . . . . . . . . 19

to get . . . . . . . . . . . . . . . . . . . . 2 contributions . . . . . . . . . . . . 11 T Forms and statements that Compensation of P may be required, Tax computation . . . . . . . . . . . 17 officers . . . . . . . . . . . . . . . . . . 10 Paid preparer Other. . . . . . . . . . . . . . . . 5, 6, 7 Tax issues, unresolved .....1 Consolidated returns ........7 authorization .............2 Tax rate schedule . . . . . . . . . 18 Controlled group: Passive activity G Taxes and licenses . . . . . . . . 11 Member of . . . . . . . . . . . . . . 17 limitations . . . . . . . . . . . . . . . 10

General business Taxpayer Advocate .........1 Cost of goods sold . . . . . . . . . 14 Patronage dividends . . . . . . . 17

credit . . . . . . . . . . . . . . . . . . . . 18 Travel, meals, and Credit, general Payment, Depository methods Golden parachute entertainment . . . . . . . . . . . 12 business . . . . . . . . . . . . . . . . 18 of . . . . . . . . . . . . . . . . . . . . . . . . 4

Credits ............ 10, 13, 18 payments ................9 Penalty:

Credits, recapture of . . . . . . . 19 Gross receipts ..............8 Estimated tax . . . . . . . . . . . 13 W

Gross rents .................9 Late filing.................4 When to file ................2

Late payment ............4 Where to file ................2 D

I Pension, profit-sharing, etc., Who must file ...............2 Deductions .................9

Income .....................8 plans . . . . . . . . . . . . . . . . . . . . 12 Who must sign .............2 Deductions and adjustments Private delivery services ....2 Worksheet: under section 1382 . . . . . . 16 Income from qualifying

shipping activities .........8 Schedule C. . . . . . . . . . . . . . 16 Depletion . . . . . . . . . . . . . . . . . . 12 Schedule J . . . . . . . . . . . . . . 18 Depository methods of tax Initial return .................7 Q

Written notice of payment Interest and penalties .......4 Qualified written notice of ..................4 allocation . . . . . . . . . . . . . . . . 17 Interest expense . . . . . . . . . . . 11 allocation . . . . . . . . . . . . . . . . 17 Depreciation . . . . . . . . . . . . . . . 12

Direct deposit of refund . . . . 14 Interest income .............9 Qualifying shipping activities, ■

Inventory: Income from ..............8 Dividends ...................8

Valuation methods . . . . . . . 14

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