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Instructions for Form 990-C
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2005
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.
What’s New
Contents
What’s New . . . . . . . . . . . . . . .
Photographs of Missing
Children . . . . . . . . . . . . . . . .
Unresolved Tax Issues . . . . . .
How To Get Forms and
Publications . . . . . . . . . . . . .
General Instructions . . . . . . .
Purpose of Form . . . . . . . . . . .
Who Must File . . . . . . . . . . . . .
When To File . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . .
Paid Preparer Authorization . . .
Assembling the Return . . . . . .
Accounting Methods . . . . . . . .
Accounting Period . . . . . . . . . .
Rounding Off to Whole Dollars
Recordkeeping . . . . . . . . . . . .
Depository Methods of Tax
Payment . . . . . . . . . . . . . . .
Estimated Tax Payments . . . . .
Interest and Penalties . . . . . . .
Other Forms and Statements
That May Be Required . . . . .
Specific Instructions . . . . . . .
Period Covered . . . . . . . . . . . .
Name and Address . . . . . . . . .
Business Activity With the
Largest Total Receipts . . . . .
Employer Identification
Number (EIN) . . . . . . . . . . .
Consolidated Return . . . . . . . .
Type of Cooperative . . . . . . . .
Initial Return, Final Return,
Name Change, Address
Change, or Amended Return
Income . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . .
Schedule A . . . . . . . . . . . . . . .
Schedule C . . . . . . . . . . . . . . .
Worksheet for Schedule C . .
Schedule H . . . . . . . . . . . . . . .
Schedule J . . . . . . . . . . . . . . .
Worksheet for Members of a
Controlled Group . . . . . . . .
Schedule L . . . . . . . . . . . . . . .
Schedule M-1 . . . . . . . . . . . . .
Schedule N . . . . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . . .
• The cooperative may be able to
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deduct a portion of the income from
certain qualified domestic production
activities. See section 199 and Form
8903, Domestic Production Activities
Deduction. Report the deduction on
Form 990-C, line 25. Also reduce any
deduction under section 1382 by the
amount of your section 199 deduction
allocated to patrons. See the
instructions for Schedule H, line 3(e),
and section 199(d)(3).
• The Gulf Opportunity Zone Act of
2005 provides certain tax relief benefits
for corporations. For details, see Pub.
4492, Information for Taxpayers
Affected by Hurricanes Katrina, Rita,
and Wilma.
• A cooperative can elect to deduct
qualified cash contributions made after
August 27, 2005, and before January 1,
2006, for relief efforts related to
Hurricane Katrina, Rita, or Wilma
without regard to the 10% taxable
income limit. See Line 19, Charitable
Contributions.
• Recent legislation revised and/or
created several general business
credits. See the instructions for
Schedule J, line 6, for the credits, form
numbers, and information concerning
allocation of credits to patrons.
Photographs of Missing
Children
The Internal Revenue Service is a
proud partner with the National Center
for Missing and Exploited Children.
Photographs of missing children
selected by the Center may appear in
instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if
you recognize a child.
Unresolved Tax Issues
If the cooperative has attempted to deal
with an IRS problem unsuccessfully, it
should contact the Taxpayer Advocate.
The Taxpayer Advocate independently
represents the cooperative’s interests
and concerns within the IRS by
protecting its rights and resolving
Cat. No. 11288M
problems that have not been fixed
through normal channels.
While Taxpayer Advocates cannot
change the tax law or make a technical
tax decision, they can clear up
problems that resulted from previous
contacts and ensure that the
cooperative’s case is given a complete
and impartial review.
The cooperative’s assigned personal
advocate will listen to its point of view
and will work with the cooperative to
address its concerns. The cooperative
can expect the advocate to provide:
• A “fresh look” at a new or ongoing
problem.
• Timely acknowledgement.
• The name and phone number of the
individual assigned to its case.
• Updates on progress.
• Time frames for action.
• Speedy resolution.
• Courteous service.
When contacting the Taxpayer
Advocate, the cooperative should be
prepared to provide the following
information.
• The cooperative’s name, address,
and employer identification number
(EIN).
• The name and telephone number of
an authorized contact person and the
hours he or she can be reached.
• The type of tax return and year(s)
involved.
• A detailed description of the problem.
• Previous attempts to solve the
problem and the office that was
contacted.
• A description of the hardship the
cooperative is facing and verifying
documentation (if applicable).
The cooperative can contact a
Taxpayer Advocate by calling
1-877-777-4778 (toll free). Persons who
have access to TTY/TDD equipment
can call 1-800-829-4059 and ask for
Taxpayer Advocate assistance. If the
cooperative prefers, it can call, write, or
fax the Taxpayer Advocate office in its
area. See Pub. 1546 for a list of
addresses and fax numbers.
How To Get Forms and
Publications
Internet. You can access the IRS
website 24 hours a day, 7 days a week,
at www.irs.gov.
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Instructions for Form 990-C
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• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword; and
• Sign up to receive local and national
tax news by email.
CD-ROM for tax products. You can
order Pub. 1796, IRS Tax Products CD,
and obtain:
• A CD that is released twice so you
have the latest products. The first
release ships in late December and the
final release ships in late February;
• Current-year forms, instructions, and
publications;
• Prior-year forms, instructions, and
publications;
• Tax Map: an electronic research tool
and finding aid;
• Tax law frequently asked questions
(FAQs);
• Tax Topics from the IRS telephone
response system;
• Fill-in, print, and save features for
most tax forms;
• Internal Revenue Bulletins; and
• Toll-free and email technical support.
Buy the CD-ROM from the National
Technical Information Service (NTIS) at
www.irs.gov/cdorders for $25 (no
handling fee) or call 1-877-CDFORMS
(1-877-233-6767) toll free to buy the
CD-ROM for $25 (plus a $5 handling
fee). The first release ships in late
December and the final release ships in
late February.
By phone and in person. You can
order forms and publications by calling
1-800-TAX-FORM (1-800-829-3676).
You can also get most forms and
publications at your local IRS office.
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 must file
Form 990-C whether or not it has
taxable income (Regulations section
1.6012-2(f)).
Generally, a farmers’ cooperative is
a farmers, fruit growers, or like
association organized and operated on
a cooperative basis to:
1. Market the products of members
or other producers and return to them
the proceeds of sales, less necessary
marketing expenses, on the basis of
either the quantity or value of their
products; or
2. Purchase supplies and
equipment for the use of members or
other persons and turn over the
supplies and equipment to them at
actual cost, plus necessary expenses.
Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal
Service to mail any item to an IRS P.O.
box address.
A member is anyone who shares in
the profits of a cooperative association
and is entitled to participate in the
management of the association.
Extension of Time to File
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.
Cooperatives organized and
operated for purposes other
CAUTION than those described above
should not file Form 990-C. Instead, file
Form 1120, U.S. Corporation Income
Tax Return, or Form 1120-A, U.S.
Corporation Short-Form Income Tax
Return (if applicable).
!
When To File
A cooperative may file its income tax
return by the 15th day of the 9th month
after the end of its tax year provided it
meets the requirements of section
6072(d) prior to filing. Any cooperative
not meeting the requirements of section
6072(d) must file its income tax return
by the 15th day of the 3rd month after
the end of its tax year.
If the due date falls on a Saturday,
Sunday, or legal holiday, the
cooperative can file on the next
business day.
Private delivery services.
Cooperatives can use certain private
delivery services designated by the IRS
to meet the “timely mailing as timely
filing/paying” rule for tax returns and
payments. These private delivery
services include only the following.
• DHL Express (DHL): DHL Same Day
Service, DHL Next Day 10:30 am, DHL
Next Day 12:00 pm, DHL Next Day
3:00 pm, and DHL 2nd Day Service.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx
International Priority, and FedEx
International First.
• United Parcel Service (UPS): UPS
Next Day Air, UPS Next Day Air Saver,
UPS 2nd Day Air, UPS 2nd Day Air
A.M., UPS Worldwide Express Plus,
and UPS Worldwide Express.
The private delivery service can tell
you how to get written proof of the
mailing date.
-2-
!
File Form 7004, Application for
Automatic 6-Month Extension of Time
To File Certain Business Income Tax,
Information, and Other Returns, to
request an automatic 6-month
extension of time to file. Generally file
Form 7004 by the regular due date of
the return.
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 cooperative officer (such
as tax officer) authorized to sign.
If a return is filed on behalf of a
cooperative by a receiver, trustee, or
assignee, the fiduciary must sign the
return, instead of the cooperative
officer. Returns and forms signed by a
receiver or trustee in bankruptcy on
behalf of a cooperative must be
accompanied by a copy of the order or
instructions of the court authorizing
signing of the return or form.
If an employee of the cooperative
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 complete that section. Generally,
anyone who is paid to prepare the
return must sign it and fill in the “Paid
Preparer’s Use Only” area.
The paid preparer must complete
the required preparer information and:
• Sign the return in the space provided
for the preparer’s signature.
• Give a copy of the return to the
taxpayer.
Note. A paid preparer may sign original
or amended returns by rubber stamp,
mechanical device, or computer
software program.
Paid Preparer Authorization
If the cooperative wants to allow the
IRS to discuss its 2005 tax return with
the paid preparer who signed it, check
the “Yes” box in the signature area of
the return. This authorization applies
only to the individual whose signature
appears in the “Paid Preparer’s Use
Only” section of the cooperative’s
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Instructions for Form 990-C
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return. It does not apply to the firm, if
any, shown in that section.
If the “Yes” box is checked, the
cooperative is authorizing the IRS to
call the paid preparer to answer any
questions that may arise during the
processing of its return. The
cooperative is also authorizing the paid
preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The cooperative is not authorizing
the paid preparer to receive any refund
check, bind the cooperative to anything
(including any additional tax liability), or
otherwise represent the cooperative
before the IRS. If the cooperative wants
to expand the paid preparer’s
authorization, see Pub. 947, Practice
Before the IRS and Power of Attorney.
The authorization will automatically
end no later than the due date
(excluding extensions) for filing the
cooperative’s 2006 tax return.
Assembling the Return
To ensure that the cooperative’s tax
return is correctly processed, attach all
schedules and other forms after page
5, Form 990-C, in the following order.
1. Form 8302.
2. Form 4136.
3. Form 4626.
4. Form 851.
5. Additional schedules in
alphabetical order.
6. Additional forms in numerical
order.
Complete every applicable entry
space on Form 990-C. Do not write
“See Attached” instead of completing
the entry spaces. If more space is
needed on the forms or schedules,
attach separate sheets, using the same
size and format as the printed forms. If
there are supporting statements and
attachments, arrange them in the same
order as the schedules or forms they
support and attach them last. Show the
totals on the printed forms. Enter the
cooperative’s name and EIN on each
supporting statement or attachment.
Accounting Methods
Figure taxable income using the
method of accounting regularly used in
keeping the cooperative’s books and
records. In all cases, the method used
must clearly show taxable income.
Permissible methods include:
• Cash,
• Accrual, or
• Any other method authorized by the
Internal Revenue Code.
See Pub. 538, Accounting Periods
and Methods, for more information.
Change in accounting method. To
change its method of accounting used
to report taxable income (for income as
a whole or for the treatment of any
material item), the cooperative must file
Form 3115, Application for Change in
Accounting Method. For more
information, see Form 3115, Pub. 538,
Accounting Periods and Methods, and
Pub. 542, Corporations.
Accounting Period
A cooperative must figure its taxable
income on the basis of a tax year. A tax
year is the annual accounting period a
cooperative uses to keep its records
and report its income and expenses.
Generally, cooperatives can use a
calendar year or a fiscal year.
Change of tax year. 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 can change its tax year
without getting a consent.
For more information about
accounting periods, tax year, and
change of tax year, see Form 1128 and
Pub. 538.
Rounding Off to Whole
Dollars
The cooperative can round off cents to
whole dollars on its return and
schedules. If the cooperative does
round to whole dollars, it must round all
amounts. To round, drop amounts
under 50 cents and increase amounts
from 50 to 99 cents to the next dollar
(for example, $1.39 becomes $1 and
$2.50 becomes $3).
If two or more amounts must be
added to figure the amount to enter on
a line, include cents when adding the
amounts and round off only the total.
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.
-3-
The cooperative should also keep
copies of all returns. They help in
preparing future and amended returns.
Depository Methods of
Tax Payment
The cooperative must pay any tax due
in full no later than the 15th day of the
9th month after the end of the tax year.
The two methods of depositing taxes
are discussed below.
Electronic Deposit Requirement. The
cooperative must make electronic
deposits of all depository taxes (such
as employment tax, excise tax, and
corporate income tax) using the
Electronic Federal Tax Payment
System (EFTPS) in 2006 if:
• The total deposits of such taxes in
2004 were more than $200,000 or
• The cooperative was required to use
EFTPS in 2005.
If the cooperative is required to use
EFTPS and fails to do so, it may be
subject to a 10% penalty. If the
cooperative is not required to use
EFTPS, it can participate voluntarily. To
enroll in or get more information about
EFTPS, call 1-800-555-4477. To enroll
online, visit www.eftps.gov.
Depositing on time. For EFTPS
deposits to be made timely, the
cooperative must initiate the transaction
at least 1 business day before the date
the deposit is due.
Deposit with Form 8109. If the
cooperative does not use EFTPS,
deposit cooperative income tax
payments (and estimated tax
payments) with Form 8109, Federal
Tax Deposit Coupon. If you do not have
a preprinted Form 8109, use Form
8109-B to make deposits. You can get
this form by calling 1-800-829-4933 or
visiting an IRS taxpayer assistance
center. Have your EIN ready when you
call or visit.
Do not send deposits directly to an
IRS office; otherwise, the cooperative
may have to pay a penalty. Mail or
deliver the completed Form 8109 with
the payment to an authorized
depositary (a commercial bank or other
financial institution authorized to accept
federal tax deposits). Make checks or
money orders payable to the
depositary.
If the cooperative prefers, it may mail
the coupon and payment to: Financial
Agent, Federal Tax Deposit Processing,
P.O. Box 970030, St. Louis, MO 63197.
Make the check or money order
payable to “Financial Agent.”
To help ensure proper crediting,
enter the cooperative’s EIN, the tax
period to which the deposit applies, and
“Form 990-C” on the check or money
order. Darken the “990-C” box under
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Instructions for Form 990-C
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“Type of Tax” and the appropriate
“Quarter” box under “Tax Period” on the
coupon. Records of these deposits will
be sent to the IRS. For more
information, see “Marking the Proper
Tax Period” in the instructions for Form
8109.
• The cooperative is a large
If the cooperative owes tax
when it files Form 990-C, do not
CAUTION include the payment with the tax
return. Instead, mail or deliver the
payment with Form 8109 to an
authorized depositary or use EFTPS, if
applicable.
Interest and Penalties
!
Estimated Tax Payments
Generally, the following rules apply to
the cooperative’s payments of
estimated tax.
• The cooperative must make
installment payments of estimated tax if
it expects its total tax for the year (less
applicable 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.
• If the cooperative does not use
EFTPS, use the deposit coupons
(Forms 8109) to make deposits of
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.
See the instructions for lines 32b
and 32c, Form 990-C.
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
corporation is subject to the penalty if
its tax liability is $500 or more and it did
not timely pay the smaller of:
• Its tax liability for 2005, or
• Its prior year’s tax.
See section 6655 for details and
exceptions, including special rules for
large corporations.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, 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, complete and attach Form
2220 if:
• The annualized income or adjusted
seasonal installment method is used, or
corporation computing its first required
installment based on the prior year’s
tax. See the Instructions for Form 2220
for the definition of a large corporation.
Also, see the instructions for line 33,
Form 990-C.
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, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements 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 should attach a statement
explaining the reasonable cause.
Penalty for late payment of tax. A
cooperative that does not pay the tax
when due generally 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. These taxes are
generally reported on:
• Form 720, Quarterly Federal Excise
Tax Return;
• Form 941, Employer’s Quarterly
Federal Tax Return;
• Form 943, Employer’s Annual
Federal Tax Return for Agricultural
Employees; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
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,
-4-
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, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.
Other Forms and
Statements That May Be
Required
Reportable transaction disclosure
statement. Disclose information for
each reportable transaction in which the
cooperative participated. Form 8886,
Reportable Transaction Disclosure
Statement, must be filed for each tax
year that the federal income tax liability
of the cooperative is affected by its
participation in the transaction. The
cooperative may have to pay a penalty
if it is required to file Form 8886 and
does not do so. The following are
reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to tax avoidance
transactions identified by the IRS.
2. Any transaction offered under
conditions of confidentiality for which
the cooperative paid an advisor a fee of
at least $250,000.
3. Certain transactions for which the
cooperative has contractual protection
against disallowance of the tax benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single
year or $20 million in any combination
of years.
5. Certain transactions resulting in a
book-tax difference of more than $10
million on a gross basis.
6. Certain transactions resulting in a
tax credit of more than $250,000, if the
cooperative held the asset generating
the credit for 45 days or less.
Penalties. The cooperative may
have to pay a penalty if it is required to
disclose a reportable transaction under
section 6011 and fails to properly
complete and file Form 8886. The
penalty is $50,000 ($200,000 if the
reportable transaction is a listed
transaction) for each failure to file Form
8886 with its return or for failure to
provide a copy of Form 8886 to the
Office of Tax Shelter Analysis (OTSA).
Other penalties, such as an
accuracy-related penalty under section
6662A, may also apply. See the
Instructions for Form 8886 for details.
Reportable transactions by material
advisors. Until further guidance is
issued, material advisors who provide
material aid, assistance, or advice with
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respect to any reportable transaction,
must use Form 8264, Application for
Registration of a Tax Shelter, to
disclose reportable transactions in
accordance with interim guidance
provided in Notice 2004-80, 2004-50
I.R.B. 963; Notice 2005-17, 2005-8
I.R.B. 606; and Notice 2005-22,
2005-12 I.R.B. 756.
Transfers to a cooperative controlled
by the transferor. If a person receives
stock of a cooperative in exchange for
property, and no gain or loss is
recognized under section 351, the
person (transferor) and the transferee
must each attach to their tax returns the
information required by Regulations
section 1.351-3.
Dual consolidated losses. If a
domestic cooperative incurs a dual
consolidated loss (as defined in
Regulations section 1.1503-2(c)(5)), the
cooperative (or consolidated group)
may need to attach an elective relief
agreement and/or an annual
certification as provided in Temporary
Regulations section 1.1503-2T(g)(2).
Election to reduce basis under
section 362(e)(2)(C). The transferor
and transferee in certain section 351
transactions can make a joint election
under section 362(e)(2)(C) to limit the
transferor’s basis in the stock received
instead of the transferee’s basis in the
transferred property. The transferor and
transferee may make the election by
attaching the statement as provided in
Notice 2005-70, 2005-41 I.R.B. 694, to
their tax returns filed by the due date
(including extensions) for the tax year in
which the transaction occurred. Once
made, the election is irrevocable. See
section 362(e)(2)(C) and Notice
2005-70.
Other forms and statements. See
Pub. 542 for a list of other forms and
statements that the cooperative may
need to file in addition to the forms and
statements discussed throughout these
instructions.
Specific Instructions
Period Covered
File the 2005 return for calendar year
2005 and fiscal years that begin in
2005 and end in 2006. For a fiscal or
short tax year return, fill in the tax year
space at the top of the form.
Effective for tax years ending on
or after December 31, 2006, all
CAUTION subchapter T cooperatives will
be required to file Form 1120-C, U.S.
Income Tax Return for Cooperative
Associations.
The 2005 Form 990-C can also be
used if:
!
• The cooperative has a tax year of
less than 12 months that begins and
ends in 2006, and
• The 2006 Form 1120-C is not
available at the time the cooperative is
required to file its return.
The cooperative must show its 2006
tax year on the 2005 Form 990-C and
take into account any tax law changes
that are effective for tax years
beginning after December 31, 2005.
Name and Address
Enter the cooperative’s true name (as
set forth in the charter or other legal
document creating it), address, and EIN
on the appropriate lines. 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.
If the cooperative receives its mail in
care of a third party (such as an
accountant or an attorney), enter on the
street address line “C/O” followed by
the third party’s name and street
address or P.O. box.
If the cooperative received a Form
990-C tax package, use the preprinted
label. Cross out any errors and print the
correct information on the label.
Item A. Business Activity
With the Largest Total
Receipts
Identify the business activity from which
the cooperative receives the largest
total receipts (that is, wholesale
marketing of meat, drying fruit, grain
storage, wholesale purchasing of
fertilizers, cattle breeding, etc.).
Item B. Employer
Identification Number
(EIN)
Enter the cooperative’s EIN. If the
cooperative does not have an EIN, it
must apply for one. An EIN can be
applied for:
• Online – Click on the EIN link at www.
irs.gov/businesses/small. The EIN is
issued immediately once the application
information is validated.
• By telephone at 1-800-829-4933 from
8:00 a.m. to 8:00 p.m. in the
cooperative’s local time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the cooperative has not received
its EIN by the time the return is due,
enter “Applied for” in the space for the
EIN. For more details, see Pub. 583.
The online application process is
not yet available for cooperatives with
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addresses in foreign countries or
Puerto Rico.
Item C. Consolidated
Return
Cooperatives filing a consolidated
return must attach Form 851,
Affiliations Schedule, and other
supporting statements to the return.
The first year a subsidiary cooperative
is being included in a consolidated
return attach Form 1122, Authorization
and Consent of Subsidiary Corporation
To Be Included in a Consolidated
Income Tax Return, to the parent’s
consolidated return. Attach a separate
Form 1122 for each subsidiary being
included in the consolidated return. If
you check the “Tax exempt” box in Item
D, you cannot file a consolidated return.
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” box, and enter
“Application Pending” on Form 990-C,
at the top of page 1.
Farmers’ cooperatives without
section 521 exempt status, organized
and operated as described under Who
Must File on page 2 of the instructions,
should check the “Nonexempt” box.
Item E. Initial Return,
Final Return, Name
Change, Address
Change, or Amended
Return
• If this is the cooperative’s first return,
check the “Initial return” box.
• If the cooperative ceases to exist, file
Form 990-C and check the “Final
return” box.
• If the cooperative changed its name
since it last filed a return, check the
“Name change” box. Generally, a
cooperative also must have amended
its articles of incorporation and filed the
amendment with the state in which it
was incorporated.
• If the cooperative has changed its
address since it last filed a return
(including a change to an “in care of”
address), check the “Address change”
box.
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• If the cooperative must change their
originally filed return for any year, it
should file a new return including any
required attachments. Use the revision
of Form 990-C applicable to the year
being amended. The amended return
must provide all the information called
for by the form and instructions, not just
the new or corrected information.
Check the “Amended return” box.
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.
Income
Except as otherwise provided in the
Internal Revenue Code, gross income
includes all income from whatever
source derived.
Extraterritorial income. Gross income
generally does not include
extraterritorial income that is qualifying
foreign trade income. The
extraterritorial income exclusion is
reduced by 20% for transactions in
2005 (40% for transactions in 2006),
unless made under a binding contract
with an unrelated person in effect on
September 17, 2003, and at all times
thereafter. Use Form 8873,
Extraterritorial Income Exclusion, to
figure the exclusion. Include the
exclusion in the total for Other
deductions on line 26, Form 990-C.
Income from qualifying shipping
activities. Gross income does not
include income from qualifying shipping
activities if the cooperative makes an
election under section 1354 to be taxed
on its notional shipping income (as
defined in section 1353) at the highest
corporate rate (35%). If the election is
made, the cooperative generally may
not claim any loss, deduction, or credit
with respect to qualifying shipping
activities. A cooperative making this
election also may elect to defer gain on
the disposition of a qualifying vessel.
Use Form 8902, Alternative Tax on
Qualifying Shipping Activities, to figure
the tax. Include the alternative tax on
Schedule J, line 9.
Line 1. Gross Receipts or
Sales
Enter gross receipts or sales from all
business operations except those that
must be reported on lines 4a through
10. In general, advance payments are
reported in the year of receipt. To
report income from long-term contracts,
see section 460. For special rules for
reporting certain advance payments for
goods and long-term contracts, see
Regulations section 1.451-5. For
permissible methods for reporting
certain advance payments for services
by an accrual method cooperative, see
Rev. Proc. 2004-34, 2004-22 I.R.B.
991.
Allocation of patronage and
nonpatronage income and
deductions (Form 8817). 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.
Installment sales. Generally, the
installment method cannot be used for
dealer dispositions of property. A
“dealer disposition” is any disposition
of: (a) personal property by a person
who regularly sells or otherwise
disposes of personal property of the
same type on the installment plan or (b)
real property held for sale to customers
in the ordinary course of the taxpayer’s
trade or business.
These restrictions on using the
installment method do not apply to
dispositions of property used or
produced in a farming business or sales
of timeshares and residential lots for
which the cooperative elects to pay
interest under section 453(I)(3).
For sales of timeshares and
residential lots reported under the
installment method, the cooperative’s
income tax is increased by the interest
payable under section 453(l)(3). To
report this addition to tax, see the
instructions for Schedule J, line 9, on
page 18.
Enter on line 1 (and carry to line 3),
the gross profit on collections from
installment sales for any of the
following:
• Dealer dispositions of property before
March 1, 1986.
• Dispositions of property used or
produced in the trade or business of
farming.
• Certain dispositions of timeshares
and residential lots reported under the
installment method.
Attach a schedule showing the
following information for the current and
the 3 preceding years: (a) gross sales,
(b) cost of goods sold, (c) gross profits,
(d) percentage of gross profits to gross
sales, (e) amount collected, and (f)
gross profit on the amount collected.
Nonaccrual experience method.
Cooperatives that qualify to use the
nonaccrual experience method 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.
Line 2. Cost of Goods Sold
Enter the cost of goods sold on line 2,
page 1. Before making this entry,
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complete Form 990-C, Schedule A, on
page 2. See the Schedule A
instructions.
Line 4a. Income from
Patronage Dividends and
Per-unit Retain Allocations
Attach a schedule listing the name of
each declaring association from which
the cooperative received income from
patronage dividends and per-unit retain
allocations, and the total amount
received from each association.
Include the items listed below:
1. Patronage dividends received in:
• Money,
• Qualified written notices of
allocation, or
• Other property (except
nonqualified written notices of
allocation).
2. 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).
3. Qualified written notices of
allocation at their stated dollar amounts
and property at its fair market value
(FMV).
4. 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.
5. 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.
6. Per-unit retain allocations
received (except nonqualified per-unit
retain certificates). See section 1385.
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.
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Line 4b. Dividends
See the instructions for Schedule C,
then complete Schedule C and enter on
line 4b, the amount from Schedule C,
line 17.
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.
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
allowable.
Note. Report tax-exempt interest
income on Schedule N, item 15. Also, if
required, include the same amount on
Schedule M-1, line 7.
Line 6. Gross Rents
Enter the gross amount received from
the rental of property. Deduct expenses
such as repairs, interest, taxes, and
depreciation on the applicable lines.
Generally, gross rents are
considered nonpatronage income to
nonexempt cooperatives (Regulations
section 1.1382(c)(2)). As such, a
patronage dividend deduction may not
be allowable.
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:
1. Recoveries of bad debts
deducted in prior years under the
specific charge-off method.
2. The amount included in income
from Form 6478, Credit for Alcohol
Used as Fuel.
3. The amount included in income
from Form 8864, Biodiesel and
Renewable Diesel Fuels Credit.
4. 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 any
tax refunds.
5. Any recapture amount under
section 179A for certain clean-fuel
vehicle property (or clean-fuel vehicle
refueling property) that ceases to
qualify. See Regulations section
1.179A-1 for details.
6. For cooperatives described in
section 1381 that are shareholders in a
foreign sales corporation (FSC), include
the nonexempt 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.
7. Ordinary income from trade or
business activities of a partnership
(from Schedule K-1 (Form 1065 or
1065-B)). Do not offset ordinary losses
against ordinary income. Instead,
include the losses on Form 990-C, line
26. Show the partnership’s name,
address, and EIN on a separate
statement attached to this return. If the
amount entered is from more than one
partnership, identify the amount from
each partnership.
8. Any net positive section 481(a)
adjustment. The cooperative may have
to make an adjustment under section
481(a) to prevent amounts of income or
expense from being duplicated or
omitted. The section 481(a) adjustment
period is generally 1 year for a net
negative adjustment and 4 years for a
net positive adjustment. However, a
cooperative can elect to use a 1-year
adjustment period if the net section
481(a) adjustment for the change is
less than $25,000. The cooperative
must complete the appropriate lines of
Form 3115 to make the election. If the
net section 481(a) adjustment is
negative, report it on Form 990-C, line
26.
Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization
(UNICAP) rules of section 263A
generally require cooperatives to
capitalize, or include in inventory,
certain costs incurred in connection
with:
• The production of real property and
tangible personal property held in
inventory or held for sale in the ordinary
course of business.
• Real property or personal property
(tangible and intangible) acquired for
resale.
• The production of real property and
tangible personal property by a
cooperative for use in its trade or
business or in an activity engaged in for
profit.
Cooperatives subject to the UNICAP
rules are required to capitalize not only
direct costs but an allocable part of
most indirect costs (including taxes)
that (a) benefit the assets produced or
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acquired for resale or (b) are incurred
by reason of the performance of
production or resale activities.
For inventory, some of the indirect
expenses 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.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate
to production or resale activities that
must be capitalized, and those that may
be currently deductible.
Interest expense paid or incurred
during the production period of
designated property must be capitalized
and is governed by special rules. For
more details, see Regulations sections
1.263A-8 through 1.263A-15.
The costs required to 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.
Exceptions. Section 263A does not
apply to:
• Personal property acquired for resale
if the cooperative’s average annual
gross receipts for the 3 prior tax years
were $10 million or less.
• Timber.
• Most property produced under a
long-term contract.
• Certain property produced in a
farming business.
• Research and experimental costs
under section 174.
• Geological and geophysical costs
amortized under section 167(h).
• Intangible drilling costs for oil, gas,
and geothermal property.
• Mining exploration and development
costs.
• Inventoriable items accounted for in
the same manner as materials and
supplies that are not incidental. See
Cost of Goods Sold for details.
For more details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3.
See Regulations section 1.263A-4 and
Pub. 225, Farmer’s Tax Guide, for rules
for property produced in a farming
business.
Transactions between related
taxpayers. Generally, an accrual basis
taxpayer can only deduct business
expenses and interest owed to a
related party in the year payment is
included in the income of the related
party. See sections 163(e)(3), 163(j),
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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 excess amounts if
control of the cooperative changes. See
section 280G and Regulations section
1.280G-1.
Business start-up and organizational
costs. Business start-up and
organizational costs must be capitalized
unless an election is made to deduct or
amortize them. The cooperative can
elect to amortize costs paid or incurred
before October 23, 2004, over a period
of 60 months or more. For costs paid
after October 22, 2004, the following
rules apply separately to each category
of costs.
• The cooperative can elect to deduct
up to $5,000 of such costs for the year
the cooperative begins business
operations.
• The $5,000 deduction is reduced (but
not below zero) by the amount the total
cost exceeds $50,000. If the total costs
are $55,000 or more, the deduction is
reduced to zero.
• If the election is made, any costs that
are not deductible must be amortized
ratably over a 180-month period.
In all cases, the amortization period
begins the month the cooperative
begins business operations. For more
details on the election for business
start-up and organizational costs, see
Pub. 535.
Attach any statement required by
Regulations section 1.195-1(b) or
1.248-1(c). Report the deductible
amount of these costs and any
amortization on line 26. For
amortization that begins during the
2005 tax year, complete and attach
Form 4562.
Passive activity limitations.
Limitations on passive activity losses
and credits under section 469 apply to
closely held cooperatives.
A cooperative is a “closely held
cooperative” (as defined at section
469(j)(1)) 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. 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, the two kinds of passive
activities are:
• Trade or business activities in which
the cooperative did not materially
participate, and
• Rental activities, regardless of its
participation.
For exceptions, see Form 8810,
Corporate Passive Activity Loss and
Credit Limitations.
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), the
at-risk rules of section 465, or the
tax-exempt use loss rules of section
470, 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.
• Employment credits. See the
instructions for line 13.
• Research credit.
• Orphan drug credit.
• Disabled access credit.
• Enhanced oil recovery credit.
• Employer credit for social security
and Medicare taxes paid on certain
employee tips.
• Credit for small employer pension
plan start-up costs.
• Credit for employer-provided
childcare facilities and services.
• Low sulfur diesel fuel production
credit.
If the cooperative has any of these
credits, figure each current year credit
before figuring the deduction for the
expenses on which the credit is based.
See the instructions for the applicable
form used to figure the credit.
Limitations on deductions related to
property leased to tax-exempt
entities. If a cooperative leases
property to a governmental or other
tax-exempt entity, the cooperative can
not claim deductions related to the
property to the extent that they exceed
the cooperative’s income from the lease
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payments (tax-exempt use loss).
Amounts disallowed may be carried
over to the next tax year and treated as
a deduction with respect to the property
for that tax year. See section 470 for
more details and exceptions.
Line 12. Compensation of
Officers
Enter deductible officer’s compensation
on line 12. Before entering an amount
on line 12, complete Schedule E if the
cooperative’s 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 IRA plan.
Include only the deductible part of
each officer’s compensation on
Schedule E. 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 it is incorporated.
If a consolidated return is filed, each
member of an affiliated group must
furnish this information.
Line 13. Salaries and Wages
Enter the salaries and wages paid for
the tax year, reduced by the total
amount claimed on:
• Form 5884, Work Opportunity Credit,
line 2;
• Form 5884-A, Credits for Employers
Affected by Hurricane Katrina, Rita, or
Wilma, line 2;
• Form 8844, Empowerment Zone and
Renewal Community Employment
Credit, line 2;
• Form 8845, Indian Employment
Credit, line 4; and
• Form 8861, Welfare-to-Work Credit,
line 2.
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 IRA plan.
If the cooperative provided
taxable fringe benefits to its
CAUTION 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
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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 here.
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. A cash method taxpayer
cannot claim a bad debt deduction
unless the amount was previously
included in income.
Line 16. Rents
If the cooperative rented or leased a
vehicle, enter the total annual rent or
lease expense paid or incurred during
the year. Also complete Form 4562,
Depreciation and Amortization, Part V.
If the cooperative leased a vehicle for a
term of 30 days or more, the deduction
for vehicle lease expense may have to
be reduced by an amount called the
inclusion amount. The cooperative may
have an inclusion amount if:
The lease term
began:
And the vehicle’s FMV on
the first day of the lease
exceeded:
After 12/31/04 but before 1/1/06
$15,200
After 12/31/03 but before 1/1/05
$17,500
After 12/31/02 but before 1/1/04
$18,000
If the lease term began before January 1, 2003, see Pub.
463, Travel, Entertainment, Gift, and Car Expenses, to
find out if the cooperative has an inclusion amount. The
inclusion amount for lease terms beginning in 2006 will be
published in the Internal Revenue Bulletin in early 2006.
See Pub. 463 for instructions on
figuring the inclusion amount.
Line 17. Taxes and Licenses
Enter taxes paid or accrued during the
tax year, except the following.
• Federal income taxes.
• 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).
• Taxes not imposed on the
cooperative.
• Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes are
treated as part of the cost of the
acquired property, or in the case of a
disposition, as a reduction in the
amount realized on the disposition).
• Taxes assessed against local
benefits that increase the value of the
property assessed (such as for paving,
etc.).
• Taxes deducted elsewhere on the
return, such as those reflected in cost
of goods sold.
See section 164(d) for the rule on
apportionment of taxes on real property
between the seller and purchaser.
Line 18. Interest
Do not offset interest income against
interest expense.
Do not deduct the following:
• 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).
• For cash basis taxpayers, prepaid
interest allocable to years following the
current tax year. For example, a cash
basis calendar year taxpayer who in
2005 prepaid interest allocable to any
period after 2005 can deduct only the
amount allocable to 2005.
• Interest and carrying charges on
straddles. Generally, these amounts
must be capitalized. See section
263(g).
• Interest paid or incurred on any
portion of an underpayment of tax that
is attributable to an understatement
arising from an undisclosed listed
transaction or an undisclosed
reportable avoidance transaction (other
than a listed transaction) entered into in
tax years beginning after October 22,
2004.
Special rules apply to:
• Interest on which no tax is imposed
(see section 163(j)).
• Forgone interest on certain
below-market-rate loans (see section
7872).
• Original issue discount on certain
high yield discount obligations (see
section 163(e) to figure the disqualified
portion).
• Interest which is allocable to
unborrowed policy cash values of life
insurance, endowment, or annuity
contracts issued after June 8, 1997.
See section 264(f). Attach a statement
showing the computation of the
deduction.
Line 19. Charitable
Contributions
Enter contributions or gifts actually paid
within 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. Special
rules and limits apply to contributions to
organizations conducting lobbying
activities. See section 170(f)(9).
Cooperatives reporting taxable
income on the accrual method can
elect to treat as paid during the tax year
any contributions paid by the 15th day
of the 3rd month after the end of the tax
year if the contributions were
authorized by the board of directors
during the tax year. Attach a
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declaration to the return stating that the
resolution authorizing the contributions
was adopted by the board of directors
during the current tax year. The
declaration must include the date the
resolution was adopted.
Limitation on deduction. The total
amount claimed may not be more than
10% of taxable income (line 30)
computed without regard to the
following.
• Any deduction for contributions.
• The special deductions on line 29b,
Form 990-C.
• The deduction allowed under section
249.
• The deduction allowed under section
199.
• Any net operating loss (NOL)
carryback to the tax year under section
172.
• Any capital loss carryback to the tax
year under section 1212(a)(1).
Temporary suspension of 10%
limitation. A cooperative may elect to
deduct qualified cash contributions
without regard to the general 10% limit
if the contributions were made after
August 27, 2005, and before January 1,
2006, to a qualified charitable
organization (other than certain private
foundations described in section
509(a)(3)), for Hurricane Katrina, Rita,
or Wilma relief efforts. The total amount
claimed cannot be more than taxable
income as computed above substituting
“100%” for “10%.” Excess qualified
contributions are carried over to the
next 5 years. Attach a statement
substantiating that the contributions are
for Hurricane Katrina, Rita, or Wilma
relief efforts and indicating the amount
of qualified contributions for which the
election is made. For more information,
see section 1400S.
Carryover. Charitable contributions
over the 10% limitation cannot be
deducted for the current 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 taking into account any deduction
for the NOL.
To figure the amount of any
remaining NOL carryover to later years,
taxable income must be modified (see
sections 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).
Substantiation requirements.
Generally, no deduction is allowed for
any contribution of $250 or more unless
the cooperative gets a written
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acknowledgment from the donee
organization that shows the amount of
cash contributed, describes any
property contributed, and either gives a
description and a good faith estimate of
the value of any goods or services
provided in return for the contribution or
states that no goods or services were
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, Noncash
Charitable Contributions.
Contributions of property other than
cash. If a cooperative contributes
property other than cash and claims
over 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 (FMV).
Complete and attach Form 8283 for
contributions of property (other than
money) if the total claimed deduction
for all property contributed was more
than $5,000. Special rules apply to the
contribution of certain property. See the
Instructions for Form 8283.
Larger deduction. A larger
deduction is allowed for certain
contributions of:
• Inventory and other property to
certain organizations for use in the care
of the ill, needy, or infants (section
170(e)(3)) including contributions made
after August 27, 2005, and before
January 1, 2006, of “apparently
wholesome food” (section 170(e)(3)(C))
and qualified book contributions
(section 170(e)(3)(D));
• Scientific equipment used for
research to institutions of higher
learning or to certain scientific research
organizations (other than by personal
holding companies and service
organizations (section 170(e)(4)); and
• Computer technology and equipment
for educational purposes (section
170(e)(6).
For more information on charitable
contributions, including substantiation
and recordkeeping requirements, see
section 170, the related regulations,
and Pub. 526, Charitable Contributions.
For special rules that apply to
corporations, see Pub. 542.
Line 20a. Depreciation
Include on line 20a depreciation and
the cost of certain property that the
cooperative elected to expense under
section 179. See Form 4562 and its
instructions.
Line 21. Depletion
See sections 613 and 613A for
percentage depletion rates applicable
to natural deposits. Also, see section
291(a)(2) for the limitation on the
depletion deduction for iron ore and
coal (including lignite).
Attach Form T (Timber), Forest
Activities Schedule, if a deduction for
depletion of timber is taken.
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. See Pub. 535
for more information on depletion.
Line 23. 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 timely and for
overstating the pension plan deduction.
See sections 6652(e) and 6662(f).
Form 5500, Annual Return/Report of
Employee Benefit Plan. File this form
for a plan that is not a one-participant
plan (see below).
Form 5500-EZ, Annual Return of
One-Participant (Owners and Their
Spouses) Retirement Plan. File this
form for a plan that only covers the
owner (or the owner and his or her
spouse) but only if the owner (or the
owner and his or her spouse) owns the
entire business.
Line 24. Employee Benefit
Programs
Enter the contributions to employee
benefit programs not claimed
elsewhere on the return (that is,
insurance, health and welfare
programs, etc.) that are not an
incidental part of a pension,
profit-sharing, etc., plan included on line
23.
Line 26. Other Deductions
Attach a schedule, listing by type and
amount, all allowable deductions that
are not deductible elsewhere.
See Special rules, later, for limits on
certain other deductions. Also, see Pub.
535 for details on other deductions that
may apply to cooperatives.
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Examples of other deductions
include the following.
• Amortization (see Form 4562).
• Certain business start-up and
organizational costs the cooperative
elects to deduct. See Business start-up
and organizational costs under
Deductions.
• Reforestation costs. The cooperative
can elect to deduct up to $10,000 of
qualifying reforestation expenses for
each qualified timber property. The
cooperative can elect to amortize over
84 months any amount not deducted.
See Pub. 535.
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the
business.
• Utilities.
• Ordinary losses from trade or
business activities of a partnership
(from Schedule K-1 (Form 1065 or
1065-B)). Do not offset ordinary losses
against ordinary income. Instead,
include the income on line 10. Show
the partnership’s name, address, and
EIN on a separate statement attached
to this return. If the amount entered is
from more than one partnership,
identify the amount from each
partnership.
• Extraterritorial income exclusion
(from Form 8873, line 54).
• Deduction for clean-fuel vehicle and
certain refueling property placed in
service before January 1, 2006. See
Pub. 535.
• Any negative net section 481(a)
adjustment. See the instructions for line
10.
• Deduction for certain energy efficient
commercial property placed in service
after December 31, 2005. See section
179D.
• Dividends paid in cash on stock held
by an employee stock ownership plan.
See section 404(k) for more details
and the limitation on certain dividends.
Do not deduct:
• Fines or penalties paid to a
government for violating any law.
• Any amount allocable to a class of
exempt income. See section 265(b) for
exceptions.
Special rules
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a cooperative can
deduct ordinary and necessary travel,
meals, and entertainment expenses
paid or incurred in its trade or business.
Special rules that apply to
deductions for gifts, skybox rentals,
luxury water travel, convention
expenses, and entertainment tickets.
See section 274 and Pub. 463.
Travel. The cooperative cannot
deduct travel expenses of any
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individual accompanying a cooperative
officer or employee, including a spouse
or dependent of the officer or
employee, unless:
• That individual is an employee of the
cooperative, and
• His or her travel is for a bona fide
business purpose that would otherwise
be deductible by that individual.
Meals 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. In addition (subject to
exceptions under section 274(k)(2)):
• Meals must not be lavish or
extravagant;
• A bona fide business discussion
must occur during, immediately before,
or immediately after the meal; and
• An employee of the cooperative must
be present at the meal.
See section 274(n)(3) for a special
rule that applies to meal expenses for
individuals subject to the hours of
service limits of the Department of
Transportation.
Membership dues. The
cooperative can deduct amounts paid
or incurred for membership dues in
civic or public service organizations,
professional organizations, 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 guest.
Cooperatives may not deduct
membership dues 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.
Entertainment facilities. The
cooperative cannot deduct an expense
paid or incurred for use of a facility
(such as a yacht or hunting lodge) for
an activity that is usually considered
entertainment, amusement, or
recreation.
Travel, meals, and entertainment
treated as compensation. Generally,
the cooperative may be able to deduct
otherwise nondeductible entertainment,
amusement, or recreation expenses if
the amounts are treated as
compensation to the recipient and
reported on Form W-2 for an employee
or on Form 1099-MISC for an
independent contractor.
However, if the recipient is an officer,
director, or beneficial owner (directly or
indirectly) of more than 10% of any
class of stock, the deductible expense
is limited. See section 274(e)(2) and
Notice 2005-45, 2005-24 I.R.B. 1228.
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
• 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.”
Dues and other similar amounts paid
to certain tax-exempt organizations
may not be deductible. See section
162(e)(3). If certain in-house
expenditures do not exceed $2,000,
they are deductible. See section
162(e)(5)(B).
Line 28. Taxable Income
Before NOL Deduction and
Special Deductions
At-risk rules. Special at-risk rules
under section 465 generally apply to
closely held cooperatives (see Passive
activity limitations on page 8) 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.
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, the loss may be limited because
of the at-risk rules.
Treat any loss from an activity not
allowed for the current tax year as a
deduction allocable to the activity in the
next tax year.
Line 29a. Net Operating Loss
Deduction
A cooperative can use the net
operating loss incurred in one tax year
to reduce its taxable income in another
year. Enter the total NOL carryovers
from other tax years on line 29a, but do
not enter more than the cooperative’s
taxable income (after special
deductions). Attach a schedule showing
the computation of the deduction. Also
complete item 20 on Schedule N.
The following special rules apply.
• A personal service corporation may
If the at-risk rules apply, complete
Form 6198, At-Risk Limitations, then
adjust the amount on line 28 for any
section 465(d) losses. These losses are
limited to the amount for which the
cooperative is at risk for each separate
activity at the close of the tax year. If
the cooperative is involved in one or
more activities, any of which incurs a
loss for the year, report the losses for
each activity separately. Attach Form
6198 showing the amount at risk and
gross income and deductions for the
activities with the losses.
not carry back an NOL to or from any
tax year to which an election under
section 444 to have a tax year other
than a required tax year applies.
• A corporate equity reduction interest
loss may not be carried back to a tax
year preceding the year of the equity
reduction transaction (see section
172(b)(1)(E)).
• If an ownership change occurs, the
amount of the taxable income of a loss
corporation that may be offset by the
pre-change NOL carryovers may be
limited (see section 382 and the related
regulations). A loss corporation must
file an information statement with its
income tax return for each tax year that
certain ownership shifts occur (see
Temporary Regulations section
1.382-2T(a)(2)(ii) for details). See
Regulations section 1.382-6(b) for
details on how to make the
closing-of-the-books election.
• If a cooperative acquires control of
another cooperative (or acquires its
assets in a reorganization), the amount
of pre-acquisition losses that may offset
recognized built-in gain may be limited
(see section 384).
• If a cooperative elects the alternative
tax on qualifying shipping activities
under section 1354, no deduction is
allowed for an NOL attributable to the
qualifying shipping activities to the
extent that the loss is carried forward
from a tax year preceding the first tax
year for which the alternative tax
election was made. See section
1358(b)(2).
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
For details on the NOL deduction,
see Pub. 542, section 172, and Form
1139, Corporation Application for
Tentative Refund.
A taxpayer is generally considered
“at-risk” for an amount equal to his or
her investment in the entity. That
investment consists of money and other
property contributed to the entity and
amounts borrowed on behalf of the
entity.
The at-risk rules do not apply to:
• Holding real property placed in
service by the cooperative before 1987;
• Equipment leasing under sections
465(c)(4), (5), and (6); and
• Any qualifying business of a qualified
cooperative under section 465(c)(7).
The at-risk rules do apply to the
holding of mineral property.
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Line 30. Taxable Income
Certain cooperatives may need to file
Form 8817. If so, taxable income
reported on line 30 may not exceed the
combined taxable income shown on
line 30, Form 8817. Attach Form 8817
to Form 990-C.
!
CAUTION
Patronage source losses cannot
be used to offset nonpatronage
income. See Form 8817.
Minimum taxable income. The
cooperative’s taxable income cannot be
less than the largest of the following
amounts.
• The amount of nondeductible CFC
dividends under section 965. This
amount is equal to the difference
between columns (a) and (c) of Form
990-C, Schedule C, line 11.
• The inversion gain of the cooperative
for the tax year, if the cooperative is an
expatriated entity or a partner in an
expatriated entity. For details, see
section 7874.
Net operating loss. If line 30 (figured
without regard to the minimum taxable
income rule stated above) is zero or
less, the cooperative can have an NOL
that can be carried back or forward as a
deduction to other tax years. Generally,
a cooperative first carries an NOL back
2 tax years. However, the cooperative
can elect to waive the carryback period
and instead carry the NOL forward to
future tax years. To make the election,
see the instructions for Schedule N,
item 19.
See Form 1139 for details, including
other elections that may be available,
which must be made no later than 6
months after the due date (excluding
extensions) of the cooperative’s return.
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 payment
in the total for line 32b. Enter “T” and
the amount of the payment in the blank
space below line 31.
Line 32c. 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
the expected income tax liability and be
at least $500. File Form 4466 after the
end of the cooperative’s tax year, and
no later than the 15th day of the third
month after the end of the tax year.
Form 4466 must be filed before the
cooperative files its tax return.
Line 32f. Credit from
Refiguring Tax
If the cooperative would pay less total
tax by claiming the deduction for the
redemption of nonqualified written
notices of allocation or nonqualified
per-unit retain certificates in the issue
year versus the current tax year,
refigure the tax for the years the
nonqualified written notices or
certificates were originally issued
(deducting them in the issue year), then
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. Credits
Credit for federal tax on fuels. Enter
any credit from Form 4136, Credit for
Federal Tax Paid on Fuels. Attach
Form 4136 to Form 990-C.
Credit for tax on ozone-depleting
chemicals. Include on line 32g any
credit the cooperative is claiming under
section 4682(g)(2) for tax on
ozone-depleting chemicals. Enter
“ODC” next to the entry space.
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 federal 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. Enter the amount withheld and the
words “Backup withholding” in the blank
space above line 32h.
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:
• Its tax liability for 2005, or
• Its prior year’s tax.
See section 6655 for details and
exceptions including special rules for
large cooperatives.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to see
if the cooperative owes a penalty and to
figure the amount of the penalty.
Generally, the cooperative does not
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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, complete and attach Form
2220 if:
• The annualized income or adjusted
seasonal installment method is used, or
• The cooperative is a large
corporation computing its first required
installment based on the prior year’s
tax. (See the Instructions for Form 2220
for the definition of a large corporation.)
If Form 2220 is attached, check the
box on line 33, and enter the amount of
any penalty on this line.
Line 36. Direct Deposit of
Refund
If the cooperative has a refund of $1
million or more and wants it directly
deposited into its checking or savings
account at any U.S. bank or other
financial institution instead of having a
check sent to the cooperative, complete
Form 8302 and attach it to the
cooperative’s tax return.
Schedule A
Cost of Goods Sold
Generally, 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.
However, if the cooperative is a
qualifying taxpayer, or a qualifying
small business taxpayer (defined
below), it can adopt or change its
accounting method to account for
inventoriable items in the same manner
as materials and supplies that are not
incidental (unless its business is a tax
shelter as defined in section 448(d)(3)).
A “qualifying taxpayer” is a taxpayer
that, for each prior tax year ending after
December 16, 1998, has average
annual gross receipts of $1 million or
less for the 3-tax-year period ending
with that prior tax year.
A “qualifying small business
taxpayer” is a taxpayer (a) that, for
each prior tax year ending on or after
December 31, 2000, has average
annual gross receipts of $10 million or
less for the 3-tax-year period ending
with that prior tax year and (b) whose
principal business activity is not an
ineligible activity.
Under this accounting method,
inventory costs for raw materials
purchased for use in producing finished
goods, and merchandise purchased for
resale, are deductible in the year the
finished goods or merchandise are sold
(but not before the year the cooperative
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pays for the raw materials or
merchandise if it is also using the cash
method). For additional guidance on
this method of accounting for
inventoriable items, see Pub. 538 and
the Instructions for Form 3115.
Enter amounts paid for all raw
materials and merchandise on line 2.
The amount the cooperative can deduct
for the tax year is figured on line 9.
All filers not using the cash method
of accounting should see Section 263A
uniform capitalization rules on page 7
before completing Schedule A.
Line 1. Inventory at
Beginning of Year
redemption of a nonqualified per-unit
retain certificate.
Line 6a. Additional Section
263A Costs
An entry is required on this line only by
cooperatives electing a simplified
method of accounting.
For cooperatives that have elected
the simplified production method,
additional section 263A costs are
generally those costs, other than
interest, that were not capitalized under
the cooperative’s method of accounting
immediately prior to the effective date
of section 263A but are now required to
be capitalized under section 263A. For
details, see Regulations section
1.263A-2(b).
Beginning inventory will generally equal
ending inventory from last year’s return.
If this is your initial year, do not make
an entry on line 1.
If the cooperative is changing its
method of accounting for the current
tax year, it must refigure last year’s
closing inventory using its new method
of accounting and enter the result on
line 1. If there is a difference between
last year’s closing inventory and the
refigured amount, attach an
explanation. Take the difference into
account when figuring the cooperative’s
section 481(a) adjustment.
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, such as
processing, assembly, repackaging,
and transporting.
• General and administrative costs
(mixed service costs).
Line 4a. Per-unit Retain
Allocations paid in Qualified
Per-unit Retain Certificates
Enter on line 6a the balance of
section 263A costs paid or incurred
during the tax year not includable on
lines 2, 3, and 6b.
Qualified per-unit retain certificates are
issued to patrons who have agreed to
include the stated dollar amount on the
certificate in current income.
Line 5. Per-unit Retain
Allocations paid in Money or
Other Properties (except
Nonqualified Per-unit
Certificates)
Enter the amount paid in money or
other property (except per-unit retain
certificates) to patrons to redeem
nonqualified per-unit retain certificates.
No deduction is allowed at the time of
issuance for a nonqualified per-unit
retain certificate. However, the
cooperative may take a deduction in
the year the certificate is redeemed,
subject to the stated dollar amount of
the certificate.
The cooperative can also choose to
deduct the amount paid to redeem the
certificate in the prior year if redemption
occurs within the payment period for
that preceding year. See section
1382(b).
See section 1383 and the
instructions for line 32f on page 12 for a
special rule for figuring the
cooperative’s tax in the year of
For details, see Regulations section
1.263A-3(d).
Line 6b. Other Costs
Enter on line 6b any costs paid or
incurred during the tax year not entered
on lines 2 through 6a.
Line 8. Inventory at End of
Year
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.
If the cooperative accounts for
inventoriable items in the same manner
as materials and supplies that are not
incidental, enter on line 8 the portion of
its raw materials and merchandise
purchased for resale that is included on
line 7 and was not sold during the year.
Lines 10a through 10f.
Inventory Valuation Methods
Inventories can be valued at:
• Cost,
• Cost or market value (whichever is
lower), or
• Any other method approved by the
IRS that conforms to the requirements
of the applicable regulations cited
below.
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The cooperative is required to use
cost if it is using the cash method of
accounting.
Cooperatives that account for
inventory in the same manner as
materials and supplies that are not
incidental may currently deduct
expenditures for direct labor and all
indirect costs that would otherwise be
included in inventory costs.
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. Use Form 3115 to make this
change.
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 due to damage,
imperfections, shop wear, etc., within
the meaning of Regulations section
1.471-2(c). The goods may be valued
at a current bona fide selling price,
minus direct cost of disposition (but not
less than scrap value) if such a price
can be established.
If this is the first year the Last-in,
First-out (LIFO) inventory method was
either adopted or extended to inventory
goods not previously valued under the
LIFO method provided for 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 write-up as income (line 10,
page 1) proportionately over a 3-year
period beginning with the year of the
LIFO election (section 472(d)).
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For more information on inventory
valuation methods, see Pub. 538.
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
• Qualified for the 70% deduction
under section 243(a)(1).
Also include on line 1:
• 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).
• 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 cooperative should receive a notice
from the RIC specifying the amount of
dividends that qualify for the deduction.
Generally, debt-financed stock is stock
that the cooperative acquired by
incurring a debt (e.g., it borrowed
money to buy the stock).
Report so-called dividends or
earnings received from mutual savings
banks, etc., as interest income. 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), and
• Taxable distributions from an
IC-DISC or former DISC that are
considered eligible for the 80%
deduction.
Line 3. Column (a)
Line 7. Column (a)
Enter dividends that are:
• Received on debt-financed stock
acquired after July 18, 1984, that are
received from domestic and foreign
corporations subject to income tax that
would otherwise be subject to the
dividends-received deduction under
sections 243(a)(1), 243(c), or 245(a).
• Received from a 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.
Enter the U.S.-source portion of
dividends that:
• Are received from
20%-or-more-owned foreign
corporations, and
• 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
• Qualify for the 80% deduction under
section 245(c)(1)(B).
Line 3. Columns (b) and (c)
Line 8. Column (a)
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.
Enter dividends received from wholly
owned foreign subsidiaries that are
eligible for the 100% deduction under
section 245(b).
In general, the deduction under
section 245(b) applies to dividends paid
out of the earnings and profits of a
foreign corporation for a tax year during
which:
• All of its outstanding stock is directly
or indirectly owned by the domestic
cooperative receiving the dividends,
and
• All of its gross income from all
sources is effectively connected with
the conduct of a trade or business
within the United States.
Line 4. Column (a)
Enter dividends received on preferred
stock of a less-than-20%-owned public
utility that is subject to income tax and
is allowed the 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
• 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
• Qualify for the 70% deduction
provided in section 245(c)(1)(B).
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Line 9. Column (c)
Generally, line 9, column (c), cannot
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).
Worksheet for Schedule C, line 9
(keep for your records)
1. Refigure line 28, page 1, Form
990-C, without any domestic
production activities deduction,
any adjustment under section
1059, and without any capital
loss carryback to the tax year
under section 1212(a)(1) . . . . .
2. Enter the amount from line 10,
column (c) . . . . . . . . . . . . . .
3. Subtract line 2 from line 1 . . . .
4. Multiply line 3 by 80% . . . . . . .
5. Add lines 2, 5, 7, and 8, column
(c) and the part of the deduction
on line 3, column (c) that is
attributable to dividends
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 . . . . . . . . . . . . . .
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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) . . . . . . . . . . . . . .
Line 10. Columns (a) and (c)
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).
Enter 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. The 100%
deduction does not apply to affiliated
group members that are joining in the
filing of a consolidated return.
Line 11. Columns (a) and (c)
Enter qualifying dividends from Form
8895, One-Time Dividends Received
Deduction for Certain Cash Dividends
from Controlled Foreign Corporations.
Line 12. Column (a)
Enter foreign dividends not reportable
on lines 3, 6, 7, 8, 10, or 11 of column
(a). Include on line 12 the cooperative’s
share of the ordinary earnings of a
qualified electing fund from line 1c of
Form 8621, Return by a Shareholder of
a Passive Foreign Investment
Company or Qualified Electing Fund.
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 CFCs under subpart F. This
amount should equal the total subpart F
income reported on Schedule I, Form
5471, Information Return of U.S.
Persons With Respect To Certain
Foreign Corporations.
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 cooperative’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
distributions reported on Schedule D
(Form 1120) and exempt-interest
dividends) that are received from RICs
and that are not subject to the 70%
deduction.
2. Dividends from tax-exempt
organizations.
3. Dividends (other than capital gain
distributions) received from a REIT 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, which
include the following.
a. Dividends received on any share
of stock held for less than 46 days
during the 91-day period beginning 45
days before the ex-dividend date. When
counting the number of days the
cooperative held the stock, you cannot
count certain days during which the
cooperative’s risk of loss was
diminished. See section 246(c)(4) and
Regulations section 1.246-5 for more
details.
b. Dividends attributable to periods
totaling more than 366 days that the
cooperative received on any share of
preferred stock held for less than 91
days during the 181-day period that
began 90 days before the ex-dividend
date. When counting the number of
days the cooperative held the stock,
you cannot count certain days during
which the cooperative’s risk of loss was
diminished. See section 264(c)(4) and
Regulations section 1.264-5 for more
details. Preferred dividends attributable
to periods totaling less than 367 days
are subject to the 46-day holding period
above.
c. Dividends on any share of stock
to the extent the cooperative is under
an obligation (including a short sale) to
make related payments with respect to
positions in substantially similar or
related property.
5. Any other taxable dividend
income not properly reported above
(including distributions under section
936(h)(4)).
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Schedule H
Deductions and Adjustments
Under Section 1382
Cooperatives may, under section
1388(j)(1), use losses from one or more
allocation units to offset earnings of one
or more other allocation units, as
permitted by their 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).
If the cooperative sells qualifying
foreign trade property, no deduction is
allowed for patronage dividends,
per-unit retain allocations, and
nonpatronage distributions related to
foreign trade income. For details, see
section 941(b)(2).
Any patronage dividends or per-unit
retain allocations that are allocated to
qualifying foreign trade income of the
cooperative may be treated as
qualifying foreign trade income of the
patron. In order to qualify, the amount
must be designated by the cooperative
in a written notice mailed to its patrons
not later than the 15th day of the 9th
month following the close of the tax
year. For more details, see section
943(g).
Lines 1 and 2 apply only to section
521 cooperatives.
Line 1. Dividends Paid on
Capital Stock (Section 521
Cooperatives Only)
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.
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Line 2. Nonpatronage
Income Allocated to Patrons
(Section 521 Cooperatives
Only)
Enter nonpatronage income allocated
to patrons. 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 that 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.
Nonpatronage income.
Nonpatronage income includes
incidental income from sources not
directly related to:
• Marketing,
• Purchasing,
• Service activities of the cooperative
(such as income from the lease of
premises, investments, or from the sale
or exchange of capital assets), or
• Income from business done with or
for the U.S. Government, or any of its
agencies.
See the line 3 instructions, 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. See section 1388
(d) for a definition of a nonqualified
written notice of allocation.
Line 3. Patronage Dividends
To be deductible, patronage dividends
must be paid during the payment period
that begins on the first day of the tax
year in which the patronage occurs and
ends on the 15th day of the 9th month
after the end of that tax year.
See sections 1382(e) and (f) for
special rules for the time when
patronage occurs if products are
marketed under a pooling arrangement,
or if earnings are includible in the gross
income of the cooperative for a tax year
after the year in which the patronage
occurred.
Patronage dividends include any
amount paid to a patron by a
cooperative based on the quantity or
value of business done with or for that
patron under a pre-existing obligation 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.
Note. Net earnings are not reduced by
dividends paid on capital stock of the
organization if there is a legally
enforceable agreement that such
dividends are in addition to amounts
otherwise payable to patrons derived
from business done with or for patrons.
Patronage dividends may be paid in:
• Money,
• Qualified written notices of allocation,
or
• Other property (except nonqualified
written notices of allocation).
A written notice of allocation means:
• Any capital stock,
• Revolving fund certificate,
• Retain certificate,
• Certificate of indebtedness,
• Letter of advice, or
• Other written notice, which states the
dollar amount allocated to the patron by
the cooperative and the part, if any,
which is a patronage dividend.
In general, a qualified written notice
of allocation is a written notice of
allocation that is:
• Paid as part of a patronage dividend,
in money or by qualified check equal to
at least 20% of the patronage dividend,
and
• One of the following conditions is
met:
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 the
patron receives 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 the related regulations for
information on how this 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 notices of allocation
are paid in money or other property
(other than written notices of allocation)
which do not exceed the stated dollar
amounts of the nonqualified written
notices of allocation. See section
1382(b), Regulations section 1.1382-2,
and section 1383.
See Rev. Rul. 81-103, 1981-1 C.B.
447, for the redemption of nonqualified
written notices of allocation issued to
patrons by a payment of cash and a
crediting of accounts receivable due
from patrons.
See section 1383 for special rules
for figuring the cooperative’s tax in the
year nonqualified written notices of
-16-
allocation are redeemed. The
cooperative is entitled to:
1. 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
2. A tax credit based on a
recomputation of tax for the year(s) the
nonqualified written notices of allocation
were issued. See the instructions for
line 32f.
Amounts paid to patrons are not
patronage dividends if paid:
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; or
4. Without reference to the net
earnings of the cooperative
organization from business done with or
for its patrons.
Line 3(e). Other. An agricultural or
horticultural cooperative must reduce its
section 1382 deduction for that portion
of its section 199 deduction entered on
Form 8903 that is allocated to patrons.
Enter this amount on line 3(e) as a
negative amount.
Schedule J
Tax Computation
Line 1. 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, as applicable. The term “controlled
group” means any parent-subsidiary
group, brother-sister group, or
combined group. See the definitions
below.
Parent-subsidiary group. A
parent-subsidiary group is one or more
chains of corporations connected
through stock ownership with a
common parent corporation if:
• Stock possessing 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 shares of
all classes of stock of each of the
corporations, except the common
parent corporation, is directly or
indirectly owned by one or more of the
other corporations; and
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• The common parent corporation
directly or indirectly owns stock
possessing 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 shares of all classes
of stock of at least one of the other
corporations, excluding, in computing
such voting power or value, stock
owned directly by such other
corporation.
Brother-sister group. A brother-sister
group is two or more corporations if 5
or fewer persons who are individuals,
estates, or trusts directly or indirectly
own stock possessing:
• 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 shares of all classes of
the stock of each corporation, and
• More than 50% of the total combined
voting power of all classes of stock
entitled to vote or more than 50% of the
total value of shares of all classes of
stock of each corporation, taking into
account the stock ownership of each
such person only to the extent such
stock ownership is identical with
respect to each such corporation.
The definition of brother-sister group
does not include the first bullet above
for purposes of the taxable income
brackets, alternative minimum tax
exemption amounts, and accumulated
earnings credit.
Combined group. A combined group
is three or more corporations each of
which is a member of a
parent-subsidiary group or a
brother-sister group, and one of which
is:
• A common parent corporation
included in a group of corporations in a
parent-subsidiary group, and also
• Included in a group of corporations in
a brother-sister group.
For more details on controlled
groups, see section 1563.
Line 2a. Income Brackets
Members of a controlled group are
entitled to share one $50,000, one
$25,000, and one $9,925,000 taxable
income bracket amount (in that order).
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:
• $25,000 (one-half of $50,000) on line
2a(1),
• $12,500 (one-half of $25,000) on line
2a(2), and
• $4,962,500 (one-half of $9,925,000)
on line 2a(3).
Unequal apportionment plan.
Members of a controlled group can
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 exceed
the total amount in each taxable
income bracket.
Line 2b. Enter Cooperative’s
Share
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 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 2b(1). Enter the cooperative’s
share of the additional 5% tax on line
2b(1).
Line 2b(2). Enter the cooperative’s
share of the additional 3% tax on line
2b(2).
Line 3. Income Tax
Most cooperatives figure their tax by
using the Tax Rate Schedule next.
Exceptions apply to members of a
controlled group (see the worksheet).
Tax Rate Schedule
If taxable income on Form 990-C, line 30, 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
Members of a controlled group must
attach to Form 990-C a statement
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showing the computation of the tax
entered on Schedule J, line 3.
Tax Computation Worksheet for
Members of a Controlled Group
Note. Each member of a controlled group must
compute its 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 . . . . . . .
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 . . . . . . .
14. Add lines 8 through 13. Enter
here and on Schedule J, line 3.
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, enter “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 enter “Section 1291
interest.” If the cooperative has a tax
due, include the interest due in the
payment. If you would otherwise
receive a refund, reduce the refund by
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the interest due. For details, see Form
8621.
Line 4. Alternative Minimum
Tax (AMT)
Unless the cooperative is treated as a
small corporation exempt from the
AMT, it may owe 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 (or loss) before the
NOL deduction combined with these
adjustments and tax preference items is
more than the lesser of:
• $40,000, or
• The cooperative’s allowable
exemption amount (from Form 4626).
Exemption for small corporations. A
cooperative is treated as a small
corporation exempt from the AMT for its
tax year beginning in 2005 if that year
is the cooperative’s first tax year in
existence (regardless of its gross
receipts) or:
1. It was treated as a small
corporation exempt from the AMT for all
prior tax years beginning after 1997,
and
2. Its average annual gross receipts
for the 3-tax-year period (or portion
thereof during which the cooperative
was in existence) ending before its tax
year beginning in 2005 did not exceed
$7.5 million ($5 million if the
cooperative had only 1 prior tax year).
For more information, see the
Instructions for Form 4626.
Line 6a. 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 6b. Other Credits
Claim these credits in the following
order:
• Form 5735, Possessions Corporation
Tax Credit;
• Form 8907, Nonconventional Source
Fuel Credit (line 23 for calendar year
filers only); and
• Form 8834, Qualified Electric Vehicle
Credit.
Note. For tax years ending after
December 31, 2005, the
nonconventional source fuel credit is a
general business credit included on
Form 3800.
Line 6c. General Business
Credit
The following credits are not reported
on Form 3800. Check the “Form(s)”
box, enter the form number in the
space provided, and include the
allowable credit on line 6c, if the
cooperative is filing:
• Credit for Alcohol Used as Fuel
(Form 6478 (see Allocation to patrons
below)),
• Empowerment Zone and Renewal
Community Employment Credit (Form
8844), or
• Renewable Electricity, Refined Coal,
and Indian Coal Production Credit
(Form 8835, Section B only (see
Allocation to patrons below)) .
If the cooperative is required to file
Form 3800, General Business Credit,
check the “Form 3800” box and include
the allowable credit on line 6c. See the
Instructions for Form 3800.
If the cooperative is not required to
file Form 3800, check the “Form(s)”
box, enter the form number (from the
list below) in the space provided, and
include on line 6c the allowable credit
from the applicable form listed below.
• Investment Credit (Form 3468).
• Work Opportunity Credit (Form
5884).
• Welfare-to-Work Credit (Form 8861).
• Credit for Increasing Research
Activities (Form 6765).
• Low-Income Housing Credit (Form
8586).
• Enhanced Oil Recovery Credit (Form
8830).
• Disabled Access Credit (Form 8826).
• Renewable electricity production
credit (Form 8835, Section A only (see
Allocation to patrons below)).
• Indian Employment Credit (Form
8845).
• Credit for Employer Social Security
and Medicare Taxes Paid on Certain
Employee Tips (Form 8846).
• Orphan Drug Credit (Form 8820).
• New Markets Credit (Form 8874).
• Credit for Small Employer Pension
Plan Startup Costs (Form 8881).
• Credit for Employer-Provided
Childcare Facilities and Services (Form
8882).
• Qualified Railroad Track
Maintenance Credit (Form 8900).
• Biodiesel and Renewable Diesel
Fuels Credit (Form 8864).
• Low Sulfur Diesel Fuel Production
Credit (Form 8896).
• Distilled Spirits Credit (Form 8906).
• Nonconventional Source Fuel Credit
(Form 8907).
• Energy Efficient Home Credit (Form
8908).
• Alternative Motor Vehicle Credit
(Form 8910).
• Alternative Fuel Vehicle Refueling
Property Credit (Form 8911).
• Credit for Contributions to Selected
Community Development Corporations
(Form 8847).
• Credit for Employers Affected by
Hurricane Katrina, Rita, or Wilma (Form
5884-A).
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Allocations to patrons of subchapter
T cooperatives. The cooperative may
elect to allocate any or all of certain
credits (Forms 6478, 8835 (Section A
or Section B), 8864, or 8896) among
the patrons based on the quantity or
value of business done with or for such
patrons. For the allocation to take
effect, the cooperative must designate
the apportionment in a written notice
mailed to its patrons before the due
date of the cooperative’s return. The
credit amount allocated to patrons
cannot be included on line 6c. Once
made, the election cannot be revoked.
For more information, see the
instructions for Forms 6478, 8835,
8864, or 8896. For tax associated with
a decrease in the credit allocated to
patrons, see Other Taxes below.
Any excess investment credit,
work opportunity credit, Indian
CAUTION employment credit,
empowerment zone or renewal
community employment credit,
welfare-to-work credit, or new markets
credit not used by the cooperative
(because of the tax liability limitation)
must be passed through to the patrons.
These credits cannot be carried back or
over by the cooperative. See Forms
8844, 3468, 8845, 8861, and 8874 for
details.
!
Line 6d. 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 2004 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 9. Other Taxes
Include any of the following taxes and
interest in the total on line 9. Check the
appropriate box(es) for the form, if any,
used to compute the total.
Alternative tax on qualifying
shipping activities. Enter any
alternative tax on qualifying shipping
activities from Form 8902. Check the
box for Form 8902.
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
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which it took the low-income housing
credit, it may owe a tax. See Form
8611, Recapture of Low-Income
Housing Credit.
• Recapture of allocation of low sulfur
Other. Additional taxes and interest
amounts can be included in the total
entered on line 9. Check the box for
“Other” if the cooperative includes any
additional taxes and interest such as
the items discussed below. See How to
report, below, for details on reporting
these amounts on an attached
schedule.
• Recapture of the qualified electric
vehicle (QEV) credit. The cooperative
must recapture part of the QEV credit
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.
• Recapture of the 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 employment credit allowed for a
prior tax year because of wages paid or
incurred to that employee must be
recaptured. For details, see Form 8845
and section 45A.
• Recapture of new markets credit (see
Form 8874).
• Recapture of employer-provided
childcare facilities and services credit
(see Form 8882).
• Interest on deferred tax attributable
to (a) installment sales of certain
timeshares and residential lots (section
453(l)(3)) and (b) certain nondealer
installment obligations (section
453A(c)).
• Interest due on deferred gain (section
1260(b)).
• For tax years beginning after October
22, 2004, tax on income from notional
shipping income. See Income from
qualifying shipping activities on page 6.
Report the section 1352(a) tax on
Schedule J, line 3, and report the
section 1352(2) tax on Schedule J, line
10, and check the box for Form 8902.
How to report. If the cooperative
checked the “Other” box, attach a
schedule showing the computation of
each item included in the total for line 9,
identify the applicable Code section and
the type of tax or interest.
Recapture of allocation of credit
to patrons. If the amount of credit
apportioned to any patron is decreased,
there is a tax imposed on the
cooperative, not the patron.
• Recapture of allocation of small
ethanol producer credit to patrons
(Form 6478). See section
40(g)(6)(B)(iii) for how to figure the tax.
• Recapture of credit for renewable
electricity, refined coal, and Indian coal
(Form 8835). See section 45(e)(11)(C)
for how to figure the tax.
• Recapture of credit for biodiesel and
renewable diesel fuels (Form 8864).
See section 40A(e)(6)(B)(iii) on how to
figure the tax.
diesel fuel production credit to patrons
(Form 8896). See section 45H(g)(3) for
how to figure the tax.
Line 10. Total Tax
Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 10. See Form 8621, Part V and
How to report, below.
Subtract any deferred tax on the
cooperative’s share of undistributed
earnings of a qualified electing fund
(see Form 8621, Part II).
How to report. If deferring tax, attach
a schedule showing the computation of
each item included in, or subtracted
from, the total for line 10. On the dotted
line next to line 10, specify (a) the
applicable Code section, (b) the type of
tax, and (c) the amount of 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:
• State and local government
obligations, the interest on which is
excludable from gross income under
section 103(a), and
• Stock in a mutual fund or other
Regulated Investment Companies
(RIC) that distributed exempt-interest
dividends during the tax year of the
cooperative.
Line 24. Adjustments to
Shareholders’ Equity
Some examples of items to report on
this line include:
• Unrealized gains and losses on
securities held “available for sale.”
• Foreign currency translation
adjustments.
• The excess of additional pension
liability over unrecognized prior service
cost.
• Guarantees of employee stock
(ESOP) debt.
• Compensation related to employee
stock award plans.
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If the total adjustment to be entered
on line 24 is a negative amount, enter it
in parentheses.
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:
• Meals and entertainment not
deductible under section 274(n).
• Expenses for the use of an
entertainment facility.
• The part of business gifts over $25.
• Expenses of an individual in excess
of $2,000, which are allocable to
conventions on cruise ships.
• Employee achievement awards over
$400.
• The cost of entertainment tickets
over their face value (also subject to
the 50% limit under section 274(n)).
• The cost of skyboxes over the face
value of nonluxury box seat tickets.
• The part of luxury water travel not
deductible under section 274(m).
• Expenses for travel as a form of
education.
• Other nondeductible expenses for
travel and entertainment.
For more information, see Pub. 542.
Line 7. Tax-exempt Interest
Show any tax-exempt interest received
or accrued including any
exempt-interest dividends received as a
shareholder in a mutual fund or RIC.
Also report this same amount on
Schedule N, item 15.
Schedule N
Other Information
The following instructions apply to Form
990-C, page 5, Schedule N. Complete
all items that apply to the cooperative.
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 2005
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 (see Form TD F 90-22.1,
Report of Foreign Bank and Financial
Accounts), and
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a. The combined value of the
accounts was more than $10,000 at
any time during the calendar year, and
b. 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.
If “Yes” is checked for this question:
a. Enter the name(s) of the foreign
country or countries. Attach a separate
sheet if more space is needed.
b. File Form TD F 90-22.1 by June
30, 2006, with the Department of the
Treasury at the address shown on the
form. Do not file it with Form 990-C.
You can order Form TD F 90-22.1 by
calling 1-800-TAX-FORM
(1-800-829-3676) or you can download
it from the IRS website at www.irs.gov.
Question 14
The cooperative may be required to file
Form 3520, Annual Return To Report
Transactions with Foreign Trusts and
Receipt of Certain Foreign Gifts, if:
• It directly or indirectly transferred
money or property to a foreign trust.
For this purpose, any U.S. person who
created a foreign trust is considered a
transferor.
• It is treated as the owner of any part
of the assets of a foreign trust under
the grantor trust rules.
• It received a distribution from a
foreign trust.
For more information, see the
Instructions for Form 3520.
An owner of a foreign trust must
ensure that the trust files an annual
information return on Form 3520-A,
Annual Information Return of Foreign
Trust with a U.S. Owner. For details,
see Form 3520-A.
Item 15
Show any tax-exempt interest income
received or accrued. Include any
exempt-interest dividends received as a
shareholder in a mutual fund or RIC.
Also, if required, include the same
amount on Schedule M-1, line 7.
Question 17
Check the “Yes” box if:
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, or
2. The cooperative is a subsidiary in
a parent-subsidiary controlled group
(defined below).
Any cooperative that meets either of
the above requirements should check
the “Yes” box. This applies even if the
cooperative is a subsidiary member of
one group and the parent corporation of
another.
If the cooperative is an “excluded
member” of a controlled group (see
section 1563(b)(2)), it is still considered
a member of a controlled group for this
purpose.
Affiliated group. The term “affiliated
group” means one or more chains of
includible corporations (section
1504(a)) connected through stock
ownership with a common parent
corporation. The common parent must
be an includible corporation and the
following requirements must be met:
1. The common parent must directly
own 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, and
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 one or more 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. At least 80% of the total
combined voting power of all classes of
voting stock 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,
and
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 one or more 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.
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Item 19
If the cooperative has an NOL for its
2005 tax year, it may elect, under
section 172(b)(3), to waive the entire
carryback period for the NOL and
instead carry the NOL forward to future
tax years. To do so, check the box in
item 19 and file the return by its due
date, including extensions (do not
attach the statement described in
Temporary Regulations section
301.9100-12T). Once made, the
election is irrevocable. See Pub. 542,
section 172, and Form 1139 for more
details.
Cooperatives filing a consolidated
return must check the box and attach
the statement required by Temporary
Regulations section 1.1502-21T(b)(3)(i)
or (ii).
Item 20
Enter the amount of the 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) in a tax year prior to 2005.
Do not reduce the amount by any NOL
deduction reported on line 29a.
Privacy Act and 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. Section 6109 requires
return preparers to provide their
identifying numbers on the return.
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 time is:
Recordkeeping . . . . . . . .
Learning about the law or
the form . . . . . . . . . . . . .
Preparing the form . . . . . .
Copying, assembling, and
sending the form to the IRS
75 hr., 34 min.
27 hr., 19 min.
45 hr., 34 min.
4 hr., 33 min.
If you have comments concerning
the accuracy of these time estimates or
Page 21 of 22
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suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the Internal
Revenue Service, Tax Products
Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6406,
Washington, DC 20224. Do not send
-21-
the tax form to this office. Instead, see
Where To File on page 2.
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Index
A
Accounting methods . . . . . . . . 3
Accounting period . . . . . . . . . . 3
Address change . . . . . . . . . . . . 5
Affiliated group . . . . . . . . . . . . 20
Alternative minimum
tax . . . . . . . . . . . . . . . . . . . . . . 18
Amended return . . . . . . . . . . . . 5
Assembling the return . . . . . . 3
B
Backup withholding . . . . . . . . 12
Bad debts . . . . . . . . . . . . . . . . . . 9
Balance sheets . . . . . . . . . . . . 19
Brother-sister group . . . . . . . . 17
Business start-up and
organizational costs . . . . . . 8
C
Charitable contributions . . . . . 9
Combined group . . . . . . . . . . . 17
Compensation of
officers . . . . . . . . . . . . . . . . . . . 8
Controlled group:
Member of . . . . . . . . . . . . . . 16
Cost of goods sold . . . . . . . . . 12
Credit, general
business . . . . . . . . . . . . . . . . 18
Credits . . . . . . . . . . . . . 8, 12, 18
Credits, recapture of . . . . . . . 18
D
Deductions . . . . . . . . . . . . . . . . . 7
Deductions and adjustments
under section 1382 . . . . . . 15
Depletion . . . . . . . . . . . . . . . . . . 10
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . 3
Depreciation . . . . . . . . . . . . . . . 10
Direct deposit of refund . . . . 12
Disclosure statement,
reportable transaction . . . . 4
Dividends . . . . . . . . . . . . . . . . . . . 7
Dividends and special
deductions . . . . . . . . . . . . . . 14
E
Electronic Federal Tax
Payment System
(EFTPS) . . . . . . . . . . . . . . . . . 3
Employee benefit
programs . . . . . . . . . . . . . . . . 10
Employer identification
number (EIN) . . . . . . . . . . . . . 5
Estimated tax:
Estimated tax
payments . . . . . . . . . . . . . . . 12
Estimated tax penalty . . . . . . . 4
Estimated tax,
overpaid . . . . . . . . . . . . . . . . . 12
Extraterritorial income . . . . . . . 6
F
Final return . . . . . . . . . . . . . . . . . 5
Foreign financial
account . . . . . . . . . . . . . . . . . 19
Foreign tax credit . . . . . . . . . . 18
Forms and publications, How
to get . . . . . . . . . . . . . . . . . . . . 1
G
General business
credit . . . . . . . . . . . . . . . . . . . . 18
Golden parachute
payments . . . . . . . . . . . . . . . . 8
Gross receipts . . . . . . . . . . . . . . 6
Gross rents . . . . . . . . . . . . . . . . . 7
I
Income . . . . . . . . . . . . . . . . . . . . . 6
Income from qualifying
shipping activities . . . . . . . . . 6
Initial return . . . . . . . . . . . . . . . . . 5
Installment sales . . . . . . . . . . . . 6
Interest:
Income . . . . . . . . . . . . . . . . . . . 7
Tax-exempt . . . . . . . . . 19, 20
Interest and penalties . . . . . . . 4
Interest expense . . . . . . . . . . . . 9
Inventory:
Valuation methods . . . . . . . 13
L
Limitations on deductions:
Section 263A uniform
capitalization rules . . . . . 7
Lobbying expenses . . . . . . . . 11
N
Name change . . . . . . . . . . . . . . 5
Net operating loss . . . . . . . . . 11
Nonpatronage income . . . . . 16
O
Organizational costs,
Business start-up and . . . . 8
Other deductions . . . . . . . . . . 10
Other income . . . . . . . . . . . . . . . 7
Other taxes:
Recapture . . . . . . . . . . . . . . . 18
P
Paid preparer
authorization . . . . . . . . . . . . . 2
Parent-subsidiary controlled
group . . . . . . . . . . . . . . . . . . . 20
Parent-subsidiary
group . . . . . . . . . . . . . . . . . . . 16
Passive activity
limitations . . . . . . . . . . . . . . . . 8
Patronage dividends . . . . . . . 16
Payment, Depository methods
of . . . . . . . . . . . . . . . . . . . . . . . . 3
Penalty:
Estimated tax . . . . . . . . . . . 12
Late filing . . . . . . . . . . . . . . . . . 4
Late payment . . . . . . . . . . . . 4
Pension, profit-sharing, etc.,
plans . . . . . . . . . . . . . . . . . . . . 10
Preparer, tax return . . . . . . . . . 2
Private delivery services . . . . 2
Q
Qualified written notice of
allocation . . . . . . . . . . . . . . . . 16
Qualifying shipping activities,
Income from . . . . . . . . . . . . . . 6
-22-
R
Reconciliation of income (Sch
M-1) . . . . . . . . . . . . . . . . . . . . . 19
Recordkeeping . . . . . . . . . . . . . 3
Related taxpayer
transactions . . . . . . . . . . . . . . 7
Rents (expense) . . . . . . . . . . . . 9
Repairs and
maintenance . . . . . . . . . . . . . 8
S
Salaries and wages . . . . . . . . . 8
Schedule:
A . . . . . . . . . . . . . . . . . . . . . . . . 12
C . . . . . . . . . . . . . . . . . . . . . . . . 14
H . . . . . . . . . . . . . . . . . . . . . . . . 15
J . . . . . . . . . . . . . . . . . . . . . . . . 16
L . . . . . . . . . . . . . . . . . . . . . . . . 19
M-1 . . . . . . . . . . . . . . . . . . . . . 19
N . . . . . . . . . . . . . . . . . . . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . 2
T
Tax computation . . . . . . . . . . . 16
Tax issues, unresolved . . . . . 1
Tax rate schedule . . . . . . . . . 17
Taxes and licenses . . . . . . . . . 9
Taxpayer Advocate . . . . . . . . . 1
Travel and
entertainment . . . . . . . . . . . 19
Travel, meals, and
entertainment . . . . . . . . . . . 10
W
When to file . . . . . . . . . . . . . . . . 2
Where to file . . . . . . . . . . . . . . . . 2
Who must file . . . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . 2
Worksheet:
Schedule C . . . . . . . . . . . . . . 14
Schedule J . . . . . . . . . . . . . . 17
Written notice of
allocation . . . . . . . . . . . . . . . . 16
■
| File Type | application/pdf |
| File Title | 2005 Instruction 990-C |
| Subject | Instructions for Form 990-C, Farmer's Cooperative Association Income Tax Return |
| Author | W:CAR:MP:FP |
| File Modified | 2006-06-15 |
| File Created | 2006-06-15 |