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

1.1502-26, and 1.1502-27 before

section 246A. Also see section 245(a)

1971-1 C.B. 148.

completing Schedule C.

before making this computation for an

additional limitation that applies to

Cooperatives that use erroneous

Line 1. Column (a)

dividends received from foreign

valuation methods must change to a

Enter dividends (except those received on

corporations. Attach a schedule to Form

method permitted for federal income tax

debt-financed stock acquired after July

990-C showing how the amount on line 3,

purposes. Use Form 3115 to make this

18, 1984 – see section 246A) that:

column (c), was figured.

change.

•

Are received from

Line 4. Column (a)

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

less-than-20%-owned domestic

for valuing inventories. Under lower of

corporations subject to income tax, and

Enter dividends received on preferred

•

cost or market, the term “market” (for

Qualify for the 70% deduction under

stock of a less-than-20%-owned public

normal goods) means the current bid

section 243(a)(1).

utility that is subject to income tax and is

price prevailing on the inventory valuation

allowed the deduction provided in section

Also include on line 1:

•

date for the particular merchandise in the

247 for dividends paid.

Taxable distributions from an IC-DISC

volume usually purchased by the

or former DISC that are designated as

Line 5. Column (a)

taxpayer. For a manufacturer, market

eligible for the 70% deduction, and certain

applies to the basic elements of cost —

Enter dividends received on preferred

dividends of Federal Home Loan Banks.

raw materials, labor, and burden. If

stock of a 20%-or-more-owned public

See section 246(a)(2).

•

section 263A applies to the taxpayer, the

utility that is subject to income tax and is

Dividends (except those received on

basic elements of cost must reflect the

allowed the deduction provided in section

debt-financed stock acquired after July

current bid price of all direct costs and all

247 for dividends paid.

18, 1984) from a regulated investment

indirect costs properly allocable to goods

company (RIC). The amount of dividends

Line 6. Column (a)

on hand at the inventory date.

eligible for the dividends-received

Enter the U.S.-source portion of dividends

Inventory may be valued below cost

deduction under section 243 is limited by

that:

when the merchandise is unsalable at

section 854(b). The cooperative should

•

Are received from

normal prices or unsalable in the normal

receive a notice from the RIC specifying

less-than-20%-owned foreign

the amount of dividends that qualify for

way because the goods are subnormal

corporations, and

the deduction. Generally, debt-financed

due to damage, imperfections, shop wear,

•

Qualify for the 70% deduction under

etc., within the meaning of Regulations

stock is stock that the cooperative

section 245(a).

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

acquired by incurring a debt (e.g., it

To qualify for the 70% deduction, the

valued at a current bona fide selling price,

borrowed money to buy the stock).

cooperative must own at least 10% of the

minus direct cost of disposition (but not

Report so-called dividends or earnings

stock of the foreign corporation by vote

less than scrap value) if such a price can

received from mutual savings banks, etc.,

and value.

be established.

as interest income. Do not treat them as

dividends.

If this is the first year the Last-in,

Also include dividends received from

First-out (LIFO) inventory method was

a less-than-20%-owned FSC that:

Line 2. Column (a)

•

Are attributable to income treated as

either adopted or extended to inventory

Enter:

effectively connected with the conduct of

goods not previously valued under the

•

Dividends (except those received on

LIFO method provided for in section 472,

a trade or business within the United

debt-financed stock acquired after July

attach Form 970, Application To Use

States (excluding foreign trade income),

18, 1984) that are received from

LIFO Inventory Method, or a statement

and

•

20%-or-more-owned domestic

Qualify for the 70% deduction provided

with the information required by Form

corporations subject to income tax and

in section 245(c)(1)(B).

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

that are subject to the 80% deduction

On line 10d, enter the amount or the

Line 7. Column (a)

under section 243(c), and

percent of total closing inventories

•

Taxable distributions from an IC-DISC

covered under section 472. Estimates are

Enter the U.S.-source portion of dividends

or former DISC that are considered

acceptable.

that:

•

eligible for the 80% deduction.

Are received from 20%-or-more-owned

If the cooperative changed or

foreign corporations, and

Line 3. Column (a)

extended its inventory to LIFO and had to

•

Qualify for the 80% deduction under

write up its opening inventory to cost in

Enter dividends that are:

section 245(a).

•

the year of election, report the effect of

Received on debt-financed stock

Also include dividends received from a

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

acquired after July 18, 1984, that are

20%-or-more-owned FSC that:

proportionately over a 3-year period

•

received from domestic and foreign

Are attributable to income treated as

beginning with the year of the LIFO

corporations subject to income tax that

effectively connected with the conduct of

election (section 472(d)).

would otherwise be subject to the

a trade or business within the United

dividends-received deduction under

For more information on inventory

States (excluding foreign trade income),

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

valuation methods, see Pub. 538.

and

•

Received from a RIC on debt-financed

Qualify for the 80% deduction under

stock. The amount of dividends eligible

section 245(c)(1)(B).

for the dividends-received deduction is

Schedule C

limited by section 854(b). The cooperative

Line 8. Column (a)

should receive a notice from the RIC

Dividends and Special

Enter dividends received from wholly

specifying the amount of dividends that

owned foreign subsidiaries that are

Deductions

qualify for the deduction.

eligible for the 100% deduction under

For purposes of the 20% ownership test

section 245(b).

Line 3. Columns (b) and (c)

on lines 1 through 7, the percentage of

stock owned by the cooperative is based

Dividends received on debt-financed

In general, the deduction under section

on voting power and value of the common

stock acquired after July 18, 1984, are not

245(b) applies to dividends paid out of the

stock. Preferred stock described in

entitled to the full 70% or 80%

earnings and profits of a foreign

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

dividends-received deduction. The 70%

corporation for a tax year during which:

•

account. Cooperatives filing a

or 80% deduction is reduced by a

All of its outstanding stock is directly or

consolidated return should see

percentage that is related to the amount

indirectly owned by the domestic

Regulations sections 1.1502-13,

of debt incurred to acquire the stock. See

cooperative receiving the dividends, and

-15-

Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2004 Page 15

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