Changes To Note

• Additional guidance has been issued allowing qualifying small businesses to adopt or change to the cash method of accounting. For details, see Cost of Goods Sold on page 12.
• Guidance has been issued regarding the nonaccrual experience method of accounting. See page 4.
• Additional guidance has been issued regarding the rules for adopting, changing, and retaining an accounting period. See Regulations sections 1.441 and 1.442.
• New procedures for certain cooperatives to obtain automatic approval to adopt, change, or retain an accounting period have been issued. See Rev. Proc. 2002-37, 2002-22 I.R.B. 1030; Rev. Proc. 2002-38, 2002-22 I.R.B. 1037; and Rev. Proc. 2002-39, 2002-22 I.R.B. 1046.
• The cooperative must file a disclosure statement for each reportable tax shelter transaction in which it participated, directly or indirectly, if the transaction affects the cooperative's Federal tax liability. See Tax shelter disclosure statement on page 4 for more details.

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Unresolved Tax Issues

If the cooperative has attempted to deal with an IRS problem unsuccessfully, it should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents the cooperative's interests and concerns within the IRS by protecting its rights and resolving problems that have not been fixed through normal channels.

While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that the cooperative's case is given a complete and impartial review.

The cooperative's assigned personal advocate will listen to its point of view and will work with the cooperative to address its concerns. The cooperative can expect the advocate to provide:

• A fresh look at a new or on-going problem.
• Timely acknowledgement.
• The name and phone number of the individual assigned to its case.
• Updates on progress.
• Timeframes for action.
• Speedy resolution.
• Courteous service.

When contacting the Taxpayer Advocate, the cooperative should provide the following information:

• The cooperative's name, address, and employer identification number (EIN).
• The name and telephone number of an authorized contact person and the hours he or she can be reached.
• The type of tax return and year(s) involved.
• A detailed description of the problem.
• Previous attempts to solve the problem and the office that had been contacted.
• A description of the hardship the cooperative is facing (if applicable).

The cooperative may contact a Taxpayer Advocate by calling (toll free) 1-877-777-4778. Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If the cooperative prefers, it may call, write, or fax the Taxpayer Advocate office in its area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.

How To Get Forms and Publications

Personal computer.   You can access the IRS web site 24 hours a day, 7 days a week, at www.irs.gov to:

• Download forms, instructions, and publications.
• Order IRS products on-line.
• See answers to frequently asked tax questions.
• Search publications on-line by topic or keyword.
• Send us comments or request help by e-mail.
• Sign up to receive local and national tax news by e-mail.

You can also reach us using file transfer protocol at ftp.irs.gov.

CD-ROM.   Order Pub. 1796, Federal Tax Products on CD-ROM, and get:

• Current year forms, instructions, and publications.
• Prior year forms, instructions, and publications.
• Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $22 (no handling fee), or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $22 (plus a $5 handling fee).

By phone and in person.   You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.

General Instructions

Purpose of Form

Use Form 990-C, Farmers' Cooperative Association Income Tax Return, to report income, gains, losses, deductions, credits, and to figure the income tax liability of the cooperative.

Who Must File

Every farmers' cooperative association must file Form 990-C whether or not the association has taxable income (Regulations section 1.6012-2(f)).

Generally, a farmers' cooperative is a farmers, fruit growers, or like association organized and operated on a cooperative basis to:

1. Market the products of members or other producers and return to them the proceeds of sales, less necessary marketing expenses, on the basis of either the quantity or value of their products; or
2. Purchase supplies and equipment for the use of members or other persons and turn over the supplies and equipment to them at actual cost, plus necessary expenses.

A member is anyone who shares in the profits of a cooperative association and is entitled to participate in the management of the association.

A producer is a person who, as owner or tenant, bears the risk of production and receives income based on farm production rather than fixed compensation. For example, if a cooperative leases its land to a tenant farmer who agrees to pay a rental fee based on a percentage of the farm crops produced, both the landowner and the tenant farmer qualify as producers.

When To File

Generally, a cooperative must file its income tax return by the 15th day of the 9th month after the end of its tax year.

If the due date falls on a Saturday, Sunday, or legal holiday, the cooperative may file on the next business day.

Private delivery services.   Cooperatives can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in September 2002. The list includes only the following:

• Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
• DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.
• United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

Extension.   File Form 7004, Application for Automatic Extension of Time To File Corporation Income Tax Return, to request a 6-month extension of time to file.

Who Must Sign

The return must be signed and dated by:

• The president, vice president, treasurer, assistant treasurer, chief accounting officer or
• Any other cooperative officer (such as tax officer) authorized to sign.

Receivers, trustees, or assignees also must sign and date any return filed on behalf of a cooperative.

If an employee of the cooperative completes Form 990-C, the paid preparer's space should remain blank. In addition, anyone who prepares Form 990-C but does not charge the cooperative should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the Paid Preparer's Use Only area.

The paid preparer must complete the required preparer information and -

• Sign the return, by hand, in the space provided for the preparer's signature. (Signature stamps and labels are not acceptable.)
• Give a copy of the return to the taxpayer.

Paid Preparer Authorization

If the cooperative wants to allow the IRS to discuss its 2002 tax return with the paid preparer who signed it, check the Yes box in the signature area of the return. This authorization applies only to the individual whose signature appears in the Paid Preparer's Use Only section of the cooperative's return. It does not apply to the firm, if any, shown in that section.

If the Yes box is checked, the cooperative is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The cooperative is also authorizing the paid preparer to:

• Give the IRS any information that is missing from the return,
• Call the IRS for information about the processing of the return or the status of any related refund or payment(s), and
• Respond to certain IRS notices that the cooperative has shared with the preparer about math errors, offsets, and return preparation. The notices will not be sent to the preparer.

The cooperative is not authorizing the paid preparer to receive any refund check, bind the cooperative to anything (including any additional tax liability), or otherwise represent the cooperative before the IRS. If the cooperative wants to expand the paid preparer's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

The authorization cannot be revoked. However, the authorization will automatically end no later than the due date (excluding extensions) for filing the cooperative's 2003 tax return.

Where To File

File Form 990-C with the Internal Revenue Service, Ogden, UT 84201-0027.

Other Forms, Returns, Schedules and Statements That May Be Required

Forms

The cooperative may have to file some of the following forms. See the form for more information.

• Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Use these forms to report wages, tips, and other compensation, and withheld income, social security, and Medicare taxes for employees.
• Form 720, Quarterly Federal Excise Tax Return. Use this form to report and pay luxury tax on passenger vehicles, environmental taxes, communications and air transportation taxes, fuel taxes, manufacturers taxes, ship passenger taxes, and certain other excise taxes.
• Form 851, Affiliations Schedule. The parent corporation of an affiliated group of corporations must attach this form to its consolidated return. If this is the first year one or more subsidiaries are being included in a consolidated return, also see Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return, on page 3.
• Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. Use this form to report certain transfers to foreign corporations under section 6038B.
• Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return. The cooperative may be liable for FUTA tax and may have to file Form 940 or Form 940-EZ if it either:
  1. Paid wages of $1,500 or more in any calendar quarter in 2001 or 2002 or
  2. Had one or more employees who worked for the cooperative for at least some part of a day in any 20 or more different weeks in 2001 or 20 or more different weeks in 2002.
• Form 941, Employer's Quarterly Federal Tax Return or Form 943, Employer's Annual Tax Return for Agricultural Employees. Employers must file these forms to report income tax withheld, and employer and employee social security and Medicare taxes. Also, see Trust fund recovery penalty on page 6.
• Form 945, Annual Return of Withheld Federal Income Tax. File Form 945 to report income tax withheld from nonpayroll distributions or payments, including pensions, annuities, IRAs, gambling winnings, and backup withholding.

  See Trust fund recovery penalty on page 6.

• Form 966, Corporate Dissolution or Liquidation. Use this form to report the adoption of a resolution or plan to dissolve the cooperative or liquidate any of its stock.
• Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and
• Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. Use these forms to report and send withheld tax on payments or distributions made to nonresident alien individuals, foreign partnerships, or foreign corporations to the extent these payments constitute gross income from sources within the United States (see sections 861 through 865).
• Form 1042-T, Annual Summary and Transmittal of Forms 1042-S. Use Form 1042-T to transmit paper forms 1042-S to the IRS.

  Also see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and sections 1441 and 1442.

• Form 1096, Annual Summary and Transmittal of U.S. Information Returns.
• Form 1098, Mortgage Interest Statement. Use this form to report the receipt from any individual of $600 or more of mortgage interest (including points) in the course of the cooperative's trade or business and reimbursements of overpaid interest.
• Forms 1099. Use these information returns to report the following:

1. Form 1099-A, Acquisition or Abandonment of Secured Property.
2. Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
3. Form 1099-DIV, Dividends and Distributions.
4. Form 1099-INT, Interest Income.
5. Form 1099-MISC, Miscellaneous Income. See this form to report payment: to certain fishing boat crew members; to providers of health and medical services; of rent or royalties; nonemployee compensation, etc.

   Note.   Every cooperative must file Form 1099-MISC if it makes payments of rents, commissions, or other fixed or determinable income (see section 6041) totaling $600 or more to any one person in the course of its trade or business during the calendar year.

6. Form 1099-OID, Original Issue Discount.
7. Form 1099-PATR, Taxable Distributions Received from Cooperatives.
8. Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

• Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return. For the first year a subsidiary corporation is being included in a consolidated return, attach the completed form to the parent's consolidated return. Attach a separate Form 1122 for each subsidiary being included in the consolidated return.
• Form 5452, Corporate Report of Nondividend Distributions. Use this form to report nondividend distributions.
• Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This form is required if the cooperative controls a foreign corporation; acquires, disposes of, or owns 10% or more in value or vote of the outstanding stock of a foreign corporation; or had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation.
• Form 5713, International Boycott Report. Cooperatives that have operations in, or related to, certain boycotting countries file Form 5713.
• Form 8264, Application for Registration of a Tax Shelter. Tax shelter organizers use this form to receive a tax shelter registration number from the IRS.
• Form 8271, Investor Reporting of Tax Shelter Registration Number. Cooperatives which have acquired an interest in a tax shelter that is required to be registered, use this form to report the tax shelter's registration number. Attach Form 8271 to any tax return (including an application for tentative refund (Form 1139) and an amended return) on which a deduction, credit, loss, or other tax benefit attributable to a tax shelter is taken or any income attributable to a tax shelter is reported.
• Form 8275, Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement. Disclose items or positions taken on a tax return that are not otherwise adequately disclosed on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).
• Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Use this form to report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions.
• Form 8302, Direct Deposit of Tax Refund of $1 Million or More. This form must be filed to request a direct deposit of a tax refund of $1 million or more.
• Form 8594, Asset Acquisition Statement. Cooperatives file this form to report the purchase or sale of a group of assets that constitute a trade or business if goodwill or going concern value could attach to the assets.
• Form 8810, Corporate Passive Activity Loss and Credit Limitations. Closely held cooperatives must use this form to compute the passive activity loss and credit allowed under section 469.
• Form 8842, Election To Use Different Annualization Periods for Corporate Estimated Tax. Cooperatives use Form 8842 for each year they want to elect one of the annualization periods in section 6655(e)(2)(C) for figuring estimated tax payments under the annualized income installment method.
• Form 8849, Claim for Refund of Excise Taxes. Cooperatives use this form to claim a refund of certain excise taxes.
• Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. A cooperative may have to file Form 8865 if it:
  1. Controlled a foreign partnership (i.e., owned more than a 50% direct or indirect interest in the partnership).
  2. Owned at least a 10% direct or indirect interest in a foreign partnership while U.S. persons controlled that partnership.
  3. Had an acquisition, disposition, or change in proportional interest in a foreign partnership that:
     1. Increased its direct interest to at least 10% or reduced its direct interest of at least 10% to less than 10%.
     2. Changed its direct interest by at least a 10% interest.
  4. Contributed property to a foreign partnership in exchange for a partnership interest if:
     1. Immediately after the contribution, the cooperative owned, directly or indirectly, at least a 10% interest in the foreign partnership or
     2. The fair market value of the property the cooperative contributed to the foreign partnership, when added to other contributions of property made to the foreign partnership during the preceding 12-month period, exceeds $100,000.

     Also, the cooperative may have to file Form 8865 to report certain dispositions by a foreign partnership of property it previously contributed to that partnership if it was a partner at the time of the disposition. For more details, including penalties for failing to file Form 8865, see Form 8865 and its separate instructions.

Statements

Consolidated return.   File supporting statements for each corporation included in the consolidated return. Do not use Form 990-C as a supporting statement. On the supporting statement, use columns to show the following (both before and after adjustments):

• Items of gross income and deductions.
• A computation of taxable income.
• Balance sheets as of the beginning and end of the tax year.
• A reconciliation of income per books with income per return.
• A reconciliation of retained earnings.

Enter the totals for the consolidated group on Form 990-C. Attach consolidated balance sheets and a reconciliation of consolidated retained earnings. For more information on consolidated returns, see the regulations under section 1502.

Tax shelter disclosure statement.   For each reportable transaction in which the cooperative participated, directly or indirectly, it must attach a disclosure statement to its return for each tax year that the Federal income tax liability of the cooperative is affected by its participation in the transaction. In addition, for the first tax year a disclosure statement is attached to its return, the cooperative must send a copy of the statement to the Internal Revenue Service, LM:PFTG:OTSA, Large & Mid-Size Business Division, 1111 Constitution Ave., N.W., Washington, DC 20224. If a transaction becomes a reportable transaction after the cooperative files its return, it must attach the statement to the following year's return (whether or not its tax liability is affected for that year). The cooperative is considered to have indirectly participated if it participated as a partner in a partnership or if it knows or has reason to know that the tax benefits claimed were derived from a reportable transaction.

Disclosure is required for a reportable transaction that is a listed transaction. A transaction is a listed transaction if it is the same as or substantially similar to a transaction that the IRS has determined to be a tax avoidance transaction and has identified as a listed transaction by notice, regulation, or other published guidance. See Notice 2001-51, 2001-34 I.R.B. 190, for transactions identified by the IRS as listed transactions. The listed transactions identified in this notice will be updated in future published guidance.

See Temporary Regulations section 1.6011-4T for more details, including:

1. Definitions of reportable transaction, listed transaction, and substantially similar.
2. Form and content of the disclosure statement.
3. Filing requirements for the disclosure statement.

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