96 Department of the Treasury

Internal Revenue Service

Instructions for Form 990-C

Farmers' Cooperative Association Income Tax Return

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

Paperwork Reduction Act Notice.— We

ask for the information on this form to

carry out the Internal Revenue laws of the

United States. You are required to give

us the information. We need it to ensure

that you are complying with these laws

and to allow us to figure and collect the

right amount of tax.

You are not required to provide the

information requested on a form that is

subject to the Paperwork Reduction Act

unless the form displays a valid OMB

control number. Books or records relating

to a form or its instructions must be

retained as long as their contents may

become material in the administration of

any Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section 6103.

The time needed to complete and file

this form will vary depending on individual

circumstances. The estimated average

times are:

If you have comments concerning the

accuracy of these time estimates or

suggestions for making this form simpler,

we would be happy to hear from you. You

can write to the Tax Forms Committee,

Western Area Distribution Center, Rancho

Cordova, CA 95743-0001.

DO NOT send the tax form to this

office. Instead, see Where To File on

page 2.

Changes To Note

The Small Business Job Protection Act

of 1996 (“The Act”) made changes to the

tax law for corporations. The Act restored

several expired credits and also changed

the rules for claiming certain credits.

These and other changes are highlighted

below.

●A If the cooperative's total deposits of

social security, Medicare, and withheld

income taxes were more than $50,000 in

1995, it must make electronic deposits for

all depository tax liabilities that occur after

June 30, 1997. For details, see

Depository Method of Tax Payment on

page 2.

●A The targeted jobs credit has been

replaced by the work opportunity credit.

The credit applies for wages paid to

qualified employees who begin work for

the employer after September 30, 1996,

and before October 1, 1997. Get Form

5884, Work Opportunity Credit, for details.

●A The Act modified the definition of

section 179 property and added new rules

for property depreciated under the income

forecast method. For details, get Form

4562, Depreciation and Amortization.

●A The Act changed the rules for replacing

business property that was involuntarily

converted as a result of a Presidentially

declared disaster. For more information,

get Form 4684, Casualties and Thefts.

●A A corporation that received a

distribution from a foreign trust after

August 20, 1996, must provide additional

information. For details, get Pub. 553,

Highlights of 1996 Tax Changes.

●A The Health Insurance and Portability

Act of 1996 changed the rules for

deducting interest on loans for

company-owned life insurance. Generally,

no deduction is allowed for interest paid

or incurred after October 13,1995, on any

amount of debt incurred with respect to

company-owned life insurance policies,

annuities, or endowment contracts that

cover corporate officers or employees (or

any person who has a financial interest in

the corporation). Exceptions and phase-in

rules apply. See Act section 501.

The processing of Form 990–C is being

centralized at the Ogden Service Center,

beginning January 1, 1997. See Where

To File for more details.

How To Get Forms and

Publications

By personal computer.— If you

subscribe to an on-line service, ask if IRS

information is available and, if so, how to

access it. Tax forms, instructions,

publications, and other IRS information

are available through the Internal

Revenue Information Services (IRIS), on

FedWorld, a government bulletin board.

The IRIS menus offer information on

available file formats and software

needed to read and print files. You must

print the forms to use them; the forms are

not designed to be filled out on-screen.

IRIS is directly assessable by modem

at 703–321–8020. On the Internet, telnet

to iris.irs.ustreas.gov or, for file transfer

protocol services connect to

ftp.irs.ustreas.gov. If you are using the

World Wide Web, connect to

http://www.irs.ustreas.gov. FedWorld's

help desk offers technical assistance on

accessing IRIS (not tax help) during

regular business hours at 703–487–4608.

Tax forms, instructions, and

publications are also available on

CD-ROM, including prior-year forms

starting with the 1991 tax year. For

ordering information and software

requirements, contact the Government

Printing Office's Superintendent of

Documents (202-512-1800) or Federal

Bulletin Board (202-512-1387).

By phone and in person.— To order

forms and publications, call

1–800–TAX–FORM (1–800–829–3676).

You can also get most forms and

publications at your local IRS office.

Unresolved Tax Problems

The Problem Resolution Program is for

taxpayers that have been unable to

resolve their problems with the IRS. If the

cooperative has a tax problem it cannot

clear up through normal channels, write

to the cooperative's local IRS District

Director or call the cooperative's local IRS

office and ask for Problem Resolution

assistance. Persons who have access to

TTY/TDD equipment may call

1–800–829–4059 to ask for help from

Problem Resolution. This office cannot

change the tax law or technical decisions.

But it can help the cooperative clear up

problems that resulted from previous

contacts.

General Instructions

Purpose of Form

Use Form 990-C Farmers' Cooperative

Association Income Tax Return to report

income, gains, losses, deductions,

credits, and to figure the income tax

liability of the cooperative.

Who Must File

Every farmers' cooperative association

must file Form 990-C whether or not the

association has taxable income

(Regulations section 1.6012-2(f)).

Generally, a farmers' cooperative is a

farmers', fruit growers', or like association

organized and operated on a cooperative

basis to:

1. Market the products of members or

other producers and return to them the

proceeds of sales, less necessary

marketing expenses, on the basis of

either the quantity or value of their

products; OR 

2. Purchase supplies and equipment

for the use of members or other persons

and turn over the supplies and equipment

Recordkeeping ............................. 77 hr., 15 min.

Learning about the law or the

form ............................................... 24 hr., 52 min.

Preparing the form....................... 42 hr., 7 min.

Copying, assembling, and

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

Cat. No. 11288M
to them at actual cost, plus necessary

expenses.

A member is anyone who shares in the

profits of a cooperative association and is

entitled to participate in the management

of the association.

A producer is a person who, as owner

or tenant, bears the risk of production and

receives income based on farm

production rather than fixed

compensation. For example, if a

cooperative leases its land to a tenant

farmer who agrees to pay a rental fee

based on a percentage of the farm crops

produced, both the landowner and the

tenant farmer qualify as producers.

When To File

Generally, a cooperative must file its

income tax return by the 15th day of the

9th month after the end of its tax year.

If the due date falls on a Saturday,

Sunday, or legal holiday, the cooperative

may file on the next business day.

Extension.— File Form 7004, Application

for Automatic Extension of Time To File

Corporation Income Tax Return, to

request a 6-month extension of time to

file.

Where To File

File Form 990–C with the:

Internal Revenue Service, Ogden, UT

84201–0027.

Who Must Sign

The return must be signed and dated by

the president, vice president, treasurer,

assistant treasurer, chief accounting

officer, or any other officer (such as tax

officer) authorized to sign. Receivers,

trustees, or assignees also must sign and

date any return filed on behalf of a

cooperative.

If a cooperative officer completes Form

990-C, the Paid Preparer's space should

remain blank. Anyone who prepares Form

990-C but does not charge the

cooperative should not sign the return.

Generally, anyone who is paid to prepare

the return must sign it and fill in the other

blanks in the Paid Preparer's Use Only

area.

The paid preparer must complete the

required preparer information and:

●A Sign the return, by hand, in the space

provided for the preparer's signature.

(Signature stamps and labels are not

acceptable.)

●A Give a copy of the return to the

taxpayer.

Accounting Methods

Figure taxable income using the method

of accounting regularly used in keeping

the cooperative's books and records.

Permissible methods generally include

the cash, accrual, or any other method

authorized by the Internal Revenue Code.

In all cases, the method used must clearly

show taxable income.

Generally, a cooperative must use the

accrual method of accounting if its

average annual gross receipts exceed $5

million. See section 448(c).

Under the accrual method, an amount

is includible in income when all the events

have occurred that fix the right to receive

the income and the amount can be

determined with reasonable accuracy.

See Regulations section 1.451-1(a) for

details.

Generally, an accrual basis taxpayer

can deduct accrued expenses in the tax

year in which: (1) all events that

determine the liability have occurred, (2)

the amount of the liability can be figured

with reasonable accuracy, and (3)

economic performance takes place with

respect to the expense. There are

exceptions to the economic performance

rule for certain items, including recurring

expenses. See section 461(h) and the

related regulations for the rules for

determining when economic performance

takes place.

Long-term contracts (except for certain

real property construction contracts) must

generally be accounted for using the

percentage of completion method

described in section 460. See section 460

for general rules on long-term contracts.

Change in Accounting Method.—

Generally, the cooperative may change

the method of accounting used to report

taxable income (for income as a whole or

for any material item) only by getting

consent on Form 3115, Application for

Change in Accounting Method. For more

information, get Pub. 538, Accounting

Periods and Methods.

Completed Crop Pool Method of

Accounting.— Cooperatives may use the

completed crop pool method of

accounting for crop pools open before

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

more information.

Accounting Periods

A Cooperative must figure its taxable

income on the basis of a tax year. The tax

year is the annual accounting period the

cooperative uses to keep its records and

report its income and expenses.

Generally, cooperatives can use a

calendar year or a fiscal year.

If the calendar year is adopted as the

annual accounting period, the cooperative

must maintain its books and records and

report its income and expenses for the

period from January 1 through December

31 of each year. A fiscal year is 12

consecutive months ending on the last

day of any month except December. A

52–53 week year is a fiscal year that

varies from 52 to 53 weeks.

A cooperative adopts a tax year when

it files its first income tax return. It must

adopt a tax year by the due date (not

including extensions) of its first income tax

return.

For more information, see Temporary

regulations section 1.441–2T and Pub.

538,Accounting Periods and Methods.

Change in accounting period.—

Generally, a cooperative must get the

consent of the IRS before changing its tax

year by filing Form 1128, Application To

Adopt, Change, or Retain a Tax Year.

However, under certain conditions, a

cooperative may change its tax year

without getting the consent. See

Regulations section 1.442–1 and Pub.

538.

Rounding Off to Whole

Dollars

The cooperative may show amounts on

the return and accompanying schedules

as whole dollars. To do so, drop any

amount less than 50 cents and increase

any amount from 50 cents through 99

cents to the next higher dollar.

Recordkeeping

Keep the cooperative's records for as long

as they may be needed for the

administration of any provision of the

Internal Revenue Code. Usually, records

that support an item of income, deduction,

or credit on the return must be kept for 3

years from the date the return is due or

filed, whichever is later. Keep records

that verify the cooperative's basis in

property for as long as they are needed

to figure the basis of the original or

replacement property.

The cooperative should also keep

copies of any returns it has filed. They

help in preparing future returns and in

making computations when filing an

amended return.

Depository Method of Tax

Payment

The cooperative must pay the tax due in

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

month after the end of the tax year. Some

cooperatives (described below) are

required to electonically deposit all

depository taxes, including cooperative

income tax payments.

Electronic deposit requirement.— If the

cooperative's total deposits of social

security , Medicare, and withheld income

taxes were more than $50,000 in 1995, it

must make electronic deposits for all

depository tax liabilities that occur after

June 30, 1997. If the cooperative was

required to deposit by electronic funds

transfer in prior years, continue to do so

in 1997. The Electronic Federal Tax

Payment System (EFTPS) must be used

to make electronic deposits. If the

cooperative is required to make deposits

by electronic funds transfer and fails to

do so, it may be subject to a 10% penalty.

Cooperatives that are not required to

make electronic deposits may voluntarily

participate in EFTPS. For information on

EFTPS, call 1–800–945–8400 or

1–800–555–4477. (These numbers are

for EFTPS information only.)

Page 2
Form 8109, Federal Tax Deposit

Coupon.— If the cooperative does not

use EFTPS, deposit cooperative income

tax payments (and estimated tax

payments) with Form 8109. Do not send

deposits directly to an IRS office. Mail or

deliver the completed Form 8109 with the

payment to a qualified depositary for

Federal taxes or to the Federal Reserve

Bank (FRB) servicing the cooperative's

geographic area. Make checks or money

orders payable to that depositary or FRB.

To help ensure proper crediting, write

the cooperative's employer identification

number, the tax period to which the

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

check or money order. Be sure to darken

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

of these deposits will be sent to the IRS.

A penalty may be imposed if the

deposits are mailed or delivered to an IRS

office rather than to an authorized

depositary or FRB.

For more information on deposits, see

the instructions in the coupon booklet

(Form 8109) and Pub. 583, Starting a

Business and Keeping Records.

Caution: If the cooperative owes tax

when it files Form 990-C, do not include

the payment with the tax return. Instead,

mail or deliver the payment with Form

8109 to a qualified depositary or FRB, or

use the EFTPS system, if applicable.

Estimated Tax Payments

Generally, a cooperative must make

installment payments of estimated tax if it

expects its estimated tax (income tax

minus credits) to be $500 or more. The

installments are due by the 15th day of

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

tax year. If any date falls on a Saturday,

Sunday, or legal holiday, the installment

is due on the next regular business day.

Use Form 1120-W, Estimated Tax for

Corporations, as a worksheet to compute

estimated tax. Use the deposit coupons

(Form 8109) to make deposits of

estimated tax. For more information on

estimated tax payments, including

penalties that apply if the cooperative fails

to make required payments, see the

instructions for line 33 on page 10.

Overpaid estimated Tax.— If the

cooperative overpaid estimated tax, it

may be able to get a quick refund by filing

Form 4466, Corporation Application for

Quick Refund of Overpayment of

Estimated Tax. The overpayment must be

at least 10% of expected income tax

liability and at least $500. To apply for a

quick refund, file Form 4466 before the

16th day of the 3rd month after the end

of the tax year, but before the cooperative

files its tax return. Do not file Form 4466

before the end of the cooperative's tax

year.

Interest and Penalties

Interest.— Interest is charged on taxes

paid late even if an extension of time to

file is granted. Interest is also charged on

penalties imposed for failure to file,

negligence, fraud, gross valuation

overstatements, and substantial

understatements of tax from the due date

(including extensions) to the date of

payment. The interest charge is figured

at a rate determined under section 6621.

Penalty for late filing of return.— A

cooperative that does not file its tax return

by the due date, including extensions,

may be penalized 5% of the unpaid tax for

each month or part of a month the return

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

unpaid tax. The minimum penalty for a

return that is over 60 days late is the

smaller of the tax due or $100. The

penalty will not be imposed if the

cooperative can show that the failure to

file on time was due to reasonable cause.

Cooperatives that file late must attach a

statement explaining the reasonable

cause.

Penalty for late payment of tax.— A

cooperative that does not pay the tax

when due may be penalized 1

/2 of 1% of

the unpaid tax for each month or part of

a month the tax is not paid, up to a

maximum of 25% of the unpaid tax. The

penalty will not be imposed if the

cooperative can show that the failure to

pay on time was due to reasonable cause.

Trust fund recovery penalty.— This

penalty may apply if certain excise,

income, social security, and Medicare

taxes that must be collected or withheld

are not collected or withheld, or these

taxes are not paid to the IRS. These taxes

are generally reported on Forms 720, 941,

943, or 945 (See Other Forms, Returns,

and Statements That May Be Required,

below). The trust fund recovery penalty

may be imposed on all persons who are

determined by the IRS to have been

responsible for collecting, accounting for,

and paying over these taxes, and who

acted willfully in not doing so. The penalty

is equal to the unpaid trust fund tax. See

the instructions for Form 720, Pub. 15

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

Pub. 51 (Circular A), Agricultural

Employer's Tax Guide, for details,

including the definition of responsible

persons.

Other penalties.— Other penalties can

be imposed for negligence, substantial

understatement of tax, and fraud. See

sections 6662 and 6663.

Other Forms, Returns, and

Statements that May Be

Required

Forms

The cooperative may have to file some

of the following forms. See the form for

more information.

Form W-2, Wage and Tax Statement, and

Form W-3, Transmittal of Income and Tax

Statements.

Form 720, Quarterly Federal Excise Tax

Return. Use Form 720 to report the luxury

tax on passenger vehicles, environmental

excise taxes, fuel taxes, manufacturers

taxes, ship passenger tax, and certain

other excise taxes. Also see Trust fund

recovery penalty above.

Form 940 or Form 940-EZ, Employer's

Annual Federal Unemployment (FUTA)

Tax Return. The cooperative may be

liable for FUTA tax and may have to file

Form 940 or 940-EZ if it paid wages of

$1,500 or more in any calendar quarter

during the calendar year (or the preceding

calendar year) or one or more employees

worked for the cooperative for some part

of a day in any 20 different weeks during

the calendar year (or the preceding

calendar year).

Form 941, Employer's Quarterly Federal

Tax Return. Employers must file this form

quarterly to report income tax withheld

and employer and employee social

security and Medicare taxes. Agricultural

employers must file Form 943,

Employer's Annual Tax Return for

Agricultural Employees, instead of Form

941, to report income tax withheld and

employer and employee social security

and Medicare taxes for farmworkers. See

Trust fund recovery penalty above.

Form 945, Annual Return of Withheld

Federal Income Tax. File Form 945 to

report income tax withholding from

nonpayroll distributions or payments, such

as pensions, annuities, IRAs, military

retirement, gambling winnings, Indian

gaming profits, and backup withholding.

See Trust fund recovery penalty above.

Form 966, Corporate Dissolution or

Liquidation.

Form 1042, Annual Withholding Tax

Return for U.S. Source Income of Foreign

Persons, and Form 1042S, Foreign

Person's U.S. Source Income Subject to

Withholding. Use these forms to report

and transmit withheld tax on certain

payments or distributions made to

nonresident alien individuals, foreign

partnerships, or foreign corporations. For

more information, see sections 1441 and

1442, and Pub. 515, Withholding of Tax

on Nonresident Aliens and Foreign

Corporations.

Form 1096, Annual Summary and

Transmittal of U.S. Information Returns.

Form 1098, Mortgage Interest Statement.

This form is used to report the receipt

from any individual of $600 or more of

mortgage interest and points in the course

of the cooperative's trade or business for

any calendar year.

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

OID, PATR, R, and S. Use these

information returns to report

abandonments, acquisitions through

foreclosure, proceeds from broker and

barter exchange transactions, discharges

of indebtedness, certain dividends and

distributions, interest payments, payments

for certain fishing boat crew members,

medical and dental health care payments,

direct sales of consumer goods for resale,

miscellaneous income payments,

nonemployee compensation, original

issue discount, patronage dividends,

distributions from profit-sharing plans,

retirement plans, individual retirement

arrangements, insurance contracts, etc.,

Page 3
and proceeds from real estate

transactions. Also use these returns to

report amounts received as a nominee for

another person.

For more information, see the

instructions for Forms 1099, 1098, 5498,

and W-2G.

Note: Every cooperative must file Form

1099-MISC if, in the course of its trade

or business, it makes payments of rents,

commissions, or other fixed or

determinable income (see section 6041)

totaling $600 or more to any one person

during the calendar year.

Form 5452, Corporate Report of

Nondividend Distributions.

Form 5498, Individual Retirement

Arrangement Information. Use this form

to report contributions (including roll over

contributions) to an individual retirement

arrangement (IRA) and the value of an

IRA or simplified employee pension (SEP)

account.

Form 5713, International Boycott Report.

cooperatives that have operations in or

related to a boycotting country must file

Form 5713. cooperatives that participate

in or cooperate with an international

boycott use Schedules A, B, and C (Form

5713) to figure the loss of certain tax

benefits.

Form 8264, Application for Registration

of a Tax Shelter. Tax shelter organizers

are required to file Form 8264 to get a tax

shelter registration number from the IRS.

Form 8271, Investor Reporting of Tax

Shelter Registration Number. Taxpayers

who have acquired an interest in a tax

shelter, that is required to be registered,

use this form to report the tax shelter's

registration number. Form 8271 must be

attached to any tax return (including an

application for tentative refund (Form

1139) and an amended return) on which

a deduction, credit, loss, or other tax

benefit attributable to a tax shelter is

taken or any income attributable to a tax

shelter is reported.

Form 8275, Disclosure Statement.

Taxpayers and income tax return

preparers file Form 8275 to disclose items

or positions, except those contrary to a

regulation (see Form 8275-R below), that

are not otherwise adequately disclosed

on a tax return. The disclosure is made to

avoid parts of the accuracy-related

penalty imposed for disregard of rules or

substantial understatement of tax. Form

8275 is also used for disclosures relating

to preparer penalties for understatement

due to unrealistic positions or disregard

of rules.

Form 8275-R, Regulation Disclosure

Statement, is used to disclose any item

on a tax return for which a position has

been taken that is contrary to Treasury

Regulations.

Form 8300, Report of Cash Payments

Over $10,000 Received in a Trade or

Business. File this form to report the

receipt of more than $10,000 in cash or

foreign currency in one transaction or in

a series of related transactions.

Form 8594, Asset Acquisition Statement

under Section 1060, must be filed by both

the purchaser and seller of a group of

assets constituting a trade or business if

section 197 intangibles attach to such

assets and the purchaser's basis in the

assets is determined only by the amount

paid for the assets.

Form 8718, User Fee for Exempt

Organization Ruling and Determination

Requests. The Service is required to

collect a fee from any organization

seeking an IRS determination of its

exempt status as an organization

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

521 of the Internal Revenue Code. A fee

will also be imposed in connection with

any exempt organization request for a

private-letter ruling. The nonrefundable

fee must be submitted with the application

or ruling request. Otherwise, the request

will be returned to the submitter without

any action being taken on it. The fees

imposed are reflected in Form 8718,

which is used to transmit both the

appropriate fee and the exemption

application.

Form 8810, Corporate Passive Activity

Loss and Credit Limitations. Closely held

cooperatives that are subject to the

passive activity limitations of section 469

use this form to compute their allowable

passive activity loss and credit.

Form 8842, Election To Use Different

Annualization Periods for Corporate

Estimated Tax. cooperatives use Form

8842 for each year they want to elect one

of the annualization periods in section

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

payments under the annualized income

installment method.

Form 8849, Claim for Refund of Excise

Taxes. Use this form in the first three

quarters of the tax year to claim a refund

of excise taxes paid on Form 720, Form

730, or Form 2290. See the instructions

to Form 8849 and Pub. 378, Fuel Tax

Credits and Refunds for more information.

Consolidated Return

The nonexempt parent of an affiliated

group of cooperatives must attach Form

851, Affiliations Schedule, to the

consolidated return. For the first year a

consolidated return is filed, each

subsidiary must attach Form 1122,

Authorization and Consent of Subsidiary

cooperative to be Included in a

Consolidated Income Tax Return.

File supporting statements for each

cooperative included in the consolidated

return. Do not use Form 990-C as a

supporting statement. On the supporting

statement use columns to show the

following, both before and after

adjustments:

●A Items of gross income and deductions.

●A A computation of taxable income.

●A Balance sheets as of the beginning and

end of tax year.

●A A reconciliation of income per books

with income per return.

●A A reconciliation of retained earnings.

Enter the totals for the consolidated

group on Form 990-C. Attach

consolidated balance sheets and a

reconciliation of consolidated retained

earnings.

For more information on consolidated

returns, see the regulations under section

1502.

Attachments

Attach Form 4136, Credit for Federal Tax

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

Attach schedules in alphabetical order

and other forms in numerical order after

Form 4136.

Complete every applicable entry space

on Form 990-C. Do not write “See

attached” instead of completing the entry

spaces. If you need more space on the

forms or schedules, attach separate

sheets, using the same size and format

as on the printed forms.Show the

cooperative's totals on the printed forms.

Attach these separate sheets after all the

forms and schedules. Be sure to put the

cooperative's name and EIN on each

sheet.

Specific Instructions

Period Covered.— File the 1996 return

for calendar year 1996 and fiscal years

that begin in 1996 and end in 1997. For

a fiscal year, fill in the tax year space at

the top of the form.

Address and Employer

Identification Number (EIN)

Address.— Include the suite, room, or

other unit number after the street address.

If the Post Office does not deliver mail

to the street address and the cooperative

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

instead of the street address.

Note: If a change in address occurs after

the return is filed, use Form 8822,

Change of Address, to notify the IRS of

the new address.

Item A.— Identify the business activity

from which the cooperative receives the

largest total receipts (e.g., wholesale

marketing of meat; drying fruit; grain

storage; wholesale purchasing of

fertilizers; cattle breeding; etc.).

Item B.—Employer identification

number (EIN).— Show the correct EIN in

item B. If the cooperative does not have

an EIN, it should apply for one on Form

SS-4, Application for Employer

Identification Number. Form SS-4 can be

obtained at Social Security

Administration (SSA) offices or by calling

1–800–TAX-FORM. Send Form SS-4 to

the same Internal Revenue Service

Center to which Form 990-C is mailed. If

the cooperative has not received its EIN

by the time the return is due, write

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

Pub. 583 for more information.

Page 4
Item C.— Do not check this box if the

“Section 521” box is checked in Item D.

Item D.—Type of Cooperative.— Check

the “Tax exempt (Section 521)” box if the

cooperative is a tax-exempt farmers', fruit

growers', or like association, organized

and operated on a cooperative basis and

is described in section 521. If the

cooperative has submitted Form 1028,

Application for Recognition of Exemption,

but has not received a determination letter

from the IRS, check the “Tax exempt

(Section 521)” box. Write “Application

Pending” at the top of page 1 of Form

990-C.

All other farmers', etc., cooperatives

organized and operated as described

under “Who Must File” on page 2 of the

instructions should check the

“Nonexempt” box. Cooperatives

organized and operated for purposes

other than those described, such as to

purchase food for members, should not

file Form 990-C. See the instructions for

Form 1120, U.S. Corporation Income Tax

Return, for information about filing

requirements.

Item E.—Initial return, final return, and

change of address, or amended

return.— Indicate by checking the

applicable box if this is the cooperative's

first return, or if the cooperative has

ceased to exist, it has had a change of

address, or is amending its return.

Income

Note: Generally, income from all

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

included.

Line 1. Gross receipts or sales.— Enter

gross receipts or sales from all business

operations except those required to be

reported on lines 4a through 10. For

reporting advance payments, see

Regulations section 1.451-5.

Accrual method taxpayers are not

required to accrue certain amounts to be

received from the performance of services

that, on the basis of their experience, will

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

provision does not apply to any amount if

interest is required to be paid on the

amount or if there is any penalty for failure

to timely pay the amount. Cooperatives

that fall under this provision should attach

a schedule showing total gross receipts,

the amount not accrued as a result of the

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

net amount accrued. Enter the net amount

on line 1a. For more information and

guidelines on this “non-accrual

experience method,” see Temporary

Regulations section 1.448-2T.

Note: Certain cooperatives that have

gross receipts of $10 million or more and

have patronage and nonpatronage source

income and deductions, must complete

and attach Form 8817, Allocation of

Patronage and Nonpatronage Income and

Deductions, to their return.

Line 4a. Income from patronage

dividends and per-unit retain

allocations.— Attach a schedule listing

the name of each declaring association

from whom the cooperative received

income from patronage dividends and

per-unit retain allocations. Show the total

amount received from each association.

Include patronage dividends received

in money, qualified written notices of

allocation, or other property (except

nonqualified written notices of allocation).

Also include the total amount of

nonpatronage distributions received on a

patronage basis from tax-exempt farmers'

cooperatives in money, qualified written

notices of allocation, or other property

(except nonqualified written notices of

allocation), based on earnings of that

cooperative either from business done

with or for the United States or any of its

agencies (or from sources other than

patronage, such as investment income).

Include qualified written notices of

allocation at their stated dollar amounts

and property at its fair market value. Also

include amounts received on the

redemption, sale, or other disposition of

nonqualified written notices of allocation.

Generally, patronage dividends from

purchases of capital assets or depreciable

property are not includible in income but

must be used to reduce the basis of the

assets. See section 1385(b) and the

related regulations.

Include the amounts received (or the

stated dollar value of qualified per-unit

retain certificates received) from the sale

or redemption of nonqualified per-unit

retain certificates.

Also include per-unit retain allocations

received (except nonqualified per-unit

retain certificates). See section 1385.

Note: Payments from the Commodity

Credit Corporation to a farmers'

cooperative for certain expenses of the

co-op's farmers-producers under a

“reseal” program of the U.S. Department

of Agriculture are patronage-source

income that may give rise to patronage

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

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

more information.

Line 5. Interest.— Enter taxable interest

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

mortgages, bonds, bank deposits,

corporate bonds, tax refunds, etc.

Do not offset interest expense against

interest income.

Special rules apply to interest income

from certain below-market rate loans. See

section 7872 for more information.

Note: Interest income is generally

nonpatronage income to nonexempt

cooperatives (Regulations section

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

dividend deduction may not be deductible

from interest expense.

Line 6. Gross rents.— Enter the gross

amount received for the rent of property.

Deduct expenses such as repairs,

interest, taxes, and depreciation on the

proper lines for deductions.

Generally, gross rents are considered

nonpatronage income to nonexempt

cooperatives (Regulations section

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

dividend deduction may not be deductible

from rental expense.

Line 8. Capital gain net income.—

Every sale or exchange of a capital asset

must be reported in detail on Schedule

D (Form 1120), Capital Gains and

Losses, even though no gain or loss is

indicated. Generally, capital gains and

losses are considered nonpatronage

source.

Line 10. Other income.— Enter any

other taxable income not reported on lines

1 through 9. List the type and amount of

income on an attached schedule. If the

cooperative has only one item of other

income, describe it in parentheses on line

10. Examples of other income to report

on line 10 are:

●A Any adjustment under section 481(a)

required to be included in income during

the current tax year due to a change in a

method of accounting.

●A Recoveries of bad debts deducted in

prior years under the specific charge-off

method.

●A The amount of credit for alcohol used

as fuel (determined without regard to the

limitation based on tax) that was entered

on Form 6478, Credit for Alcohol Used

as Fuel.

●A Refunds of taxes deducted in prior

years to the extent they reduced income

subject to tax in the year deducted (see

section 111). Do not offset current year

taxes against tax refunds.

●A The amount of any deduction previously

taken under section 179A that is subject

to recapture. The cooperative must

recapture the benefit of any allowable

deduction for clean-fuel vehicle property

(or clean-fuel vehicle refueling property),

if, within 3 years of the date the property

was placed in service, it ceases to qualify.

See Regulations section 1.179A-1 for

details, including how to figure the

recapture.

●A For cooperatives described in section

1381 that are shareholders in a FSC,

include the non-exempt portion of foreign

trade income from the sale or other

disposition of agricultural or horticultural

products by the FSC for the tax year that

includes the last day of the FSC's tax

year, even though the FSC is not required

to distribute such income until the due

date of its income tax return.

●A Ordinary income from trade or business

activities of a partnership (from Schedule

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

Deductions

Limitations on deductions

Section 263A uniform capitalization

rules. These rules require cooperatives

to capitalize or include in inventory certain

costs incurred in connection with the

production of real and tangible personal

property held in inventory or held for sale

Page 5
in the ordinary course of business. The

rules also apply to personal property

(tangible and intangible) acquired for

resale. Cooperatives subject to the rules

are required to capitalize not only direct

costs but a portion of most indirect costs

(including taxes) that relate to the assets

produced or acquired for resale. Interest

expense paid or incurred during the

production period of certain property must

be capitalized and is governed by special

rules. For more information, see

Regulations sections 1.263A-8 through

1.263A-15. The uniform capitalization

rules also apply to the production of

property constructed or improved by a

cooperative for use in its trade or

business or in an activity engaged in for

profit.

Section 263A does not apply to

personal property acquired for resale if

the cooperative's annual average gross

receipts are $10 million or less. It does

not apply to timber or to most property

produced under a long-term contract.

Special rules apply to farmers. The rules

do not apply to property produced for use

by the cooperative if substantial

construction had occurred before March

1, 1986.

In the case of inventory, some of the

indirect costs that must be capitalized are

administration expenses; taxes;

depreciation; insurance; compensation

paid to officers attributable to services;

rework labor; and contributions to

pension, stock bonus, and certain

profit-sharing, annuity, or deferred

compensation plans.

The costs that must be capitalized

under section 263A are not deductible

until the property to which the costs relate

is sold, used, or otherwise disposed of by

the cooperative.

Current deductions may still be claimed

for research and experimental costs

under section 174, intangible drilling costs

for oil and gas and geothermal property,

and mining and exploration and

development costs. Regulations section

1.263A-1(e)(3) specifies indirect costs

that may be currently deducted and those

that must be capitalized with respect to

production or resale activities. For more

information, see Regulations sections

1.263A-1 through 1.263A-3.

Transactions between related

taxpayers.— Generally, an accrual basis

taxpayer may only deduct business

expenses and interest owed to a related

party in the year payment is included in

income of the related party. See sections

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

limitations on deductions for unpaid

interest and expenses.

Section 291 limitations.— Cooperatives

may be required to adjust deductions for

depletion of iron ore and coal, intangible

drilling, exploration and development

costs, and the amortizable basis of

pollution control facilities. See section 291

to determine the amount of the

adjustment. Also see section 43.

Golden parachute payments.— A

portion of the payments made by a

cooperative to key personnel that

exceeds their usual compensation may

not be deductible. This occurs when the

cooperative has an agreement (golden

parachute) with these key employees to

pay them these excessive amounts if

control of the cooperative changes. See

section 280G.

Business start-up expenses.—

Business start-up expenses must be

capitalized unless an election is made to

amortize them over a period of 60

months. See section 195.

Passive activity limitations.—

Limitations on passive activity losses and

credits under section 469 apply to closely

held cooperatives.

For this purpose, a cooperative is a

closely held cooperative if at any time

during the last half of the tax year more

than 50% in value of its outstanding stock

is owned, directly or indirectly, by or for

not more than 5 individuals, and the

cooperative is not a personal service

corporation. Certain organizations are

treated as individuals for purposes of this

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

determining stock ownership, see section

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

Generally, there are two kinds of

passive activities: trade or business

activities in which the cooperative did not

materially participate (see Temporary

Regulations section 1.469-1T(g)(3)) for

the tax year, and rental activities

regardless of its participation. For

exceptions, see Form 8810. An activity is

a trade or business activity if the activity

involves the conduct of a trade or

business (i.e., deductions from the activity

would be allowable under section 162 if

other limitations, such as the passive loss

rules, did not apply), or the activity

involves research and experimental costs

that are deductible under section 174 (or

would be deductible if the cooperative

chose to deduct rather than capitalize

them), and the activity is not a rental

activity.

Cooperatives subject to the passive

activity limitations must complete Form

8810 to compute their allowable passive

activity loss and credit. Before completing

Form 8810, see Temporary Regulations

section 1.163-8T, which provides rules for

allocating interest expense among

activities. If a passive activity is also

subject to the earnings stripping rules of

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

section 465, those rules apply before the

passive loss rules. For more information,

see section 469, the related regulations,

and Pub. 925, Passive Activity and

At-Risk Rules.

Reducing certain expenses for which

credits are allowable.— For each credit

listed below, the cooperative must reduce

the otherwise allowable deductions for

expenses used to figure the credit by the

amount of the current year credit:

1. Work opportunity credit.

2. Research credit.

3. Enhanced oil recovery credit.

4. Disabled access credit.

5. Empowerment zone employment

credit.

6. Indian employment credit.

7. The employer credit for social

security and Medicare taxes paid on tips.

8. Orphan drug credit.

If the cooperative has any of these

credits, be sure to figure each current

year credit before figuring the deduction

for expenses on which the credit is based.

Line 12. Compensation of officers.—

Enter deductible officers' compensation

on line 12. Before entering an amount on

line 12, complete Schedule E if their total

receipts (line 1a plus lines 4 through 10,

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

include compensation deductible

elsewhere on the return, such as amounts

included in cost of goods sold, elective

contributions to a section 401(k) cash or

deferred arrangement, or amounts

contributed under a salary reduction SEP

agreement or a SIMPLE retirement plan

(savings incentive match plan).

Include only the deductible part of

officers' compensation on Schedule E.

(See Disallowance of deduction for

employee compensation in excess of $1

million below). Complete Schedule E, line

1, columns (a) through (f), for all officers.

The cooperative determines who is an

officer under the laws of the state where

organized.

If a consolidated return is filed, each

member of an affiliated group must furnish

this information.

Disallowance of deduction for

employee compensation in excess of

$1 million.— Publicly held corporations

may not deduct compensation to a

“covered employee” to the extent that the

compensation exceeds $1 million.

Generally, a covered employee is:

●A The chief executive officer of the

cooperative (or an individual acting in that

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

●A An employee whose total compensation

must be reported to shareholders under

the Securities Exchange Act of 1934

because the employee is among the four

highest compensated officers for that tax

year (other than the chief executive

officer).

For this purpose, compensation does

not include the following:

●A Income from certain employee trusts,

annuity plans, or pensions;

●A Any benefit paid to an employee that is

excluded from the employee's income.

The deduction limit does not apply to:

●A Commissions based on individual

performance;

●A Qualified performance-based

compensation; and

●A Income payable under a written, binding

contract in effect on February 17, 1993.

The $1 million limit is reduced by

amounts disallowed as excess parachute

payments under section 280G.

Page 6
For details, see section 162(m) and

Regulations section 1.162–27.

Line 13. Salaries and wages.— Enter

the amount of salaries and wages paid for

the tax year, less the amount of any work

opportunity credit from Form 5884,

empowerment zone employment credit

from Form 8844, and Indian employment

credit from Form 8845. See the

instructions for these forms for more

information. Do not include salaries and

wages deductible elsewhere on the

return, such as amounts included in cost

of goods sold, elective contributions to a

section 401(k) cash or deferred

arrangement, or amounts contributed

under a salary reduction SEP agreement

or a SIMPLE retirement plan (savings

incentive match plan).

Caution: If the cooperative provided

taxable fringe benefits to its employees,

such as personal use of a car, do not

deduct as wages the amount allocated for

depreciation and other expenses claimed

on lines 20 and 26.

Line 14. Repairs and maintenance.—

Enter the cost of incidental repairs, such

as labor and supplies, that do not add to

the value of the property or appreciably

prolong its life. New buildings, machinery,

or permanent improvements that increase

the value of the property are not

deductible. They must be depreciated or

amortized.

Line 15. Bad debts.— Enter the total

debts that became worthless in whole or

in part during the tax year.

Caution: A cash method taxpayer may

not claim a bad debt deduction unless the

amount was previously included in

income.

Line 17. Taxes and licenses.— Enter

taxes paid or accrued during the tax year,

but do not include the following:

●A Federal income taxes.

●A Foreign or U.S. possession income

taxes if a tax credit is claimed (however,

see the instructions for Form 5735 for

special rules for possession income

taxes).

●A Taxes not imposed on the cooperative.

●A Taxes, including state or local sales

taxes, that are paid or incurred in

connection with an acquisition or

disposition of property (these taxes must

be treated as part of the cost of the

acquired property, or in the case of a

disposition, as a reduction in the amount

realized on the disposition).

●A Taxes assessed against local benefits

that increase the value of the property

assessed (such as for paving, etc.).

●A Taxes deducted elsewhere on the

return, such as those reflected in cost of

goods sold.

See section 164(d) for apportionment

of taxes on real property between the

seller and purchaser.

Line 18. Interest.— Do not include

interest on indebtedness incurred or

continued to purchase or carry obligations

if the interest is wholly exempt from

income tax. For exceptions, see section

265(b).

Generally, a cash basis taxpayer

cannot deduct prepaid interest allocable

to years following the current tax year. For

example, a cash basis calendar year

taxpayer who in 1996 prepaid interest

allocable to any period after 1996 can

deduct only the amount allocable to 1996.

Generally, the interest and carrying

charges on straddles cannot be deducted

and must be capitalized. See section

263(g).

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

for the disqualified portion of original issue

discount on a high yield discount

obligation.

Certain interest paid or accrued by the

cooperative may be limited if tax is not

imposed on that interest. See section

163(j) for more information.

Do not deduct interest on debt allocable

to the production of qualified property.

Interest that is allocable to certain

property produced by a cooperative for its

own use or for sale must be capitalized.

A cooperative must also capitalize any

interest on debt allocable to an asset used

to produce the above property. See

section 263A and Regulations sections

1.263A-8 through 1.263A-15 for

definitions and more information.

See section 7872 for special rules on

the deductibility of forgone interest on

certain below-market-rate loans.

Line 19. Charitable contributions.—

Enter contributions or gifts actually paid in

the tax year to or for the use of charitable

and governmental organizations

described in section 170(c) and any

unused contributions carried over from

prior years.

The total amount claimed may not be

more than 10% of taxable income (line

30) computed without regard to the

following:

●A Any deduction for contributions;

●A The special deductions on line 29b,

Form 990-C;

●A Any net operating loss (NOL) carryback

to the tax year under section 172;

●A Any capital loss carryback to the tax

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

●A The deduction allowed under section

249.

Charitable contributions over the 10%

limitation may not be deducted for the tax

year but may be carried over to the next

5 tax years.

Special rules apply if the cooperative

has an NOL carryover to the tax year. In

figuring the charitable contributions

deduction for the tax year, the 10% limit

is applied using the taxable income after

the deduction for the NOL.

To figure the amount of any remaining

NOL carryover to later years, taxable

income must be modified (see section

172(b)). To the extent that contributions

are used to reduce taxable income for this

purpose and increase an NOL carryover,

a contributions carryover is not allowed.

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

Cooperatives on the accrual basis may

elect to deduct contributions paid by the

15th day of the 3rd month after the end

of the tax year if the contributions are

authorized by the board of directors

during the tax year. Attach a declaration

to the return, signed by an officer, stating

that the resolution authorizing the

contributions was adopted by the board

of directors during the tax year. Also,

attach a copy of the resolution.

Substantiation requirements.—

Generally, no deduction is allowed for any

contribution of $250 or more unless the

cooperative gets a written

acknowledgment from the donee

organization that shows the amount of

cash contributed, describes any property

contributed, and gives an estimate of the

value of any goods or services provided

in return for the contribution. The

acknowledgment must be obtained by the

due date (including extensions) of the

cooperative's return, or if earlier, the date

the return is filed. Do not attach the

acknowledgment to the tax return, but

keep it with the cooperative's records.

These rules apply in addition to the filing

requirements for Form 8283 described

below.

For more information on substantiation

and recordkeeping requirements, see the

regulations under section 170 and Pub.

526, Charitable Contributions.

Contributions of property other than

cash.— If a cooperative contributes

property other than cash and claims a

$500 deduction for the property, it must

attach a schedule to the return describing

the kind of property contributed and the

method used to determine its fair market

value. Generally, cooperatives must

complete and attach Form 8283,

Noncash Charitable Contributions, to their

returns for all contributions of property

other than money if the total claimed

deduction for all property contributed was

more than $5,000.

If the cooperative made a “qualified

conservation contribution” under section

170(h), also include the fair market value

of the underlying property before and after

the donation, as well as the type of legal

interest contributed, and describe the

conservation purpose benefited by the

donation.

If a contribution carryover was included,

show the amount and how it was

determined.

Special rule for contributions of certain

property.— For a charitable contribution

of property, the cooperative must reduce

the contribution by the sum of:

1. The ordinary income, short-term

capital gain that would have resulted if the

property were sold at its fair market value;

and

2. For certain contributions, all of the

long-term capital gain that would have

resulted if the property were sold at its fair

market value.

The reduction for the long-term capital

gain applies to:

Page 7
●A Contributions of tangible personal

property for use by an exempt

organization for a purpose or function

unrelated to the basis for its exemption,

and

●A Contributions of any property to or for

the use of certain private foundations

(except for stock contributed after June

30, 1996, and before June 1, 1997, for

which market quotations are readily

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

For more information including special

rules for contributions of inventory and

other property to certain organizations,

see section 170(e) and Regulations

section 1.170A-4A.

Charitable contributions of scientific

property used for research.— A

cooperative can receive a larger

deduction for contributing scientific

property used for research to an institution

of higher education. For more details, see

section 170(e).

Contributions to organizations

conducting lobbying activities.—

Contributions made to an organization

that conducts lobbying activities are not

deductible if:

●A The lobbying activities relate to matters

of direct financial interest to the donor's

trade or business, and

●A The principal purpose of the

contribution was to avoid Federal income

tax by obtaining a deduction for activities

that would have been nondeductible

under the lobbying expense rules if

conducted directly by the donor.

Line 20. Depreciation.— Besides

depreciation, include on line 20 the part

of the cost that the cooperative elected to

expense under section 179 for certain

tangible property placed in service during

tax year 1996 or carried over from 1995.

See Form 4562, Depreciation and

Amortization, and its instructions.

Line 22. Depletion.— See sections 613

and 613A for percentage depletion rates

applicable to natural deposits. Also, see

section 291 for the limitation on the

depletion deduction for iron ore and coal

(including lignite).

Foreign intangible drilling costs and

foreign exploration and development

costs must either be added to the

cooperative's basis for cost depletion

purposes or be deducted ratably over a

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

and 617 for details.

Attach Form T (Timber), Forest

Activities Schedules, if a deduction for

depletion of timber is taken.

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

plans.— Enter the deduction for

contributions to qualified pension,

profit-sharing, or other funded deferred

compensation plans. Employers who

maintain such a plan generally must file

one of the forms listed below, even if the

plan is not a qualified plan under the

Internal Revenue Code. The filing

requirement applies even if the

cooperative does not claim a deduction

for the current tax year. There are

penalties for failure to file these forms on

time and for overstating the pension plan

deduction. See sections 6652(e) and

6662(f).

Form 5500.— File this form for each plan

with 100 or more participants.

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

plan with fewer than 100 participants.

Form 5500-EZ.— File this form for a

one-participant plan. The term

“one-participant plan” also means a plan

that covers the owners and their spouses

or a plan that covers partners in a

business partnership (or the partners and

their spouses).

Line 25. Employee benefit programs.—

Enter the contributions to employee

benefit programs not claimed elsewhere

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

welfare programs etc.) that are not an

incidental part of a pension, profit-sharing,

etc., plan included on line 24.

Line 26. Other deductions

Note: Do not deduct fines or penalties

paid to a government for violating any law.

Attach a schedule, listing by type and

amount all allowable deductions that are

not deductible elsewhere on Form 990-C.

Include on this line the deduction for

amortization of pollution control facilities,

organization expenses, etc. See Form

4562.

Also include ordinary losses from trade

or business activities of a partnership

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

Generally, a deduction may not be

taken for any amount that is allocable to

a class of exempt income. See section

265(b) for exceptions.

Meals, travel, and entertainment.—

Generally, the cooperative can deduct

only 50% of the amount otherwise

allowable for meals and entertainment

expenses paid or incurred in its trade or

business. Also, meals must not be lavish

or extravagant; a bona fide business

discussion must occur during,

immediately before, or immediately after

the meal; and your employee must be

present at the meal. See section 274(k)(2)

for exceptions. If the cooperative claims

a deduction for unallowable meal

expenses, it may have to pay a penalty.

Additional limitations apply to

deductions for gifts, skybox rentals, luxury

water travel, convention expenses, and

entertainment tickets. For details, see

section 274 and Pub. 463.

No deduction is allowed for dues paid

or incurred for membership in any club

organized for business, pleasure,

recreation, or other social purpose. This

includes country clubs, golf and athletic

clubs, airline and hotel clubs, and clubs

operated to provide meals under

conditions favorable to business

discussion. But it does not include civic

or public service organizations,

professional organizations (such as bar

or medical associations), business

leagues, trade associations, chambers of

commerce, boards of trade, and real

estate boards, unless a principal purpose

of the organization is to entertain or

provide entertainment facilities for

members or their guests.

Also, no deduction is allowed for travel

expenses paid or incurred for a spouse,

dependent, or other individual

accompanying an officer or employee of

the cooperative on business travel, unless

that spouse, dependent, or other

individual is an employee of the

cooperative and the travel is for a bona

fide business purpose and would

otherwise be deductible by that person.

Generally, a cooperative can deduct all

other ordinary and necessary travel and

entertainment expenses paid or incurred

in its trade or business. However, it

cannot deduct an expense paid or

incurred for a facility (such as a yacht or

hunting lodge) used for an activity that is

usually considered entertainment,

amusement, or recreation.

Note: The cooperative may be able to

deduct the expense if the amount is

treated as compensation and reported on

Form W-2 for an employee or on Form

1099-MISC for an independent contractor.

Lobbying expenses.— Generally,

lobbying expenses are not deductible.

These expenses include amounts paid or

incurred in connection with influencing

Federal or state legislation (but not local

legislation), or amounts paid or incurred

in connection with any communication

with certain Federal executive branch

officials in an attempt to influence the

official actions or positions of the officials.

See Regulations section 1.162-29 for the

definition of “influencing legislation.” If

certain in-house expenditures do not

exceed $2,000, they are deductible. Dues

and other similar amounts paid to certain

tax-exempt organizations may not be

deductible. See section 162(e)(3). For

information on contributions to charitable

organizations that conduct lobbying

activities, see the instructions for line 19.

For more information on lobbying

expenses, see section 162(e).

Line 28

Taxable income before NOL deduction

and special deductions

At-risk rules.— Special at-risk rules

under section 465 generally apply to

closely held cooperatives (defined in

Passive activity limitations on page 6)

engaged in any activity as a trade or

business or for the production of income.

These cooperatives may have to adjust

the amount on line 28, Form 990-C. But,

the at-risk rules do not apply to the

following:

●A Holding real property placed in service

by the cooperative before 1987;

●A Equipment leasing under sections

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

●A Any qualifying business of a qualified

cooperative under section 465(c)(7).

However, the at-risk rules do apply to

the holding of mineral property.

If the at-risk rules apply, adjust the

amount on this line for any section 465(d)

losses. These losses are limited to the

Page 8
amount for which the cooperative is at-risk

for each separate activity at the close of

the tax year. If the cooperative is involved

in one or more activities, any of which

incurs a loss for the year, report the

losses for each activity separately. Attach

Form 6198, At-Risk Limitations, showing

the amount at-risk and gross income and

deductions for the activities with the

losses.

If the cooperative sells or otherwise

disposes of an asset or its interest (either

total or partial) in an activity to which the

at-risk rules apply, determine the net profit

or loss from the activity by combining the

gain or loss on the sale or disposition with

the profit or loss from the activity. If the

cooperative has a net loss, it may be

limited because of the at-risk rules.

Treat any loss from an activity not

allowed for the tax year as a deduction

allocable to the activity in the next tax

year.

Line 29a. NOL deduction.— A

cooperative may use the net operating

loss (NOL) incurred in one tax year to

reduce its taxable income in another year.

Generally, a cooperative may carry an

NOL back to each of the 3 years

preceding the year of the loss and then

carry any remaining amount over to each

of the 15 years following the year of the

loss (but see Exceptions to carryback

rules, below). Enter on line 29a, the total

NOL carryovers from prior tax years, but

do not enter more than the cooperative's

taxable income (after special deductions).

An NOL deduction cannot be taken in a

year in which the cooperative has

negative taxable income. Attach a

schedule showing the computation of the

NOL deduction. Also complete question

20 on Schedule N.

For details on the NOL deduction, get

Pub. 536, Net Operating Losses.

Carryback and carryover rules.—

Generally, an NOL must first be carried

back to the third year preceding the year

of the loss. To carry back the loss and

obtain a quick refund of taxes, use Form

1139, Corporation Application for

Tentative Refund. Form 1139 must be

filed within 12 months after the close of

the tax year of the loss. See section 6411

for details. Do not attach Form 1139 to the

cooperative's income tax return. Mail it in

a separate envelope to the service center

where the cooperative files its income tax

return.

For carryback claims filed later than 12

months after the close of the tax year of

the loss, file an amended Form 990-C,

instead of Form 1139.

After the cooperative has applied the

NOL to the first tax year to which it may

be carried, the taxable income of that year

is modified (as described in section

172(b)) to determine how much of the

remaining loss may be carried to other

years. See section 172(b) and the related

regulations for details.

Special rules apply when an ownership

change occurs (i.e., for any tax year

ending after a post-1986 ownership

change, the amount of the taxable income

of a loss corporation that can be offset by

prechange NOL carryovers is limited).

See section 382 and the related

regulations.

Also see Temporary Regulations

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

that a loss corporation file an information

statement with its income tax return for

each tax year that it is a loss corporation

and certain shifts in ownership occurred.

Also see Regulations section 1.382-6(b)

for details on how to make the

closing-of-the-books election.

See section 384 for the limitation on the

use of preacquistion losses of one

corporation to offset recognized built-in

gains of another corporation.

Exceptions to carryback rules.— A

cooperative may make an irrevocable

election to forego the carryback period

and instead carry the NOL over to each

of the 15 years following the year of the

loss. To make this election, check the box

in question 19 on Schedule N. The return

must be timely filed (including

extensions).

Different carryback periods apply for

certain losses. The part of an NOL that is

attributable to a specified liability loss,

including a product liability loss, may be

carried back 10 years (section

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

Line 30. Taxable income.— For

cooperatives required to file Form 8817,

taxable income reported on line 30 may

not exceed the combined taxable income

shown on line 30, Form 8817. Attach

Form 8817 to the cooperative's tax return.

See Form 8817 for more details.

Caution: Patronage source losses

cannot be used to offset nonpatronage

income. See section 1388(j) for more

information.

Line 32b. Estimated tax payments.—

Enter any estimated tax payments the

cooperative made for the tax year.

Beneficiaries of Trusts.— If the

cooperative is the beneficiary of a trust,

and the trust makes a section 643(g)

election to credit its estimated tax

payments to its beneficiaries, include the

cooperative's share of the estimated tax

payment in the total amount entered on

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

payment in the blank space to the right

of the entry space.

Line 32f. Credit from refiguring tax for

years in which nonqualified per-unit

retain certificates or nonqualified

written notices of allocation (redeemed

this year) were issued.— If the

cooperative paid less total tax by not

claiming the deduction for the redemption

of nonqualified written notices of

allocation or nonqualified per-unit retain

certificates in the current tax year, and

instead the cooperative refigured the tax

for the years the nonqualified written

notices or certificates were originally

issued, enter the amount of the reduction

in the issue years' taxes on this line.

Attach a schedule showing how the credit

was figured. This credit is treated as a

payment, and any amount that is more

than the tax on line 31 will be refunded.

Line 32g. Credit for federal tax on

fuels.— Complete Form 4136 if the

cooperative qualifies to take this credit.

See attachments on page 4.

Line 32h. Total Payments.— Add the

amounts on lines 32d through 32g and

enter the total on line 32h.

Backup withholding.— If the

cooperative had income tax withheld from

any payments it received, because, for

example, it failed to give the payer its

correct EIN, include the amount withheld

in the total for line 32h. This type of

withholding is called backup withholding.

Show the amount withheld in the blank

space in the right-hand column between

lines 31 and 32h, and write “backup

withholding.”

Line 33. Estimated Tax Penalty.— A

cooperative that does not make estimated

tax payments when due may be subject

to an underpayment penalty for the period

of underpayment. Generally, a

cooperative is subject to the penalty if its

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

timely pay the smaller of (a) 100% of its

tax liability for 1996, or (b) 100% of its

prior year's tax. See section 6655 for

details and exceptions including special

rules for large cooperatives.

Form 2220, Underpayment of

Estimated Tax by Corporations, is used

to see if the cooperative owes a penalty

and to figure the amount of the penalty.

Generally, the cooperative does not have

to file this form because the IRS can

figure the amount of any penalty and bill

the cooperative for it. However, even if the

cooperative does not owe the penalty you

must complete and attach Form 2220 if:

●A The annualized income or adjusted

seasonal installment method is used, or

●A The cooperative is a large cooperative

computing its first required installment

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

Form 2220 instructions for the definition

of a large corporation.)

 If you attach Form 2220, check the box

on line 33, and enter the amount of any

penalty on this line.

Schedule A

Cost of Goods Sold

Inventories are required at the beginning

and end of each tax year if the production,

purchase, or sale of merchandise is an

income-producing factor. See Regulations

section 1.471-1. If inventories are not

used, enter zero on lines 1 and 8.

Note: All filers should see Section 263A

uniform capitalization rules on page 5

before completing Schedule A.

Line 4a.— Qualified per-unit retain

certificates are issued to patrons who

have agreed to include the stated dollar

amount in current income.

Line 5.— Enter the amount paid in money

or other property (except per-unit retain

certificates) to patrons to redeem

Page 9
nonqualified per-unit retain certificates. If

a per-unit retain certificate does not

qualify, no deduction is allowable at the

time it is issued. However, the cooperative

may take a deduction or a refund of tax

when the nonqualified per-unit retain

certificate is finally redeemed, provided

that the nonqualified per-unit retain

certificate was paid as a per-unit retain

allocation during the payment period for

the tax year during which the marketing

occurred. The deduction is allowed only

for amounts paid in money or other

property (other than per-unit retain

certificates) that are not more than the

stated dollar amount of the nonqualified

per-unit retain certificate. See section

1382(b).

See section 1383 and the instructions

for line 32f for a special rule for figuring

the cooperative's tax in the year of

redemption of a nonqualified per-unit

retain certificate.

Line 6a.— An entry is required only for

cooperatives electing a simplified method

of accounting.

For these cooperatives, additional

section 263A costs are generally costs,

other than interest, that were not

capitalized under the cooperative's

method of accounting immediately prior to

the effective date of section 263A that are

now required to be capitalized under

section 263A. For details, see

Regulations section 1.263A-2(b).

For cooperatives that have elected the

simplified resale method, additional

section 263A costs are generally those

costs incurred with respect to the

following categories: Off-site storage or

warehousing; purchasing; handling,

processing, assembly and repackaging;

and general and administrative costs

(mixed service costs). For details, see

Regulations section 1.263A-3(d).

Enter on line 6a the balance of section

263A costs paid or incurred during the tax

year not included on lines 2 and 3.

Line 6b.— Enter any costs paid or

incurred during the tax year not entered

on lines 2 through 6a.

Line 8.— See Regulations sections

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

figuring the amount of additional section

263A costs to be included in ending

inventory.

Lines 10a through 10f

Inventory valuation methods.

Inventories can be valued at:

●A Cost;

●A Cost or market value (whichever is

lower); or

●A Any other method approved by the IRS

that conforms to the requirements of the

applicable regulations cited below.

The average cost (rolling average)

method of valuing inventories generally

does not conform to the requirements of

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

1971-1 C.B. 148.

Cooperatives that use erroneous

valuation methods must change to a

method permitted for Federal income tax

purposes. To make this change, use Form

3115.

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

for valuing inventories. Under lower of

cost or market, the term “market” (for

normal goods) means the current bid

price prevailing on the inventory valuation

date for the particular merchandise in the

volume usually purchased by the

taxpayer. For a manufacturer, market

applies to the basic elements of cost—raw

materials, labor, and burden. If section

263A applies to the taxpayer, the basic

elements of cost must reflect the current

bid price of all direct costs and all indirect

costs properly allocable to goods on hand

at the inventory date.

Inventory may be valued below cost

when the merchandise is unsalable at

normal prices or unsalable in the normal

way because the goods are subnormal

because of damage, imperfections, shop

wear, etc. within the meaning of

Regulations section 1.471-2(c). The

goods may be valued at a current bona

fide selling price, minus direct cost of

disposition (but not less than scrap value)

if such a price can be established.

If this is the first year the

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

was either adopted or extended to

inventory goods not previously valued

under the LIFO method provided in

section 472, attach Form 970, Application

To Use LIFO Inventory Method, or a

statement with the information required

by Form 970. Also check the LIFO box

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

or the percent of total closing inventories

covered under section 472. Estimates are

acceptable.

If the cooperative changed or extended

its inventory to LIFO and had to write up

its opening inventory to cost in the year

of election, report the effect of this writeup

as income (line 10, page 1)

proportionately over a 3-year period that

begins with the year of the LIFO election

(section 472(d)).

For more information on inventory

valuation methods, get Pub. 538,

Accounting Periods and Methods.

Schedule C

Dividends and Special Deductions

For purposes of the 20% ownership test

on lines 1 through 7, the percentage of

stock owned by the cooperative is based

on voting power and value of the common

stock. Preferred stock described in

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

account. Cooperatives filing a

consolidated return should see

Regulations sections 1.1502-13

1.1502-26 and 1.1502-27 before

completing Schedule C.

Line 1, Column (a).— Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984—see

section 246A) that are received from

less-than-20%-owned domestic

corporations subject to income tax and

that are subject to the 70% deduction

under section 243(a)(1). Include on this

line taxable distributions from an IC-DISC

or former DISC that are designated as

eligible for the 70% deduction and certain

dividends of Federal Home Loan Banks.

See section 246(a)(2).

Also include on line 1 dividends (except

those received on debt-financed stock

acquired after July 18, 1984) from a

regulated investment company (RIC). The

amount of dividends eligible for the

dividends-received deduction under

section 243 is limited by section 854(b).

The corporation should receive a notice

from the RIC specifying the amount of

dividends that qualify for the deduction.

Report so-called dividends or earnings

received from mutual savings banks, etc.,

as interest. Do not treat them as

dividends.

Line 2, Column (a).— Enter dividends

(except those received on debt-financed

stock acquired after July 18, 1984) that

are received from 20%-or-more-owned

domestic corporations subject to income

tax and that are subject to the 80%

deduction under section 243(c). Include

on this line taxable distributions from an

IC-DISC or former DISC that are

considered eligible for the 80% deduction.

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

debt-financed stock acquired after July

18, 1984, that are received from domestic

and foreign corporations subject to

income tax and that would otherwise be

subject to the dividends-received

deduction under sections 243(a)(1),

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

debt-financed stock is stock that the

cooperative acquired by incurring a debt

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

Include on line 3 dividends received

from a regulated investment company

(RIC) on debt-financed stock. The amount

of dividends eligible for the

dividends-received deduction is limited by

section 854(b). The cooperative should

receive a notice from the RIC specifying

the amount of dividends that qualify for

the deduction.

Line 3, Columns (b) and (c).—

Dividends received on debt-financed

stock acquired after July 18, 1984, are not

entitled to the full 70% or 80%

dividends-received deduction. The 70%

or 80% deduction is reduced by a

percentage that is related to the amount

of debt incurred to acquire the stock. See

section 246A. Also see section 245(a)

before making this computation for an

additional limitation that applies to

dividends received from foreign

corporations. Attach a schedule to Form

990-C showing how the amount on line

3, column (c), was figured.

Line 4, Column (a).— Enter dividends

received on the preferred stock of a

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

subject to income tax and is allowed the

Page 10
deduction provided in section 247 for

dividends paid.

Line 5, Column (a).— Enter dividends

received on preferred stock of a

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

subject to income tax and is allowed the

deduction provided in section 247 for

dividends paid.

Line 6, Column (a).— Enter the

U.S.-source portion of dividends that are

received from less-than-20%-owned

foreign corporations and that qualify for

the 70% deduction under section 245(a).

To qualify for the 70% deduction, the

cooperative must own at least 10% of the

stock of the foreign corporation by vote

and value. Also include dividends

received from a less-than-20%-owned

FSC that are attributable to income

treated as effectively connected with the

conduct of a trade or business within the

United States (excluding foreign trade

income) and that qualify for the 70%

deduction provided in section

245(c)(1)(B).

Line 7, Column (a).— Enter the

U.S.-source portion of dividends that are

received from 20%-or-more-owned

foreign corporations and that qualify for

the 80% deduction under section 245(a).

Also include dividends received from a

20%-or-more-owned FSC that are

attributable to income treated as

effectively connected with the conduct of

a trade or business within the United

States (excluding foreign trade income)

and that qualify for the 80% deduction

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

Line 8, Column (a).— Enter dividends

that are received from wholly owned

foreign subsidiaries and that are eligible

for the 100% deduction provided in

section 245(b).

In general, the deduction under section

245(b) applies to dividends paid out of the

earnings and profits of a foreign

corporation for a tax year during which:

●A All of its outstanding stock is owned

(directly or indirectly) by the domestic

cooperative receiving the dividends, and

●A All of its gross income from all sources

is effectively connected with the conduct

of a trade or business within the United

States.

Line 9, Column (c)—Limitation on

dividends-received deduction

Generally, line 9, column (c) may not

exceed the amount from the worksheet

below. However, in a year in which an

NOL occurs, this limitation does not apply

even if the loss is created by the

dividends-received deduction. See

sections 172(d) and 246(b).

Line 10, Column (a).— Enter dividends

from FSCs that are attributable to foreign

trade income and that are eligible for the

100% deduction provided in section

245(c)(1)(A).

Line 11, Columns (a) and (c).— Enter

only those dividends that qualify under

section 243(b) for the 100%

dividends-received deduction described in

section 243(a)(3). Cooperatives taking

this deduction are subject to the

provisions of section 1561.

Note: The 100% deduction does not

apply to affiliated group members that are

joining in the filing of a consolidated

return.

Line 12, Column (a).— Enter foreign

dividends not reportable on lines 3, 6, 7,

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

the cooperative's share of the ordinary

earnings of a qualified electing fund from

Form 8621, line 6c, or the amount of any

excess distributions from a passive

foreign investment company from Form

8621, line 11b. Exclude distributions of

amounts constructively taxed in the

current year or in prior years under

subpart F (sections 951 through 964).

Line 13, Column (a).— Include income

constructively received from controlled

foreign corporations under subpart F. This

amount should equal the total of amounts

reported on Schedule I, Form 5471.

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

for taxes deemed paid under sections 902

and 960.

Line 15, Column (a).— Enter taxable

distributions from an IC-DISC or former

DISC that are designated as not eligible

for a dividends-received deduction.

No deduction is allowed under section

243 for a dividend from an IC-DISC or

former DISC (as defined in section

992(a)) to the extent the dividend:

1. Is paid out of the corporation's

accumulated IC-DISC income or

previously taxed income, or

2. Is a deemed distribution under

section 995(b)(1).

Line 16, Column (a).— Include the

following:

1. Dividends (other than capital gain

dividends and exempt-interest dividends)

that are received from regulated

investment companies that are not

subject to the 70% deduction.

2. Dividends from tax-exempt

organizations.

3. Dividends (other than capital gain

dividends) received from a real estate

investment trust that, for the tax year of

the trust in which the dividends are paid,

qualifies under sections 856 through 860.

4. Dividends not eligible for a

dividends-received deduction because of

the holding period of the stock or an

obligation to make corresponding

payments with respect to similar stock.

Two situations in which the

dividends-received deduction will not be

allowed on any share of stock are:

●A If the cooperative held it 45 days or less

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

●A To the extent the cooperative is under

an obligation to make related payments

for substantially similar or related

property.

5. Any other taxable dividend income

not properly reported above (including

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

Schedule H

Deductions and Adjustments

under Section 1382

Cooperatives have an option under

section 1388(j)(1) to use losses from one

or more allocation units to offset earnings

of one or more other allocations, as

permitted by its bylaws, but only to the

extent that the earnings and losses are

from business done with or for patrons. If

a cooperative exercises this option, it

must provide the information specified in

section 1388(j)(3) by written notice to its

patrons. Special rules also apply if a

cooperative has acquired the assets of

another cooperative under a section

381(a) transaction. See section 1388(j) for

more information. Cooperatives may net

earnings and losses under section 1388(j)

and still be eligible for tax-exempt

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

Note: Lines 1 and 2 apply only to section

521 cooperatives.

Line 1.— Enter the amount actually or

constructively paid as dividends during

the tax year on common stock (whether

voting or nonvoting), preferred stock,

capital retain certificates, revolving fund

certificates, letters of advice, or other

documentary evidence of a proprietary

interest in the cooperative association.

See Regulations section 1.1382-3(b) for

more information.

Line 2.— Enter amounts paid on a

patronage basis to patrons from

non-patronage income. Payment may be

in money, qualified written notices of

allocation, or other property (except

nonqualified written notices of allocation).

The amounts must be paid during the

payment period which begins on the first

day of the tax year and ends on the 15th

day of the 9th month after the end of the

tax year in which the income was earned.

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

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

and the portion of the deduction on

line 3, column (c) that is attributable

to dividends received from 20%

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

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

If line 5 is greater than line 4, stop

here; enter the amount from line 6 on

line 9, column (c). Do not complete

the rest of this worksheet

7. Enter the total amount of dividends

received from 20%-or-more-owned

corporations that are included on

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

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

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

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

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

12. Dividends-received deduction after

limitation (section 246(b)). Add lines

6 and 11. Enter the result here and

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

Worksheet for Schedule C, line 9

(keep for your records)

1. Refigure line 28, page 1, Form

990–C, without any adjustment under

section 1059 and without any capital

loss carryback to the tax year under

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

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

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

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

Page 11
Non-patronage income includes

incidental income from sources not

directly related to marketing, purchasing,

or service activities of the cooperative

(such as income from the lease of

premises, investments, or from the sale

or exchange of capital assets). It also

includes income from business done with

or for the U.S. Government, or any of its

agencies.

See “Patronage dividends” below for a

definition of “qualified written notice of

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

deductibility of amounts paid in

redemption of nonqualified written notices

of allocation.

Line 3.—Patronage dividends include

any amount paid to a patron by a

cooperative based on business done with

or for that patron under a pre-existing

obligation of the cooperative to pay that

amount. The amount is determined by

reference to the net earnings of the

organization from business done with or

for its patrons.

Patronage dividends may be in the form

of money, qualified written notices of

allocation, or other property (except

nonqualified written notices of allocation).

To be deductible, patronage dividends

must be paid during the payment period

that begins on the first day of the tax year

in which the patronage occurs and ends

on the 15th day of the 9th month after the

end of that tax year.

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

rules for the time when patronage occurs

if products are marketed under a pooling

arrangement, or if earnings are includible

in the gross income of the cooperative for

a tax year after the year in which the

patronage occurred.

Written notices of allocation means

any capital stock, revolving fund

certificate, certificate of indebtedness, or

other written notice, which tells the patron

the stated dollar amount allocated to them

by the cooperative and the part, if any,

which is a patronage dividend.

 A qualified written notice of

allocation is a written notice of allocation,

payed in money or by qualified check,

20% or more of the amount of the

patronage dividend. See section 1388(c)

and related regulations. See Rev. Rul.

81-103, 1981-1 C.B. 447, for the

qualification of written notices of allocation

issued to patrons by a payment of cash

and a crediting of accounts receivable due

from patrons.

Also, one of the following conditions

must be met before a written notice of

allocation is qualified:

1. The patron must have at least 90

days from the date the written notice of

allocation is paid to redeem it in cash, and

must receive written notice of the right of

redemption at the time he or she received

the allocation; OR 

2. The patron must agree to have the

allocation treated as constructively

received and reinvested in the

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

related regulations for information on how

the consent must be made.

If a written notice of allocation does not

qualify, no deduction is allowable at the

time it is issued. However, the cooperative

is entitled to a deduction or refund of tax

when the nonqualified written notice of

allocation is finally redeemed, if that

notice was paid as a patronage dividend

during the payment period for the tax year

during which the patronage occurred. The

deduction or refund is allowed, but only to

the extent that amounts paid to redeem

the nonqualified written notice of

allocation are paid in money or other

property (other than written notices of

allocation). They cannot be more than the

stated dollar amounts of the nonqualified

written notice of allocation. See section

1382(b) and related regulations.

Note: See section 1383 for special rules

for figuring the cooperative's tax in the

year nonqualified written notices of

allocation are redeemed. The cooperative

is entitled to: (a) a deduction in the tax

year the nonqualified written notices of

allocation are redeemed (if permitted

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

1382(c)(2)(B)); OR (b) a tax credit based

on a recomputation of tax for the year(s)

the nonqualified written notices of

allocation were issued. See instructions

for line 32f.

The following are not patronage

dividends, amounts paid to patrons:

1. Out of earnings not from business

done with or for patrons;

2. Out of earnings from business done

with or for other patrons to whom no

amounts or smaller amounts are paid for

substantially identical transactions;

3. To redeem capital stock, certificates

of indebtedness, revolving fund

certificates, retain certificates, letters of

advice, or other similar documents; and

4. Without reference to the net earnings

of the cooperative organization from

business done with or for its patrons.

Schedule J

Tax Computation

Note: Members of a controlled group

must attach a statement showing the

computation of the tax entered on line 3.

Lines 1 and 2

Members of a controlled group.— A

member of a controlled group, as defined

in section 1563, must check the box on

line 1 and complete lines 2a and 2b of

Schedule J.

Line 2a.— Members of a controlled group

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

and one $9,925,000 taxable income

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

When a controlled group adopts or later

amends an apportionment plan, each

member must attach to its tax return a

copy of its consent to this plan.

The copy (or an attached statement)

must show the part of the amount in each

taxable income bracket apportioned to

that member. See Regulations section

1.1561-3(b) for other requirements and for

the time and manner of making the

consent.

Equal apportionment plan. If no

apportionment plan is adopted, members

of a controlled group must divide the

amount in each taxable income bracket

equally among themselves. For example,

controlled group AB consists of

Cooperative A and Cooperative B. They

do not elect an apportionment plan.

Therefore, each Cooperative is entitled to:

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

2a(1),

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

2a(2), and

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

line 2a(3).

Unequal apportionment plan. Members

of a controlled group may elect an

unequal apportionment plan and divide

the taxable income brackets as they want.

There is no need for consistency among

taxable income brackets. Any member

may be entitled to all, some, or none of

the taxable income bracket. However, the

total amount for all members cannot be

more than the total amount in each

taxable income bracket.

Line 2b.— Members of a controlled group

are treated as one group to figure the

applicability of the additional 5% tax and

the additional 3% tax. If an additional tax

Tax Computation Worksheet for

Members of a Controlled Group

(Keep for your Records)

Note: Each member of a controlled group must

compute the tax using this worksheet..

1. Enter taxable income (line 30, page

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

2. Enter line 1 or the cooperative's share

of the $50,000 taxable income

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

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

4. Enter line 3 or the cooperative's share

of the $25,000 taxable income

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

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

6. Enter line 5 or the cooperative's share

of the $9,925,000 taxable income

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

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

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

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

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

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

12. If the taxable income of the controlled

group exceeds $100,000, enter this

member's share of the smaller of: 5%

of the taxable income in excess of

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

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

13. If the taxable income of the controlled

group exceeds $15 million, enter this

member's share of the smaller of 3%

of the taxable income in excess of

$15 million, or $100,000. See

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

14. Add lines 8 through 13. Enter here

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

Page 12
applies, each member will pay that tax

based on the part of the amount used in

each taxable income bracket to reduce

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

If an additional tax applies, attach a

schedule showing the taxable income of

the entire group and how the cooperative

figured its share of the additional tax.

Line 2b1.— Enter the cooporative's

share of the additional 5% tax on line

2b(1).

Line 2b2.— Enter the cooperative's

share of the additional 3% tax on line

2b(2).

Line 3

Most cooperatives figure their tax by using

the Tax Rate Schedule below. Exceptions

apply to members of a controlled group

(see worksheet above). See the

instructions below for more information.

Deferred tax under section 1291.— If

the cooperative was a shareholder in a

passive foreign investment company

(PFIC), and the cooperative received an

excess distribution or disposed of its

investment in the PFIC during the year, it

must include the total increase in taxes

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

amount entered on line 3, Schedule J. On

the dotted line next to line 3, Schedule J,

write “Section 1291” and the amount.

Do not include on line 3 any interest

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

show the amount of interest owed in the

bottom margin of page 1, Form 990-C,

and write “Section 1291 interest.” For

details, see Form 8621, Return by a

Shareholder of a Passive Foreign

Investment Company or Qualified Electing

Fund.

Line 4a. Foreign tax credit.— To find out

when a cooperative can take the credit for

payment of income tax to a foreign

country or U.S. possession, see Form

1118, Foreign Tax Credit— Corporations.

Line 4b—Other credits:

Possessions tax credit. The Small

Business Job Protection Act of 1996

repealed the possessions credit.

However, existing credit claimants may

qualify for a credit under the transitional

rules. Get Form 5735, Possessions Tax

Credit (Under Sections 936 and 30A).

Nonconventional source fuel credit. A

credit is allowed for the sale of qualified

fuels produced from a nonconventional

source. Section 29 contains a definition

of qualified fuels, provisions for figuring

the credit, and other special rules. Attach

a separate schedule to the return showing

the computation of the credit.

Qualified electric vehicle (QEV) credit.

Include on line 4b any credit from Form

8834, Qualified Electric Vehicle Credit.

Vehicles that qualify for this credit are not

eligible for the deduction for clean-fuel

vehicles under section 179A.

Line 4c. General business credit.—

Complete this line if the cooperative can

take any of the following credits.

Complete Form 3800, General Business

Credit, if the cooperative has two or more

of these credits, a credit carryforward or

carryback (including an ESOP credit), a

trans-Alaska pipeline liability fund credit,

or a passive activity credit. Enter the

amount of the general business credit on

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

If the cooperative has only one credit,

enter on line 4c, the amount of the credit

from the form. Also be sure to check the

appropriate box for that form.

Note: Any excess energy investment

credit, work opportunity credit, Indian

employment credit, or empowerment zone

employment credit not used by the

cooperative (because of tax liability

limitation) must be passed through to the

patrons. The credits cannot be carried

back or over by the cooperative. See

Forms 3468, 5884, 8844, and 8845 for

details.

Form 3468, Investment Credit. Use

Form 3468 to claim a credit for property

placed in service that is qualified

rehabilitation, energy, timber, or transition

property.

Form 5884, Work Opportunity Credit.

Use Form 5884 to claim a credit for

wages paid to qualified employees who

began work after September 30, 1996,

and before October 1, 1997.

Form 6478, Credit for Alcohol Used as

Fuel.

Form 6765, Credit for Increasing

Research Activities. Use Form 6765 to

claim a credit for qualified research

expenses. Generally, the expenses must

be paid or incurred after June 30, 1996

and before June 1, 1997.

Form 8586, Low-income Housing

Credit. Cooperatives that own residential

rental buildings providing low-income

housing may qualify for this credit.

Form 8820, Orphan Drug Credit. Use

Form 8820 to claim a credit for qualified

clinical testing expenses. Generally, the

expenses must be paid or incurred after

June 30, 1996, and before June 1, 1997.

Form 8826, Disabled Access Credit.

Use Form 8826 to take a credit for certain

expenditures paid or incurred to help

individuals with disabilities.

Form 8830, Enhanced Oil Recovery

Credit. Use Form 8830, to claim a credit

for 15% of qualified enhanced oil recovery

costs.

Form 8835, Renewable Electricity

Production Credit. Use Form 8835, to

claim a credit for the sale of electricity

produced in the United States or U.S.

possessions from qualified energy

resources.

Form 8844, Empowerment Zone

Employment Credit. Use Form 8844 to

claim a credit for qualified wages and

certain training and educational expenses

paid or incurred by the corporation in

areas designated as empowerment

zones.

Note: Although the empowerment zone

employment credit is a component of the

general business credit, it is figured

separately and is not carried to Form

3800.

Form 8845, Indian Employment Credit.

Use Form 8845, to claim a credit based

on qualified wages and health insurance

costs paid by the cooperative for

American Indians who are qualified

employees.

Form 8846, Credit for Employer Social

Security and Medicare Taxes Paid on

Certain Employee Tips. Food and

beverage establishments use Form 8846,

to claim this credit.

Form 8847, Credit for Contributions to

Selected Community Development

Corporations.

Line 4d. Credit for prior year minimum

tax.— To figure the minimum tax credit

and any carryforward of that credit, use

Form 8827, Credit for Prior Year

Minimum Tax— Corporations.

Also see Form 8827 if any of the

cooperative's 1995 nonconventional

source fuel credit, orphan drug credit, or

qualified electric vehicle credit was

disallowed solely because of the tentative

minimum tax limitation. See section

53(d).

Line 7.—Recapture Taxes:

Recapture of Investment Credit. If the

cooperative disposed of investment credit

property or changed its use before the

end of its useful life or recovery period,

see Form 4255, Recapture of Investment

Credit, for details.

Recapture of Low-income Housing

Credit. If the cooperative disposed of

property (or there was a reduction in the

qualified basis of the property) for which

it took the low-income housing credit, see

Form 8611, Recapture of Low-Income

Housing Credit.

Recapture of qualified electric vehicle

(QEV) credit. The cooperative must

recapture part of the QEV credit it claimed

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

date the vehicle was placed in service, it

ceases to qualify for the credit. See

Regulations section 1.30-1 for details on

how to figure the recapture. Include the

amount of the recapture in the total for

line 7, Schedule J. On the dotted line next

to the entry space, write “QEV recapture”

and the amount.

Recapture of Indian employment

credit. Generally, if an employer

terminates the employment of a qualified

employee less than 1 year after the date

of initial employment, any Indian

Tax Rate Schedule

If taxable income on line 30, page 1,

Form 990–C is:

Over—

But not

over— Tax is:

Of the

amount

over—

$0 $50,000 15% $0

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

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

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

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

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

15,000,000 18,333,333 5,150,000 + 38% 15,000,000

18,333,333 - - - - - 35% 0

Page 13
employment credit allowed for a prior tax

year by reason of wages paid or incurred

to that employee must be recaptured. For

details, see Form 8845, and section 45A.

Include the amount of the recapture in the

total for line 7, Schedule J. On the dotted

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

and the amount.

Line 8. Alternative minimum tax.— The

cooperative may owe the alternative

minimum tax (AMT) if it has any of the

adjustments and tax preference items

listed on Form 4626, Alternative Minimum

Tax— Corporations. The cooperative

must file Form 4626 if its taxable income

(loss) combined with these adjustments

and tax preference items is more than the

smaller of:

●A $40,000, or

●A The cooperative's allowable exemption

amount (from Form 4626).

For this purpose, taxable income does

not include the NOL deduction. Get Form

4626 for details.

Reduce alternative minimum tax by any

amounts on Form 3800, line 36, Schedule

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

line next to line 8a, write “Section

38(c)(2)” (or “EZE”) and the amount.

Line 9. Interest on tax deferred under

the installment method for certain

non-dealer property installment

obligations.— If an obligation arising

from the disposition of property to which

section 453A applies is outstanding at the

close of the tax year, the cooperative

must include the interest due under

section 453A(c) on line 9, Schedule J.

Write on the dotted line to the left of line

9, Schedule J, “Sec. 453A(c)” and the

amount. Attach a schedule showing the

computation.

Deferred tax and interest under section

1294. Complete Form 8621 to determine

the cooperative's share of tax attributable

to the undistributed earnings of a qualified

electing fund, or the deferred tax due, if

any, as a result of the termination of a

section 1294 election. See the

instructions for Form 8621 to figure the

amount of tax to include in, or subtract

from the total on line 9. The instructions

for Form 8621 also explain how to report

any interest due under section 1294 on

the deferred tax.

Schedule L

Balance Sheets Per Books

The balance sheet should agree with the

cooperative's books and records. Include

certificates of deposit as cash on line 1,

Schedule L.

Line 5. Tax-exempt securities.—

Include on this line:

1. State and local government

obligations, the interest on which is

excludable from gross income under

section 103(a), and

2. Stock in a mutual fund or other

regulated investment company that

distributed exempt-interest dividends

during the tax year of the cooperative.

Schedule M-1

Reconciliation of Income (Loss)

per Books With Income per Return

Line 5c. Travel and entertainment.—

Include on line 5c any of the following:

●A 50% of meals and entertainment not

allowed under section 274(n).

●A Expenses for the use of an

entertainment facility.

●A The part of business gifts over $25.

●A Expenses of an individual in excess of

$2,000, which are allocable to

conventions on cruise ships.

●A Employee achievement awards over

$400.

●A The cost of entertainment tickets over

the face value (also subject to 50%

disallowance under section 274(n)).

●A The cost of skyboxes over the face

value of nonluxury box seat tickets.

●A The part of the cost of luxury water

travel not allowed under section 274(m).

●A Expense for travel as a form of

education.

●A Other expenses for travel and

entertainment not allowed as a deduction.

For more information, see Pub. 542.

Line 7a. Tax exempt interest.— Include

as interest on line 7a, any tax-exempt

dividends received as a shareholder in a

mutual fund or other regulated investment

company.

Schedule N

Other Information

Be sure to answer all the questions that

apply to the cooperative. The following

instructions apply to questions 1 through

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

Question 13

Foreign financial account.— Check the

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

the cooperative. Otherwise, check the

“No” box:

1. At any time during the 1996 calendar

year the cooperative had an interest in or

signature or other authority over a bank,

securities, or other financial account in a

foreign country; and

●A The combined value of the accounts

was more than $10,000 at any time during

the calendar year; and

●A The account was NOT with a U.S.

military banking facility operated by a U.S.

financial institution.

2. The cooperative owns more than

50% of the stock in any corporation that

would answer “Yes” to item 1 above.

Get Form TD F 90-22.1, Report of

Foreign Bank and Financial Accounts, to

see if the cooperative is considered to

have an interest in or signature or other

authority over a financial account in a

foreign country.

If “Yes” is checked for this question, file

Form TD F 90-22.1 by June 30, 1997,

with the Department of the Treasury at the

address shown on the form. Because

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

not file it with Form 990-C.

You can get Form TD F 90-22.1 from

an IRS Forms Distribution Center or by

calling 1-800-TAX-FORM

(1-800-829-3676).

Also, if “Yes” is checked for this

question, enter the name of the foreign

country or countries. Attach a separate

sheet if more space is needed.

Question 14

If the cooperative received a distribution

from a foreign trust after August 20, 1996,

it must provide additional information.

Generally, for this purpose, a loan of cash

or marketable securities is considered to

be a distribution. Get Pub. 553 for details.

If the cooperative was the grantor of,

or the transferor to, a foreign trust that

existed during the tax year, it may have

to file Form 3520, Creation of or

Transfers to Certain Foreign Trusts, Form

3520–A, Annual Return of Foreign Trust

With U.S. Beneficiaries, or Form 926,

Return by a U.S. Transferor of Property

to a Foreign Corporation, Foreign Estate

or Trust, or Foreign Partnership.

Question 15

Show any tax-exempt interest received

or accrued. Include any exempt-interest

dividends received as a shareholder in a

mutual fund or other regulated investment

company.

Question 17

Check the “Yes” box for question 17 if

either 1 or 2 below applies to the

cooperative:

1. The cooperative is a subsidiary in an

affiliated group (defined below), but is not

filing a consolidated return for the tax year

with that group.

2. The cooperative is a subsidiary in a

parent-subsidiary controlled group

(defined below).

Any cooperative that meets either of the

requirements above should check the

“Yes” box. This applies even if the

cooperative is a subsidiary member of

one group and the parent corporation of

another.

Note: If the cooperative is an “excluded

member” of a controlled group (see

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

member of a controlled group for this

purpose.

Affiliated group.— The term “affiliated

group” means one or more chains of

includible corporations (section 1504(a))

connected through stock ownership with

a common parent corporation. The

common parent must be an includible

corporation and the following

requirements must be met:

Page 14
1. The common parent must own

directly stock that represents at least 80%

of the total voting power and at least 80%

of the total value of the stock of at least

one of the other includible corporations.

2. Stock that represents at least 80%

of the total voting power, and at least 80%

of the total value of the stock of each of

the other corporations (except for the

common parent) must be owned directly

by at least one of the other includible

corporations.

For this purpose, stock generally does

not include any stock that (a) is nonvoting,

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

preferred as to dividends and does not

participate significantly in corporate

growth, and (d) has redemption and

liquidation rights that do not exceed the

issue price of the stock (except for a

reasonable redemption or liquidation

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

Parent-subsidiary controlled group.—

The term “parent-subsidiary controlled

group” means one or more chains of

corporations connected through stock

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

the following requirements must be met:

1. 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of each corporation in

the group (except the parent) must be

owned by one or more of the other

corporations in the group.

2. The common parent must own at

least 80% of the total combined voting

power of all classes of stock entitled to

vote or at least 80% of the total value of

all classes of stock of at least one of the

other corporations in the group. Stock

owned directly by other members of the

group is not counted when computing the

voting power or value.

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

of “stock” for purposes of determining

stock ownership above.

Question 19

Check the box on line 19 if the

cooperative elects under section

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

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

checked, do not attach the statement

described in Temporary Regulations

section 301.9100-12T(d).

Question 20

Enter the amount of the net operating loss

(NOL) carryover to the tax year from prior

years, even if some of the loss is used to

offset income on this return. The amount

to enter is the total of all NOLs generated

in prior years but not used to offset

income (either as a carryback or

carryover) to a tax year prior to 1996. Do

not reduce the amount by any NOL

deduction reported on line 29a.

Pub. 536 has a worksheet for figuring

a corporation's NOL carryover.

Page 15