Allocating Patronage Under Section 199
By: Gardiner Thomsen CPAs | email
We would like to inform you of some important points to keep in mind if you plan on allocating some or all of your patronage sourced section 199 deduction to your members.
You have to provide written notice to your members, just like you would regarding their patronage allocation. This notice must be provided within 8 ½ months of your cooperative’s fiscal year end. Members will generally be able to deduct their allocated portion of the section 199 deduction in the year in which they receive notice. So, if your cooperative has an August, 2010 fiscal year end, and decides to allocate your section 199 deduction to your members, if you provide notice prior to December 31, 2010, your members have a 2010 deduction. If your notice is after December 31, 2010, but prior to May 15, 2011 (the 8 ½ month deadline), then your members would have a 2011 deduction.
Timing is very crucial.
In addition to the written notice, you must also report the allocation of your patronage sourced section 199 deduction that is allocated to your members on form 1099PATR. This can be confusing because many cooperatives have a non-calendar fiscal year end, whereas 1099 reporting is based on calendar year figures. In our above example, if notice is provided prior to December 31, 2010, then this allocation would go on a 2010 1099PATR. If notice is given after December 31, 2010, but prior to May 15, 2011 (the 8 ½ month deadline), then the allocation would go on a 2011 1099PATR.
Remember, even if your cooperative is allocating all or part of its patronage sourced section 199 deduction to your members, you still have to report Per Unit Retains Paid in Money (PURPIMs) to your patrons on form 1099PATR.
These reporting issues can be very confusing. Please contact us if you have any questions regarding patron notification or 1099 reporting.