More on Section 199
By: Gardiner Thomsen CPAs | email
Another article on Section 199, tired of the topic? We might agree, except we recognize the significance to our clients on how this deduction benefits the cooperative or its members.
This year most of our clients retained the benefit of the deduction at the cooperative; reducing what was allocated to the patrons or the coop’s tax obligation. Regardless, the cooperative saved cash, working capital. Due to the stress put on earnings by the fertilizer markets, a few of our accounts were not able to or chose not to utilize some or all of the benefit of the Section 199 deduction.
In those cases, the cooperative elected to allocate the deduction to the member patrons. It ends up being a pretty good way of providing value to your members, without it costing the cooperative or the patron any cash. When allocated to the patron, the W-2 wage limit is eliminated at the patron level. Meaning, the member does not have to have W-2 wages to use the deduction.
Allocating the deduction requires notifying the members of the amount being allocated to them. You have until your tax-return deadline to make this notification, just like a patronage allocation. A special letter would need to be sent to the members giving them notice of the amount being allocated to them. The amount being allocated to the patron ends up being reported in Box 6 of the 1099-PATR, in the year the notification is sent to the member. So if an August 31, 2009 close does not notify the member of the allocation of the deduction until February 15, 2010, no reporting in Box 6 of the 1099-PATR would be necessary for 2009. This allocation would be reported on the 2010 1099-PATR. This follows the similar timing and reporting for a qualified patronage allocation; which is reported to the patron in Box 1 of the 1099-PATR, in the year the allocation is made to the member.
To clarify further, annually you must report in Box 3 of the 1099-PATR the amount of cash paid to members for grain sold to the cooperative for that calendar year. This amount is the PURPIMs (per-unit retains paid in money) that are used to give your cooperative the enhanced Section 199 deduction benefit.
We found the process of allocating to the members and the timing and manner of the notices and the 1099 reporting to be somewhat confusing for a few of our clients this year. About the time we all come to clearly understand the benefits and reporting of the Section 199 deduction, it will be taken away from us by the Administration to cover the Government’s deficit.
