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OIRA review: Domestic production activities deduction for agricultural, horticultural cooperatives

Domestic production activities deduction, cooperatives

OMB’s Office of Information and Regulatory Affairs (OIRA) has received for review proposed regulations from the U.S. Treasury Department relating to application of the domestic production activities deduction for specified agricultural or horticultural cooperatives.

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The proposed regulations are listed on the OIRA website as:

  • RIN: 1545-BO90: Domestic production activities deduction for specified agricultural or horticultural cooperatives [TCJA]


OIRA’s description of these regulations is:

On March 23, 2018, Congress modified section 199A(g) to provide specified agricultural or horticultural cooperatives with a deduction similar to the repealed section 199 deduction effective retroactively to January 1, 2018, in H.R. 1625 - Consolidated Appropriations Act, 2018, Pub. L. 115-141 (H.R. 1625). Section 199A(g)(6) provides that the Secretary shall prescribe such regulations as are necessary, including regulations which prevent more than one taxpayer from being allowed a deduction under section 199A(g). Such regulations shall be based on the regulations applicable to cooperatives and their patrons under section 199 as in effect before its repeal.  

Treasury regulations that are identified as “major” regulations are subject to review by OMB’s OIRA before being issued, pursuant to Executive Order 13771. 

Background

As enacted by Pub. L. No. 115-97 (December 22, 2017)—the legislation that is often referred to as the “Tax Cuts and Jobs Act” (TCJA)—section 199A generally provided a deduction for qualifying income of certain noncorporate owners of some pass-through entities and sole proprietorships.

The Consolidated Appropriations Act, 2018 (Pub. L. No. 115-141) enacted March 23, 2018, made changes to section 199A with respect to the application of the section 199A deduction for certain cooperatives and grain companies.

The provision enacted by the Consolidated Appropriations Act was intended 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 Section 199A(a)(2), as originally enacted in 2017, had provided for a 20% gross deduction for “qualified cooperative dividends,” and this term was defined as including per-unit retain allocations paid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).


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