Category Archives: Section 199

Visit From The Grinch!

By Dennis Gardiner

Which “Grinch” visited our coop clients this year? The one whose heart grows 3 times? Or the one who stole all the presents? Well, the answer is it will vary! The effects of the new tax law changes are still being contemplated (and debated) and you are likely getting inundated with information from many sources. […]

American Taxpayer Relief Act of 2012

The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013. This new law modifies or extends many business tax breaks, and also contains many changes to individual income tax. There are substantial additional changes in this act, but the following are most likely to impact you and/or your business.

Structuring Your Cooperative for the Future

The Limited Cooperative association structure would allow you the flexibility to accept outside investor equity. The outside equity may afford your cooperative the advantage of timely opportunities or to balance your debt and equity capital structure. We are not encouraging this structure for all of our cooperatives, but we have seen enough through the last 48 years to know that it is worth considering; particularly as our cooperative clients continue to grow. We are not attorneys, so we would have to direct you to the legal resources to address the details. Contact your Gardiner Thomsen partner or manager if you would like to start the discussion.

Section 199 Amended Returns

The case for Section 199 amended returns continues! The first pre-settlement appeals conference with the IRS Appeals Office is scheduled for August 8th and 9th. Please be aware that if you filed an amended return to claim an enhanced Section 199 deduction and have not heard from the IRS, please contact us so that we may follow up on and track the status of your amended return.

Cooperatives and Current Year Earnings

The dilemma is that Section 199 and bonus depreciation are effective ways to mitigate taxes, but they tilt the imbalance in member’s equity further towards retained earnings. We are trying to address this with our coop clients so that decisions are made with an understanding of how they affect members in the current and future years.

Cooperative Trends Expected in 2011

With the quick build-up over the past few years of retained earnings, we anticipate seeing more time spent in the board room or board retreats addressing the member’s equity mix of the cooperative’s balance sheet.

Cooperative Trends of 2010 – What We Have Seen

Build, build, build! Many clients spent substantial dollars for fixed asset additions, primarily grain and liquid fertilizer storage facilities. It appears these additions have been good investments.

Section 199 Amended Return Update

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.

Allocating Patronage Under Section 199

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.

Shark Repellents and Poison Pills

The topic of how much retained earnings is appropriate keeps surfacing as well. One of the concerns that comes up is how the proceeds of a sale of the company would be distributed if the company were to sell. And, with the retained earnings being significant relative to the equity in the names of the members, the concern turns to how vulnerable the cooperative is to an offer that could be perceived as attractive to the members but would end up being a discounted sale of the coop– one heck of a bargain for a buyer.