(8) Paragraph (1) of section 199(d) is amended 
to read as follows: 
‘‘(1) APPLICATION OF SECTION TO PASS-THRU 
ENTITIES.— 
‘‘(A) PARTNERSHIPS
AND
S
CORPORA-
TIONS.—In the case of a partnership or S cor-
poration— 
‘‘(i) this section shall be applied at the 
partner or shareholder level, 
‘‘(ii) each partner or shareholder shall 
take into account such person’s allocable 
share of each item described in subpara-
graph (A) or (B) of subsection (c)(1) (de-
termined without regard to whether the 
items described in such subparagraph (A) 
exceed the items described in such sub-
paragraph (B)), and 
‘‘(iii) each partner or shareholder 
shall be treated for purposes of subsection 
(b) as having W–2 wages for the taxable 
year in an amount equal to the lesser of— 
‘‘(I) such person’s allocable share 
of the W–2 wages of the partnership 
or S corporation for the taxable year
(as determined under regulations pre-
scribed by the Secretary), or 
‘‘(II) 2 times 9 percent of so 
much of such person’s qualified pro-
duction activities income as is attrib-
utable to items allocated under clause 
(ii) for the taxable year. 
‘‘(B) TRUSTS AND ESTATES.—In the case 
of a trust or estate— 
‘‘(i) the items referred to in subpara-
graph (A)(ii) (as determined therein) and 
the W–2 wages of the trust or estate for 
the taxable year, shall be apportioned be-
tween the beneficiaries and the fiduciary 
(and among the beneficiaries) under regu-
lations prescribed by the Secretary, and 
‘‘(ii) for purposes of paragraph (2), 
adjusted gross income of the trust or es-
tate shall be determined as provided in sec-
tion 67(e) with the adjustments described 
in such paragraph. 
‘‘(C) REGULATIONS.—The Secretary may 
prescribe rules requiring or restricting the allo-
cation of items and wages under this paragraph
and may prescribe such reporting requirements 
as the Secretary determines appropriate.’’. 
(9) Paragraph (3) of section 199(d) is amended 
to read as follows: 
‘‘(3) AGRICULTURAL AND HORTICULTURAL CO-
OPERATIVES.— 
‘‘(A) 
DEDUCTION
ALLOWED
TO
PA-
TRONS.—Any person who receives a qualified 
payment from a specified agricultural or horti-
cultural cooperative shall be allowed for the tax-
able year in which such payment is received a 
deduction under subsection (a) equal to the por-
tion of the deduction allowed under subsection 
(a) to such cooperative which is— 
‘‘(i) allowed with respect to the por-
tion of the qualified production activities 
income to which such payment is attrib-
utable, and 
‘‘(ii) identified by such cooperative in 
a written notice mailed to such person dur-
ing the payment period described in section 
1382(d). 
‘‘(B) COOPERATIVE
DENIED
DEDUCTION 
FOR PORTION OF QUALIFIED PAYMENTS.—The 
taxable income of a specified agricultural or
horticultural cooperative shall not be reduced 
under section 1382 by reason of that portion of 
any qualified payment as does not exceed the 
deduction allowable under subparagraph (A) 
with respect to such payment. 
‘‘(C) TAXABLE INCOME OF COOPERATIVES 
DETERMINED
WITHOUT
REGARD
TO
CERTAIN 
DEDUCTIONS.—For purposes of this section, 
the taxable income of a specified agricultural or 
horticultural cooperative shall be computed 
without regard to any deduction allowable 
under subsection (b) or (c) of section 1382 (re-
lating to patronage dividends, per-unit retain 
allocations, and nonpatronage distributions). 
‘‘(D) SPECIAL RULE FOR MARKETING CO-
OPERATIVES.—For purposes of this section, a 
specified agricultural or horticultural coopera-
tive described in subparagraph (F)(ii) shall be 
treated as having manufactured, produced, 
grown, or extracted in whole or significant part 
any qualifying production property marketed by 
the organization which its patrons have so man-
ufactured, produced, grown, or extracted. 
‘‘(E) QUALIFIED PAYMENT.—For purposes 
of this paragraph, the term ‘qualified payment’
means, with respect to any person, any amount 
which— 
‘‘(i) is described in paragraph (1) or 
(3) of section 1385(a), 
‘‘(ii) is received by such person from 
a specified agricultural or horticultural co-
operative, and 
‘‘(iii) is attributable to qualified pro-
duction activities income with respect to 
which a deduction is allowed to such coop-
erative under subsection (a). 
‘‘(F) SPECIFIED AGRICULTURAL OR HORTI-
CULTURAL
COOPERATIVE.—For purposes of 
this paragraph, the term ‘specified agricultural 
or horticultural cooperative’ means an organiza-
tion to which part I of subchapter T applies 
which is engaged— 
‘‘(i) in the manufacturing, production, 
growth, or extraction in whole or signifi-
cant part of any agricultural or horti-
cultural product, or 
‘‘(ii) in the marketing of agricultural 
or horticultural products.’’. 
(10) Clause (i) of section 199(d)(4)(B) is 
amended—