TaxNewsFlash-Cooperatives

July 27, 2009
No. 2009-03

IRS Finds Cooperative’s Section 199 Deduction Is Computed Without Regard for Amounts of Cash Paid as Advance or Final Settlement of Patronage Dividends

The IRS recently publicly released a private letter ruling addressing the calculation of the section 199 deduction for an agricultural cooperative when certain cash advances or payments are made to growers and producers. PLR 200930035 (released July 24, 2009, and dated April 16, 2009).

In this letter ruling, the IRS ruled that:

Payments made in the form of cash advances to growers and producers each year constitute “per-unit retain allocations paid in money” and
Payments made in cash each year as a final settlement constitute “patronage dividends paid in money”

The IRS found that for purposes of computing its section 199 deduction, the cooperative must compute its qualified production activities income and taxable income without regard to any deduction made for the amounts paid in cash as advances or as a final settlements.

For electronic version of the letter ruling (11 pages): PLR 200930035

For more information, contact KPMG’s National Director of Cooperative Tax Services:

Teree Castanias, in Sacramento, (916) 554-1146, tcastanias@kpmg.com]

David Antoni, in Philadelphia, (267) 256-1627, dantoni@kpmg.com

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