The Cooperative Provisions Contained in the Proposed Section 199A "Fix"

Published on May 03, 2018

Today’s article focuses on how the modification would impact cooperatives. As you will see below, essentially Section 199A for cooperatives reflects Section 199 as we have known it for years. 

Section 199A(g) is expected to be amended as follows:

  • Applies to taxpayers that are an agricultural or horticultural cooperative (no other types of cooperatives will qualify).

  • Deduction is 9% of the lesser of qualified production activities income (QPAI) or taxable income for the taxpayer’s taxable year. The deduction is further limited to 50% of W2 wages.

  • QPAI is domestic production gross receipts less cost of goods sold and other expenses that are allocable to such receipts

  • Domestic production gross receipts = lease, rental, license, sale, exchange, or other disposition of any agricultural or horticultural product which was manufactured, produced, grown or extracted by the taxpayer in whole or significant part in the US.

  • Taxable income and QPAI are computed without regard to any deduction relating to the patronage dividend, per-unit retain allocations, and non-patronage distributions

  • The definition of W2 wages is consistent with the rules under prior Section 199

  • Marketing cooperatives – A cooperative shall be treated as having manufactured, produced, grown, or extracted any agricultural product for which its patrons have manufactured, produced, grown, or extracted.

  • Some or all of the deduction can be passed through to a non-corporate taxpayer or a specified agricultural or horticultural cooperative who receives a qualified payment from the cooperative.

  • Partners in a partnership – rules are consistent with prior Section 199.

  • Expanded affiliated group rules consistent with prior Section 199.

  • Regulations shall be issued based on the regulations applicable to cooperatives and their patrons under prior Section 199.

  • Amendments are retroactive and apply as if included in the original Tax Cuts and Jobs Act passed in December 2017.

(Source: CliftonLarsonAllen - Perspectives - Agribusiness Blog/Rebecca Smith - Farm CPA Today - April 12, 2018)