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See section 6655 for details and

finished goods or merchandise are sold

Line 6a. Additional Section

exceptions including special rules for

(but not before the year the cooperative

263A Costs

large cooperatives.

pays for the raw materials or merchandise

An entry is required on this line only by

if it is also using the cash method). For

Use Form 2220, Underpayment of

cooperatives electing a simplified method

additional guidance on this method of

Estimated Tax by Corporations, to see if

of accounting.

accounting for inventoriable items, see

the cooperative owes a penalty and to

For cooperatives that have elected the

Pub. 538 and the Instructions for Form

figure the amount of the penalty.

simplified production method, additional

3115.

Generally, the cooperative does not have

section 263A costs are generally those

to file this form because the IRS can

Enter amounts paid for all raw

costs, other than interest, that were not

figure the amount of any penalty and bill

materials and merchandise on line 2. The

capitalized under the cooperative’s

the cooperative for it. However, even if

amount the cooperative can deduct for

method of accounting immediately prior to

the cooperative does not owe the penalty,

the tax year is figured on line 9.

the effective date of section 263A but are

complete and attach Form 2220 if:

now required to be capitalized under

•

The annualized income or adjusted

All filers not using the cash method of

section 263A. For details, see

seasonal installment method is used, or

accounting should see Section 263A

•

Regulations section 1.263A-2(b).

The cooperative is a large corporation

uniform capitalization rules on page 9

For cooperatives that have elected the

computing its first required installment

before completing Schedule A.

simplified resale method, additional

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

section 263A costs are generally those

Instructions for Form 2220 for the

Line 1. Inventory at Beginning

costs incurred with respect to the

definition of a large corporation.)

of Year

following categories:

If Form 2220 is attached, check the

•

Beginning inventory will generally equal

Off-site storage or warehousing.

box on line 33, and enter the amount of

•

Purchasing; handling, such as

ending inventory from last year’s return. If

any penalty on this line.

this is your initial year, do not make an

processing, assembly, repackaging, and

Line 36. Direct Deposit of

transporting.

entry on line 1.

•

General and administrative costs

Refund

If the cooperative is changing its

(mixed service costs).

If the cooperative has a refund of $1

method of accounting for the current tax

For details, see Regulations section

million or more and wants it directly

year, it must refigure last year’s closing

1.263A-3(d).

deposited into its checking or savings

inventory using its new method of

account at any U.S. bank or other

Enter on line 6a the balance of section

accounting and enter the result on line 1.

financial institution instead of having a

263A costs paid or incurred during the tax

If there is a difference between last year’s

check sent to the cooperative, complete

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

closing inventory and the refigured

Form 8302 and attach it to the

amount, attach an explanation. Take the

Line 6b. Other Costs

cooperative’s tax return.

difference into account when figuring the

Enter on line 6b any costs paid or

cooperative’s section 481(a) adjustment

incurred during the tax year not entered

(explained on page 3).

on lines 2 through 6a.

Schedule A

Line 8. Inventory at End of Year

Line 4a. Per-unit Retain

Cost of Goods Sold

Allocations paid in Qualified

See Regulations sections 1.263A-1

Generally, inventories are required at the

Per-unit Retain Certificates

through 1.263A-3 for details on figuring

beginning and end of each tax year if the

the amount of additional section 263A

Qualified per-unit retain certificates are

production, purchase, or sale of

costs to be included in ending inventory.

issued to patrons who have agreed to

merchandise is an income-producing

If the cooperative accounts for

include the stated dollar amount on the

factor. See Regulations section 1.471-1.

inventoriable items in the same manner

certificate in current income.

However, if the cooperative is a

as materials and supplies that are not

qualifying taxpayer, or a qualifying small

incidental, enter on line 8 the portion of its

Line 5. Per-unit Retain

business taxpayer (defined below), it can

raw materials and merchandise

Allocations paid in Money or

adopt or change its accounting method to

purchased for resale that is included on

Other Properties (except

account for inventoriable items in the

line 7 and was not sold during the year.

Nonqualified Per-unit

same manner as materials and supplies

Lines 10a through 10f.

Certificates

that are not incidental (unless its business

Inventory Valuation Methods

is a tax shelter as defined in section

Enter the amount paid in money or other

448(d)(3)).

Inventories can be valued at:

property (except per-unit retain

•

Cost,

A “qualifying taxpayer” is a taxpayer

certificates) to patrons to redeem

•

Cost or market value (whichever is

that, for each prior tax year ending after

nonqualified per-unit retain certificates.

lower), or

December 16, 1998, has average annual

No deduction is allowed at the time of

•

Any other method approved by the IRS

gross receipts of $1 million or less for the

issuance for a nonqualified per-unit retain

that conforms to the requirements of the

3-tax-year period ending with that prior

certificate. However, the cooperative may

applicable regulations cited below.

tax year.

take a deduction in the year the certificate

is redeemed, subject to the stated dollar

The cooperative is required to use cost

A “qualifying small business taxpayer”

amount of the certificate.

if it is using the cash method of

is a taxpayer (a) that, for each prior tax

accounting.

year ending on or after December 31,

The cooperative can also choose to

2000, has average annual gross receipts

Cooperatives that account for

deduct the amount paid to redeem the

of $10 million or less for the 3-tax-year

inventory in the same manner as

certificate in the prior year if redemption

period ending with that prior tax year and

materials and supplies that are not

occurs within the payment period for that

(b) whose principal business activity is not

incidental may currently deduct

preceding year. See section 1382(b).

an ineligible activity.

expenditures for direct labor and all

indirect costs that would otherwise be

Under this accounting method,

See section 1383 and the instructions

included in inventory costs.

inventory costs for raw materials

for line 32f on page 13 for a special rule

purchased for use in producing finished

for figuring the cooperative’s tax in the

The average cost (rolling average)

goods, and merchandise purchased for

year of redemption of a nonqualified

method of valuing inventories generally

resale, are deductible in the year the

per-unit retain certificate.

does not conform to the requirements of

-14-

Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2004 Page 14

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