Section 199 Amended Return Update

By: Gardiner Thomsen CPAsemail

We have recently received verbal notification from the IRS that all amended returns which have been filed to claim the increased section 199 deduction will be disallowed, and to look for formal written notification of this decision by the end of September. Our hope is that the IRS will be specific as to why these amended returns have been disallowed, so that we will be able to challenge the veracity of the IRS action. Once we have the opportunity to assess the formal IRS position, we will be able to suggest the appropriate strategy for our clients. Generally speaking, the next step would be to appeal the IRS disallowance on a coop by coop basis.

The appeals department of the IRS is separate and totally independent from the audit department. We will have the opportunity to present the evidence we have which we feel authorizes the filing of these amended returns and directly refutes the IRS reasons for their initial disallowance. We remain confident that our position will be upheld and that the amended return claims will be processed and paid. We are also confident that our section 199 strategy for current returns appears to be unaffected by this upcoming IRS action.

In the meantime, we will determine whether or not to continue filing amended returns. To briefly explain, a taxpayer generally has a 3 year window in which to file an amended return. After 3 years, that ability is lost. So, a calendar year cooperative with a December 31, 2006 tax year would have until September 15, 2010 to file an amended return. Our policy has been to file these amended returns generally as the statute comes due, to make sure we have the latest IRS information prior to filing, and still file prior to the statute expiring.

Until this issue is resolved, we want to evaluate each coop’s situation to determine if filing amended returns are in your best interest. We now know to expect IRS scrutiny of your amended return, so we will factor that into the decision to file a particular return as well.

We will continue to monitor this situation and work closely with you to take the most appropriate action for your cooperative.