Rule2022-24576
Section 199A Rules for Cooperatives and Their Patrons; Correction
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 17, 2022
Effective
November 17, 2022
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains corrections to Treasury Decision 9947, published in the Federal Register on Tuesday, January 19, 2021. Treasury Decision 9947 contained final regulations under the qualified business income provisions of the Internal Revenue Code regarding the deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives.
Full Text
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<title>Federal Register, Volume 87 Issue 221 (Thursday, November 17, 2022)</title>
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[Federal Register Volume 87, Number 221 (Thursday, November 17, 2022)]
[Rules and Regulations]
[Pages 68898-68900]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24576]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9947]
RIN 1545-BO90
Section 199A Rules for Cooperatives and Their Patrons; Correction
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Correcting amendments.
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SUMMARY: This document contains corrections to Treasury Decision 9947,
published in the Federal Register on Tuesday, January 19, 2021.
Treasury Decision 9947 contained final regulations under the qualified
business income provisions of the Internal Revenue Code regarding the
deduction for income attributable to domestic production activities of
specified agricultural or horticultural cooperatives.
DATES: These corrections are effective on November 17, 2022 and
applicable after January 19, 2021.
FOR FURTHER INFORMATION CONTACT: Jason Deirmenjian at (202) 317-4470
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations (TD 9947) subject to this correction are
issued under sections 1381 through 1388 and section 199A(g) of the
Internal Revenue Code.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Correction of Publication
Accordingly, 26 CFR part 1 is corrected by making the following
correcting amendments:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.199A-7 is amended by:
0
a. Revising the first sentence of paragraph (c)(1).
0
b. Revising the second sentence of paragraph (c)(2) introductory text.
0
c. Revising paragraphs (c)(2)(ii) and (iii).
0
d. Revising the first sentence of paragraph (c)(3).
0
e. Revising the first sentence of paragraph (d)(1).
0
f. Revising the first sentence of paragraph (d)(3)(i).
0
g. Redesignating paragraph (d)(3)(ii)(B)(i2) as paragraph
(d)(3)(ii)(B)(2).
The revisions read as follows:
Sec. 1.199A-7 Section 199A(a) Rules for Cooperatives and their
patrons.
* * * * *
(c) * * *
(1) * * * QBI means the net amount of qualified items of income,
gain, deduction, and loss with respect to any trade or business as
determined under the rules of section 199A(c)(3) and Sec. 1.199A-3(b).
* * *
(2) * * * In situations where the patron receives distributions
described in paragraph (c)(1) of this section, the Cooperative must
determine whether those distributions include qualified items of
income, gain, deduction, and loss as determined under rules of section
199A(c)(3) and Sec. 1.199A-3(b). * * *
* * * * *
(ii) The distributions are qualified items of income, gain,
deduction, and loss as determined under rules of section 199A(c)(3) and
Sec. 1.199A-3(b) at the Cooperative's trade or business level;
(iii) The distributions are not items from an SSTB as defined in
section 199A(d)(2) at the Cooperative's trade or business level (except
as permitted by the threshold rules in section 199A(d)(3) and Sec.
1.199A-5(a)(2)); and
* * * * *
(3) * * * In the case of a Cooperative that makes distributions
described in paragraph (c)(1) of this section to a patron, the
Cooperative must determine the amount of qualified items of income,
gain, deduction, and loss as determined under the rules of section
199A(c)(3) and Sec. 1.199A-3(b) in those distributions. * * *
(d) * * *
(1) * * * This section provides guidance on the determination of
SSTBs as defined in section 199A(d)(2) and Sec. 1.199A-5. * * *
* * * * *
(3) * * *
(i) * * * In the case of a Cooperative that makes distributions
described in paragraph (c)(1) of this section to a
[[Page 68899]]
patron, the Cooperative must determine the amount of qualified items of
income, gain, deduction, and loss as determined under the rules of
section 199A(c)(3) and Sec. 1.199A-3(b) with respect to SSTBs directly
conducted by the Cooperative. * * *
* * * * *
0
Par. 3. Section 1.199A-8 is amended by:
0
a. Adding a heading to paragraph (d)(1).
0
b. Revising the first sentence of paragraph (d)(2)(i).
0
c. Revising the fourth sentence of paragraph (d)(3).
0
d. Revising the second sentence of paragraph (e)(3)(ii).
0
e. Revising the second sentence of paragraph (e)(4)(ii).
0
f. Revising the third sentence of paragraph (e)(6)(i).
0
g. Revising the second through fourth and sixth sentences of paragraph
(e)(6)(ii).
0
h. Revising the second and fourth through sixth sentences of paragraph
(e)(7)(i).
0
i. Revising the first and second sentences of paragraph (e)(7)(ii).
0
j. Revising the second and third sentences of paragraph (e)(8)(i).
0
k. Revising the first through third sentences of paragraph (e)(8)(ii).
0
l. Revising the first sentence of paragraph (f).
The revisions read as follows:
Sec. 1.199A-8 Deduction for income attributable to domestic
production activities of specified agricultural or horticultural
cooperatives.
* * * * *
(d) * * *
(1) Permitted amount-- * * *
(2) * * *
(i) * * * A Specified Cooperative is permitted to pass through an
amount equal to the portion of the Specified Cooperative's section
199A(g) deduction that is allowed with respect to the portion of the
cooperative's QPAI that is attributable to the qualified payments the
Specified Cooperative distributed to the patron during the taxable year
and identified on the notice required in Sec. 1.199A-7(f)(3) on an
attachment to or on the Form 1099-PATR, Taxable Distributions Received
From Cooperatives (Form 1099-PATR), (or any successor form) issued by
the Specified Cooperative to the patron, unless otherwise provided by
the instructions to the Form 1099-PATR. * * *
* * * * *
(3) * * * The Specified Cooperative must report the amount of
section 199A(g) deduction passed through to the patron on an attachment
to or on the Form 1099-PATR (or any successor form) issued by the
Specified Cooperative to the patron, unless otherwise provided by the
instructions to the Form 1099-PATR.
* * * * *
(e) * * *
(3) * * *
(ii) * * * C's QPAI and taxable income both equal $1,000 ($1,800-
$800). * * *
(4) * * *
(ii) * * * C's section 199A(g) deduction attributable to patronage
sources is the same as the deduction calculated by the nonexempt
Specified Cooperative in Example 3 in paragraph (e)(3) of this section.
* * * * *
(6) * * *
(i) * * * D pays $300,000 for its patrons' corn at the time the
grain was delivered in the form of per-unit retain allocations and its
W-2 wages (as defined in Sec. 1.199A-11) for 2020 total $300,000. * *
*
(ii) * * * D's QPAI and taxable income is $1,200,000. D's section
199A(g) deduction for its taxable year 2020 is $108,000 (.09 x
$1,200,000). Because this amount is less than 50% of D's W-2 wages, the
entire amount is allowed as a section 199A(g) deduction. * * * The
section 199A(g) deduction of $108,000 is applied to, and reduces, D's
taxable income.
(7) * * *
(i) * * * D declares a patronage dividend for its 2020 taxable year
of $900,000, which it pays on March 15, 2021. * * * On March 15, 2021,
Patron A receives a $9,000 patronage dividend that is a qualified
payment under paragraph (d)(2)(ii) of this section from D. In the
notice that accompanies the patronage dividend, Patron A is designated
a $1,080 section 199A(g) deduction. Under paragraph (a) of this
section, Patron A may claim a $1,080 section 199A(g) deduction for the
taxable year ending December 31, 2021, subject to the limitations set
forth under paragraph (d)(4) of this section. * * *
(ii) Under paragraph (d)(7) of this section, D is required to
reduce its section 1382 deduction of $1,200,000 by the $108,000 section
199A(g) deduction passed through to patrons (whether D pays patronage
dividends on book or Federal income tax net earnings). As a
consequence, D is entitled to a section 1382 deduction for the taxable
year ending December 31, 2020, in the amount of $1,092,000 ($1,200,000-
$108,000) and to a section 199A(g) deduction in the amount of $108,000
($1,200,000 x .09). * * *
(8) * * *
(i) * * * In 2020, D pays its patrons a $400,000 ($900,000-$500,000
already paid) patronage dividend in cash or a combination of cash and
qualified written notices of allocation. Under paragraph (d)(7) of this
section and section 1382, D is allowed a deduction of $1,092,000
($1,200,000-$108,000 section 199A(g) deduction), whether patronage net
earnings are distributed on book or Federal income tax net earnings.
(ii) The patrons will have received a gross amount of $1,200,000 in
qualified payments under paragraph (d)(2)(ii) of this section from
Cooperative D ($300,000 paid as per-unit retain allocations, $500,000
paid during the taxable year as advances, and the additional $400,000
paid as patronage dividends). If D passes through its entire section
199A(g) deduction to its patrons by providing the notice required by
paragraph (d)(3) of this section, then the patrons will be allowed a
$108,000 section 199A(g) deduction, resulting in a net $1,092,000
taxable distribution from D. Pursuant to paragraph (d)(8) of this
section, any of the $1,200,000 received by patrons that are Specified
Cooperatives from D is not taken into account for purposes of
calculating the patrons' section 199A(g) deduction. * * *
(f) * * * In the case described in section 199A(g)(5)(B), where a
Specified Cooperative is a partner in a partnership, the partnership
must separately identify and report on the Schedule K-1 of the Form
1065, U.S. Return of Partnership Income (or any successor form) issued
to the Specified Cooperative partner the cooperative's share of gross
receipts and related deductions, W-2 wages, and COGS, unless otherwise
provided by the instructions to the Form. * * *
* * * * *
0
Par. 4. Section 1.199A-9 is amended by:
0
a. Revising the first sentence of paragraph (c)(3)(ii).
0
b. Redesignating paragraphs (j)(3)(i)(B)(1) introductory text and
(j)(3)(i)(B)(1)(i) and (ii) as paragraphs (j)(3)(i)(B)(1) introductory
text and (j)(3)(i)(B)(1)(i) and (ii).
0
c. Revising newly redesignated paragraph (j)(3)(i)(B)(1)(ii).
0
d. Redesignating paragraphs (j)(3)(i)(B)(2) introductory text and
(j)(3)(i)(B)(2)(i) and (ii) as paragraphs (j)(3)(i)(B)(2) introductory
text and (j)(3)(i)(B)(2)(i) and (ii).
0
e. Redesignating paragraphs (j)(3)(i)(B)(3) introductory text and
(j)(3)(i)(B)(3)(i) through (iii) as
[[Page 68900]]
paragraphs (j)(3)(i)(B)(3) introductory text and (j)(3)(i)(B)(3)(i)
through (iii).
0
f. Redesignating paragraphs (j)(3)(i)(B)(4) introductory text and
(j)(3)(i)(B)(4)(i) and (ii) as paragraphs (j)(3)(i)(B)(4) introductory
text and (j)(3)(i)(B)(4)(i) and (ii).
0
g. Redesignating paragraph (j)(3)(i)(B)(5) as paragraph
(j)(3)(i)(B)(5).
The revisions read as follows:
Sec. 1.199A-9 Domestic production gross receipts.
* * * * *
(c) * * *
(3) * * *
(ii) * * * A Specified Cooperative's applicable gross receipts as
provided in Sec. 1.199A-8(b) and/or (c) may be treated as non-DPGR if
less than 10 percent of the Specified Cooperative's total gross
receipts are DPGR. * * *
* * * * *
(j) * * *
(3) * * *
(i) * * *
(B) * * *
(1) * * *
(ii) The warranty is neither separately offered by the Specified
Cooperative nor separately bargained for with customers (that is, a
customer cannot purchase the agricultural or horticultural products
without the warranty).
* * * * *
0
Par. 5. Section 1.199A-12 is amended by:
0
a. Redesignating paragraphs (e)(i) and (ii) as paragraph (e)(1) and
(2).
0
b. Further redesignating newly redesiganted paragraphs (e)(2)(A) and
(B) as paragraphs (e)(2)(i) and (ii).
0
c. Revising the last sentence of newly redesignated paragraph
(e)(2)(ii).
The revision reads as follows:
Sec. 1.199A-12 Expanded affiliated groups.
* * * * *
(e) * * *
(2) * * *
(ii) * * * Accordingly, P is allocated $1,080 ($1,350 x $16,000/
$20,000) and S is allocated $270 ($1,350 x $4,000/$20,000).
* * * * *
Oluwafunmilayo A. Taylor,
Branch Chief, Legal Processing Division, Associate Chief Counsel,
(Procedure and Administration).
[FR Doc. 2022-24576 Filed 11-16-22; 8:45 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on November 17, 2022.
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