Section 199 Articles
Amending Returns to Take the Enhanced Section 199 Deduction
By: Charles L. Telk Jr., CPA, Senior Tax Adviser | email
We feel that this ruling, coupled with IRS instructions regarding effective dates of electing the enhanced section 199 calculation, provide a clear authority to amending cooperative returns for purposes of computing and deducting the larger section 199 deduction.
Taxpayers have a window of opportunity to file an amended return– generally 3 years from the original due date of the return being amended.
Remember that section 199 first became effective for tax year 2005, so December close cooperatives have until September 15, 2009 to file an amended return. We are moving forward and are communicating with our clients regarding the effect that amended returns would have on these earlier tax years. Filing amended Federal (and State, if available) returns to claim this enhanced deduction is a great way for your cooperative to generate additional working capital and strengthen your balance sheet.
Section 199 – Good News!
By: Charles L. Telk Jr., CPA, Senior Tax Advisor | email
More Good News Regarding the Section 199 Deduction–
IRS Issues Private Letter Ruling On Non-Pooling Grain Cooperatives
Since the IRS issued Internal Legal Memorandum 200806011 in early 2008, which provided guidance on computing the section 199 deduction for both pooling and non-pooling cooperatives, we at Gardiner Thomsen have spent many hours researching this issue to provide the best possible tax service to our cooperative clients.
Because of the time and effort that the firm put into researching and implementing this significant tax deduction, our clients have enjoyed a substantially increased tax deduction under section 199. In some cases, this deduction has reached into the high seven-figures, saving our cooperative clients millions of dollars. That number is worth mentioning again. This increased deduction has saved our cooperative clients millions of dollars.
We started informing and educating our clients of the new methodology of computing this deduction over one year ago. At the time, there were no other firms in the Midwest that agreed with our position. In fact, we took some pretty nasty shots from some of our competition– despite the fact that the rules were clear and some of the nationally recognized cooperative tax authorities agreed with our position.
The IRS had issued five private letter rulings that had been requested by Pooling Cooperatives. These rulings were consistent with our position as well. It is interesting to note that the five requesting pooling cooperatives were “pooling” in name only. In fact, they were operating as “non-pooling” cooperatives.
Earlier this month, the IRS issued a private letter ruling that was requested by a non-pooling grain marketing cooperative. This ruling was also consistent with our position, providing additional evidence that we have been properly computing this increased deduction. We were pleased to see this ruling because it was the first ruling requested by a non-pooling marketing cooperative, and the fact pattern mirrors our client’s situations virtually 100% and provides us with additional confirmation that we are making the correct calculations.
As always, we value your business and we continue to take steps to be on the cutting edge of exciting tax issues– issues that can potentially save your cooperative millions of dollars of working capital. We appreciate your confidence in the firm. We understand the excitement, anxiety and frustration that this issue has caused over the past year, and we are pleased you were rewarded with this increased deduction.
Changes in Accounting Method For Form 3115
By: Gardiner Thomsen CPAs | email
Last year, based on IRS guidance, we changed the way that Section 199 was computed. This year we are researching the Internal Revenue Code, specifically sections 1381, 1382 and 1383, which are related to Section 199, to investigate the possibility of writing down your tax basis member grain inventory (in dollars) to zero. This would have the affect of creating a tax deduction equal to your ending member grain inventory.
While we are still in the research stages, we are aware that one of the “big four” firms is moving forward with this write-down, and is in fact, contacting our clients. We believe this to be somewhat premature as the IRS is still in the process of ruling on contingent matters. However, this strategy is worthy of our continued investigation. It is based upon filing form 3115, which asks the IRS permission to compute inventory under the auspices of section 1383. Once the IRS grants this permission, your cooperative could record a tax deduction equal to your ending member grain inventory. In plain English –an extremely large tax deduction.
As always, we are on top of this cutting edge tax issue and are researching and planning strategy so that if in fact this is a viable option for you cooperative, we will implement this calculation.
Section 199 Update – Amended Returns
By: Gardiner Thomsen CPAs | email
So far, there have been several private letter rulings dealing with section 199. These rulings have been issued on pooling cooperatives, although a thorough review of the facts indicates that all of the cooperatives involved have been conducting their business like non-pooling marketing cooperatives and are pooling cooperatives in name only.
Currently – there are 2 private letter rulings still pending before the IRS, requested by non-pooling marketing cooperatives. We are keeping an eye on these as they make their way through the long process and will report on these as soon as they are issued.
Because the IRS issued the critical ILM regarding section 199, several years after the implementation of section 199, there are open tax years which may be eligible for filing amended returns. While we feel that the IRS will eventually allow amended returns claiming the higher section 199 deduction to be filed, we are not certain that this is currently the case.
Therefore, we are starting the information gathering process to file protective amended return claims for those cooperatives with a tax year ending December 31, 2005 and January 31, 2006. These cooperatives will lose their ability to file amended returns on September 15, 2009 and October 15, 2009 respectively.
If your cooperative has a December 31 or January 31 year end, you will be contacted soon to discuss these amended return filings.
Sections 199 Deductions
By: Dennis Gardiner, Partner | email
Gardiner Thomsen, CPAs has been researching and discussing the “new” approach to the Section 199 Deduction (Qualified Domestic Production Deduction) now for over a year. And what an interesting year it has been. We continue to address how to best utilize the Section 199 Deduction. We are taking a step back and looking at what options or opportunities you have for best utilizing the deduction. By that we mean, continue to utilize at the Cooperative level, pass the benefit through to the patron or a combination of both. We envision recommending some alternatives that will utilize non-qualified patronage allocations also. Our goal is to help you further strengthen your balance sheets and manage your members’ equity to best fit your situation or long-term plans.
You will be hearing from your GT professional in the coming months as we begin to approach your fiscal year ends.
Section 199 Deductions and New Tax Credit Information
By: Charles L. Telk Jr., CPA, Senior Tax Advisor | email
As 2008 draws into the home stretch, we at Gardiner Thomsen wanted to review some major new tax and reporting issues with you. There have been several exciting new changes and credits that have recently been enacted and we want to encourage you to take advantage of these benefits.
The largest new tax benefit is without a doubt the section 199 deduction. An IRS ruling that allows cooperatives to treat cash payments to members for purchases of grain as a “Per Unit Retain Paid In Money” for purposes of computing the section 199 deduction has exponentially increased this deduction for our cooperative clients. However, there are some reporting issues that we want to make everyone aware of.
SECTION 199
As with most tax related issues, the better the evidence that a taxpayer has, the better the chance that the taxpayer will prevail should the IRS challenge a position or deduction. With this in mind, we suggest that cooperative clients take the following steps to protect this increased section 199 deduction:
- On all grain checks that are issued to members, include a notation on the check that “This grain payment is considered to be a Per Unit Retain Paid in Money under section 1382(d) of the internal revenue code.
- Notify your members on an annual basis that because the cooperative is considering these payments to be a Per Unit Retain Paid in Money, the patron should not consider the income to the patron as a Qualified Domestic Production Gross Receipt for purposes of computing the section 199 deduction. I would recommend the following letter (or something similar) be sent out to all patrons:
Dear patron of _____ Cooperative,
Effective _____(beginning of the tax year), ____Cooperative is considering the grain payments paid to you to be a Per Unit Retain Paid In Money under code section 1382 (d) of the Internal Revenue Code. As such, you should not consider these payments that you have received to be a Qualifying Domestic Production Gross Receipt for purposes of computing your section 199 deduction.
Please consult your tax advisor or CPA if you have any questions regarding this issue.
Sincerely,
____________ Cooperative
- It is clear that you will have to report the total amount of payment considered a Per Unit Retain Paid In Money to your patrons on form 1099-PATR, Box 3. Please note, this will NOT increase taxable income to your patrons as they have been considering these payments as income. It is merely a reporting function. Also, please keep in mind that even if your cooperative has a fiscal year for tax purposes, 1099 forms are reported on a calendar year basis. Per Unit Retains Paid in Money during 2008 will be reported on a 2008 form 1099-PATR that will be due to the members by January 31, 2009.
AGRICULTURE CHEMICALS SECURITY CREDIT
This is a brand new credit that is used to claim a credit for qualified agricultural chemicals security costs that are paid or incurred after May 22, 2008 (and before January 1, 2013). A copy of this new form (Form 8931) and its instructions are enclosed for your review. Please note that there are 8 categories of costs that qualify and that these costs cover a wide variety of security costs. A taxpayer is allowed a 30% credit based on total qualifying security expenditures up to a limit of $100,000 per facility.
So, if your cooperative has 8 locations, theoretically you could claim a total credit of $800,000 provided you had sufficient qualifying costs. Please review your general ledger to see if you have any qualifying costs (post May 22, 2008 costs), and inform us as soon as possible so that we may claim this credit on your cooperative 1120-C tax return.
WORK OPPORTUNITY TAX CREDIT
This is something that is not new for 2008. We have previously discussed this credit and provided the details. However, due to the lack of response, I wanted to again mention this. Basically if you hire new employees (defined as a new employee whom has not previously been employed by the cooperative) ages 18 to 39, depending on their county of residence, you may be able to claim this work opportunity tax credit. There are specific documentation requirements that must be met in order to claim this credit but they are relatively mild. If you hire any brand new employees in this age range, it would be prudent to contact us to see if you may qualify for this credit. Remember, a credit reduces your tax on a dollar for dollar basis.
If we can be of assistance regarding these or any other issues, please contact us. Thank you for the opportunity to be of service.