Proper Notification of Allocation
As a cooperative, you are allowed to allocate various taxable items to your members. Common items include qualified patronage and the section 199 deduction. This benefit comes with some specific rules regarding reporting to your members and reporting to the Internal Revenue Service.
When cooperatives make allocations to their members, they generally have up to 81/2 months to notify their members via a qualified written notice of allocation. For tax considerations, many cooperatives find it beneficial to provide written notice of allocation prior to the end of the calendar year if that comes before the end of the 81/2 month notification period. The 81/2 month notification period is just the maximum amount of time you have to notify your members. For instance, a cooperative with a June 30th fiscal year end would have until May 15th of the following year to provide written notice to its members, but it could choose to issue the written notice before December 31st of the current year.
The second part of the allocation process is reporting to the Internal Revenue Service. Form 1099PATR (and other 1099 forms) is reported on a calendar year basis, not a fiscal year basis. So, an allocation of qualified patronage and/or section 199 is reported on form 1099PATR in January of the year following the qualified written notice of allocation.
The June 30th cooperative that allocates on May 15th of the following year wouldn't report this activity on form 1099PATR until the following January. To state this more clearly: a June 30th, 2012 cooperative makes its qualified written notice of allocation on May 15, 2013 and reports that to the Internal Revenue Service on a 2013 1099PATR to be issued in January 2014.
If that June 30th, 2012 cooperative provides a written notice of allocation in December 2012, then the cooperative reports this activity to the IRS on a 2012 1099PATR to be issued in January 2013.
I know this can sound very confusing, but it is also very important. Should you have any questions on proper written notice of allocation or proper reporting to the IRS, please contact me.
