TaxNewsFlash-Cooperatives

October 9, 2009
No. 2009-08

IRS Continues to Issue Letter Rulings Concerning How a Grain Cooperative Is to Determine Its Section 199 Deduction

The private letter ruling described below was publicly released on November 13, 2009, as PLR 200946021. See TaxNewsFlash-Cooperatives 2009-17.

The IRS recently released a private letter ruling (PLR) addressing the interplay of the rules concerning the taxation of cooperatives and their patrons, as contained in subchapter T of the Code, and the calculation of the section 199 deduction for a grain agricultural cooperative when certain settlement payments are made to growers and producers. The PLR is dated August 12, 2009, but has not yet been released publicly.

For an electronic version of text of the PRL: PLR (dated August 12, 2009)

In the August 12th letter ruling, the IRS concluded that:

Payments made to members and participating patrons in the form of cash advances constitute “per-unit retain allocations paid in money.”

For purposes of computing its section 199 domestic activities production 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.

The recent letter ruling is one of a series that the IRS has issued this year to address the treatment of amounts of cash paid to members and patrons for purposes of computing the section 199 domestic production activities deduction. The IRS reached similar conclusions in the previous letter rulings. See, e.g., TaxNewsFlash-Cooperatives 2009-03 and TaxNewsFlash-Cooperatives 2009-04.

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

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

Or Associate National Director of KPMG’s Cooperative Tax Services

Brett Huston, in Sacramento, 916 554 1654, bhuston@kpmg.com

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