Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2005 Page 11

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individual accompanying a cooperative
is limited. See section 274(e)(2) and
the net profit or loss from the activity by
officer or employee, including a spouse
Notice 2005-45, 2005-24 I.R.B. 1228.
combining the gain or loss on the sale
or dependent of the officer or
or disposition with the profit or loss from
Lobbying expenses. Generally,
employee, unless:
the activity. If the cooperative has a net
lobbying expenses are not deductible.
That individual is an employee of the
loss, the loss may be limited because
These expenses include amounts paid
cooperative, and
of the at-risk rules.
or incurred in connection with:
His or her travel is for a bona fide
Influencing federal or state legislation
Treat any loss from an activity not
business purpose that would otherwise
(but not local legislation), or
allowed for the current tax year as a
be deductible by that individual.
Any communication with certain
deduction allocable to the activity in the
Meals and entertainment.
federal executive branch officials in an
next tax year.
Generally, the cooperative can deduct
attempt to influence the official actions
only 50% of the amount otherwise
or positions of the officials. See
Line 29a. Net Operating Loss
allowable for meals and entertainment
Regulations section 1.162-29 for the
Deduction
expenses paid or incurred in its trade or
definition of “influencing legislation.”
business. In addition (subject to
A cooperative can use the net
Dues and other similar amounts paid
exceptions under section 274(k)(2)):
operating loss incurred in one tax year
to certain tax-exempt organizations
Meals must not be lavish or
to reduce its taxable income in another
may not be deductible. See section
extravagant;
year. Enter the total NOL carryovers
162(e)(3). If certain in-house
A bona fide business discussion
from other tax years on line 29a, but do
expenditures do not exceed $2,000,
must occur during, immediately before,
not enter more than the cooperative’s
they are deductible. See section
or immediately after the meal; and
taxable income (after special
162(e)(5)(B).
An employee of the cooperative must
deductions). Attach a schedule showing
be present at the meal.
the computation of the deduction. Also
Line 28. Taxable Income
complete item 20 on Schedule N.
See section 274(n)(3) for a special
Before NOL Deduction and
rule that applies to meal expenses for
The following special rules apply.
Special Deductions
individuals subject to the hours of
A personal service corporation may
service limits of the Department of
At-risk rules. Special at-risk rules
not carry back an NOL to or from any
Transportation.
under section 465 generally apply to
tax year to which an election under
Membership dues. The
closely held cooperatives (see Passive
section 444 to have a tax year other
cooperative can deduct amounts paid
activity limitations on page 8) engaged
than a required tax year applies.
in any activity as a trade or business or
or incurred for membership dues in
A corporate equity reduction interest
civic or public service organizations,
for the production of income. These
loss may not be carried back to a tax
professional organizations, business
cooperatives may have to adjust the
year preceding the year of the equity
leagues, trade associations, chambers
amount on line 28.
reduction transaction (see section
of commerce, boards of trade, and real
172(b)(1)(E)).
A taxpayer is generally considered
estate boards, unless a principal
If an ownership change occurs, the
“at-risk” for an amount equal to his or
purpose of the organization is to
her investment in the entity. That
amount of the taxable income of a loss
entertain or provide entertainment
investment consists of money and other
corporation that may be offset by the
facilities for members or their guest.
pre-change NOL carryovers may be
property contributed to the entity and
Cooperatives may not deduct
limited (see section 382 and the related
amounts borrowed on behalf of the
membership dues in any club organized
entity.
regulations). A loss corporation must
for business, pleasure, recreation, or
file an information statement with its
The at-risk rules do not apply to:
other social purpose. This includes
income tax return for each tax year that
Holding real property placed in
country clubs, golf and athletic clubs,
certain ownership shifts occur (see
service by the cooperative before 1987;
airline and hotel clubs, and clubs
Temporary Regulations section
Equipment leasing under sections
operated to provide meals under
1.382-2T(a)(2)(ii) for details). See
465(c)(4), (5), and (6); and
conditions favorable to business
Regulations section 1.382-6(b) for
Any qualifying business of a qualified
discussion.
details on how to make the
cooperative under section 465(c)(7).
closing-of-the-books election.
Entertainment facilities. The
The at-risk rules do apply to the
If a cooperative acquires control of
cooperative cannot deduct an expense
holding of mineral property.
another cooperative (or acquires its
paid or incurred for use of a facility
assets in a reorganization), the amount
(such as a yacht or hunting lodge) for
If the at-risk rules apply, complete
of pre-acquisition losses that may offset
an activity that is usually considered
Form 6198, At-Risk Limitations, then
recognized built-in gain may be limited
entertainment, amusement, or
adjust the amount on line 28 for any
(see section 384).
recreation.
section 465(d) losses. These losses are
If a cooperative elects the alternative
limited to the amount for which the
Travel, meals, and entertainment
tax on qualifying shipping activities
cooperative is at risk for each separate
treated as compensation. Generally,
under section 1354, no deduction is
activity at the close of the tax year. If
the cooperative may be able to deduct
allowed for an NOL attributable to the
the cooperative is involved in one or
otherwise nondeductible entertainment,
qualifying shipping activities to the
more activities, any of which incurs a
amusement, or recreation expenses if
extent that the loss is carried forward
loss for the year, report the losses for
the amounts are treated as
from a tax year preceding the first tax
each activity separately. Attach Form
compensation to the recipient and
year for which the alternative tax
6198 showing the amount at risk and
reported on Form W-2 for an employee
election was made. See section
gross income and deductions for the
or on Form 1099-MISC for an
1358(b)(2).
activities with the losses.
independent contractor.
However, if the recipient is an officer,
If the cooperative sells or otherwise
For details on the NOL deduction,
director, or beneficial owner (directly or
disposes of an asset or its interest
see Pub. 542, section 172, and Form
indirectly) of more than 10% of any
(either total or partial) in an activity to
1139, Corporation Application for
class of stock, the deductible expense
which the at-risk rules apply, determine
Tentative Refund.
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