The Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141) that the president signed into law on Friday, March 23, 2018, includes changes to section 199A regarding the application of the new deduction for certain cooperatives and grain companies.
As enacted in Pub. L. No. 115-97 (December 22, 2017), section 199A generally provides a deduction for qualifying income of certain noncorporate owners of some pass-through entities and sole proprietorships.
The provision in the Consolidated Appropriations Act attempts to address certain concerns raised within the agricultural industry that farmers selling their farm commodities to cooperatives were significantly tax-advantaged over similarly situated farmers selling to non-cooperatives. Section 199A(a)(2), as initially enacted, had provided for a 20% gross deduction for “qualified cooperative dividends,” and this term was defined as including per-unit retain allocations paid in money (essentially the sales price of the commodities delivered for marketing to a cooperative).
The new provisions are effective retroactively from January 1, 2018.
With enactment of the new measures, section 199A:
Under the new law, for farmers who enter into transactions with a cooperative:
Taxpayers, including patrons of cooperatives structured as C corporations, are not eligible for the 199A deduction including the pass-through deduction under section 199A(g) from specified agricultural and horticultural cooperatives.
Special rules are provided for cooperatives with oil-related qualified production activities income.
For more information, contact KPMG’s National Director of Cooperative Tax Services:
David Antoni | +1 (267) 256-1627 | firstname.lastname@example.org
Or Associate National Director of KPMG’s Cooperative Tax Services:
Brett Huston | +1 (916) 554-1654 | email@example.com
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