LTA Memo March 13, IRS Issues New Tax Forms 1120-C, 1125-A

Transcription

1 Legal-Tax-Accounting Memorandum NATIONAL COUNCIL OF FARMER COOPERATIVES 50 F STREET, NW SUITE 900 WASHINGTON, DC fax LTA Memo March 13, 2012 IRS Issues New Tax Forms 1120-C, 1125-A The IRS has issued new versions of Forms 1120-C and 1125-A and instructions, and has explained how cooperatives should report per-unit retains. For 2011 returns, per-unit retains (grower payments from cooperatives to patrons) should be reported on Form 1125-A, line 5, Other costs. Taxpayers should attach a statement providing details of per-unit allocations and other costs not reported on lines 2 through 4. The instructions for Form 1125-A, line 5 provide: Special Rules for Cooperatives. Cooperatives are allowed to deduct certain per-unit retain allocations. Include these costs on line 5. Attach a statement listing details of per-unit retain allocations paid in: Qualified per-unit retain certificates, Money or other property (except nonqualified per-unit certificates), and Nonqualified per-unit retain certificates redeemed this year. (See the attached instructions for more details.) In prior years, per-unit retains were reported on Form 1120-C, Schedule A (Cost of Goods Sold) on lines 4 and 5. Schedule A has been eliminated and there are no comparable lines on the new Form 1125-A. With input from an LTA working group, NCFC has been active in commenting on the forms and instructions and submitted two solutions to this problem for IRS consideration. The first would be to create a variation of the Form 1125-A designed for cooperatives that would retain lines for per-unit retain allocations. The second solution would be to create a new line (e.g., a line 3) on the first page of Form 1120-C for per-unit retain allocations and a new Schedule A for per-unit retain allocations that feeds into that line. The second solution would make tax return reporting of per-unit retain allocations consistent with the Internal Revenue Code, which provides that per-unit retain allocations are not to be treated as cost of goods sold, but rather are to be treated as another deduction in arriving at gross income. Many of the comments NCFC has submitted regarding Form 1120-C have been addressed in subsequent versions of the form. However, the IRS did not adopt any of NCFC s suggestions with regard to reporting per-unit retains. IRS personnel have said they will consider additional comments and changes for the 2012 year. The LTA Form 1120-C Working Group will remain active and will submit additional comments in 2012.

2 Form 1125-A (December 2011) Department of the Treasury Internal Revenue Service Name Cost of Goods Sold Attach to Form 1120, 1120-C, 1120-F, 1120S, 1065, and 1065-B. OMB No Employer identification number 1 Inventory at beginning of year Purchases Cost of labor Additional section 263A costs (attach schedule) Other costs (attach schedule) Total. Add lines 1 through Inventory at end of year Cost of goods sold. Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or the appropriate line of your tax return (see instructions) a Check all methods used for valuing closing inventory: (i) Cost (ii) Lower of cost or market (iii) Other (Specify method used and attach explanation.) b Check if there was a writedown of subnormal goods c Check if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) d If the LIFO inventory method was used for this tax year, enter amount of closing inventory computed under LIFO d e If property is produced or acquired for resale, do the rules of section 263A apply to the corporation?..... Yes No f Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If Yes, attach explanation Yes No Section references are to the Internal Revenue Code unless otherwise noted. General Instructions Future Developments. The IRS has created a page on IRS.gov for information about Form 1125-A and its instructions at Information about any future developments affecting Form 1125-A (such as legislation enacted after we release it) will be posted on that page. Purpose of Form Use Form 1125-A to calculate and deduct cost of goods sold for certain entities. Who Must File Filers of Form 1120, 1120-C, 1120-F, 1120S, 1065, or 1065-B, must complete and attach Form 1125-A if the applicable entity reports a deduction for cost of goods sold. Inventories Generally, inventories are required at the beginning and end of each tax year if the production, purchase, or sale of merchandise is an income-producing factor. See Regulations section If inventories are required, you generally must use an accrual method of accounting for sales and purchases of inventory items. Exception for certain taxpayers. If you are a qualifying taxpayer or a qualifying small business taxpayer (defined below), you can adopt or change your accounting method to account for inventoriable items in the same manner as materials and supplies that are not incidental. Under this accounting method inventory costs for raw materials purchased for use in producing finished goods and merchandise purchased for resale are deductible in the year the finished goods or merchandise are sold (but not before the year you paid for the raw materials or merchandise, if you are also using the cash method). For additional guidance on this method of accounting, see Pub. 538, Accounting Periods and Methods. For guidance on adopting or changing to this method of accounting, see Form 3115, Application for Change in Accounting Method, and its instructions If you account for inventoriable items in the same manner as materials and supplies that are not incidental, you can currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs. Qualifying taxpayer. A qualifying taxpayer is a taxpayer that, (a) for each prior tax year ending after December 16, 1998, has average annual gross receipts of $1 million or less for the 3 prior tax years and (b) its business is not a tax shelter (as defined in section 448(d)(3)). See Rev. Proc , I.R.B Qualifying small business taxpayer. A qualifying small business taxpayer is a taxpayer that, (a) for each prior tax year ending on or after December 31, 2000, has average annual gross receipts of $10 million or less for the 3 prior tax years, (b) whose principal business activity is not an ineligible activity, and (c) whose business is not a tax shelter (as defined in section 448 (d)(3)). See Rev. Proc , , I. R.B Uniform capitalization rules. The uniform capitalization rules of section 263A generally require you to capitalize, or include in inventory, certain costs incurred in connection with the following. The production of real property and tangible personal property held in inventory or held for sale in the ordinary course of business. Real property or personal property (tangible and intangible) acquired for resale. The production of real property and tangible personal property by a corporation for use in its trade or business or in an activity engaged in for property. See the discussion on section 263A uniform capitalization rules in the instructions for your tax return before completing Form 1125-A. Also see Regulations sections 1.263A-1 through 1.263A-3. See Regulations section 1.263A-4 for rules for property produced in a farming business. For Paperwork Reduction Act Notice, see instructions. Cat. No R Form 1125-A ( )

3 Form 1125-A ( ) Page 2 Specific Instructions Line 1. Inventory at Beginning of Year If you are changing your method of accounting for the current tax year, you must refigure last year's closing inventory using the new method of accounting. Enter the result on line 1. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation and take it into account when figuring any section 481(a) adjustment. Line 2. Purchases If you account for inventoriable items in the same manner as materials and supplies that are not incidental, enter amounts paid for all raw materials and merchandise during the tax year on line 2. The amount you can deduct for the tax year is figured on line 8. Reduce purchases by items withdrawn for personal use. For a partnership, the cost of these items should be shown on Schedule K and Schedule K-1 as distributions to partners. Line 4. Additional Section 263A Costs If you elected a simplified method of accounting, enter on line 4 the balance of section 263A costs paid or incurred during the tax year not includible on lines 2, 3, and 5. If you elected the simplified production method, additional section 263A costs are generally those costs, other than interest, that were not capitalized under your method of accounting immediately prior to the effective date of section 263A, but are now required to be capitalized under section 263A. For details, see Regulations section 1.263A-2(b). If you elected the simplified resale method, additional section 263A costs are generally those costs incurred with respect to the following categories. Off-site storage or warehousing. Purchasing. Handling, such as processing, assembling, repackaging, and transporting. General and administrative costs (mixed service costs). Line 5. Other Costs Enter on line 5 any costs paid or incurred during the tax year not entered on lines 2 through 4. Attach a statement listing details of the costs. Special Rules for Cooperatives. Cooperatives are allowed to deduct certain per-unit retain allocations. Include these costs on line 5. Attach a statement listing details of per-unit retain allocations paid in: Qualified per-unit retain certificates, Money or other property (except nonqualified per-unit certificates), and Nonqualified per-unit retain certificates redeemed this year. Per-unit retain allocations. A cooperative is allowed to deduct from its taxable income amounts paid during the payment period for the tax year as per-unit retain allocations to the extent paid in money, qualified per-unit retain certificates or other property with respect to marketing occurring during such tax year. A per-unit retain allocation is any allocation from a cooperative to a patron with respect to products marketed for him without reference to the cooperative net earnings. A qualified per-unit retain certificate is any per-unit retain certificate that the distributee has agreed to take into account at its stated dollar amount. Nonqualified per-unit retain certificates redeemed this year. Include the amount paid in money or other property (except amounts already included as per-unit retain certificates) to patrons to redeem nonqualified per-unit retain certificates. No deduction is allowed at the time of issuance for a nonqualified per-unit retain certificate. However, the cooperative may take a deduction in the year the certificate is redeemed, subject to the stated dollar amount of the certificate. See section Also see the instructions for line 29h of Form 1120-C, U.S. Income Tax Return for Cooperative Associations, for a special rule for figuring the cooperative's tax in the year of redemption of a nonqualified per-unit retain certificate. Line 7. Inventory at End of Year See Regulations sections 1.263A-1 through 1.263A-3 for details on figuring the amount of additional section 263A costs to be included in ending inventory. If you account for inventoriable items in the same manner as materials and supplies that are not incidental, enter on line 7 the portion of its raw materials and merchandise purchased for resale that was included in the total on line 6 but was not sold during the year. Line 8. Costs of Goods Sold Enter the amount from line 8 on your tax return as follows. Filers of Form 1120, 1120-C, 1120S, 1065, and 1065-B, enter cost of goods sold on page 1, line 2. Filers of Form 1120-F, enter cost of goods sold on page 3, Section II, line 2. Lines 9a Through 9f. Inventory Valuation Methods Inventories can be valued at: Cost, Cost or market value (whichever is lower), or Any other method approved by the IRS that conforms to the requirements of the applicable regulations cited below. However, if you are using the cash method of accounting, you are required to use cost. Rolling average method. Generally, a rolling average method that is used to value inventories for financial accounting purposes does not clearly reflect income for federal income tax purposes. However, if a filer uses the average cost method for financial accounting purposes, there are safe harbors under which this method will be deemed to clearly reflect income for federal income tax purposes. For details, see Rev. Proc , I.R.B. 186 as modified by Rev. Proc , I.R.B. 587, as modified by Rev. Proc , , I. R.B. 330, or a successor. Filers that use erroneous valuation methods must change to a method permitted for federal income tax purposes. Use Form 3115 to make this change. For more information on inventory valuation methods, see Pub For more information on changes in the method of accounting for inventory, see Form 3115 and the Instructions for Form Line 9a. Method of valuing closing inventory. On line 9a, check the method(s) used for valuing inventories. Under lower of cost or market, the term market (for normal goods) means the current bid price prevailing on the inventory valuation date for the particular merchandise in the volume usually purchased by the filer. For a manufacturer, market applies to the basic elements of cost raw materials, labor, and burden. If section 263A applies, the basic elements of cost must reflect the current bid price of all direct costs and all indirect costs properly allocable to goods on hand at the inventory date. Inventory may be valued below cost when the merchandise is unsalable at normal prices or unusable in the normal way because the goods are subnormal due to damage, imperfections, shopwear, change of style, odd or broken lots, or other similar causes, including secondhand goods taken in exchange. The goods may be valued at the bona fide selling price, minus the direct cost of disposition (but not less than scrap value). Bona fide selling price means actual offering of goods during a period ending not later than 30 days after inventory date. Lines 9c and 9d. LIFO method. If this is the first year the Last-in, First-out, (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Check the LIFO box on line 9c. On line 9d, enter the amount of total closing inventories computed under section 472. Estimates are acceptable. If you changed or extended your inventory method to LIFO and had to write up the opening inventory to cost in the year of election, report the effect of the write-up as other income, on your applicable return, proportionately over a 3- year period that begins with the year of the LIFO election.

4 Form 1125-A ( ) Page 3 Note. Corporations using the LIFO method that make an S corporation election or transfer LIFO inventory to an S corporation in a nonrecognition transaction may be subject to an additional tax attributable to the LIFO recapture amount. See the instructions for Form 1120, Schedule J, line 10. Line 9e. If property is produced or acquired for resale and the rules of section 263A apply to the corporation, cooperative, or partnership, check the "Yes" box on line 9e. Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is: Recordkeeping... 4 hrs., 18 mins. Learning about the law or the form... 1 hr., 33 mins. Preparing and sending the form to the IRS hrs., 53 mins. If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

5 2011 Instructions for Form 1120-C U.S. Income Tax Return for Cooperative Associations Department of the Treasury Internal Revenue Service Section references are to the Internal Contents Page Information Revenue Code unless otherwise noted. Schedule J. Tax about any future developments Contents Page Computation affecting Form 1120-C (such as What s New... 1 Schedule K. Other legislation enacted after we release it) will be posted on that page. Photographs of Missing Information Children... 1 Schedule L. Balance Sheets Unresolved Tax Issues... 1 per Books Photographs of Missing How To Make a Contribution Children To Reduce Debt Held by of Income the Public... 2 Principal Business Activity The Internal Revenue Service is a How To Get Forms and Codes proud partner with the National Center for Missing and Exploited Publications... 2 Index Children. Photographs of missing General Instructions... 2 children selected by the Center may Purpose of Form... 2 What s New appear in instructions on pages that Who Must File... 2 would otherwise be blank. You can Where To File... 2 Change of address. New Form help bring these children home by When To File B, Change of Address looking at the photographs and Who Must Sign... 2 Business, has been created calling THE-LOST Paid Preparer Authorization... 3 specifically for business use. A ( ) if you recognize a Assembling the Return... 3 cooperative uses this form to notify child. Tax Payments... 3 the IRS of its new business address Estimated Tax Payments... 3 or location. See the instructions for Unresolved Tax Issues Interest and Penalties... 4 Item D. The Taxpayer Advocate Service Accounting Methods... 4 Cost of goods sold. For tax years (TAS) is an independent organization Accounting Period... 4 beginning in 2011, a cooperative within the IRS whose employees Rounding Off To Whole must use new Form 1125-A, Cost of assist taxpayers who are Dollars... 4 Goods Sold, to report a deduction for experiencing economic harm, who Recordkeeping... 5 cost of goods sold. See the are seeking help in resolving tax Other Forms and Statements instructions for line 2. problems that have not been resolved That May Be Required... 5 Compensation of officers. For tax through normal channels, or who Specific Instructions... 6 years beginning in 2011, a believe that an IRS system or Period Covered... 6 cooperative must use new Form procedure is not working as it should. Name and Address E, Compensation of Officers, if The service is free, confidential, Identifying Information... 6 it deducts compensation for officers tailored to meet your needs, and is and has total receipts of $500,000 or available for businesses, as well as Employer Identification more. See the instructions for line 11. individuals. Number (EIN)... 6 Type of Cooperative... 6 Expiring provisions. Certain tax The cooperative can contact the Initial Return, Final Return, provisions will expire for certain TAS as follows. Name Change, Address amounts paid or incurred after Call the TAS toll-free case intake Change, or Amended December 31, 2011, including the line at or TTY/TDD following. Return to see if the The increased deduction for Income... 7 cooperative is eligible for assistance. charitable contributions of qualified Deductions... 9 food inventory (see section Call or write the cooperative s local Tax, Refundable Credits, and 170(e)(3)(C)), and contributions of taxpayer advocate, whose phone Payments qualified book inventory to public number and address are listed in the Schedule C. Dividends and schools (see section 170(e)(3)(D)). local telephone directory and in Pub. Special Deductions Certain film and television 1546, Taxpayer Advocate Worksheet for Schedule C production expenses (see section Service Your Voice at the IRS. Schedule G. Allocation of 181). File Form 911, Request for Patronage and Certain environmental remediation Taxpayer Advocate Service Nonpatronage Income and costs (see section 198). Assistance, or ask an IRS employee Deductions to complete it on the cooperative s Future developments. The IRS has behalf. Schedule H. Deductions and created a page on IRS.gov for Schedule M-1. Reconciliation Adjustments Under information about Form 1120-C and For more information, go to Section its instructions at Jan 24, 2012 Cat. No X

6 How To Make a Contribution To Reduce March. Ogden, UT Debt Held by the Public Purchase the DVD from National When To File January. Internal Revenue Service Center The final release will ship early in P.O. Box To help reduce debt held by the Technical Information Service (NTIS) public, make a check payable to at for $30 (no A cooperative can file its income tax Bureau of the Public Debt. Send it handling fee) or call return by the 15th day of the 9th to: toll free to purchase the DVD for $30 month after the end of its tax year (plus a $6 handling fee). provided it meets the requirements of Bureau of the Public Debt section 6072(d) prior to filing. Any Department G By phone and in person. You can cooperative not meeting the P.O. Box 2188 order forms and publications by requirements of section 6072(d) must Parkersburg, WV calling TAX-FORM file its income tax return by the 15th Or the cooperative can enclose a ( ). You can also get day of the 3rd month after the end of check with its income tax return. Do not add the contributions to any tax the cooperative may owe. most forms and publications at your local IRS office. its tax year. If the due date falls on a Saturday, Sunday, or legal holiday, the Contributions to reduce debt held by General Instructions cooperative can file on the next the public are deductible subject to business day. the rules and limitations for charitable contributions. Purpose of Form Private Delivery Services Use Form 1120-C, U.S. Income Tax Cooperatives can use certain private How To Get Forms Return for Cooperative Associations, delivery services designated by the to report income, gains, losses, and Publications IRS to meet the timely mailing as deductions, credits, and to figure the timely filing rule for tax returns. Internet. You can access the IRS income tax liability of the cooperative. These private delivery services website 24 hours a day, 7 days a include only the following. week, at IRS.gov to: Who Must File DHL Express (DHL): DHL Same Download forms, instructions, and Any corporation operating on a Day Service. publications; cooperative basis under IRC section Federal Express (FedEx): FedEx Order IRS products online; 1381 and allocating amounts to Priority Overnight, FedEx Standard Research your tax questions patrons on the basis of business Overnight, FedEx 2Day, FedEx online; done with or for such patrons should International Priority, and FedEx Search publications online by topic file Form 1120-C (including farmers International First. or keyword; cooperatives under section 521 United Parcel Service (UPS): UPS Use the online Internal Revenue whether or not it has taxable income). Next Day Air, UPS Next Day Air Code, regulations, or other official Exceptions. This does not apply to Saver, UPS 2nd Day Air, UPS 2nd guidance; organizations which are: Day Air A.M., UPS Worldwide View Internal Revenue Bulletins Exempt from income tax under Express Plus, and UPS Worldwide (IRBs) published in the last few years; chapter 1 (other than exempt farmers Express. and cooperatives under section 521); The private delivery service can Sign up to receive local and Subject to part II (section 591 and tell you how to get written proof of the national tax news by . following), subchapter H, chapter 1 mailing date. DVD for tax products. You can (relating to mutual savings banks); order Pub. 1796, IRS Tax Products Private delivery services Subject to subchapter L (section DVD, and obtain: cannot deliver items to P.O. 801 and following), chapter 1 (relating! CAUTION Current-year forms, instructions, boxes. You must use the U.S. to insurance companies); or and publications. Postal Service to mail any item to an Engaged in generating, Prior-year forms, instructions, and IRS P.O. box address. transmitting, or otherwise furnishing publications. electric energy or providing telephone Extension of Time to File Tax Map: an electronic research service to persons in rural areas. tool and finding aid. File Form 7004, Application for Tax law frequently asked Automatic Extension of Time To File questions. Where To File Certain Business Income Tax, Tax Topics from the IRS telephone If the cooperative s principal Information, and Other Returns, to response system. business, office, or agency is located request a 6-month extension of time Internal Revenue Code Title 26 in the United States, file Form 1120-C to file. Generally, the cooperative of the U.S. Code. at the following address: must file Form 7004 by the regular Links to other Internet based Tax due date of the return. See the Department of the Treasury Research Materials. Instructions for Form Internal Revenue Service Center Fill-in, print, and save features for Ogden, UT Who Must Sign most tax forms. Internal Revenue Bulletins. If the cooperative s principal The return must be signed and dated Toll-free and technical business, office, or agency is located by: support. in a foreign country or a U.S. The president, vice president, Two releases during the year. possession, file Form 1120-C at the treasurer, assistant treasurer, chief The first release will ship early in following address: accounting officer, or -2-

7 Any other cooperative officer (such liability), or otherwise represent the Electronic Deposit as tax officer) authorized to sign. cooperative before the IRS. Requirement If a return is filed on behalf of a The authorization will automatically Cooperatives must use electronic cooperative by a receiver, trustee, or end no later than the due date funds transfers to make all federal tax assignee, the fiduciary must sign the (excluding extensions) for filing the deposits (such as deposits of return, instead of the cooperative cooperative s 2012 tax return. If the employment, excise, and corporate officer. Returns and forms signed by cooperative wants to expand the paid income tax). Generally, electronic a receiver or trustee in bankruptcy on preparer s authorization or revoke the funds transfers are made using the behalf of a cooperative must be authorization before it ends, see Pub. Electronic Federal Tax Payment accompanied by a copy of the order 947, Practice Before the IRS and System (EFTPS). However, if the or instructions of the court authorizing Power of Attorney. cooperative does not want to use signing of the return or form. EFTPS, it can arrange for its tax If an employee of the cooperative Assembling the Return professional, financial institution, completes Form 1120-C, the paid payroll service, or other trusted third To ensure that the cooperative s tax preparer space should remain blank. party to make deposits on its behalf. return is correctly processed, attach Anyone who prepares Form 1120-C Also, it may arrange for its financial all schedules and other forms after but does not charge the cooperative institution to initiate a same-day wire page 5 of Form 1120-C, in the should not complete that section. payment (discussed below) on its following order. Generally, anyone who is paid to behalf. EFTPS is a free service prepare the return must sign it and fill 1. Schedule N (Form 1120), provided by the Department of the in the Paid Preparer Use Only area. Foreign Operations of U.S. Treasury. Services provided by a tax Corporations. professional, financial institution, The paid preparer must complete 2. Schedule O (Form 1120), payroll service, or other third party the required preparer information Consent Plan and Apportionment may have a fee. and: Schedule for a Controlled Group. Sign the return in the space To get more information about 3. Form 4626, Alternative provided for the preparer s signature. EFTPS or to enroll in EFTPS, visit Minimum Tax Corporations. Give a copy of the return to the or call 4. Form 4136, Credit for Federal taxpayer Additional Tax Paid on Fuels. information about EFTPS is also Note. A paid preparer may sign 5. Form 8941, Credit for Small available in Pub. 966, The Secure original or amended returns by rubber Employer Health Insurance Way to Pay Your Federal Taxes. stamp, mechanical device, or Premiums. 6. Form 5884-B, New Hire Note. Forms 8109 and 8109-B, computer software program. Retention Credit. Federal Tax Deposit Coupon, can no 7. Form 3800, General Business longer be used to make federal tax Paid Preparer Authorization Credit. deposits. If the cooperative wants to allow the 8. Additional schedules in Depositing on time. For deposits IRS to discuss its 2011 tax return with alphabetical order. made by EFTPS to be on time, the the paid preparer who signed it, 9. Additional forms in numerical cooperative must initiate the deposit check the Yes box in the signature order. by 8 p.m. Eastern time the day before area of the return. This authorization 10. Supporting statements and the date the deposit is due. If the applies only to the individual whose attachments. cooperative uses a third party to signature appears in the Paid make deposits on its behalf, they may Preparer Use Only section of the Complete every applicable entry have different cutoff times. cooperative s return. It does not apply to the firm, if any, shown in that space on Form 1120-C. Do not enter Same-day wire payment option. If section. See Attached or Available Upon the cooperative fails to initiate a Request instead of completing the deposit transaction on EFTPS by 8 If the Yes box is checked, the entry spaces. If more space is p.m. Eastern time the day before the cooperative is authorizing the IRS to needed on the forms or schedules, date a deposit is due, it can still make call the paid preparer to answer any attach separate sheets using the the deposit on time by using the questions that may arise during the same size and format as the printed Federal Tax Application (FTA). processing of its return. The forms. Before using the same-day wire cooperative is also authorizing the payment option, the cooperative will paid preparer to: If there are supporting statements need to make arrangements with its Give the IRS any information that is and attachments, arrange them in the financial institution ahead of time. missing from the return, same order as the schedules or forms Please check with the financial Call the IRS for information about they support and attach them last. institution regarding availability, the processing of the return or the Show the totals on the printed forms. deadlines, and costs. To learn more status of any related refund or Enter the cooperative s name and about making a same-day wire payment(s), and EIN on each supporting statement or payment and download the Respond to certain IRS notices attachment. Same-Day Payment Worksheet, visit about math errors, offsets, and return preparation. Tax Payments The cooperative is not authorizing The cooperative must pay any tax Estimated Tax Payments the paid preparer to receive any due in full no later than the 15th day Generally, the following rules apply to refund check, bind the cooperative to of the 9th month after the end of the the cooperative s payments of anything (including any additional tax tax year. estimated tax. -3-

8 The cooperative must make (including extensions) to the date of Accounting Methods installment payments of estimated tax payment. The interest charge is Figure taxable income using the if it expects its total tax for the year figured at a rate determined under method of accounting regularly used (less applicable credits) to be $500 or section in keeping the cooperative s books more. Late filing of return. A cooperative and records. In all cases, the method The installments are due by the that does not file its tax return by the used must clearly show taxable 15th day of the 4th, 6th, 9th, and 12th due date, including extensions, may income. Permissible methods include: months of the tax year. If any date falls on a Saturday, Sunday, or legal be penalized 5% of the unpaid tax for each month or part of a month the Cash, holiday, the installment is due on the return is late, up to a maximum of Accrual, or next regular business day. 25% of the unpaid tax. The minimum Any other method authorized by The cooperative must use penalty for a return that is over 60 the Internal Revenue Code. electronic funds transfers to make installment payments of estimated days late is the smaller of the tax due See Pub. 538, Accounting Periods tax. See the Instructions for or $135. The penalty will not be and Methods, for more information. Form 1120-W. imposed if the cooperative can show Change in accounting method. Use Form 1120-W, Estimated Tax that the failure to file on time was due Generally, the cooperative must get for Corporations, as a worksheet to to reasonable cause. See Caution, IRS consent to change the method of compute estimated tax. above. accounting used to report taxable If the cooperative overpaid Late payment of tax. A cooperative income (for income as a whole or for estimated tax, it may be able to get a that does not pay the tax when due the treatment of any material item). quick refund by filing Form 4466, generally may be penalized 1 To do so, the cooperative generally /2 Corporation Application for Quick of 1% of the unpaid tax for each month or must file Form 3115, Application for Refund of Overpayment of Estimated part of a month the tax is not paid, up Change in Accounting Method. For Tax. to a maximum of 25% of the unpaid more information, see the Instructions See the instructions for lines 29b tax. See Caution, above. for Form 3115, and Pub and 29c. There are some instances when Estimated tax penalty. A Trust fund recovery penalty. This the cooperative can obtain automatic cooperative that does not make penalty may apply if certain excise, consent from the IRS to change to estimated tax payments when due income, social security, and Medicare certain accounting methods. See may be subject to an underpayment taxes that must be collected or Rev. Proc , I.R.B. penalty for the period of withheld are not collected or withheld, 330, as modified, or its successor. underpayment. Generally, a or these taxes are not paid. These cooperative is subject to the penalty if taxes are generally reported on: Accounting Period its tax liability is $500 or more and it Form 720, Quarterly Federal did not timely pay at least the smaller A cooperative must figure its taxable Excise Tax Return; of: income on the basis of a tax year. A Form 941, Employer s Its tax liability for the current year, tax year is the annual accounting QUARTERLY Federal Tax Return; or period a cooperative uses to keep its Its prior year s tax. Form 943, Employer s Annual records and report its income and Federal Tax Return for Agricultural expenses. Generally, cooperatives Use Form 2220, Underpayment of Employees; can use a calendar year or a fiscal Estimated Tax by Corporations, to Form 944, Employer s ANNUAL year. see if the cooperative owes a penalty Federal Tax Return; or and to figure the amount of the Change of tax year. Generally, a penalty. If Form 2220 is completed, Form 945, Annual Return of cooperative must get the consent of enter the penalty on line 30. See the Withheld Federal Income Tax. the IRS before changing its tax year instructions for line 30. by filing Form 1128, Application to The trust fund recovery penalty Adopt, Change, or Retain a Tax Year. may be imposed on all persons who Interest and Penalties However, under certain conditions, a are determined by the IRS to have cooperative can change its tax year been responsible for collecting, If the cooperative receives a without getting a consent. accounting for, and paying over these! notice about interest and taxes, and who acted willfully in not See the Instructions for Form 1128 CAUTION penalties after it files its doing so. The penalty is equal to the and Pub. 538 for more information on return, send the IRS an explanation unpaid trust fund tax. See the accounting periods and tax years. and we will determine if the Instructions for Form 720, Pub. 15 cooperative meets reasonable-cause (Circular E), Employer s Tax Guide, Rounding Off To criteria. Do not attach an explanation or Pub. 51 (Circular A), Agricultural when the cooperative s return is filed. Whole Dollars Employer s Tax Guide, for details, Interest. Interest is charged on including the definition of responsible The cooperative can round off cents taxes paid late even if an extension of persons. to whole dollars on its return and time to file is granted. Interest is also schedules. If the cooperative does charged on penalties imposed for Other penalties. Other penalties round to whole dollars, it must round failure to file, negligence, fraud, can be imposed for negligence, all amounts. To round, drop amounts substantial valuation misstatements, substantial understatement of tax, under 50 cents and increase amounts substantial understatements of tax, reportable transaction from 50 to 99 cents to the next dollar. and reportable transaction understatements, and fraud. See For example, $1.39 becomes $1 and understatements from the due date sections 6662, 6662A, and $2.50 becomes $3. -4-

9 If two or more amounts must be For more information, see can make the election by including added to figure the amount to enter Regulations section Also the certification provided in Notice on a line, include cents when adding see the Instructions for Form , I.R.B. 694, on or the amounts and round off only the Penalties. The cooperative may with its tax return filed by the due total. have to pay a penalty if it is required date (including extensions) for the tax to disclose a reportable transaction year in which the transaction Recordkeeping under section 6011 and fails to occurred. If the transferor is a Keep the cooperative s records for as properly complete and file Form controlled foreign corporation, its long as they may be needed for the Penalties may also apply under controlling U.S. shareholder(s) can administration of any provision of the section 6707A if the cooperative fails make the election. The common Internal Revenue Code. Usually, to file Form 8886 with its cooperative parent of a consolidated group can records that support an item of return, fails to provide a copy of Form make the election for the group. income, deduction, or credit on the 8886 to the Office of Tax Shelter If the election is made as return must be kept for 3 years from Analysis (OTSA), or files a form that described above, no election need be the date the return is due or filed, fails to include all the information made by the transferee (or any whichever is later. Keep records that required (or includes incorrect controlling U.S. shareholder thereof). verify the cooperative s basis in information). Other penalties, such as Once made, the election is property for as long as they are an accuracy-related penalty under irrevocable. See section 362(e)(2)(C) needed to figure the basis of the section 6662A, may also apply. See and Notice original or replacement property. the Instructions for Form 8886 for details on these and other penalties. Annual information statement for The cooperative should keep Reportable transactions by elections under section 108(i). If copies of all filed returns. They help in material advisors. Material the cooperative made an election in preparing future and amended advisors to any reportable transaction 2009 or 2010 to defer income from returns and in the calculation of must disclose certain information cancellation of debt (COD) in earnings and profits. about the reportable transaction by connection with the reacquisition of filing Form 8918, Material Advisor an applicable debt instrument, the Other Forms and Disclosure Statement, with the IRS. cooperative must attach a statement For details, see the Instructions for to its return beginning with the tax Statements That May Form year following the tax year for which the cooperative made the election, Be Required Transfers to a cooperative and ending the first tax year all Reportable transaction disclosure controlled by the transferor. Every income deferred has been included in statement. Disclose information for significant transferor (as defined in income. The statement must be each reportable transaction in which Regulations section (d)) that labeled Section 108(i) Information the cooperative participated. Form receives stock of a cooperative in Statement and must clearly identify, 8886, Reportable Transaction exchange for property in a for each applicable debt instrument to Disclosure Statement, must be filed nonrecognition event must include which an election under section 108(i) for each tax year that the federal the statement required by applies, the following. income tax liability of the cooperative Regulations section (a) on or with the transferor s tax return for the 1. Any deferred COD income that is affected by its participation in the tax year of the exchange. The is included in income in the current transaction. The following are transferee cooperative must include tax year. reportable transactions. the statement required by 2. Any deferred COD income that 1. Any listed transaction, which is Regulations section (b) on or has been accelerated because of an a transaction that is the same as or with its return for the tax year of the event described in section substantially similar to one of the exchange, unless all the required 108(i)(5)(D) and must be included in types of transactions that the IRS has information is included in any income in the current tax year. determined to be a tax avoidance statement(s) provided by a significant Include a description and the date of transaction and identified by notice, transferor that is attached to the the acceleration event. regulation, or other published same return for the same section Any deferred COD income that guidance as a listed transaction. exchange. has not been included in income in 2. Any transaction offered under the current or prior tax years. conditions of confidentiality for which Dual consolidated losses. If a 4. Any deferred original issue the cooperative (or a related party) cooperative incurs a dual discount (OID) deduction allowed as paid an advisor a fee of at least consolidated loss (as defined in a deduction in the current tax year. $250,000. Regulations section (c)(5)), 5. Any deferred OID deduction 3. Certain transactions for which the cooperative (or consolidated that is allowed as a deduction in the the cooperative (or a related party) group) may need to attach an elective current tax year because of an has contractual protection against relief agreement and/or annual accelerated event described in disallowance of the tax benefits. certification as provided in section 108(i)(5)(D). 4. Certain transactions resulting in Regulations section (g)(2). 6. Any deferred OID deduction a loss of at least $10 million in any Election to reduce basis under that has not been deducted in the single year or $20 million in any section 362(e)(2)(C). The transferor current or prior tax years. combination of years. may make an election under section 5. Any transaction identified by the 362(e)(2)(C) to limit the transferor s In addition, include a copy of the IRS by notice, regulation, or other basis in the stock received instead of election statement the cooperative published guidance as a transaction the transferor s basis in the filed to make the election to defer the of interest. transferred property. The transferor income. For more information on -5-

10 Item A. Identifying deferring the income, see the (non-consolidated or consolidated for instructions for line 9, later. For more all cooperatives/corporations included information regarding the annual Information with the tax consolidation group) of information statement, see Rev. Proc. Consolidated return. Cooperatives $10 million or more on the last day of , I.R.B filing a consolidated return must the tax year must complete Schedule Other forms and statements. See check box 1 and attach Form 851, M-3 (Form 1120), Net Income (Loss) Pub. 542, Corporations, for a list of Affiliations Schedule, and other Reconciliation for Corporations With other forms and statements that a supporting statements to the return. Total Assets of $10 Million or More, cooperative may need to file in Also, for the first year a subsidiary instead of Form 1120-C, Schedule addition to the forms and statements cooperative is being included in a M-1. A cooperative filing Form discussed throughout these consolidated return, attach Form 1120-C that is not required to file instructions. 1122, Authorization and Consent of Schedule M-3 may voluntarily file Subsidiary Corporation To Be Schedule M-3 instead of Schedule Included in a Consolidated Income M-1. Tax Return, to the parent s If you are filing Schedule M-3, Specific Instructions consolidated return. Attach a check Item A, box 2, to indicate that separate Form 1122 for each new Schedule M-3 is attached. See the Period Covered subsidiary being included in the Instructions for Schedule M-3 (Form File the 2011 return for calendar year consolidated return. 1120) for more details and fiscal years that begin in If the cooperative is a farmers Form 1120 filed previous year and end in For a fiscal or tax exempt cooperative and Check box 3 if the cooperative filed short tax year return, fill in the tax! CAUTION checked Item C, box 1, it Form 1120 in a prior year as a year space at the top of the form. cannot file a consolidated return. subchapter T cooperative. The 2011 Form 1120-C can also be used if: File supporting statements for each cooperative/corporation Item B. Employer The cooperative has a tax year of less than 12 months that begins and included in the consolidated return. Identification Number ends in 2012, and Do not use Form 1120-C as a supporting statement. On the (EIN) The 2012 Form 1120-C is not available at the time the cooperative supporting statement, use columns to Enter the cooperative s EIN. If the is required to file its return. show the following, both before and cooperative does not have an EIN, it after adjustments. must apply for one. An EIN can be The cooperative must show its 1. Items of gross income and applied for: 2012 tax year on the 2011 Form deductions. Online Click on the EIN link at 1120-C and take into account any tax 2. A computation of taxable The law changes that are effective for tax income. EIN is issued immediately once the years beginning after December 31, 3. Balance sheets as of the application information is validated beginning and end of the tax year. By telephone at A reconciliation of income per By faxing or mailing Form SS-4, Name and Address books with income per return. Application for Employer Identification Enter the cooperative s true name (as 5. A reconciliation of retained Number. set forth in the charter or other legal earnings. document creating it), address, and Only cooperatives located in EIN on the appropriate lines. Enter the United States or U.S. Enter on Form 1120-C the totals! CAUTION the address of the cooperative s possessions can use the for each item of income, gain, loss, principal office or place of business. online application. Foreign expense, or deduction, net of Include the suite, room, or other unit corporations must use one of the eliminating entries for intercompany number after the street address. If the other methods to apply. transactions between cooperatives/ post office does not deliver mail to the corporations within the consolidated EIN applied for, but not received. street address and the cooperative group. Attach consolidated balance If the cooperative has not received its has a P.O. box, show the box number sheets and a reconciliation of EIN by the time the return is due, instead. consolidated retained earnings. enter Applied for and the date you Note. Do not use the address of the applied in the space for the EIN. registered agent for the state in which The cooperative does not have to provide the For more information, see the the cooperative is incorporated. For TIP information requested in (3), Instructions for Form SS-4. example, if the cooperative is incorporated in Delaware or Nevada (4), and (5) above, if its total receipts (page 1, lines 1a plus lines 4 through Item C. Type of and the cooperative s principal office is located in Little Rock, AR, the 9) and its total assets at the end of Cooperative cooperative should enter the Little the tax year (Schedule L, line 13(d)) are less than $250,000. See Farmers tax exempt cooperative. Rock address. Schedule K, Question 14. Check the Farmers tax exempt If the cooperative receives its mail cooperative box if the cooperative in care of a third party (such as an For more information on applied for and received status as a accountant or an attorney), enter on consolidated returns, see the tax-exempt farmers, fruit growers, or the street address line C/O followed regulations under section like association, organized and by the third party s name and street Schedule M-3 (Form 1120). A operated on a cooperative basis as address or P.O. box. cooperative with total assets described in section