Transition Rule for “Old” DPAD – Expect Some Phone Calls – Dennis Gardiner, Managing Partner, CPA
Under the Tax Cut and Jobs Act of 2017 (TCJA), there exists a “transition rule” for patron farmers who sold grain, milk, livestock or other commodities to the cooperative(s). This transition rule only applies to producers who sold to a cooperative that has other than a calendar year end. For calendar year end cooperatives, the “old” DPAD ended at Dec. 31, 2017. Payments from the cooperative from Jan. 1, 2018 through the cooperative’s fiscal year-end would be excluded from the producer’s computation of the 20% QBID (qualified business income deduction) for 2018. This is regardless of whether the patron received an allocation of the “old” Section 199/DPAD from the cooperative.
You may begin to field calls from your members, depending on how well they keep their own books, asking for payments from the cooperative from Jan. 1, 2018 through your fiscal year-end; and payments from the end of your fiscal year to Dec. 31, 2018. Farmers will still be able to take the old DPAD (199) deduction in 2018, as long as it is attributable to QPAI (qualified production activities income) which was allowed to the cooperative for a tax year beginning before 2018. No 199A deduction, however, will be allowed for such payments.
Payments received by patrons from sales to cooperatives with calendar years ending after Dec. 31, 2018, are eligible for the 199A QBID deduction and the 199A(g) pass-through “DPAD” deduction.