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Purchasing; handling, such as

way because the goods are subnormal

the amount of dividends that qualify for

processing, assembly, repackaging, and

due to damage, imperfections, shop wear,

the deduction.

transporting.

etc., within the meaning of Regulations

Report so-called dividends or earnings

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General and administrative costs

section 1.471-2(c). The goods may be

received from mutual savings banks, etc.,

(mixed service costs).

valued at a current bona fide selling price,

as interest. Do not treat them as

For details, see Regulations section

minus direct cost of disposition (but not

dividends.

1.263A-3(d).

less than scrap value) if such a price can

Line 2, Column (a). Enter on line 2:

be established.

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Enter on line 6a the balance of section

Dividends (except those received on

263A costs paid or incurred during the tax

debt-financed stock acquired after July

If this is the first year the Last-in,

year not includable on lines 2, 3, and 6b.

18, 1984) that are received from

First-out (LIFO) inventory method was

Line 6b. Enter on line 6b any costs paid

20%-or-more-owned domestic

either adopted or extended to inventory

or incurred during the tax year not

corporations subject to income tax and

goods not previously valued under the

entered on lines 2 through 6a.

that are subject to the 80% deduction

LIFO method provided for in section 472,

under section 243(c) and

attach Form 970, Application To Use

Line 8. See Regulations sections

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Taxable distributions from an IC-DISC

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

LIFO Inventory Method, or a statement

or former DISC that are considered

figuring the amount of additional section

with the information required by Form

eligible for the 80% deduction.

263A costs to be included in ending

970. Also check the LIFO box on line 10c.

inventory.

On line 10d, enter the amount or the

Line 3, Column (a). Enter dividends that

percent of total closing inventories

If the cooperative accounts for

are:

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covered under section 472. Estimates are

inventoriable items in the same manner

Received on debt-financed stock

acceptable.

as materials and supplies that are not

acquired after July 18, 1984, that are

incidental, enter on line 8 the portion of its

received from domestic and foreign

If the cooperative changed or

raw materials and merchandise

corporations subject to income tax and

extended its inventory to LIFO and had to

purchased for resale that are included on

that would otherwise be subject to the

write up its opening inventory to cost in

line 7 and were not sold during the year.

dividends-received deduction under

the year of election, report the effect of

sections 243(a)(1), 243(c), or 245(a).

this write-up as income (line 10, page 1)

Lines 10a through 10f

Generally, debt-financed stock is stock

proportionately over a 3-year period that

Inventory valuation methods.

that the cooperative acquired by incurring

begins with the year of the LIFO election

Inventories can be valued at:

a debt (e.g., it borrowed money to buy the

(section 472(d)).

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Cost,

stock).

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For more information on inventory

Cost or market value (whichever is

Received from a RIC on debt-financed

valuation methods, see Pub. 538,

lower), or

stock. The amount of dividends eligible

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Accounting Periods and Methods.

Any other method approved by the IRS

for the dividends-received deduction is

that conforms to the requirements of the

limited by section 854(b). The cooperative

applicable regulations cited below.

should receive a notice from the RIC

However, the cooperative is required

Schedule C

specifying the amount of dividends that

to use cost if it is using the cash method

qualify for the deduction.

of accounting.

Dividends and Special

Line 3, Columns (b) and (c). Dividends

Cooperatives that account for

Deductions

received on debt-financed stock acquired

inventoriable in the same manner as

For purposes of the 20% ownership test

after July 18, 1984, are not entitled to the

materials and supplies that are not

on lines 1 through 7, the percentage of

full 70% or 80% dividends-received

incidental may currently deduct

stock owned by the cooperative is based

deduction. The 70% or 80% deduction is

expenditures for direct labor and all

on voting power and value of the common

reduced by a percentage that is related to

indirect costs that would otherwise be

stock. Preferred stock described in

the amount of debt incurred to acquire the

included in inventory costs.

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

stock. See section 246A. Also see section

The average cost (rolling average)

account. Cooperatives filing a

245(a) before making this computation for

method of valuing inventories generally

consolidated return should see

an additional limitation that applies to

does not conform to the requirements of

Regulations sections 1.1502-13,

dividends received from foreign

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

1.1502-26, and 1.1502-27 before

corporations. Attach a schedule to Form

1971-1 C.B. 148.

completing Schedule C.

990-C showing how the amount on line 3,

column (c), was figured.

Cooperatives that use erroneous

Line 1, Column (a). Enter dividends

valuation methods must change to a

Line 4, Column (a). Enter dividends

(except those received on debt-financed

method permitted for Federal income tax

received on the preferred stock of a

stock acquired after July 18, 1984 — see

purposes. To make this change, use

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

section 246A) that:

Form 3115.

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subject to income tax and is allowed the

Are received from

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

deduction provided in section 247 for

less-than-20%-owned domestic

for valuing inventories. Under lower of

corporations subject to income tax and

dividends paid.

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cost or market, the term “market” (for

Qualify for the 70% deduction under

Line 5, Column (a). Enter dividends

normal goods) means the current bid

section 243(a)(1).

received on preferred stock of a

price prevailing on the inventory valuation

Also include on line 1:

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

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date for the particular merchandise in the

Taxable distributions from an IC-DISC

subject to income tax and is allowed the

volume usually purchased by the

or former DISC that are designated as

deduction provided in section 247 for

taxpayer. For a manufacturer, market

eligible for the 70% deduction and certain

dividends paid.

applies to the basic elements of cost —

dividends of Federal Home Loan Banks.

raw materials, labor, and burden. If

See section 246(a)(2).

Line 6, Column (a). Enter the

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section 263A applies to the taxpayer, the

Dividends (except those received on

U.S. – source portion of dividends that:

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basic elements of cost must reflect the

debt-financed stock acquired after July

Are received from

current bid price of all direct costs and all

18, 1984) from a regulated investment

less-than-20%-owned foreign

indirect costs properly allocable to goods

company (RIC). The amount of dividends

corporations and

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on hand at the inventory date.

eligible for the dividends-received

Qualify for the 70% deduction under

Inventory may be valued below cost

deduction under section 243 is limited by

section 245(a).

when the merchandise is unsalable at

section 854(b). The cooperative should

To qualify for the 70% deduction, the

normal prices or unsalable in the normal

receive a notice from the RIC specifying

cooperative must own at least 10% of the

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Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - 2001 Page 13

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