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and 267 for the limitations on

than 5 individuals. Certain

payments (tax-exempt use loss).

deductions for unpaid interest and

organizations are treated as individuals

Amounts disallowed may be carried

expenses.

for purposes of this test. See section

over to the next tax year and treated as

542(a)(2). For rules of determining

a deduction with respect to the property

Section 291 limitations. Cooperatives

stock ownership, see section 544 (as

for that tax year. See section 470 for

may be required to adjust deductions

modified by section 465(a)(3)).

more details and exceptions.

for depletion of iron ore and coal,

intangible drilling, exploration and

Generally, the two kinds of passive

Line 12. Compensation of

development costs, and the amortizable

activities are:

•

Officers

basis of pollution control facilities. See

Trade or business activities in which

section 291 to determine the amount of

the cooperative did not materially

Enter deductible officer’s compensation

the adjustment. Also, see section 43.

participate, and

on line 12. Before entering an amount

•

Rental activities, regardless of its

on line 12, complete Schedule E if the

Golden parachute payments. A

participation.

cooperative’s total receipts (line 1a plus

portion of the payments made by a

lines 4 through 10, page 1) are

cooperative to key personnel that

For exceptions, see Form 8810,

$500,000 or more. Do not include

exceeds their usual compensation may

Corporate Passive Activity Loss and

compensation deductible elsewhere on

not be deductible. This occurs when the

Credit Limitations.

the return, such as amounts included in

cooperative has an agreement (golden

Cooperatives subject to the passive

cost of goods sold, elective

parachute) with these key employees to

activity limitations must complete Form

contributions to a section 401(k) cash

pay them these excess amounts if

8810 to compute their allowable

or deferred arrangement, or amounts

control of the cooperative changes. See

passive activity loss and credit. Before

contributed under a salary reduction

section 280G and Regulations section

completing Form 8810, see Temporary

SEP agreement or a SIMPLE IRA plan.

1.280G-1.

Regulations section 1.163-8T, which

Include only the deductible part of

Business start-up and organizational

provides rules for allocating interest

each officer’s compensation on

costs. Business start-up and

expense among activities. If a passive

Schedule E. Complete Schedule E, line

organizational costs must be capitalized

activity is also subject to the earnings

1, columns (a) through (f), for all

unless an election is made to deduct or

stripping rules of section 163(j), the

officers. The cooperative determines

amortize them. The cooperative can

at-risk rules of section 465, or the

who is an officer under the laws of the

elect to amortize costs paid or incurred

tax-exempt use loss rules of section

state where it is incorporated.

before October 23, 2004, over a period

470, those rules apply before the

of 60 months or more. For costs paid

If a consolidated return is filed, each

passive loss rules.

after October 22, 2004, the following

member of an affiliated group must

For more information, see section

rules apply separately to each category

furnish this information.

469, the related regulations, and Pub.

of costs.

925, Passive Activity and At-Risk

•

Line 13. Salaries and Wages

The cooperative can elect to deduct

Rules.

up to $5,000 of such costs for the year

Enter the salaries and wages paid for

Reducing certain expenses for which

the cooperative begins business

the tax year, reduced by the total

credits are allowable. For each credit

operations.

amount claimed on:

•

listed below, the cooperative must

The $5,000 deduction is reduced (but

Form 5884, Work Opportunity Credit,

reduce the otherwise allowable

not below zero) by the amount the total

line 2;

•

deductions for expenses used to figure

cost exceeds $50,000. If the total costs

Form 5884-A, Credits for Employers

the credit.

are $55,000 or more, the deduction is

Affected by Hurricane Katrina, Rita, or

•

Employment credits. See the

reduced to zero.

Wilma, line 2;

•

instructions for line 13.

If the election is made, any costs that

Form 8844, Empowerment Zone and

•

Research credit.

are not deductible must be amortized

Renewal Community Employment

•

Orphan drug credit.

ratably over a 180-month period.

Credit, line 2;

•

Disabled access credit.

Form 8845, Indian Employment

•

In all cases, the amortization period

Enhanced oil recovery credit.

Credit, line 4; and

•

begins the month the cooperative

•

Employer credit for social security

Form 8861, Welfare-to-Work Credit,

begins business operations. For more

and Medicare taxes paid on certain

line 2.

details on the election for business

employee tips.

•

start-up and organizational costs, see

Do not include salaries and wages

Credit for small employer pension

Pub. 535.

deductible elsewhere on the return,

plan start-up costs.

•

such as amounts included in cost of

Attach any statement required by

Credit for employer-provided

goods sold, elective contributions to a

Regulations section 1.195-1(b) or

childcare facilities and services.

•

section 401(k) cash or deferred

1.248-1(c). Report the deductible

Low sulfur diesel fuel production

arrangement, or amounts contributed

amount of these costs and any

credit.

under a salary reduction SEP

amortization on line 26. For

If the cooperative has any of these

agreement or a SIMPLE IRA plan.

amortization that begins during the

credits, figure each current year credit

2005 tax year, complete and attach

If the cooperative provided

before figuring the deduction for the

Form 4562.

taxable fringe benefits to its

expenses on which the credit is based.

Passive activity limitations.

employees, such as personal

See the instructions for the applicable

CAUTION

Limitations on passive activity losses

use of a car, do not deduct as wages

form used to figure the credit.

and credits under section 469 apply to

the amount allocated for depreciation,

Limitations on deductions related to

closely held cooperatives.

and other expenses claimed on lines 20

property leased to tax-exempt

and 26.

A cooperative is a “closely held

entities. If a cooperative leases

cooperative” (as defined at section

property to a governmental or other

Line 14. Repairs and

469(j)(1)) if at any time during the last

tax-exempt entity, the cooperative can

Maintenance

half of the tax year more than 50% in

not claim deductions related to the

value of its outstanding stock is owned,

property to the extent that they exceed

Enter the cost of incidental repairs,

directly or indirectly, by or for not more

the cooperative’s income from the lease

such as labor and supplies, that do not

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Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - Internal Revenue Service - 2005 Page 8

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