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Items of gross income and deductions.

5. Additional schedules in alphabetical

including recurring expenses. See section

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A computation of taxable income.

order.

461(h) and the related regulations for the

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Balance sheets as of the beginning and

6. Additional forms in numerical order.

rules for determining when economic

end of the tax year.

performance takes place.

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Complete every applicable entry space

A reconciliation of income per books

Nonaccrual-experience method.

on Form 990-C. Do not write “See

with income per return.

Accrual-method cooperatives whose

Attached” instead of completing the entry

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A reconciliation of retained earnings.

average annual gross receipts for the 3

spaces. If more space is needed on the

Enter the totals for the consolidated

prior tax years do not exceed $5 million,

forms or schedules, attach separate

group on Form 990-C. Attach

are not required to accrue certain

sheets, using the same size and format

consolidated balance sheets and a

amounts to be received from the

as the printed forms. If there are

reconciliation of consolidated retained

performance of services that, on the basis

supporting statements and attachments,

earnings. For more information on

of experience, will not be collected. This

arrange them in the same order as the

consolidated returns, see the regulations

provision does not apply to any amount if

schedules or forms they support and

under section 1502.

interest is required to be paid on the

attach them last. Show the totals on the

amount or if there is any penalty for

printed forms. Also, be sure to enter the

Tax shelter disclosure statement. For

failure to timely pay the amount. For more

cooperative’s name and EIN on each

each reportable transaction in which the

information, see section 448(d)(5). See

supporting statement or attachment.

cooperative participated, directly or

the instructions on page 7 for reporting

indirectly, it must attach a disclosure

requirements.

Accounting Methods

statement to its return for each tax year

Percentage-of-completion method.

that the Federal income tax liability of the

An accounting method is a set of rules

Long-term contracts (except for certain

cooperative is affected by its participation

used to determine when and how income

real property construction contracts) must

in the transaction. In addition, for the first

and expenses are reported. Figure

generally be accounted for using the

tax year a disclosure statement is

taxable income using the method of

percentage-of-completion method

attached to its return, the cooperative

accounting regularly used in keeping the

described in section 460. See section 460

must send a copy of the statement to the

cooperative’s books and records. In all

and the underlying regulations for general

Internal Revenue Service,

cases, the method used must clearly

rules on long-term contracts.

LM:PFTG:OTSA, Large & Mid-Size

show taxable income. Permissible

Business Division, 1111 Constitution

Change in accounting method.

methods include:

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Ave., N.W., Washington, DC 20224. If a

Generally, the cooperative must get IRS

Cash,

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transaction becomes a reportable

consent to change the method of

Accrual, or

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transaction after the cooperative files its

accounting used to report taxable income

Any other method authorized by the

return, it must attach the statement to the

(for income as a whole or for any material

Internal Revenue Code.

following year’s return (whether or not its

item). To do so, it must file Form 3115,

Accrual method. Generally, a

tax liability is affected for that year). The

Application for Change in Accounting

cooperative must use the accrual method

cooperative is considered to have

Method. For more information, see Form

of accounting if its average annual gross

indirectly participated if it participated as a

3115 and Pub. 538, Accounting Periods

receipts exceed $5 million. See section

partner in a partnership or if it knows or

and Methods.

448(c). Generally, a cooperative engaged

has reason to know that the tax benefits

However, there are new procedures

in farming operations also must use the

claimed were derived from a reportable

accrual method. For exceptions, see

under which a cooperative may obtain

transaction.

automatic consent for certain changes in

section 447.

accounting methods. See Rev. Proc.

Disclosure is required for a reportable

If inventories are required, the accrual

2002-9, 2002-3 I.R.B. 327, as modified by

transaction that is a listed transaction. A

method generally must be used for sales

Rev. Proc. 2002-19, 2002-13 I.R.B. 696

transaction is a listed transaction if it is

and purchases of merchandise. However,

and Rev. Proc. 2002-54, 2002-35 I.R.B.

the same as or substantially similar to a

qualifying taxpayers and eligible

432.

transaction that the IRS has determined

businesses of qualifying small business

to be a tax avoidance transaction and has

Certain qualifying taxpayers or

taxpayers are excepted from using the

identified as a listed transaction by notice,

qualifying small business taxpayers

accrual method and may account for

regulation, or other published guidance.

(described on page 12) that want to use

inventoriable items as materials and

See Notice 2001-51, 2001-34 I.R.B. 190,

the cash method for an eligible trade or

supplies that are not incidental. For

for transactions identified by the IRS as

details, see Cost of Goods Sold on page

business may get an automatic consent

listed transactions. The listed transactions

to change their method of accounting. For

12.

identified in this notice will be updated in

details, see Rev. Proc. 2001-10, 2001-2

Under the accrual method, an amount

future published guidance.

I.R.B. 272, Rev. Proc. 2002-28, 2002-18

is includible in income when:

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I.R.B. 815, and Form 3115.

All the events have occurred that fix the

See Temporary Regulations section

The cooperative may also have to

right to receive the income, which is the

1.6011-4T for more details, including:

earliest of the date: (a) the required

make an adjustment to prevent amounts

1. Definitions of reportable

of income or expense from being

performance takes place, (b) payment is

transaction, listed transaction, and

duplicated or omitted. This is called a

due, or (c) payment is received and

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substantially similar.

The amount can be determined with

section 481(a) adjustment, which

2. Form and content of the disclosure

cooperatives generally must take into

reasonable accuracy.

statement.

See Regulations section 1.451-1(a) for

account in the year of change.

3. Filing requirements for the

details.

Example. A cooperative changes to

disclosure statement.

the cash method of accounting. It accrued

Generally, an accrual basis taxpayer

sales in 2001 for which it received

can deduct accrued expenses in the tax

Assembling the Return

year when:

payment in 2002. It must report those

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sales in both years as a result of

To ensure that the cooperative’s tax

All events that determine the liability

return is correctly processed, attach all

have occurred,

changing its accounting method and must

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make a section 481(a) adjustment to

schedules and other forms after page 5,

The amount of the liability can be

prevent duplication of income.

Form 990-C, in the following order.

figured with reasonable accuracy, and

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Economic performance takes place

1. Form 8302.

See Rev. Proc. 2002-9 to figure the

with respect to the expense.

2. Form 4136.

amount of this adjustment. Include any

3. Form 4626.

There are exceptions to the economic

net positive section 481(a) adjustment on

4. Form 851.

performance rule for certain items,

page 1, line 10. If the net section 481(a)

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Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2002 Page 4

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