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.

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.

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.

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.

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.

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.