Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2005 Page 7

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6. For cooperatives described in
acquired for resale or (b) are incurred
Line 4b. Dividends
section 1381 that are shareholders in a
by reason of the performance of
See the instructions for Schedule C,
foreign sales corporation (FSC), include
production or resale activities.
then complete Schedule C and enter on
the nonexempt portion of foreign trade
For inventory, some of the indirect
line 4b, the amount from Schedule C,
income from the sale or other
expenses that must be capitalized are:
line 17.
disposition of agricultural or horticultural
Administration expenses;
products by the FSC for the tax year
Line 5. Interest
Taxes;
that includes the last day of the FSC’s
Depreciation;
Enter taxable interest on U.S.
tax year, even though the FSC is not
Insurance;
obligations and on loans, notes,
required to distribute such income until
Compensation paid to officers
mortgages, bonds, bank deposits,
the due date of its income tax return.
attributable to services;
corporate bonds, tax refunds, etc. Do
7. Ordinary income from trade or
Rework labor; and
not offset interest expense against
business activities of a partnership
Contributions to pension, stock
interest income. Special rules apply to
(from Schedule K-1 (Form 1065 or
bonus, and certain profit-sharing,
interest income from certain
1065-B)). Do not offset ordinary losses
annuity, or deferred compensation
below-market rate loans. See section
against ordinary income. Instead,
plans.
7872 for more information.
include the losses on Form 990-C, line
Regulations section 1.263A-1(e)(3)
26. Show the partnership’s name,
Interest income is generally
specifies other indirect costs that relate
address, and EIN on a separate
nonpatronage income to nonexempt
to production or resale activities that
cooperatives (Regulations section
statement attached to this return. If the
must be capitalized, and those that may
amount entered is from more than one
1.1382-3(c)(2)). As such, a patronage
be currently deductible.
partnership, identify the amount from
dividend deduction may not be
each partnership.
allowable.
Interest expense paid or incurred
8. Any net positive section 481(a)
during the production period of
Note. Report tax-exempt interest
adjustment. The cooperative may have
designated property must be capitalized
income on Schedule N, item 15. Also, if
to make an adjustment under section
and is governed by special rules. For
required, include the same amount on
481(a) to prevent amounts of income or
more details, see Regulations sections
Schedule M-1, line 7.
expense from being duplicated or
1.263A-8 through 1.263A-15.
omitted. The section 481(a) adjustment
Line 6. Gross Rents
The costs required to be capitalized
period is generally 1 year for a net
under section 263A are not deductible
Enter the gross amount received from
negative adjustment and 4 years for a
until the property (to which the costs
the rental of property. Deduct expenses
net positive adjustment. However, a
relate) is sold, used, or otherwise
such as repairs, interest, taxes, and
cooperative can elect to use a 1-year
disposed of by the cooperative.
depreciation on the applicable lines.
adjustment period if the net section
Exceptions. Section 263A does not
Generally, gross rents are
481(a) adjustment for the change is
apply to:
considered nonpatronage income to
less than $25,000. The cooperative
Personal property acquired for resale
nonexempt cooperatives (Regulations
must complete the appropriate lines of
if the cooperative’s average annual
section 1.1382(c)(2)). As such, a
Form 3115 to make the election. If the
gross receipts for the 3 prior tax years
patronage dividend deduction may not
net section 481(a) adjustment is
were $10 million or less.
be allowable.
negative, report it on Form 990-C, line
Timber.
26.
Line 10. Other Income
Most property produced under a
long-term contract.
Enter any other taxable income not
Deductions
Certain property produced in a
reported on lines 1 through 9. List the
farming business.
type and amount of income on an
Research and experimental costs
Limitations on Deductions
attached schedule. If the cooperative
under section 174.
has only one item of other income,
Section 263A uniform capitalization
Geological and geophysical costs
describe it in parentheses on line 10.
rules. The uniform capitalization
amortized under section 167(h).
Examples of other income to report on
(UNICAP) rules of section 263A
Intangible drilling costs for oil, gas,
line 10 are:
generally require cooperatives to
and geothermal property.
1. Recoveries of bad debts
capitalize, or include in inventory,
Mining exploration and development
deducted in prior years under the
certain costs incurred in connection
costs.
specific charge-off method.
with:
Inventoriable items accounted for in
2. The amount included in income
The production of real property and
the same manner as materials and
from Form 6478, Credit for Alcohol
tangible personal property held in
supplies that are not incidental. See
Used as Fuel.
inventory or held for sale in the ordinary
Cost of Goods Sold for details.
3. The amount included in income
course of business.
For more details on the uniform
from Form 8864, Biodiesel and
Real property or personal property
capitalization rules, see Regulations
Renewable Diesel Fuels Credit.
(tangible and intangible) acquired for
sections 1.263A-1 through 1.263A-3.
4. Refunds of taxes deducted in
resale.
See Regulations section 1.263A-4 and
prior years to the extent they reduced
The production of real property and
Pub. 225, Farmer’s Tax Guide, for rules
income subject to tax in the year
tangible personal property by a
for property produced in a farming
deducted (see section 111). Do not
cooperative for use in its trade or
business.
offset current year taxes against any
business or in an activity engaged in for
tax refunds.
Transactions between related
profit.
5. Any recapture amount under
taxpayers. Generally, an accrual basis
section 179A for certain clean-fuel
Cooperatives subject to the UNICAP
taxpayer can only deduct business
vehicle property (or clean-fuel vehicle
rules are required to capitalize not only
expenses and interest owed to a
refueling property) that ceases to
direct costs but an allocable part of
related party in the year payment is
qualify. See Regulations section
most indirect costs (including taxes)
included in the income of the related
1.179A-1 for details.
that (a) benefit the assets produced or
party. See sections 163(e)(3), 163(j),
-7-

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