Assembling the Return

To ensure that the cooperative's tax return is correctly processed, attach all schedules and other forms after page 5, Form 990-C, in the following order.

1. Form 8302.
2. Form 4136.
3. Form 4626.
4. Form 851.
5. Additional schedules in alphabetical order.
6. Additional forms in numerical order.

Complete every applicable entry space on Form 990-C. Do not write See Attached instead of completing the entry spaces. If more space is needed on the forms or schedules, attach separate sheets, using the same size and format as the printed forms. If there are supporting statements and attachments, arrange them in the same order as the schedules or forms they support and attach them last. Show the totals on the printed forms. Also, be sure to enter the cooperative's name and EIN on each supporting statement or attachment.

Accounting Methods

An accounting method is a set of rules used to determine when and how income and expenses are reported. Figure taxable income using the method of accounting regularly used in keeping the cooperative's books and records. In all cases, the method used must clearly show taxable income. Permissible methods include:

• Cash,
• Accrual, or
• Any other method authorized by the Internal Revenue Code.

Accrual method.   Generally, a cooperative must use the accrual method of accounting if its average annual gross receipts exceed $5 million. See section 448(c). Generally, a cooperative engaged in farming operations also must use the accrual method. For exceptions, see section 447.

If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method and may account for inventoriable items as materials and supplies that are not incidental. For details, see Cost of Goods Sold on page 12.

Under the accrual method, an amount is includible in income when:

• All the events have occurred that fix the right to receive the income, which is the earliest of the date: (a) the required performance takes place, (b) payment is due, or (c) payment is received and
• The amount can be determined with reasonable accuracy.

See Regulations section 1.451-1(a) for details.

Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when:

• All events that determine the liability have occurred,
• The amount of the liability can be figured with reasonable accuracy, and
• Economic performance takes place with respect to the expense.

There are exceptions to the economic performance rule for certain items, including recurring expenses. See section 461(h) and the related regulations for the rules for determining when economic performance takes place.

Nonaccrual-experience method.   Accrual-method cooperatives whose average annual gross receipts for the 3 prior tax years do not exceed $5 million, are not required to accrue certain amounts to be received from the performance of services that, on the basis of experience, will not be collected. This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. For more information, see section 448(d)(5). See the instructions on page 7 for reporting requirements.

Percentage-of-completion method.   Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage-of-completion method described in section 460. See section 460 and the underlying regulations for general rules on long-term contracts.

Change in accounting method.   Generally, the cooperative must get IRS consent to change the method of accounting used to report taxable income (for income as a whole or for any material item). To do so, it must file Form 3115, Application for Change in Accounting Method. For more information, see Form 3115 and Pub. 538, Accounting Periods and Methods.

However, there are new procedures under which a cooperative may obtain automatic consent for certain changes in accounting methods. See Rev. Proc. 2002-9, 2002-3 I.R.B. 327, as modified by Rev. Proc. 2002-19, 2002-13 I.R.B. 696 and Rev. Proc. 2002-54, 2002-35 I.R.B. 432.

Certain qualifying taxpayers or qualifying small business taxpayers (described on page 12) that want to use the cash method for an eligible trade or business may get an automatic consent to change their method of accounting. For details, see Rev. Proc. 2001-10, 2001-2 I.R.B. 272, Rev. Proc. 2002-28, 2002-18 I.R.B. 815, and Form 3115.

The cooperative may also have to make an adjustment to prevent amounts of income or expense from being duplicated or omitted. This is called a section 481(a) adjustment, which cooperatives generally must take into account in the year of change.

Example. A cooperative changes to the cash method of accounting. It accrued sales in 2001 for which it received payment in 2002. It must report those sales in both years as a result of changing its accounting method and must make a section 481(a) adjustment to prevent duplication of income.

See Rev. Proc. 2002-9 to figure the amount of this adjustment. Include any net positive section 481(a) adjustment on page 1, line 10. If the net section 481(a) adjustment is negative, report it on page 1, line 26.

Completed crop pool method of accounting.   Cooperatives may be able to use the completed crop pool method of accounting for crop pools opened before March 1, 1978. See section 1382(g) for more information.

Accounting Periods

A cooperative must figure its taxable income on the basis of a tax year. The tax year is the annual accounting period the cooperative uses to keep its records and report its income and expenses. Generally, cooperatives can use a calendar year or a fiscal year.

For more information about accounting periods, see Pub. 538.

Calendar year.   If the calendar year is adopted as the annual accounting period, the cooperative must maintain its books and records and report its income and expenses for the period from January 1 through December 31 of each year.

Fiscal year.   A fiscal year is 12 consecutive months ending on the last day of any month except December. A 52-53-week year is a fiscal year that varies from 52 to 53 weeks.

Adoption of tax year.   A cooperative adopts a tax year when it files its first income tax return. It must adopt a tax year by the due date (not including extensions) of its first income tax return.

Change in tax year.   Generally, a cooperative must get the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, under certain conditions, a cooperative may change its tax year without getting consent. For more information on change in tax year, see Form 1128, Regulations section 1.442-1, Pub. 538 and Rev. Procs. 2002-37 and 2002-39.

Rounding Off to Whole Dollars

The cooperative may show amounts on the return and accompanying schedules as whole dollars. To do so, drop any amount less than 50 cents and increase any amount from 50 cents through 99 cents to the next higher dollar.

Recordkeeping

Keep the cooperative's records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Keep records that verify the cooperative's basis in property for as long as they are needed to figure the basis of the original or replacement property.

The cooperative should also keep copies of all returns. They help in preparing future and amended returns.

Depository Method of Tax Payment

The cooperative must pay the tax due in full no later than the 15th day of the 9th month after the end of the tax year. The two methods of depositing cooperative income taxes are discussed below.

Electronic Deposit Requirement.   The cooperative must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2003 if:

• The total deposits of such taxes in 2001 were more than $200,000 or
• The cooperative was required to use EFTPS in 2002.

If the cooperative is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If the cooperative is not required to use EFTPS, it may participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477 or 1-800-945-8400. To enroll online, visit www.eftps.gov.

Depositing on time.   For EFTPS deposits to be made timely, the cooperative must initiate the transaction at least 1 business day before the date the deposit is due.

Deposits with Form 8109.   If the cooperative does not use EFTPS, deposit cooperative income tax payments (and estimated tax payments) with Form 8109, Federal Tax Deposit Coupon. If you do not have a preprinted Form 8109, use Form 8109-B to make deposits. You can get this form by calling 1-800-829-4933. Be sure to have your EIN ready when you call.

Do not send deposits directly to an IRS office; otherwise, the cooperative may have to pay a penalty. Mail or deliver the completed Form 8109 with the payment to an authorized depositary, i.e., a commercial bank or other financial institution authorized to accept Federal tax deposits. Make checks or money orders payable to the depositary.

If the cooperative prefers, it may mail the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box 970030, St. Louis, MO 63197. Make the check or money order payable to Financial Agent.

To help ensure proper crediting, write the cooperative's EIN, the tax period to which the deposit applies, and Form 990-C on the check or money order. Be sure to darken the 990-C box on the coupon. Records of these deposits will be sent to the IRS.

For more information on deposits, see the instructions in the coupon booklet (Form 8109) and Pub. 583, Starting a Business and Keeping Records.

If the cooperative owes tax when it files Form 990-C, do not include the payment with the tax return. Instead, mail or deliver the payment with Form 8109 to an authorized depositary or use EFTPS, if applicable.

Estimated Tax Payments

Generally, the following rules apply to the cooperative's payments of estimated tax.

• The cooperative must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more.
• The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day.
• Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax.
• If the cooperative does not use EFTPS, use the deposit coupons (Form 8109) to make deposits of estimated tax.

For more information on estimated tax payments, including penalties that apply if the cooperative fails to make required payments, see the instructions for line 33 on page 12.

Overpaid estimated tax.   If the cooperative overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. The overpayment must be at least 10% of expected income tax liability and be at least $500. File Form 4466 after the end of the cooperative's tax year, and no later than the 15th day of the third month after the end of the tax year. Form 4466 must be filed before the cooperative files its tax return.

Interest and Penalties

Interest.   Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, gross valuation overstatements, and substantial understatements of tax from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

Penalty for late filing of return.   A cooperative that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. The penalty will not be imposed if the cooperative can show that the failure to file on time was due to reasonable cause. Cooperatives that file late must attach a statement explaining the reasonable cause.

Penalty for late payment of tax.   A cooperative that does not pay the tax when due generally may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the cooperative can show that the failure to pay on time was due to reasonable cause.

Trust fund recovery penalty.   This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not paid to the IRS. These taxes are generally reported on Forms 720, 941, 943, or 945 (see Other Forms, Returns, Schedules and Statements That May Be Required on page 2). The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax. See the instructions for Form 720, Pub. 15 (Circular E), Employer's Tax Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax Guide, for details, including the definition of responsible persons.

Other penalties.   Other penalties can be imposed for negligence, substantial understatement of tax, and fraud. See sections 6662 and 6663.

Specific Instructions

Period Covered

File the 2002 return for calendar year 2002 and fiscal years that begin in 2002 and end in 2003. For a fiscal year return, fill in the tax year space at the top of the form.

Note. The 2002 Form 990-C may also be used if:  

• The cooperative has a tax year of less than 12 months that begins and ends in 2003 and
• The 2003 Form 990-C is not available at the time the cooperative is required to file its return.

The cooperative must show its 2003 tax year on the 2002 Form 990-C and take into account any tax law changes that are effective for tax years beginning after December 31, 2002.

Address

Include the suite, room, or other unit number after the street address. If a preaddressed label is used, include this information on the label.

If the Post Office does not deliver mail to the street address and the cooperative has a P.O. box, show the box number.

Item A - Business Activity With the Largest Total Receipts

Identify the business activity from which the cooperative receives the largest total receipts (e.g., wholesale marketing of meat, drying fruit, grain storage, wholesale purchasing of fertilizers, cattle breeding, etc.).

Item B - Employer Identification Number (EIN)

Enter the cooperative's EIN. If the cooperative does not have an EIN, it must apply for one on Form SS-4, Application for Employer Identification Number. If the cooperative has not received its EIN by the time the return is due, write Applied for in the space for the EIN. See Pub. 583 for details.

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