The U.S. Tax Court today issued an opinion concluding that soybean and grain payments that a cooperative made to its patrons (and similar payments that the cooperative itself received as a member of another cooperative) constituted “per-unit retain allocations paid in money” (PURPIMs) for purposes of section 1388(f) and had to be treated as such for purposes of the “domestic production activities deduction” (DPAD) computation under section 199.
The case is: Ag Processing, Inc. v. Commissioner, 153 T.C. No. 3 (October 16. 2019). Read the Tax Court’s opinion [PDF 156 KB] (52 pages)
The Tax Court summarized the facts in this case, as follows:
The Tax Court today issued an opinion holding that the payments that the cooperative made to its members—as well as the similar payments that it received from the cooperative of which it was itself a member—were PURPIMs for purposes of sections 1382(b)(3) and 1388(f), and that the cooperative must treat them as such in computing its DPAD under section 199. In other words, the soybean and grain payments that the cooperative made to its patrons (and the similar payments that it received as a member of the other cooperative) constituted PURPIMs for purposes of section 1388(f) and had to be treated as such for purposes of its DPAD computation.
As the Tax Court explained, section 199(d)(3) does not require the cooperative to compute separate DPAD amounts for its patronage and non-patronage activities. Once the DPAD is computed under section 199, this amount must be allocated under the rules of subchapter T between the patronage and non-patronage accounts.
Finally, the court found that under the general rules of section 172(d)(7), the cooperative’s DPAD could not be used to create or increase a net operating loss (NOL).
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