U.S. Income Tax Return for Cooperative Associations.

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Instructions for Form 1120-C

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2006

Department of the Treasury
Internal Revenue Service

Instructions for Form 1120-C
U. S. Income Tax Return for Cooperative Associations
Section references are to the Internal
Revenue Code unless otherwise noted.

Contents
What’s New . . . . . . . . . . . . . . .
Photographs of Missing
Children . . . . . . . . . . . . . . . .
Unresolved Tax Issues . . . . . .
How To Make a Contribution
To Reduce Debt Held by the
Public . . . . . . . . . . . . . . . . .
How To Get Forms and
Publications . . . . . . . . . . . . .
IRS E-Services Make Taxes
Easier . . . . . . . . . . . . . . . . .
General Instructions . . . . . . .
Purpose of Form . . . . . . . . . . .
Who Must File . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . .
When To File . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . .
Paid Preparer Authorization . . .
Assembling the Return . . . . . .
Depository Methods of Tax
Payment . . . . . . . . . . . . . . .
Estimated Tax Payments . . . . .
Interest and Penalties . . . . . . .
Accounting Methods . . . . . . . .
Accounting Period . . . . . . . . . .
Rounding Off to Whole Dollars
Recordkeeping . . . . . . . . . . . .
Other Forms and Statements
That May Be Required . . . . .
Specific Instructions . . . . . . .
Period Covered . . . . . . . . . . . .
Name and Address . . . . . . . . .
Identifying Information . . . . . . .
Employer Identification
Number (EIN) . . . . . . . . . . .
Type of Cooperative . . . . . . . .
Initial Return, Final Return,
Name Change, Address
Change, or Amended Return
Income . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . .
Schedule A Cost of Goods
Sold . . . . . . . . . . . . . . . . . .
Schedule C Dividends and
Special Deductions . . . . . . .
Worksheet for Schedule C . .
Schedule G Allocation of
Patronage and
Nonpatronage Income and
Deductions . . . . . . . . . . . . .
Schedule H Deductions and
Adjustments Under Section
1382 . . . . . . . . . . . . . . . . . .
Schedule J Tax Computation . .

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Contents
Schedule K Other Information
Schedule L Balance Sheets
per Books . . . . . . . . . . . . . .
Schedule M-1 Reconciliation of
Income . . . . . . . . . . . . . . . .
Principal Business Activity
Codes . . . . . . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . . .

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What’s New
New form for subchapter T
cooperatives. All subchapter T
cooperatives, including farmers’
cooperative associations, should file
Form 1120-C, U.S. Income Tax Return
for Cooperative Associations, for tax
years ending on or after December 31,
2006.
Energy efficient appliance credit
(Form 8909). The energy efficient
appliance credit (Form 8909) can be
taken by producers of appliances which
meet the requirements of section 45M.
Federal telephone excise tax.
Cooperatives that paid the federal
telephone excise tax on long distance
or bundled service may be able to
request a credit. See the instructions
for line 29g.
Certain food inventory and qualified
book contributions extended. The
larger deduction for contributions of
certain food inventory and qualified
book contributions to certain schools
has been extended through December
31, 2007. See the instructions for line
17.
Records of cash contributions. Cash
contributions made in tax years
beginning after August 17, 2006, must
be supported by a dated bank record or
receipt. See the instructions for line 17.
Filing address change. The filing
address for cooperatives whose
principal business, office, or agency is
located in a foreign country or U.S.
possession has changed. See Where
To File.
New form for controlled groups.
Subchapter T cooperatives who are
controlled groups must complete the
new Schedule O (Form 1120), Consent
and Apportionment Schedule for a
Controlled Group, before completing
Schedule J, Tax Computation. For
Cat. No. 17211X

more information, see the Instructions
for Schedule O.
Form 8817 obsolete. Form 8817,
Allocation of Patronage and
Nonpatronage Income (Rev. 01-1998),
is obsolete for tax returns due on or
after December 31, 2006. Schedule G
of Form 1120-C replaces Form 8817.

Photographs of Missing
Children
The Internal Revenue Service is a
proud partner with the National Center
for Missing and Exploited Children.
Photographs of missing children
selected by the Center may appear in
instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if
you recognize a child.

Unresolved Tax Issues
If the cooperative has attempted to deal
with an IRS problem unsuccessfully, it
should contact the Taxpayer Advocate.
The Taxpayer Advocate independently
represents the cooperative’s interests
and concerns within the IRS by
protecting its rights and resolving
problems that have not been fixed
through normal channels.
While Taxpayer Advocates cannot
change the tax law or make a technical
tax decision, they can clear up
problems that resulted from previous
contacts and ensure that the
cooperative’s case is given a complete
and impartial review.
The cooperative’s assigned personal
advocate will listen to its point of view
and will work with the cooperative to
address its concerns. The cooperative
can expect the advocate to provide:
• A “fresh look” at a new or ongoing
problem.
• Timely acknowledgment.
• The name and phone number of the
individual assigned to its case.
• Updates on progress.
• Time frames for action.
• Speedy resolution.
• Courteous service.
When contacting the Taxpayer
Advocate, the cooperative should be

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Instructions for Form 1120-C

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prepared to provide the following
information.
• The cooperative’s name, address,
and employer identification number
(EIN).
• The name and telephone number of
an authorized contact person and the
hours he or she can be reached.
• The type of tax return and year(s)
involved.
• A detailed description of the problem.
• Previous attempts to solve the
problem and the office that was
contacted.
• A description of the hardship the
cooperative is facing and verifying
documentation (if applicable).
The cooperative can contact a
Taxpayer Advocate by calling
1-877-777-4778 (toll free). Persons who
have access to TTY/TDD equipment
can call 1-800-829-4059 and ask for
Taxpayer Advocate assistance. If the
cooperative prefers, it can call, write, or
fax the Taxpayer Advocate office in its
area. See Pub. 1546 for a list of
addresses and fax numbers.

How To Make a
Contribution To Reduce
Debt Held by the Public
To help reduce debt held by the public,
make a check payable to “Bureau of
the Public Debt.” Send it to Bureau of
the Public Debt, Department G, P.O.
Box 2188, Parkersburg, WV
26106-2188. Or, enclose a check with
the income tax return. Contributions to
reduce debt held by the public are
deductible subject to the rules and
limitations for charitable contributions.

How To Get Forms and
Publications
Internet. You can access the IRS
website 24 hours a day, 7 days a week,
at www.irs.gov to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword; and
• Sign up to receive local and national
tax news by email.
IRS Tax Products CD. You can order
Pub. 1796, IRS Tax Products CD, and
obtain:
• Current-year forms, instructions, and
publications;
• Prior-year forms, instructions, and
publications;
• Bonus: Historical Tax Products DVD
- ships with final release;
• Tax Map: An electronic research tool
and finding aid;
• Tax law frequently asked questions
(FAQs);

• Tax Topics from the IRS telephone

response system;
• Fill-in, print, and save features for
most tax forms;
• Internal Revenue Bulletins; and
• Toll-free and email technical support.
The CD is released twice during the
year. The first release will ship at the
beginning of January and the final
release will ship at the beginning of
March.
Buy the CD from National Technical
Information Service at
www.irs.gov/cdorders for $25 (no
handling fee) or call 1-877-CDFORMS
(1-877-233-6767) toll free to buy the
CD for $25 (plus a $5 handling fee).
Price is subject to change.
By phone and in person. You can
order forms and publications by calling
1-800-TAX-FORM (1-800-829-3676).
You can also get most forms and
publications at your local IRS office.

IRS E-Services Make
Taxes Easier
Now more than ever before, businesses
can enjoy the benefits of filing and
paying their federal taxes electronically.
Whether you rely on a tax professional
or handle your own taxes, the IRS
offers you convenient programs to
make taxes easier.
• You can e-file your Form 7004; Form
940 and 941 employment tax returns;
Form 1099 and other information
returns. Visit www.irs.gov/efile for
details.
• You can pay taxes online or by
phone using the free Electronic Federal
Tax Payment System (EFTPS). Visit
www.eftps.gov or call 1-800-555-4477
for details.
Use these electronic options to make
filing and paying taxes easier.

General Instructions
Purpose of Form
Use Form 1120-C, U.S. Income Tax
Return for Cooperative Associations, to
report income, gains, losses,
deductions, credits, and to figure the
income tax liability of the cooperative.

Who Must File
The regulations requiring all subchapter
T cooperatives to file new Form 1120-C
for tax years ending on or after
December 31, 2006, were still proposed
at the time Form 1120-C was released.
The final regulations are currently being
developed and are expected to be
finalized in 2007. See Proposed
Regulations section 1.6012-2(f). Until
the regulations are final, all subchapter
T cooperatives, including farmers’

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cooperatives, should file the 2006 Form
1120-C to satisfy their filing requirement
for tax years ending on or after
December 31, 2006.
Any corporation operating on a
cooperative basis under IRC section
1381 (including farmers’ cooperatives
under section 521 whether or not it has
taxable income) and allocating amounts
to patrons on the basis of business
done with or for such patrons should
file Form 1120-C.
This does not apply to organizations
which are:
• Exempt from income tax under
chapter 1 (other than exempt farmers’
cooperatives under section 521);
• Subject to part II (section 591 and
following), subchapter H, chapter 1
(relating to mutual savings banks);
• Subject to subchapter L (section 801
and following), chapter 1 (relating to
insurance companies); or
• Engaged in generating, transmitting,
or otherwise furnishing electric energy
or providing telephone service in rural
areas.

Where To File
If the cooperative’s principal business,
office, or agency is located in the
United States, file Form 1120-C with
the Internal Revenue Service, Ogden,
UT 84201-0027.
If the cooperative’s principal
business, office, or agency is located in
a foreign country or a U.S. possession,
file Form 1120-C with the Internal
Revenue Service, P.O. Box 409101,
Ogden, UT 84409.

When To File
A cooperative can file its income tax
return by the 15th day of the 9th month
after the end of its tax year provided it
meets the requirements of section
6072(d) prior to filing. Any cooperative
not meeting the requirements of section
6072(d) must file its income tax return
by the 15th day of the 3rd month after
the end of its tax year.
If the due date falls on a Saturday,
Sunday, or legal holiday, the
cooperative can file on the next
business day.
Private delivery services.
Cooperatives can use certain private
delivery services designated by the IRS
to meet the “timely mailing as timely
filing/paying” rule for tax returns and
payments. These private delivery
services include only the following.
• DHL Express (DHL): DHL Same Day
Service, DHL Next Day 10:30 am, DHL
Next Day 12:00 pm, DHL Next Day
3:00 pm, and DHL 2nd Day Service.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx

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Instructions for Form 1120-C

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International Priority, and FedEx
International First.
• United Parcel Service (UPS): UPS
Next Day Air, UPS Next Day Air Saver,
UPS 2nd Day Air, UPS 2nd Day Air
A.M., UPS Worldwide Express Plus,
and UPS Worldwide Express.
The private delivery service can tell
you how to get written proof of the
mailing date.
Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal
Service to mail any item to an IRS P.O.
box address.

!

Extension of Time to File
File Form 7004, Application for
Automatic 6-Month Extension of Time
To File Certain Business Income Tax,
Information, and Other Returns, to
request an automatic 6-month
extension of time to file. Generally, file
Form 7004 by the regular due date of
the return.

Who Must Sign
The return must be signed and dated
by:
• The president, vice president,
treasurer, assistant treasurer, chief
accounting officer, or
• Any other cooperative officer (such
as tax officer) authorized to sign.
If a return is filed on behalf of a
cooperative by a receiver, trustee, or
assignee, the fiduciary must sign the
return, instead of the cooperative
officer. Returns and forms signed by a
receiver or trustee in bankruptcy on
behalf of a cooperative must be
accompanied by a copy of the order or
instructions of the court authorizing
signing of the return or form.
If an employee of the cooperative
completes Form 1120-C, the paid
preparer’s space should remain blank.
Anyone who prepares Form 1120-C but
does not charge the cooperative should
not complete that section. Generally,
anyone who is paid to prepare the
return must sign it and fill in the “Paid
Preparer’s Use Only” area.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer’s signature.
• Give a copy of the return to the
taxpayer.
Note. A paid preparer may sign original
or amended returns by rubber stamp,
mechanical device, or computer
software program.

Paid Preparer Authorization
If the cooperative wants to allow the
IRS to discuss its 2006 tax return with
the paid preparer who signed it, check
the “Yes” box in the signature area of

the return. This authorization applies
only to the individual whose signature
appears in the “Paid Preparer’s Use
Only” section of the cooperative’s
return. It does not apply to the firm, if
any, shown in that section.
If the “Yes” box is checked, the
cooperative is authorizing the IRS to
call the paid preparer to answer any
questions that may arise during the
processing of its return. The
cooperative is also authorizing the paid
preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The cooperative is not authorizing
the paid preparer to receive any refund
check, bind the cooperative to anything
(including any additional tax liability), or
otherwise represent the cooperative
before the IRS. If the cooperative wants
to expand the paid preparer’s
authorization, see Pub. 947, Practice
Before the IRS and Power of Attorney.
The authorization will automatically
end no later than the due date
(excluding extensions) for filing the
cooperative’s 2007 tax return.

Assembling the Return
To ensure that the cooperative’s tax
return is correctly processed, attach all
schedules and other forms after page
5, Form 1120-C, in the following order.
1. Schedule N (Form 1120), Foreign
Operations of U.S. Corporation.
2. Form 8302, Electronic Deposit of
Tax Refunds of $1 Million or More.
3. Schedule O (Form 1120),
Consent Plan and Apportionment
Schedule for a Controlled Group.
4. Form 4136, Credit for Federal
Tax Paid on Fuels.
5. Form 4626, Alternative Minimum
Tax — Corporations.
6. Form 851, Affiliations Schedule.
7. Additional schedules in
alphabetical order.
8. Additional forms in numerical
order.
Complete every applicable entry
space on Form 1120-C. Do not write
“See Attached” instead of completing
the entry spaces. If more space is
needed on the forms or schedules,
attach separate sheets, using the same
size and format as the printed forms. If
there are supporting statements and
attachments, arrange them in the same
order as the schedules or forms they
support and attach them last. Show the
totals on the printed forms. Enter the

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cooperative’s name and EIN on each
supporting statement or attachment.

Depository Methods of
Tax Payment
The cooperative must pay any tax due
in full no later than the 15th day of the
9th month after the end of the tax year.
The two methods of depositing taxes
are discussed below.
Electronic Deposit Requirement. The
cooperative must make electronic
deposits of all depository taxes (such
as employment tax, excise tax, and
corporate income tax) using the
Electronic Federal Tax Payment
System (EFTPS) in 2007 if:
• The total deposits of such taxes in
2005 were more than $200,000, or
• The cooperative was required to use
EFTPS in 2006.
If the cooperative is required to use
EFTPS and fails to do so, it may be
subject to a 10% penalty. If the
cooperative is not required to use
EFTPS, it can participate voluntarily. To
enroll in or get more information about
EFTPS, call 1-800-555-4477. To enroll
online, visit www.eftps.gov.
Depositing on time. For EFTPS
deposits to be made timely, the
cooperative must initiate the transaction
at least 1 business day before the date
the deposit is due.
Deposit with Form 8109. If the
cooperative does not use EFTPS,
deposit cooperative income tax
payments (and estimated tax
payments) with Form 8109, Federal
Tax Deposit Coupon. If you do not have
a preprinted Form 8109, use Form
8109-B to make deposits. You can get
this form by calling 1-800-829-4933 or
visiting an IRS taxpayer assistance
center. Have your EIN ready when you
call or visit.
Do not send deposits directly to an
IRS office; otherwise, the cooperative
may have to pay a penalty. Mail or
deliver the completed Form 8109 with
the payment to an authorized
depositary (a commercial bank or other
financial institution authorized to accept
federal tax deposits). Make checks or
money orders payable to the
depositary.
If the cooperative prefers, it may mail
the coupon and payment to: Financial
Agent, Federal Tax Deposit Processing,
P.O. Box 970030, St. Louis, MO 63197.
Make the check or money order
payable to “Financial Agent.”
To help ensure proper crediting,
enter the cooperative’s EIN, the tax
period to which the deposit applies, and
“Form 1120” on the check or money
order. Darken the “1120” box under
“Type of Tax” and the appropriate

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Instructions for Form 1120-C

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“Quarter” box under “Tax Period” on the
coupon. Records of these deposits will
be sent to the IRS. For more
information, see “Marking the Proper
Tax Period” in the instructions for Form
8109.
If the cooperative owes tax
when it files Form 1120-C, do
CAUTION not include the payment with the
tax return. Instead, mail or deliver the
payment with Form 8109 to an
authorized depositary or use EFTPS, if
applicable.

!

Estimated Tax Payments
Generally, the following rules apply to
the cooperative’s payments of
estimated tax.
• The cooperative must make
installment payments of estimated tax if
it expects its total tax for the year (less
applicable credits) to be $500 or more.
• The installments are due by the 15th
day of the 4th, 6th, 9th, and 12th
months of the tax year. If any date falls
on a Saturday, Sunday, or legal
holiday, the installment is due on the
next regular business day.
• Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to
compute estimated tax.
• If the cooperative does not use
EFTPS, use the deposit coupons
(Forms 8109) to make deposits of
estimated tax.
• If the cooperative overpaid estimated
tax, it may be able to get a quick refund
by filing Form 4466, Corporation
Application for Quick Refund of
Overpayment of Estimated Tax.
See the instructions for lines 29b
and 29c, Form 1120-C.
Estimated tax penalty. A cooperative
that does not make estimated tax
payments when due may be subject to
an underpayment penalty for the period
of underpayment. Generally, a
corporation is subject to the penalty if
its tax liability is $500 or more and it did
not timely pay the smaller of:
• Its tax liability for 2006, or
• Its prior year’s tax.
See section 6655 for details and
exceptions, including special rules for
large corporations.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to see
if the cooperative owes a penalty and to
figure the amount of the penalty.
Generally, the cooperative does not
have to file this form because the IRS
can figure the amount of any penalty
and bill the cooperative for it. However,
even if the cooperative does not owe
the penalty, complete and attach Form
2220 if:
• The annualized income or adjusted
seasonal installment method is used, or

• The cooperative is a large

corporation computing its first required
installment based on the prior year’s
tax. See the Instructions for Form 2220
for the definition of a large corporation.
Also, see the instructions for line 30,
Form 1120-C.

Interest and Penalties
Interest. Interest is charged on taxes
paid late even if an extension of time to
file is granted. Interest is also charged
on penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements from the
due date (including extensions) to the
date of payment. The interest charge is
figured at a rate determined under
section 6621.
Late filing of return. A cooperative
that does not file its tax return by the
due date, including extensions, may be
penalized 5% of the unpaid tax for each
month or part of a month the return is
late, up to a maximum of 25% of the
unpaid tax. The minimum penalty for a
return that is over 60 days late is the
smaller of the tax due or $100. The
penalty will not be imposed if the
cooperative can show that the failure to
file on time was due to reasonable
cause. Cooperatives that file late
should attach a statement explaining
the reasonable cause.
Late payment of tax. A cooperative
that does not pay the tax when due
generally may be penalized 1/2 of 1% of
the unpaid tax for each month or part of
a month the tax is not paid, up to a
maximum of 25% of the unpaid tax.
The penalty will not be imposed if the
cooperative can show that the failure to
pay on time was due to reasonable
cause.
Trust fund recovery penalty. This
penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
are not collected or withheld, or these
taxes are not paid. These taxes are
generally reported on:
• Form 720, Quarterly Federal Excise
Tax Return;
• Form 941, Employer’s QUARTERLY
Federal Tax Return;
• Form 943, Employer’s Annual
Federal Tax Return for Agricultural
Employees;
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are
determined by the IRS to have been
responsible for collecting, accounting
for, and paying over these taxes, and
who acted willfully in not doing so. The
penalty is equal to the unpaid trust fund
tax. See the Instructions for Form 720,

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Pub. 15 (Circular E), Employer’s Tax
Guide, or Pub. 51 (Circular A),
Agricultural Employer’s Tax Guide, for
details, including the definition of
responsible persons.
Other penalties. Other penalties can
be imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

Accounting Methods
Figure taxable income using the
method of accounting regularly used in
keeping the cooperative’s books and
records. In all cases, the method used
must clearly show taxable income.
Permissible methods include:
• Cash,
• Accrual, or
• Any other method authorized by the
Internal Revenue Code.
See Pub. 538, Accounting Periods
and Methods, for more information.
Change in accounting method. To
change the method of accounting used
to report taxable income (for income as
a whole or for the treatment of any
material item), the cooperative must file
Form 3115, Application for Change in
Accounting Method. For more
information on accounting methods,
see Form 3115, Pub. 538, and Pub.
542, Corporations.

Accounting Period
A cooperative must figure its taxable
income on the basis of a tax year. A tax
year is the annual accounting period a
cooperative uses to keep its records
and report its income and expenses.
Generally, cooperatives can use a
calendar year or a fiscal year.
Change of tax year. Generally, a
cooperative must get the consent of the
IRS before changing its tax year by
filing Form 1128, Application to Adopt,
Change, or Retain a Tax Year.
However, under certain conditions, a
cooperative can change its tax year
without getting a consent.
For more information about
accounting periods, tax year, and
change of tax year, see Form 1128 and
Pub. 538.

Rounding Off to Whole
Dollars
The cooperative can round off cents to
whole dollars on its return and
schedules. If the cooperative does
round to whole dollars, it must round all
amounts. To round, drop amounts
under 50 cents and increase amounts
from 50 to 99 cents to the next dollar
(for example, $1.39 becomes $1 and
$2.50 becomes $3).

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If two or more amounts must be
added to figure the amount to enter on
a line, include cents when adding the
amounts and round off only the total.

Recordkeeping
Keep the cooperative’s records for as
long as they may be needed for the
administration of any provision of the
Internal Revenue Code. Usually,
records that support an item of income,
deduction, or credit on the return must
be kept for 3 years from the date the
return is due or filed, whichever is later.
Keep records that verify the
cooperative’s basis in property for as
long as they are needed to figure the
basis of the original or replacement
property.
The cooperative should also keep
copies of all returns. They help in
preparing future and amended returns.

Other Forms and
Statements That May Be
Required
Reportable transaction disclosure
statement. Disclose information for
each reportable transaction in which the
cooperative participated. Form 8886,
Reportable Transaction Disclosure
Statement, must be filed for each tax
year that the federal income tax liability
of the cooperative is affected by its
participation in the transaction. The
cooperative may have to pay a penalty
if it is required to file Form 8886 and
does not do so. The following are
reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to tax avoidance
transactions identified by the IRS.
2. Any transaction offered under
conditions of confidentiality for which
the cooperative paid an advisor a fee of
at least $250,000.
3. Certain transactions for which the
cooperative has contractual protection
against disallowance of the tax benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single
year or $20 million in any combination
of years.
5. Certain transactions resulting in a
tax credit of more than $250,000, if the
cooperative held the asset generating
the credit for 45 days or less.
Penalties. The cooperative may
have to pay a penalty if it is required to
disclose a reportable transaction under
section 6011 and fails to properly
complete and file Form 8886. The
penalty is $50,000 ($200,000 if the
reportable transaction is a listed
transaction) for each failure to file Form
8886 with its return or for failure to

provide a copy of Form 8886 to the
Office of Tax Shelter Analysis (OTSA).
Other penalties, such as an
accuracy-related penalty under section
6662A, may also apply. See the
Instructions for Form 8886 for details.
Reportable transactions by material
advisors. Until further guidance is
issued, material advisors who provide
material aid, assistance, or advice with
respect to any reportable transaction,
must use Form 8264, Application for
Registration of a Tax Shelter, to
disclose reportable transactions in
accordance with interim guidance
provided in Notice 2004-80, 2004-50
I.R.B. 963; Notice 2005-17, 2005-8
I.R.B. 606; and Notice 2005-22,
2005-12 I.R.B. 756.
Transfers to a cooperative controlled
by the transferor. If a person receives
stock of a cooperative in exchange for
property, and no gain or loss is
recognized under section 351, the
person (transferor) and the transferee
must each attach to their tax returns the
statements required by Temporary
Regulations section 1.351-3T.
Dual consolidated losses. If a
cooperative incurs a dual consolidated
loss (as defined in Regulations section
1.1503-2(c)(5)), the cooperative (or
consolidated group) may need to attach
an elective relief agreement and/or an
annual certification as provided in
Temporary Regulations section
1.1503-2T(g)(2).
Election to reduce basis under
section 362(e)(2)(C). The transferor
and transferee in certain section 351
transactions can make a joint election
under section 362(e)(2)(C) to limit the
transferor’s basis in the stock received
instead of the transferee’s basis in the
transferred property. The transferor and
transferee may make the election by
attaching the statement as provided in
Notice 2005-70, 2005-41 I.R.B. 694, to
their tax returns filed by the due date
(including extensions) for the tax year in
which the transaction occurred. Once
made, the election is irrevocable. See
section 362(e)(2)(C) and Notice
2005-70.
Other forms and statements. See
Pub. 542 for a list of other forms and
statements that the cooperative may
need to file in addition to the forms and
statements discussed throughout these
instructions.

Specific Instructions
Period Covered
File the 2006 return for calendar year
2006 and fiscal years that begin in
2006 and end in 2007. For a fiscal or

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short tax year return, fill in the tax year
space at the top of the form.
Farmers’ cooperatives that have
a fiscal or short tax year ending
CAUTION before December 31, 2006,
must file the 2005 Form 990-C.
The 2006 Form 1120-C can also be
used if:
• The cooperative has a tax year of
less than 12 months that begins and
ends in 2007, and
• The 2007 Form 1120-C is not
available at the time the cooperative is
required to file its return.
The cooperative must show its 2007
tax year on the 2006 Form 1120-C and
take into account any tax law changes
that are effective for tax years
beginning after December 31, 2006.

!

Name and Address
Enter the cooperative’s true name (as
set forth in the charter or other legal
document creating it), address, and EIN
on the appropriate lines. Include the
suite, room, or other unit number after
the street address. If the post office
does not deliver mail to the street
address and the cooperative has a P.O.
box, show the box number.
If the cooperative receives its mail in
care of a third party (such as an
accountant or an attorney), enter on the
street address line “C/O” followed by
the third party’s name and street
address or P.O. box.

Item A. Identifying
Information
Consolidated return. Cooperatives
filing a consolidated return must check
box 1 and attach Form 851, Affiliations
Schedule, and other supporting
statements to the return. The first year
a subsidiary cooperative is being
included in a consolidated return, attach
Form 1122, Authorization and Consent
of Subsidiary Corporation To Be
Included in a Consolidated Income Tax
Return, to the parent’s consolidated
return. Attach a separate Form 1122 for
each subsidiary being included in the
consolidated return. If you check the
“Farmers’ tax exempt cooperative” box,
you cannot file a consolidated return.
File supporting statements for each
cooperative/corporation included in the
consolidated return. Do not use Form
1120-C as a supporting statement. On
the supporting statement, use columns
to show the following, both before and
after adjustments.
1. Items of gross income and
deductions.
2. A computation of taxable income.
3. Balance sheets as of the
beginning and end of the tax year.

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4. A reconciliation of income per
books with income per return.
5. A reconciliation of retained
earnings.

The online application process is
not yet available for cooperatives with
addresses in foreign countries or
Puerto Rico.

Enter the totals for each item of
income, gain, loss, expense, or
deduction, net of eliminating entries for
intercompany transactions between
corporations within the consolidated
group on Form 1120-C. Attach
consolidated balance sheets and a
reconciliation of consolidated retained
earnings.

Item C. Type of
Cooperative

The cooperative does not have

TIP to complete (3), (4), and (5)
above, if its total receipts (lines
1a plus lines 4 through 9 on page 1 of
the return) and its total assets at the
end of the tax year are less than
$250,000.
For more information on
consolidated returns, see the
regulations under section 1502.
Schedule M-3 (Form 1120). A
cooperative with total assets
(consolidated for all cooperatives/
corporations included with the tax
consolidation group) of $10 million or
more on the last day of the tax year
must check box 2 and complete
Schedule M-3 (Form 1120), Net Income
(Loss) Reconciliation for Corporations
With Total Assets of $10 Million or
More, instead of Schedule M-1. A
cooperative filing Form 1120-C that is
not required to file Schedule M-3 may
voluntarily file Schedule M-3 instead of
Schedule M-1. See the separate
instructions for Schedule M-3.
Form 1120 filed previous year.
Check box 3 if the cooperative filed
Form 1120 in 2005 as a subchapter T
cooperative.

Item B. Employer
Identification Number
(EIN)
Enter the cooperative’s EIN. If the
cooperative does not have an EIN, it
must apply for one. An EIN can be
applied for:
• Online – Click on the EIN link at
www.irs.gov/businesses/small. The EIN
is issued immediately once the
application information is validated.
• By telephone at 1-800-829-4933 from
7:00 a. m. to 10:00 p. m. in the
cooperative’s local time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the cooperative has not received
its EIN by the time the return is due,
enter “Applied for” and the date you
applied in the space for the EIN. For
more details, see the instructions for
Form SS-4.

Farmers’ tax exempt cooperative.
Check the “Farmers’ tax exempt
cooperative” box if the cooperative
applied for and received status as a
tax-exempt farmers’, fruit growers’, or
like association, organized and
operated on a cooperative basis as
described in section 521.
If the cooperative has submitted
Form 1028, Application for Recognition
of Exemption, but has not received a
determination letter from the IRS, enter
“Application Pending” on Form 1120-C,
at the top of page 1.
Nonexempt cooperative. All other
subchapter T cooperatives including
farmers’ cooperatives without section
521 exempt status, organized and
operated as described under Who Must
File on page 2 of the instructions,
should check the “Nonexempt
cooperative” box.

Item D. Initial Return,
Final Return, Name
Change, Address
Change, or Amended
Return

• If this is the cooperative’s first return,
check the “Initial return” box.
• If the cooperative ceases to exist, file
Form 1120-C and check the “Final
return” box.
• If the cooperative changed its name
since it last filed a return, check the
“Name change” box. Generally, a
cooperative also must have amended
its articles of incorporation and filed the
amendment with the state in which it
was incorporated.
• If the cooperative has changed its
address since it last filed a return
(including a change to an “in care of”
address), check the “Address change”
box.
• If the cooperative must change their
originally filed return for any year, it
should file a new return including any
required attachments. Use the revision
of Form 990-C, Form 1120, or Form
1120-C applicable to the year being
amended. The amended return must
provide all the information called for by
the form and instructions, not just the
new or corrected information. Check
the “Amended return” box.
Note. If a change in address occurs
after the return is filed, use Form 8822,

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Change of Address, to notify the IRS of
the new address.

Income
Except as otherwise provided in the
Internal Revenue Code, gross income
includes all income from whatever
source derived.
Allocation of patronage and
nonpatronage income and
deductions (Schedule G).
Cooperatives that have total receipts
and assets of $250,000 or more must
also complete Schedule G.
Extraterritorial income. Gross income
generally does not include
extraterritorial income that is qualifying
foreign trade income. Use Form 8873,
Extraterritorial Income Exclusion, to
figure the exclusion. Include the
exclusion in the total for Other
deductions on line 23, Form 1120-C.
For more information, see the
Instructions for Form 8873.
Income from qualifying shipping
activities. Gross income does not
include income from qualifying shipping
activities if the cooperative makes an
election under section 1354 to be taxed
on its notional shipping income (as
defined in section 1353) at the highest
corporate rate (35%). If the election is
made, the cooperative generally may
not claim any loss, deduction, or credit
with respect to qualifying shipping
activities. A cooperative making this
election also may elect to defer gain on
the disposition of a qualifying vessel.
Use Form 8902, Alternative Tax on
Qualifying Shipping Activities, to figure
the tax. Include the alternative tax on
Schedule J, line 8.

Line 1. Gross Receipts or
Sales
Enter gross receipts or sales from all
business operations except those that
must be reported on lines 4 through 9.
In general, advance payments are
reported in the year of receipt. To
report income from long-term contracts,
see section 460. For special rules for
reporting certain advance payments for
goods and long-term contracts, see
Regulations section 1.451-5. For
adopting permissible methods for
reporting certain advance payments for
services and certain goods by an
accrual method cooperative, see items
83 and 84 in the Instructions for Form
3115.
Installment sales. Generally, the
installment method cannot be used for
dealer dispositions of property. A
“dealer disposition” is any disposition
of: (a) personal property by a person
who regularly sells or otherwise
disposes of personal property of the
same type on the installment plan or (b)

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real property held for sale to customers
in the ordinary course of the taxpayer’s
trade or business.
These restrictions on using the
installment method do not apply to
dispositions of property used or
produced in a farming business or sales
of timeshares and residential lots for
which the cooperative elects to pay
interest under section 453(I)(3).
For sales of timeshares and
residential lots reported under the
installment method, the cooperative’s
income tax is increased by the interest
payable under section 453(l)(3). Report
this addition to tax on Schedule J, line
8.
Enter on line 1 (and carry to line 3),
the gross profit on collections from
installment sales for any of the
following:
• Dealer dispositions of property before
March 1, 1986.
• Dispositions of property used or
produced in the trade or business of
farming.
• Certain dispositions of timeshares
and residential lots reported under the
installment method.
Attach a schedule showing the
following information for the current and
the 3 preceding years: (a) gross sales,
(b) cost of goods sold, (c) gross profits,
(d) percentage of gross profits to gross
sales, (e) amount collected, and (f)
gross profit on the amount collected.
Nonaccrual experience method.
Cooperatives that qualify to use the
nonaccrual experience method should
attach a schedule showing total gross
receipts, the amount not accrued as a
result of the application of section
448(d)(5) and Regulations section
1.448-2, and the net amount accrued.
Enter the net amount on line 1a.

Line 2. Cost of Goods Sold
Enter the cost of goods sold on line 2,
page 1. Before making the entry,
complete Schedule A on page 2. For
more information, see the instructions
for Schedule A.

Line 4. Dividends
See the instructions for Schedule C.
Complete Schedule C and enter the
amount from line 19 on line 4 of page 1.
Do not report patronage dividends
received on Schedule C. Report income
from patronage dividends and per-unit
retain allocations on line 9.

Line 5. Interest
Enter taxable interest on U.S.
obligations and on loans, notes,
mortgages, bonds, bank deposits,
corporate bonds, tax refunds, etc. Do
not offset interest expense against
interest income. Special rules apply to
interest income from certain

below-market rate loans. See section
7872 for more information.
Note. Report tax-exempt interest
income on Schedule K, item 10. Also, if
required, include the same amount on
Schedule M-1, line 7.

Line 6. Gross Rents and
Royalties
Enter the gross amount received from
the rental of property and royalties.
Deduct expenses such as repairs,
interest, taxes, and depreciation on the
applicable lines.

Line 9. Other Income
Enter any other taxable income not
reported on lines 1 through 8. List the
type and amount of income on an
attached schedule. If the cooperative
has only one item of other income,
describe it in parentheses on line 9.
Examples of other income to report on
line 9 are:
1. Patronage dividends and per-unit
retain allocations (see later).
2. Recoveries of bad debts
deducted in prior years under the
specific charge-off method.
3. The amount included in income
from Form 6478, Credit for Alcohol
Used as Fuel.
4. The amount included in income
from Form 8864, Biodiesel and
Renewable Diesel Fuels Credit.
5. Refunds of taxes deducted in
prior years to the extent they reduced
income subject to tax in the year
deducted (see section 111). Do not
offset current year taxes against any
tax refunds.
6. Any recapture amount under
section 179A for certain clean-fuel
vehicle property (or clean-fuel vehicle
refueling property) that ceases to
qualify. See Regulations section
1.179A-1 for details.
7. For cooperatives described in
section 1381 engaged in the marketing
of agricultural or horticultural products
that are shareholders in a foreign sales
corporation (FSC), include the
nonexempt portion (8/23) of foreign
trade income from the sale or other
disposition of agricultural or horticultural
products by the FSC for the tax year
that includes the last day of the FSC’s
tax year, even though the FSC is not
required to distribute such income until
the due date of its income tax return.
See the instructions for Schedule C,
line 12.
8. Ordinary income from trade or
business activities of a partnership
(from Schedule K-1 (Form 1065 or
1065-B)). Do not offset ordinary losses
against ordinary income. Instead,
include the losses on Form 1120-C, line
23. Show the partnership’s name,
address, and EIN on a separate

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statement attached to this return. If the
amount entered is from more than one
partnership, identify the amount from
each partnership.
9. Any net positive section 481(a)
adjustment. The cooperative may have
to make an adjustment under section
481(a) to prevent amounts of income or
expense from being duplicated or
omitted. The section 481(a) adjustment
period is generally 1 year for a net
negative adjustment and 4 years for a
net positive adjustment. However, a
cooperative can elect to use a 1-year
adjustment period if the net section
481(a) adjustment for the change is
less than $25,000. The cooperative
must complete the appropriate lines of
Form 3115 to make the election. If the
net section 481(a) adjustment is
negative, report it on Form 1120-C, line
23.
Patronage dividends and per-unit
retain allocations. Attach a schedule
listing the name of each declaring
association from which the cooperative
received income from patronage
dividends and per-unit retain
allocations, and the total amount
received from each association.
Include the items listed below:
1. Patronage dividends received in:
• Money,
• Qualified written notices of
allocation, or
• Other property (except
nonqualified written notices of
allocation).
2. Nonpatronage distributions
received on a patronage basis from
tax-exempt farmers’ cooperatives in:
• Money,
• Qualified written notices of
allocation, or
• Other property (except
nonqualified written notices of
allocation), based on earnings of that
cooperative either from business done
with or for the United States or any of
its agencies (or from sources other than
patronage, such as investment
income).
3. Qualified written notices of
allocation at their stated dollar amounts
and property at its fair market value
(FMV).
4. Amounts received on the
redemption, sale, or other disposition of
nonqualified written notices of
allocation.
Generally, patronage dividends from
purchases of capital assets or
depreciable property are not includible
in income but must be used to reduce
the basis of the assets. See section
1385(b) and the related regulations.
5. Amounts received (or the stated
dollar value of qualified per-unit retain
certificates received) from the sale or

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redemption of nonqualified per-unit
retain certificates.
6. Per-unit retain allocations
received (except nonqualified per-unit
retain certificates). See section 1385.
Payments from the Commodity
Credit Corporation to a farmers’
cooperative for certain expenses of the
co-op’s farmers-producers under a
“reseal” program of the U.S.
Department of Agriculture are
patronage-source income that may give
rise to patronage dividends under
section 1382(b)(1). See Rev. Rul.
89-97, 1989-2 C.B. 217, for more
information.

Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization
(UNICAP) rules of section 263A
generally require cooperatives to
capitalize, or include in inventory,
certain costs incurred in connection
with:
• The production of real property and
tangible personal property held in
inventory or held for sale in the ordinary
course of business.
• Real property or personal property
(tangible and intangible) acquired for
resale.
• The production of real property and
tangible personal property by a
cooperative for use in its trade or
business or in an activity engaged in for
profit.
Cooperatives subject to the UNICAP
rules are required to capitalize not only
direct costs but an allocable part of
most indirect costs (including taxes)
that (a) benefit the assets produced or
acquired for resale or (b) are incurred
by reason of the performance of
production or resale activities.
For inventory, some of the indirect
expenses that must be capitalized are:
• Administration expenses;
• Taxes;
• Depreciation;
• Insurance;
• Compensation paid to officers
attributable to services;
• Rework labor; and
• Contributions to pension, stock
bonus, and certain profit-sharing,
annuity, or deferred compensation
plans.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate
to production or resale activities that
must be capitalized, and those that may
be currently deductible.
Interest expense paid or incurred
during the production period of
designated property must be capitalized

and is governed by special rules. For
more details, see Regulations sections
1.263A-8 through 1.263A-15.
The costs required to be capitalized
under section 263A are not deductible
until the property (to which the costs
relate) is sold, used, or otherwise
disposed of by the cooperative.
Exceptions. Section 263A does not
apply to:
• Personal property acquired for resale
if the cooperative’s average annual
gross receipts for the 3 prior tax years
were $10 million or less.
• Timber.
• Most property produced under a
long-term contract.
• Certain property produced in a
farming business.
• Research and experimental costs
under section 174.
• Geological and geophysical costs
amortized under section 167(h).
• Intangible drilling costs for oil, gas,
and geothermal property.
• Mining exploration and development
costs.
• Inventoriable items accounted for in
the same manner as materials and
supplies that are not incidental. See
Cost of Goods Sold for details.
For more details on the uniform
capitalization rules, see Regulations
sections 1.263A-1 through 1.263A-3.
See Regulations section 1.263A-4 and
Pub. 225, Farmer’s Tax Guide, for rules
for property produced in a farming
business.
Transactions between related
taxpayers. Generally, an accrual basis
taxpayer can only deduct business
expenses and interest owed to a
related party in the year payment is
included in the income of the related
party. See sections 163(e)(3), 163(j),
and 267 for the limitations on
deductions for unpaid interest and
expenses.
Section 291 limitations. Cooperatives
may be required to adjust deductions
for depletion of iron ore and coal,
intangible drilling, exploration and
development costs, and the amortizable
basis of pollution control facilities. See
section 291 to determine the amount of
the adjustment. Also, see section 43.
Golden parachute payments. A
portion of the payments made by a
cooperative to key personnel that
exceeds their usual compensation may
not be deductible. This occurs when the
cooperative has an agreement (golden
parachute) with these key employees to
pay them these excess amounts if
control of the cooperative changes. See
section 280G and Regulations section
1.280G-1.

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Business start-up and organizational
costs. Business start-up and
organizational costs must be capitalized
unless an election is made to deduct or
amortize them. The following rules
apply separately to each category of
costs.
• The cooperative can elect to deduct
up to $5,000 of such costs for the year
the cooperative begins business
operations.
• The $5,000 deduction is reduced (but
not below zero) by the amount the total
cost exceeds $50,000. If the total costs
are $55,000 or more, the deduction is
reduced to zero.
• If the election is made, any costs that
are not deductible must be amortized
ratably over a 180-month period.
In all cases, the amortization period
begins the month the cooperative
begins business operations. For more
details on the election for business
start-up and organizational costs, see
Pub. 535.
Attach any statement required by
Regulations section 1.195-1(b) or
1.248-1(c). Report the deductible
amount of these costs and any
amortization on line 23. For
amortization that begins during the
2006 tax year, complete and attach
Form 4562.
Passive activity limitations.
Limitations on passive activity losses
and credits under section 469 apply to
closely held cooperatives.
A cooperative is a “closely held
cooperative” (as defined at section
469(j)(1)) if at any time during the last
half of the tax year more than 50% in
value of its outstanding stock is owned,
directly or indirectly, by or for not more
than 5 individuals. Certain
organizations are treated as individuals
for purposes of this test. See section
542(a)(2). For rules of determining
stock ownership, see section 544 (as
modified by section 465(a)(3)).
Generally, the two kinds of passive
activities are:
• Trade or business activities in which
the cooperative did not materially
participate, and
• Rental activities, regardless of its
participation.
For exceptions, see Form 8810,
Corporate Passive Activity Loss and
Credit Limitations.
Cooperatives subject to the passive
activity limitations must complete Form
8810 to compute their allowable
passive activity loss and credit. Before
completing Form 8810, see Temporary
Regulations section 1.163-8T, which
provides rules for allocating interest
expense among activities. If a passive
activity is also subject to the earnings
stripping rules of section 163(j), the

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at-risk rules of section 465, or the
tax-exempt use loss rules of section
470, those rules apply before the
passive loss rules.
For more information, see section
469, the related regulations, and Pub.
925, Passive Activity and At-Risk
Rules.
Reducing certain expenses for which
credits are allowable. If the
cooperative claims any of the following
credits, it may need to reduce the
otherwise allowable deductions for
expenses used to figure the credit.
• Employment credits. See line 12.
• Research credit.
• Orphan drug credit.
• Disabled access credit.
• Employer credit for social security
and Medicare taxes paid on certain
employee tips.
• Credit for small employer pension
plan start-up costs.
• Credit for employer-provided
childcare facilities and services.
• Low sulfur diesel fuel production
credit.
• Mine rescue team training credit.
If the cooperative has any of these
credits, figure each current year credit
before figuring the deduction for the
expenses on which the credit is based.
See the instructions for the applicable
form used to figure the credit.
Limitations on deductions related to
property leased to tax-exempt
entities. If a cooperative leases
property to a governmental or other
tax-exempt entity, the cooperative
cannot claim deductions related to the
property to the extent that they exceed
the cooperative’s income from the lease
payments (tax-exempt use loss).
Amounts disallowed may be carried
over to the next tax year and treated as
a deduction with respect to the property
for that tax year. See section 470 for
more details and exceptions.

Line 11. Compensation of
Officers
Enter deductible officer’s compensation
on line 11. See Employment credits
under line 12 for a list of employment
credits that may reduce your deduction
for officers’ compensation. Before
entering an amount on line 11,
complete Schedule E if the
cooperative’s total receipts (line 1a plus
lines 4 through 9, page 1) are $500,000
or more. Do not include compensation
deductible elsewhere on the return,
such as amounts included in cost of
goods sold, elective contributions to a
section 401(k) cash or deferred
arrangement, or amounts contributed
under a salary reduction SEP
agreement or a SIMPLE IRA plan.

Include only the deductible part of
each officer’s compensation on
Schedule E. Complete Schedule E, line
1, columns (a) through (f), for all
officers. The cooperative determines
who is an officer under the laws of the
state where it is incorporated.
If a consolidated return is filed, each
member of an affiliated group must
furnish this information.
Disallowance of deduction for
employee compensation in excess of
$1 million. Publicly held cooperatives
cannot deduct compensation to a
“covered employee” to the extent that
the compensation exceeds $1 million.
Generally, a covered employee is:
• The chief executive officer of the
cooperative (or an individual acting in
that capacity) as of the end of the tax
year, or
• An employee whose total
compensation must be reported to
shareholders under the Securities
Exchange Act of 1934 because the
employee is among the four highest
compensated officers for that tax year
(other than the chief executive officer).
For this purpose, compensation
does not include the following.
• Income from certain employee trusts,
annuity plans, or pensions.
• Any benefit paid to an employee that
is excluded from the employee’s
income.
The deduction limit does not apply
to:
• Commissions based on individual
performance,
• Qualified performance-based
compensation, and
• Income payable under a written,
binding contract in effect on February
17, 1993.
The $1 million limit is reduced by
amounts disallowed as excess
parachute payments under section
280G.
For details, see section 162(m) and
Regulations section 1.162-27.

Line 12. Salaries and Wages
Enter the total salaries and wages paid
for the tax year. Do not include salaries
and wages deductible elsewhere on the
return, such as amounts included in
officers’ compensation, cost of goods
sold, elective contributions to a section
401(k) cash or deferred arrangement,
or amounts contributed under a salary
reduction SEP agreement or a SIMPLE
IRA plan.
Employment credits. If the
cooperative claims a credit on any of
the following forms, it may need to
reduce its deduction for officers’
compensation on line 11 and salaries
and wages on line 12 by the amount

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used to figure any credits claimed on
the following forms.
• Form 5884, Work Opportunity Credit.
• Form 5884-A, Credits for Employers
Affected by Hurricane Katrina, Rita, or
Wilma.
• Form 8844, Empowerment Zone and
Renewal Community Employment
Credit.
• Form 8845, Indian Employment
Credit.
• Form 8861, Welfare-to-Work Credit.
If the cooperative provided
taxable fringe benefits to its
CAUTION employees, such as personal
use of a car, do not deduct as wages
the amount allocated for depreciation,
and other expenses claimed on lines 18
and 23.

!

Line 13. Bad Debts
Enter the total debts that became
worthless in whole or in part during the
tax year. A cash method taxpayer
cannot claim a bad debt deduction
unless the amount was previously
included in income.

Line 14. Rents
If the cooperative rented or leased a
vehicle, enter the total annual rent or
lease expense paid or incurred during
the year. Also complete Form 4562,
Depreciation and Amortization, Part V.
If the cooperative leased a vehicle for a
term of 30 days or more, the deduction
for vehicle lease expense may have to
be reduced by an amount called the
inclusion amount. The cooperative may
have an inclusion amount if:
The lease term
began:

And the vehicle’s FMV on
the first day of the lease
exceeded:

After 12/31/04 but before 1/1/07

$15,200

After 12/31/03 but before 1/1/05

$17,500

After 12/31/02 but before 1/1/04

$18,000

If the lease term began before January 1, 2003, see Pub.
463, Travel, Entertainment, Gift, and Car Expenses, to
find out if the cooperative has an inclusion amount. The
inclusion amount for lease terms beginning in 2007 will be
published in the Internal Revenue Bulletin in early 2007.

See Pub. 463 for instructions on
figuring the inclusion amount.

Line 15. Taxes and Licenses
Enter taxes paid or accrued during the
tax year, but do not include the
following.
• Federal income taxes.
• Foreign or U.S. possession income
taxes if a foreign tax credit is claimed.
• Taxes not imposed on the
cooperative.
• Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes are
treated as part of the cost of the

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acquired property, or in the case of a
disposition, as a reduction in the
amount realized on the disposition).
• Taxes assessed against local
benefits that increase the value of the
property assessed (such as for
sidewalks, etc.).
• Taxes deducted elsewhere on the
return, such as those reflected in cost
of goods sold.
See section 164(d) for the rule on
apportionment of taxes on real property
between the seller and purchaser.

Line 16. Interest
Do not offset interest income against
interest expense.
The cooperative must make an
interest allocation if the proceeds of a
loan were used for more than one
purpose. See Temporary Regulations
section 1.163-8T for the interest
allocation rules.
Do not deduct the following
interest.
• Interest on indebtedness incurred or
continued to purchase or carry
obligations if the interest is wholly
exempt from income tax. For
exceptions, see section 265(b).
• For cash basis taxpayers, prepaid
interest allocable to years following the
current tax year. For example, a cash
basis calendar year taxpayer who in
2006 prepaid interest allocable to any
period after 2006 can deduct only the
amount allocable to 2006.
• Interest and carrying charges on
straddles. Generally, these amounts
must be capitalized. See section
263(g).
• Interest on debt allocable to the
production of designated property by a
cooperative for its own use or for sale.
The cooperative must capitalize this
interest. Also capitalize any interest on
debt allocable to an asset used to
produce the property. See section
263A(f) and Regulations sections
1.263A-8 through 1.263A-15 for
definitions and more information.
• Interest paid or incurred on any
portion of an underpayment of tax that
is attributable to an understatement
arising from an undisclosed listed
transaction or an undisclosed
reportable avoidance transaction (other
than a listed transaction) entered into in
tax years beginning after October 22,
2004.
Special rules apply to:
• Interest on which no tax is imposed
(see section 163(j)). For tax years
beginning after May 16, 2006, a
cooperative that owns an interest in a
partnership, directly or indirectly, must
treat its distributive share of the
partnership liabilities, interest income,
and interest expense as liabilities,
income, and expenses of the

cooperative for purposes of applying
the earnings stripping rules. For more
details, see section 163(j)(8).
• Forgone interest on certain
below-market-rate loans (see section
7872).
• Original issue discount on certain
high yield discount obligations (see
section 163(e) to figure the disqualified
portion).
• Interest which is allocable to
unborrowed policy cash values of life
insurance, endowment, or annuity
contracts issued after June 8, 1997.
See section 264(f). Attach a statement
showing the computation of the
deduction.

Line 17. Charitable
Contributions
Enter contributions or gifts actually paid
within the tax year to or for the use of
charitable and governmental
organizations described in section
170(c), and any unused contributions
carried over from prior years. Special
rules and limits apply to contributions to
organizations conducting lobbying
activities. See section 170(f)(9).
Cooperatives reporting taxable
income on the accrual method can
elect to treat as paid during the tax year
any contributions paid by the 15th day
of the 3rd month after the end of the tax
year if the contributions were
authorized by the board of directors
during the tax year. Attach a
declaration to the return stating that the
resolution authorizing the contributions
was adopted by the board of directors
during the current tax year. The
declaration must include the date the
resolution was adopted. See
Regulations section 1.170A-11.
Limitation on deduction. The total
amount claimed may not be more than
10% of taxable income (line 27)
computed without regard to the
following.
• Any deduction for contributions.
• The special deductions on line 26c,
Form 1120-C.
• The deduction allowed under section
249.
• The domestic production activities
deduction under section 199.
• Any net operating loss (NOL)
carryback to the tax year under section
172.
• Any capital loss carryback to the tax
year under section 1212(a)(1).
Carryover of excess contributions
for Hurricane Katrina, Rita, or Wilma
relief efforts. Excess qualified
contributions made in 2005 are carried
over to the next 5 years. Attach a
statement substantiating that the
contributions are for Hurricane Katrina,
Rita, or Wilma relief efforts and
indicating the amount of qualified

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contributions for which the election is
made. For more information, see
section 1400S.
Carryover. Charitable contributions
over the 10% limitation cannot be
deducted for the current tax year but
may be carried over to the next 5 tax
years.
Special rules apply if the cooperative
has an NOL carryover to the tax year.
In figuring the charitable contributions
deduction for the tax year, the 10% limit
is applied using the taxable income
after taking into account any deduction
for the NOL.
To figure the amount of any
remaining NOL carryover to later years,
taxable income must be modified (see
sections 172(b)). To the extent that
contributions are used to reduce
taxable income for this purpose and
increase an NOL carryover, a
contributions carryover is not allowed.
See section 170(d)(2)(B).
Substantiation requirements.
Generally, no deduction is allowed for
any contribution of $250 or more unless
the cooperative gets a written
acknowledgment from the donee
organization that shows the amount of
cash contributed, describes any
property contributed, and either gives a
description and a good faith estimate of
the value of any goods or services
provided in return for the contribution or
states that no goods or services were
provided in return for the contribution.
The acknowledgment must be obtained
by the due date (including extensions)
of the cooperative’s return, or, if earlier,
the date the return is filed. Do not
attach the acknowledgment to the tax
return, but keep it with the
cooperative’s records.
Note. For contributions of cash,
checks, or other monetary gifts
(regardless of the amount) made in tax
years beginning after August 17, 2006,
the cooperative must maintain a bank
record or a receipt, letter, or other
written communication from the donee
organization indicating the name of the
organization, the date of the
contribution, and the amount of the
contribution.
Contributions of property other than
cash. If a cooperative contributes
property other than cash and claims
over a $500 deduction for the property,
it must attach a schedule to the return
describing the kind of property
contributed and the method used to
determine its fair market value (FMV).
Complete and attach Form 8283,
Noncash Charitable Contributions, for
contributions of property (other than
money) if the total claimed deduction
for all property contributed was more
than $5,000. Special rules apply to the

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contribution of certain property. See the
Instructions for Form 8283.
Other special rules. The
cooperative must reduce its deduction
for contributions of certain capital gain
property. See sections 170(e)(1) and
170(e)(5).
Larger deduction. A larger
deduction is allowed for certain
contributions of:
• Inventory and other property to
certain organizations for use in the care
of the ill, needy, or infants (section
170(e)(3)) including contributions of
“apparently wholesome food” (section
170(e)(3)(C) and qualified book
contributions (section 170(e)(3)(D);
• Scientific equipment used for
research to institutions of higher
learning or to certain scientific research
organizations (other than by personal
holding companies and service
organizations (section 170(e)(4)); and
• Computer technology and equipment
for educational purposes.
For more information on charitable
contributions, including substantiation
and recordkeeping requirements, see
section 170, the related regulations,
and Pub. 526, Charitable Contributions.
For special rules that apply to
corporations, see Pub. 542.

Line 18. Depreciation
Include on line 18 depreciation and the
cost of certain property that the
cooperative elected to expense under
section 179 that is not claimed on
Schedule A or elsewhere on the return.
See Form 4562 and its instructions.

Line 20. Pension,
Profit-sharing, etc., Plans
Enter the deduction for contributions to
qualified pension, profit-sharing, or
other funded deferred compensation
plans. Employers who maintain such a
plan generally must file one of the
forms listed below, even if the plan is
not a qualified plan under the Internal
Revenue Code. The filing requirement
applies even if the cooperative does not
claim a deduction for the current tax
year. There are penalties for failure to
file these forms timely and for
overstating the pension plan deduction.
See sections 6652(e) and 6662(f).
Form 5500, Annual Return/Report of
Employee Benefit Plan. File this form
for a plan that is not a one-participant
plan (see below).
Form 5500-EZ, Annual Return of
One-Participant (Owners and Their
Spouses) Retirement Plan. File this
form for a plan that only covers the
owner (or the owner and his or her
spouse) but only if the owner (or the
owner and his or her spouse) owns the
entire business.

Line 21. Employee Benefit
Programs
Enter the contributions to employee
benefit programs not claimed
elsewhere on the return (that is,
insurance, health and welfare
programs, etc.) that are not an
incidental part of a pension,
profit-sharing, etc., plan included on line
20.

Line 22. Domestic
Production Activities
Deduction
All cooperatives described in section
1381 are required to calculate the
domestic production activities deduction
on Form 8903 and file it with Form
1120-C.
A cooperative engaged in the
marketing of agricultural or horticultural
products may allocate all or some of its
domestic production activities deduction
to its patrons. If it does, the rules of
section 199(d)(3) apply. A specified
agricultural or horticultural cooperative
shall not reduce its taxable income
under section 1382(b) for any
patronage distributions attributable to
qualified production activities income
for which the cooperative was allowed a
deduction under section 199(a).

Line 23. Other Deductions
Attach a schedule, listing by type and
amount, all allowable deductions that
are not deductible elsewhere.
See Special rules, later, for limits on
certain other deductions. Also, see Pub.
535 for details on other deductions that
may apply to cooperatives.
Examples of other deductions.
Examples of other deductions include
the following.
• Amortization (see Form 4562).
• Certain business start-up and
organizational costs the cooperative
elects to deduct. See Business start-up
and organizational costs under
Deductions.
• Reforestation costs. The cooperative
can elect to deduct up to $10,000 of
qualifying reforestation expenses for
each qualified timber property. The
cooperative can elect to amortize over
84 months any amount not deducted.
See Pub. 535.
The limit for a small timber producer
is increased by the smaller of $10,000
or the amount of qualified reforestation
expenses paid or incurred during the
tax year for (a) qualified timber property
any portion of which is located in the
Gulf Opportunity Zone (GO Zone), (b)
qualified timber property any portion of
which is located in the Rita GO Zone
and no portion is located in the GO
Zone, and (c) qualified timber property
any portion of which is located in the

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Wilma GO Zone. See Pub. 4492,
Information for Taxpayers Affected by
Hurricanes Katrina, Rita, and Wilma, for
a list of areas included in the GO Zone,
the Rita GO Zone, and the Wilma GO
Zone.
The increased limit does not apply to
any timber producer who (a) held more
than 500 acres of qualified timber
property at any time during the tax
year, (b) is a corporation with stock
publicly traded on an established
securities market, or (c) is a real estate
investment trust. See section 1400N(i)
for details.
• Depletion. See sections 613 and
613A for percentage depletion rates
applicable to natural deposits and
section 291(a)(2) for the limitation on
the depletion deduction for iron ore and
coal (including lignite). Attach Form T
(Timber), Forest Activities Schedule, if
a deduction for depletion of timber is
taken. Foreign intangible drilling costs
and foreign exploration and
development costs must either be
added to the cooperative’s basis for
cost depletion purposes or be deducted
ratably over a 10-year period. See
sections 263(i), 616, and 617 for
details. See Pub. 535 for more
information on depletion.
• Insurance premiums.
• Legal and professional fees.
• Repairs and maintenance (see
below).
• Supplies used and consumed in the
business.
• Travel and entertainment expenses.
Special rules apply (discussed below).
• Utilities.
• Ordinary losses from trade or
business activities of a partnership
(from Schedule K-1 (Form 1065 or
1065-B)). Do not offset ordinary losses
against ordinary income. Instead,
include the income on line 9. Show the
partnership’s name, address, and EIN
on a separate statement attached to
this return. If the amount entered is
from more than one partnership,
identify the amount from each
partnership.
• Any extraterritorial income exclusion
(from Form 8873, line 54).
• Any negative net section 481(a)
adjustment.
• Deduction for certain energy efficient
commercial building property placed in
service after December 31, 2005. See
section 179D and Notice 2006-52,
2006-26 I.R.B. 1175.
• Fifty percent of any qualified GO
Zone cleanup cost paid or incurred
after August 28, 2005, and before
January 1, 2008. See section 1400N(f).
• Dividends paid in cash on stock held
by an employee stock ownership plan.
However, a deduction can only be
taken for the dividends above if,

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according to the plan, the dividends
are:
1. Paid in cash directly to the plan
participants or beneficiaries;
2. Paid to the plan, which distributes
them in cash to the plan participants or
their beneficiaries no later than 90 days
after the end of the plan year in which
the dividends are paid;
3. At the election of such
participants or their beneficiaries (a)
payable as provided under 1 or 2 above
or (b) paid to the plan and reinvested in
qualifying employer securities; or
4. Used to make payments on a
loan described in section 404(a)(9).
See section 404(k) for more details
and the limitation on certain dividends.
Do not deduct the following.
• Fines or penalties paid to a
government for violating any law.
• Any amount allocable to a class of
exempt income. See section 265(b) for
exceptions.
Repairs and maintenance. Include
the cost of incidental repairs and
maintenance not claimed elsewhere on
the return, such as labor and supplies,
that do not add to the value of the
property or appreciably prolong its life.
New buildings, machinery, or
permanent improvements that increase
the value of the property must be
depreciated or amortized.

Special Rules
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a cooperative can
deduct ordinary and necessary travel,
meals, and entertainment expenses
paid or incurred in its trade or business.
Special rules apply to deductions for
gifts, skybox rentals, luxury water
travel, convention expenses, and
entertainment tickets. See section 274
and Pub. 463.
Travel. The cooperative cannot
deduct travel expenses of any
individual accompanying a cooperative
officer or employee, including a spouse
or dependent of the officer or
employee, unless:
• That individual is an employee of the
cooperative, and
• His or her travel is for a bona fide
business purpose that would otherwise
be deductible by that individual.
Meals and entertainment.
Generally, the cooperative can deduct
only 50% of the amount otherwise
allowable for meals and entertainment
expenses paid or incurred in its trade or
business. In addition (subject to
exceptions under section 274(k)(2)):
• Meals must not be lavish or
extravagant;
• A bona fide business discussion
must occur during, immediately before,
or immediately after the meal; and

• An employee of the cooperative must

they are deductible. See section
162(e)(5)(B).

See section 274(n)(3) for a special
rule that applies to meal expenses for
individuals subject to the hours of
service limits of the Department of
Transportation.

Line 25. Taxable Income
Before Section 1382, NOL
Deduction, and Special
Deductions

Membership dues. The
cooperative can deduct amounts paid
or incurred for membership dues in
civic or public service organizations,
professional organizations, business
leagues, trade associations, chambers
of commerce, boards of trade, and real
estate boards, unless a principal
purpose of the organization is to
entertain or provide entertainment
facilities for members or their guest.

At-risk rules. Special at-risk rules
under section 465 generally apply to
closely held cooperatives (see Passive
activity limitations on page 8) engaged
in any activity as a trade or business or
for the production of income. These
cooperatives may have to adjust the
amount on line 25.

be present at the meal.

Cooperatives may not deduct
membership dues in any club organized
for business, pleasure, recreation, or
other social purpose. This includes
country clubs, golf and athletic clubs,
airline and hotel clubs, and clubs
operated to provide meals under
conditions favorable to business
discussion.
Entertainment facilities. The
cooperative cannot deduct an expense
paid or incurred for use of a facility
(such as a yacht or hunting lodge) for
an activity that is usually considered
entertainment, amusement, or
recreation.
Travel, meals, and entertainment
treated as compensation. Generally,
the cooperative may be able to deduct
otherwise nondeductible entertainment,
amusement, or recreation expenses if
the amounts are treated as
compensation to the recipient and
reported on Form W-2 for an employee
or on Form 1099-MISC for an
independent contractor.
However, if the recipient is an officer,
director, or beneficial owner (directly or
indirectly) of more than 10% of any
class of stock, the deductible expense
is limited. See section 274(e)(2) and
Notice 2005-45, 2005-24 I.R.B. 1228.
Lobbying expenses. Generally,
lobbying expenses are not deductible.
These expenses include amounts paid
or incurred in connection with:
• Influencing federal or state legislation
(but not local legislation), or
• Any communication with certain
federal executive branch officials in an
attempt to influence the official actions
or positions of the officials. See
Regulations section 1.162-29 for the
definition of “influencing legislation.”
Dues and other similar amounts paid
to certain tax-exempt organizations
may not be deductible. See section
162(e)(3). If certain in-house
expenditures do not exceed $2,000,

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A taxpayer is generally considered
“at-risk” for an amount equal to his or
her investment in the entity. That
investment consists of money and other
property contributed to the entity and
amounts borrowed on behalf of the
entity.
The at-risk rules do not apply to:

• Holding real property placed in

service by the cooperative before 1987;

• Equipment leasing under sections

465(c)(4), (5), and (6); and
• Any qualifying business of a qualified
cooperative under section 465(c)(7).
The at-risk rules do apply to the
holding of mineral property.
If the at-risk rules apply, complete
Form 6198, At-Risk Limitations, then
adjust the amount on line 25 for any
section 465(d) losses. These losses are
limited to the amount for which the
cooperative is at risk for each separate
activity at the close of the tax year. If
the cooperative is involved in one or
more activities, any of which incurs a
loss for the year, report the losses for
each activity separately. Attach Form
6198 showing the amount at risk and
gross income and deductions for the
activities with the losses.
If the cooperative sells or otherwise
disposes of an asset or its interest
(either total or partial) in an activity to
which the at-risk rules apply, determine
the net profit or loss from the activity by
combining the gain or loss on the sale
or disposition with the profit or loss from
the activity. If the cooperative has a net
loss, the loss may be limited because
of the at-risk rules.
Treat any loss from an activity not
allowed for the current tax year as a
deduction allocable to the activity in the
next tax year.
Cooperatives are required to allocate
income and deductions between
patronage and nonpatronage-related
business. Cooperatives with gross
receipts and assets of $250,000 or
more must complete Schedule G.

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Line 26a. Deductions and
Adjustments Under Section
1382
Complete Schedule H and enter the
amount from line 5.

Line 26b. Net Operating Loss
(NOL) Deduction
The cooperative must attach a
statement separately accounting for
patronage and nonpatronage-sourced
NOLs.
Note. Patronage-sourced NOLs
cannot be used to reduce
nonpatronage-sourced taxable income.
A cooperative can use the NOL loss
incurred in one tax year to reduce its
taxable income in another year. Enter
the total NOL carryovers from other tax
years on line 26b, but do not enter
more than the cooperative’s taxable
income (after special deductions).
Attach a schedule showing the
computation of the deduction. Also
complete item 12 on Schedule K.
The following special rules apply.
• A cooperative equity reduction
interest loss may not be carried back to
a tax year preceding the year of the
equity reduction transaction (see
section 172(b)(1)(E)).
• If an ownership change occurs, the
amount of the taxable income of a loss
cooperative that may be offset by the
pre-change NOL carryovers may be
limited. See section 382 and the related
regulations. A loss cooperative must
include the information statement as
provided in Temporary Regulations
section 1.382-11T(a) with its income tax
return for each tax year that certain
ownership shifts as described in
Temporary Regulations section
1.382-2T(a)(2)(ii) occur. If the
cooperative makes the
closing-of-the-books election, see
Regulations section 1.382-6(b).
• If a cooperative acquires control of
another cooperative (or acquires its
assets in a reorganization), the amount
of pre-acquisition losses that may offset
recognized built-in gain may be limited
(see section 384).
• If a cooperative elects the alternative
tax on qualifying shipping activities
under section 1354, no deduction is
allowed for an NOL attributable to the
qualifying shipping activities to the
extent that the loss is carried forward
from a tax year preceding the first tax
year for which the alternative tax
election was made. See section
1358(b)(2).
• Certain qualified GO Zone losses are
eligible for a special 5-year carryback
period. Generally, the amount of the
eligible NOL is limited to the aggregate
amount of the following deductions: (a)
qualified GO Zone casualty losses; (b)

certain moving expenses; (c) certain
temporary housing expenses; (d)
depreciation deductions with respect to
qualified GO Zone property for the tax
year the property is placed in service;
and (e) deductions for certain repair
expenses resulting from Hurricane
Katrina. See section 1400N (k).
For more details on the NOL
deduction, see Pub. 542, section 172,
and Form 1139, Corporation
Application for Tentative Refund.

Line 26c. Special Deductions
Complete Schedule C and enter the
amount from line 20.

Line 27. Taxable Income
See Schedule K, Item 14, to determine
if the cooperative needs to complete
Schedule G. Taxable income reported
on line 27, page 1 of the return, cannot
be less than the nonpatronage taxable
income shown on Schedule G, line 10,
column b.
Patronage source losses cannot
be used to offset nonpatronage
CAUTION income. See Schedule G
instructions.

!

Minimum taxable income. The
cooperative’s taxable income cannot be
less than the inversion gain of the
cooperative for the tax year, if the
cooperative is an expatriated entity or a
partner in an expatriated entity. For
details, see section 7874.
Net operating loss (NOL). If line 27
(figured without regard to the minimum
taxable income rule stated above) is
zero or less, the cooperative can have
an NOL that can be carried back or
forward as a deduction to other tax
years. Generally, a cooperative first
carries an NOL back 2 tax years.
However, the cooperative can elect to
waive the carryback period and instead
carry the NOL forward to future tax
years. To make the election, see the
instructions for Schedule K, item 12.
See Form 1139 for details, including
other elections that may be available,
which must be made no later than 6
months after the due date (excluding
extensions) of the cooperative’s return.
Capital construction fund for
commercial fishermen. To take a
deduction for amounts contributed to a
capital construction fund (CCF), reduce
the amount that would otherwise be
entered on line 27 by the amount of the
deduction. On the dotted line next to
the entry space, enter “CCF” and the
amount of the deduction. For more
information, see section 7518.

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Line 29a. 2005 Overpayment
credited to 2006.
Enter amount of overpayment credited
to 2006 from the tax return filed in 2005
(Form 990-C or Form 1120).

Line 29b. Estimated Tax
Payments
Enter any estimated tax payments the
cooperative made for the tax year.
Beneficiaries of trusts. If the
cooperative is the beneficiary of a trust,
and the trust makes a section 643(g)
election to credit its estimated tax
payments to its beneficiaries, include
the cooperative’s share of the payment
in the total for line 29b. Enter “T” and
the amount of the payment in the
shaded space beside line 29b.

Line 29c. Overpaid Estimated
Tax
If the cooperative overpaid estimated
tax, it may be able to get a quick refund
by filing Form 4466, Corporation
Application for Quick Refund of
Overpayment of Estimated Tax. The
overpayment must be at least 10% of
the expected income tax liability and be
at least $500. File Form 4466 after the
end of the cooperative’s tax year, and
no later than the 15th day of the third
month after the end of the tax year.
Form 4466 must be filed before the
cooperative files its tax return.

Line 29f. Credits
Form 2439. If the cooperative is
claiming a credit from Form 2439,
Notice to Shareholder of Undistributed
Long-Term Capital Gains, for the
cooperative’s share of the tax paid by a
regulated investment company (RIC) or
a real estate investment trust (REIT) on
undistributed long-term capital gains
included in the cooperative’s income,
check the box for Form 2439. Attach
Form 2439 to Form 1120-C.
Form 4136. If the cooperative is
claiming a credit from Form 4136,
Credit for Federal Tax Paid on Fuels,
check the box for Form 4136. Attach
Form 4136 to Form 1120-C.

Line 29g. Credit for Federal
Telephone Excise Tax Paid
If the cooperative was billed after
February 28, 2003, and before August
1, 2006, for the federal telephone
excise tax on long distance or bundled
service, the cooperative may be able to
request a credit for the tax paid. The
cooperative had bundled service if its
local and long distance service was
provided under a plan that does not
separately state the charge for local
service. The cooperative cannot
request the credit if it has already
received a credit or refund from its

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service provider. If the cooperative
requests the credit, it cannot ask its
service provider for a credit or refund
and must withdraw any request
previously submitted to its provider.
The cooperative can request the
credit by attaching Form 8913, Credit
for Federal Telephone Excise Tax Paid,
showing the actual amount the
cooperative paid. The cooperative also
may be able to request the credit based
on an estimate of the amount paid. See
Form 8913 for more details. In either
case, the cooperative must keep
records to substantiate the amount of
the credit requested.

Line 29h. Section 1383 Credit
If the cooperative would pay less total
tax by claiming the deduction for the
redemption of nonqualified written
notices of allocation or nonqualified
per-unit retain certificates in the issue
year versus the current tax year,
refigure the tax for the years the
nonqualified written notices or
certificates were originally issued
(deducting them in the issue year), then
enter the amount of the reduction in the
issue years’ taxes on this line. Attach a
schedule showing how the credit was
figured. This credit is treated as a
payment, and any amount that is more
than the tax on line 28 will be refunded.

Line 29i. Total Payments
Add the amounts on lines 29d through
29h and enter the total on line 29i.
Backup withholding. If the
cooperative had federal income tax
withheld from any payments it received,
because, for example, it failed to give
the payer its correct EIN, include the
amount withheld in the total for line 29i.
Enter the amount withheld and the
words “Backup withholding” in the blank
space above line 29i.

Line 30. Estimated Tax
Penalty
If Form 2220 is attached, check the
box on line 30 and enter the amount of
any penalty on this line.

Line 33. Refund
If the cooperative has a refund of $1
million or more and wants it directly
deposited into its checking or savings
account at any U.S. bank or other
financial institution instead of having a
check sent to the cooperative, complete
Form 8302 and attach it to the
cooperative’s tax return.

Schedule A
Cost of Goods Sold
Generally, inventories are required at
the beginning and end of each tax year

if the production, purchase, or sale of
merchandise is an income-producing
factor. See Regulations section
1.471-1.
However, if the cooperative is a
qualifying taxpayer, or a qualifying
small business taxpayer (defined
below), it can adopt or change its
accounting method to account for
inventoriable items in the same manner
as materials and supplies that are not
incidental (unless its business is a tax
shelter as defined in section 448(d)(3)).
A qualifying taxpayer is a taxpayer
that for each prior tax year ending after
December 16, 1998, has average
annual gross receipts of $1 million or
less for the 3 prior tax years.
A qualifying small business taxpayer
is a taxpayer (a) that for each prior tax
year ending on or after December 31,
2000, has average annual gross
receipts of $10 million or less for the 3
prior tax years and (b) whose principal
business activity is not an ineligible
activity.
Under this accounting method,
inventory costs for raw materials
purchased for use in producing finished
goods, and merchandise purchased for
resale, are deductible in the year the
finished goods or merchandise are sold
(but not before the year the cooperative
pays for the raw materials or
merchandise if it is also using the cash
method). For additional guidance on
this method of accounting for
inventoriable items, see Pub. 538 and
the Instructions for Form 3115.
Enter amounts paid for all raw
materials and merchandise on line 2.
The amount the cooperative can deduct
for the tax year is figured on line 9.
All filers not using the cash method
of accounting should see Section 263A
uniform capitalization rules on page 8
before completing Schedule A.

Line 1. Inventory at
Beginning of Year
Beginning inventory will generally equal
ending inventory from last year’s return.
If this is your initial year, do not make
an entry on line 1.
If the cooperative is changing its
method of accounting for the current
tax year, it must refigure last year’s
closing inventory using its new method
of accounting and enter the result on
line 1. If there is a difference between
last year’s closing inventory and the
refigured amount, attach an
explanation. Take the difference into
account when figuring the cooperative’s
section 481(a) adjustment.

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Line 4a. Per-Unit Retain
Allocations Paid in Qualified
Per-Unit Retain Certificates
and Money or Other Property
A cooperative is allowed to deduct from
its taxable income amounts paid during
the payment period for the taxable year
as per-unit retain allocations to the
extent paid in money, qualified per-unit
retain certificates or other property with
respect to marketing occurring during
such tax year. A per-unit retain
allocation is defined as any allocation
from a cooperative to a patron with
respect to products marketed for him
without reference to the cooperative net
earnings. A qualified per-unit retain
certificate is defined as any per-unit
retain certificate which the distributee
has agreed to take into account at its
stated dollar amount.

Line 5. Nonqualified Per-Unit
Retain Certificates
Redeemed This Year
Enter the amount paid in money or
other property (except per-unit retain
certificates) to patrons to redeem
nonqualified per-unit retain certificates.
No deduction is allowed at the time of
issuance for a nonqualified per-unit
retain certificate. However, the
cooperative may take a deduction in
the year the certificate is redeemed,
subject to the stated dollar amount of
the certificate.
See section 1383 and the
instructions for line 29h on page 13 for
a special rule for figuring the
cooperative’s tax in the year of
redemption of a nonqualified per-unit
retain certificate.

Line 6a. Additional Section
263A Costs
An entry is required on this line only by
cooperatives that have elected a
simplified method of accounting.
For cooperatives that have elected
the simplified production method,
additional section 263A costs are
generally those costs, other than
interest, that were not capitalized under
the cooperative’s method of accounting
immediately prior to the effective date
of section 263A but are now required to
be capitalized under section 263A. For
details, see Regulations section
1.263A-2(b).
For cooperatives that have elected
the simplified resale method, additional
section 263A costs are generally those
costs incurred with respect to the
following categories:
• Off-site storage or warehousing.
• Purchasing.

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• Handling, such as processing,

assembly, repackaging, and
transporting.
• General and administrative costs
(mixed service costs).
For details, see Regulations section
1.263A-3(d).
Enter on line 6a the balance of
section 263A costs paid or incurred
during the tax year not includable on
lines 2, 3, and 6b.

Line 6b. Other Costs
Enter on line 6b any costs paid or
incurred during the tax year not entered
on lines 2 through 6a.

Line 8. Inventory at End of
Year
See Regulations sections 1.263A-1
through 1.263A-3 for details on figuring
the amount of additional section 263A
costs to be included in ending
inventory. If the cooperative accounts
for inventoriable items in the same
manner as materials and supplies that
are not incidental, enter on line 8 the
portion of its raw materials and
merchandise purchased for resale that
is included on line 7 and was not sold
during the year.

Lines 10a through 10f.
Inventory Valuation Methods
Inventories can be valued at:
• Cost,
• Cost or market value (whichever is
lower), or
• Any other method approved by the
IRS that conforms to the requirements
of the applicable regulations cited
below.
The cooperative is required to use
cost if it is using the cash method of
accounting.
Cooperatives that account for
inventory in the same manner as
materials and supplies that are not
incidental can currently deduct
expenditures for direct labor and all
indirect costs that would otherwise be
included in inventory costs.
The average cost (rolling average)
method of valuing inventories generally
does not conform to the requirements
of the regulations. See Rev. Rul.
71-234, 1971-1 C.B. 148.
The completed pool method of
accounting is not an acceptable method
of accounting for federal income tax
purposes. See Rev. Rul. 69-71, 1969-1
C.B. 207.
Cooperatives that use erroneous
valuation methods must change to a
method permitted for federal income tax
purposes. Use Form 3115 to make this
change.

On line 10a, check the method(s)
used for valuing inventories. Under
lower of cost or market, the term
“market” (for normal goods) means the
current bid price prevailing on the
inventory valuation date for the
particular merchandise in the volume
usually purchased by the taxpayer. For
a manufacturer, market applies to the
basic elements of cost — raw materials,
labor, and burden. If section 263A
applies to the taxpayer, the basic
elements of cost must reflect the
current bid price of all direct costs and
all indirect costs properly allocable to
goods on hand at the inventory date.
Inventory may be valued below cost
when the merchandise is unsalable at
normal prices or unsalable in the
normal way because the goods are
subnormal due to damage,
imperfections, shop wear, etc., within
the meaning of Regulations section
1.471-2(c). The goods may be valued
at a current bona fide selling price,
minus direct cost of disposition (but not
less than scrap value) if such a price
can be established.
If this is the first year the Last-in,
First-out (LIFO) inventory method was
either adopted or extended to inventory
goods not previously valued under the
LIFO method provided for in section
472, attach Form 970, Application To
Use LIFO Inventory Method, or a
statement with the information required
by Form 970. Also check the LIFO box
on line 10c. On line 10d, enter the
amount or the percent of total closing
inventories covered under section 472.
Estimates are acceptable.
If the cooperative changed or
extended its inventory to LIFO and had
to write up its opening inventory to cost
in the year of election, report the effect
of this write-up as income (line 9, page
1) proportionately over a 3-year period
beginning with the year of the LIFO
election (section 472(d)).
For more information on inventory
valuation methods, see Pub. 538.

Cooperatives filing a consolidated
return must not report as dividends on
Schedule C any amounts received from
corporations within the tax
consolidation group. Such dividends
are eliminated in consolidation rather
than offset by the dividends-received
deduction.

Line 1. Column (a)
Enter dividends (except those received
on debt-financed stock acquired after
July 18, 1984 – see section 246A) that
are:
• Received from less-than-20%-owned
domestic corporations subject to
income tax.
• Qualified for the 70% deduction
under section 243(a)(1).
• Taxable distributions from an
IC-DISC or former DISC that are
designated as eligible for the 70%
deduction, and certain dividends of
Federal Home Loan Banks (see section
246(a)(2)).
• Dividends (except those received on
debt-financed stock acquired after July
18, 1984) from a regulated investment
company (RIC). The amount of
dividends eligible for the
dividends-received deduction under
section 243 is limited by section 854(b).
The cooperative should receive a notice
from the RIC specifying the amount of
dividends that qualify for the deduction.
Report so-called dividends or
earnings received from mutual savings
banks, etc., as interest income. Do not
treat them as dividends.

Line 2. Column (a)
Enter on line 2:
• Dividends (except those received on
debt-financed stock acquired after July
18, 1984) received from
20%-or-more-owned domestic
corporations subject to income tax and
are subject to the 80% deduction under
section 243(c), and
• Taxable distributions from an
IC-DISC or former DISC considered
eligible for the 80% deduction.

Line 3. Column (a)

Schedule C
Dividends and Special
Deductions
For purposes of the 20% ownership
test on lines 1 through 7, the
percentage of stock owned by the
cooperative is based on voting power
and value of the common stock.
Preferred stock described in section
1504(a)(4) is not taken into account.
Cooperatives filing a consolidated
return should see Regulations sections
1.1502-13, 1.1502-26, and 1.1502-27
before completing Schedule C.

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Enter on line 3:
• Dividends received on debt-financed
stock acquired after July 18, 1984, that
are received from domestic and foreign
corporations subject to income tax that
would otherwise be subject to the
dividends-received deduction under
sections 243(a)(1), 243(c), or 245(a).
• Dividends received from a RIC on
debt-financed stock. The amount of
dividends eligible for the
dividends-received deduction is limited
by section 854(b). The cooperative
should receive a notice from the RIC
specifying the amount of dividends that
qualify for the deduction.

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Line 3. Columns (b) and (c)

Line 8. Column (a)

Line 10. Columns (a) and (c)

Dividends received on debt-financed
stock acquired after July 18, 1984, are
not entitled to the full 70% or 80%
dividends-received deduction. The 70%
or 80% deduction is reduced by a
percentage that is related to the
amount of debt incurred to acquire the
stock. See section 246A. Also see
section 245(a) for an additional
limitation that applies to dividends
received from foreign corporations
before making this computation. Attach
a schedule to Form 1120-C showing
how the amount on line 3, column (c),
was figured.

Enter dividends received from wholly
owned foreign subsidiaries that are
eligible for the 100% deduction under
section 245(b).

Small business investment companies
operating under the Small Business
Investment Act of 1958 (see 15 U.S.C.
661 and following) must enter dividends
that are received from domestic
corporations subject to income tax even
though a deduction is allowed for the
entire amount of those dividends. To
claim the 100% deduction on line 10,
column (c), the cooperative must file
with its return a statement that it was a
federal licensee under the Small
Business Investment Act of 1958 at the
time it received the dividends.

Line 4. Column (a)
Enter dividends received on preferred
stock of a less-than-20%-owned public
utility that is subject to income tax and
is allowed the deduction provided in
section 247 for dividends paid.

Line 5. Column (a)
Enter dividends received on preferred
stock of a 20%-or-more-owned public
utility that is subject to income tax and
is allowed the deduction provided in
section 247 for dividends paid.

Line 6. Column (a)
Enter the U.S.-source portion of
dividends that:
• Are received from
less-than-20%-owned foreign
corporations, and
• Qualify for the 70% deduction under
section 245(a). To qualify for the 70%
deduction, the cooperative must own at
least 10% of the stock of the foreign
corporation by vote and value.
Also include dividends received
from a less-than-20%-owned FSC that:
• Are attributable to income treated as
effectively connected with the conduct
of a trade or business within the United
States (excluding foreign trade income),
and
• Qualify for the 70% deduction
provided in section 245(c)(1)(B).

Line 7. Column (a)
Enter the U.S.-source portion of
dividends that:
• Are received from
20%-or-more-owned foreign
corporations, and
• Qualify for the 80% deduction under
section 245(a).
Also include dividends received from a
20%-or-more-owned FSC that:
• Are attributable to income treated as
effectively connected with the conduct
of a trade or business within the United
States (excluding foreign trade income),
and
• Qualify for the 80% deduction under
section 245(c)(1)(B).

In general, the deduction under
section 245(b) applies to dividends paid
out of the earnings and profits of a
foreign corporation for a tax year during
which:
• All of its outstanding stock is directly
or indirectly owned by the domestic
cooperative receiving the dividends,
and
• All of its gross income from all
sources is effectively connected with
the conduct of a trade or business
within the United States.

Line 9. Column (c)
Generally, line 9, column (c), cannot
exceed the amount from the worksheet
below. However, in a year in which an
NOL occurs, this limitation does not
apply even if the loss is created by the
dividends-received deduction. See
sections 172(d) and 246(b).
Worksheet for Schedule C, line 9
(keep for your records)
1. Refigure line 25, page 1, Form
1120-C, without any adjustment
under section 1059 and without
any capital loss carryback to the
tax year under section
1212(a)(1) . . . . . . . . . . . . . .
2. Complete lines 10, 11, and 12,
column (c) and enter the total
3. Subtract line 2 from line 1 . . . .
4. Multiply line 3 by 80% . . . . . . .
5. Add lines 2, 5, 7, and 8, column
(c) and the part of the deduction
on line 3, column (c) that is
attributable to dividends
received from
20%-or-more-owned
corporations . . . . . . . . . . . . .
6. Enter the smaller of line 4 or line
5. If line 5 is greater than line 4,
stop here; enter the amount
from line 6 on line 9, column (c).
Do not complete the rest of this
worksheet . . . . . . . . . . . . . .
7. Enter the total amount of
dividends received from
20%-or-more-owned
corporations that are included
on lines 2, 3, 5, 7, and 8,
column (a) . . . . . . . . . . . . . .
8. Subtract line 7 from line 3 . . . .
9. Multiply line 8 by 70% . . . . . . .
10. Subtract line 5 from line 9,
column (c) . . . . . . . . . . . . . .
11. Enter the smaller of line 9 or line
10 . . . . . . . . . . . . . . . . . . . .
12. Dividends-received deduction
after limitation (section 246(b)).
Add lines 6 and 11. Enter the
result here and on line 9,
column (c) . . . . . . . . . . . . . .

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Line 11. Columns (a) and (c)
Enter only dividends that qualify under
section 243(b) for the 100%
dividends-received deduction described
in section 243(a)(3). Cooperatives
taking this deduction are subject to the
provisions of section 1561. The 100%
deduction does not apply to affiliated
group members that are joining in the
filing of a consolidated return.

Line 12. Column (a)
Enter dividends from FSCs that are
attributable to foreign trade income and
that are eligible for the 100% deduction
provided in section 245(c)(1)(A). For
cooperatives described in section 1381
engaged in the marketing of agricultural
or horticultural products that are
shareholders in a foreign sales
corporation (FSC), only include the
exempt portion (15/23) of the foreign
trade income from the sale or other
disposition of agricultural or horticultural
products by the FSC on this line. The
remaining nonexempt portion (8/23) of
the distribution from the FSC should be
reported on line 9 of page 1.

Line 13. Column (a)
Enter foreign dividends not reportable
on lines 3, 6, 7, 8, 11, or 12 of column
(a). Include on line 13 the cooperative’s
share of the ordinary earnings of a
qualified electing fund from line 1c of
Form 8621, Return by a Shareholder of
a Passive Foreign Investment
Company or Qualified Electing Fund.
Exclude distributions of amounts
constructively taxed in the current year
or in prior years under subpart F
(sections 951 through 964).

Line 14. Column (a)
Include income constructively received
from CFCs under subpart F. This
amount should equal the total subpart F
income reported on Schedule I, Form
5471, Information Return of U.S.
Persons With Respect To Certain
Foreign Corporations.

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Line 15. Column (a)
Include gross-up for taxes deemed paid
under sections 902 and 960.

Line 16. Column (a)
Enter taxable distributions from an
IC-DISC or former DISC that are
designated as not eligible for a
dividends-received deduction.
No deduction is allowed under
section 243 for a dividend from an
IC-DISC or former DISC (as defined in
section 992(a)) to the extent the
dividend:
1. Is paid out of the cooperative’s
accumulated IC-DISC income or
previously taxed income, or
2. Is a deemed distribution under
section 995(b)(1).

Line 17. Column (a)
Include the following:
1. Dividends (other than capital gain
distributions reported on Schedule D
(Form 1120) and exempt-interest
dividends) that are received from RICs
and that are not subject to the 70%
deduction.
2. Dividends from tax-exempt
organizations.
3. Dividends (other than capital gain
distributions) received from a REIT that,
for the tax year of the trust in which the
dividends are paid, qualifies under
sections 856 through 860.
4. Dividends not eligible for a
dividends-received deduction, which
include the following.
a. Dividends received on any share
of stock held for less than 46 days
during the 91-day period beginning 45
days before the ex-dividend date. When
counting the number of days the
cooperative held the stock, you cannot
count certain days during which the
cooperative’s risk of loss was
diminished. See section 246(c)(4) and
Regulations section 1.246-5 for more
details.
b. Dividends attributable to periods
totaling more than 366 days that the
cooperative received on any share of
preferred stock held for less than 91
days during the 181-day period that
began 90 days before the ex-dividend
date. When counting the number of
days the cooperative held the stock,
you cannot count certain days during
which the cooperative’s risk of loss was
diminished. See section 264(c)(4) and
Regulations section 1.264-5 for more
details. Preferred dividends attributable
to periods totaling less than 367 days
are subject to the 46-day holding period
above.
c. Dividends on any share of stock
to the extent the cooperative is under
an obligation (including a short sale) to
make related payments with respect to

positions in substantially similar or
related property.
5. Any other taxable dividend
income not properly reported above.

are from business done with or for
patrons. If a cooperative exercises this
option, it must provide the information
specified in section 1388(j)(3) by written
notice to its patrons.

Line 18. Column (c)

Line 9b (columns a and b)

Section 247 allows public utilities a
deduction of 40% of the smaller of (a)
dividends paid on their preferred stock
during the year, or (b) taxable income
computed without regard to this
deduction. In a year in which an NOL
occurs, compute the deduction without
regard to section 247(a)(1)(B). See
section 172(d).

Allocate the amount of total special
deductions reported on Schedule C,
line 20, between patronage and
nonpatronage business.

Schedule G
Allocation of Patronage and
Nonpatronage Income and
Deductions
If the cooperative’s total receipts (line
1a plus lines 4 through 9 on page 1 of
the return) for the tax year and its total
assets at the end of the tax year are
less than $250,000, the cooperative is
not required to complete Schedule G.
Cooperatives are required to allocate
income and deductions between
patronage and nonpatronage business.
If the transaction producing the income
merely enhances the overall profitability
of the cooperative, being merely
incidental to the cooperative’s
operation, the income is from a
nonpatronage source. But if the source
of income or loss is from an activity that
is an integral part of the cooperative’s
business (such as inventory), then the
source may be patronage (Rev. Rul.
69-576, 1969-2 C.B. 166).
Special rules also apply if a
cooperative has acquired the assets of
another cooperative under a section
381(a) transaction. Cooperatives may
net earnings and losses under section
1388(j) and still be eligible for
tax-exempt treatment (section
521(b)(6)).

Line 8 (column a)
Complete Schedule H before entering
an amount on this line. Only farmers’
cooperatives exempt under section 521
are allowed to take a deduction for
nonpatronage distributions under
section 1382(b).

Line 9a (columns a and b)
Patronage and nonpatronage losses
must be computed separately and
carried over or carried back separately.
Under section 1388(j)(1), cooperatives
can use losses from one or more
allocation units to offset earnings of one
or more other allocation units, as
permitted by their bylaws, but only to
the extent that the earnings and losses

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Line 10 (columns a and b)
The taxable income reported on line 27
of the cooperative’s tax return may not
be less than the nonpatronage taxable
income shown on line 10 (column b) of
this schedule.

Line 11 (column a)
Enter any unused patronage loss from
line 10, column (a).
Note. Any patronage source losses
(line 10, column (a) cannot be used to
offset nonpatronage income (line 10,
column (b)).

Line 12 (column b)
Enter any unused nonpatronage loss
from line 10, column (b).

Schedule H
Deductions and Adjustments
Under Section 1382
Cooperatives described in IRC section
1381 engaged in the marketing of
agricultural or horticultural products
may be eligible to exclude
extraterritorial income if the cooperative
sells qualifying foreign trade property.
No deduction is allowed for patronage
dividends, per-unit retain allocations,
and nonpatronage distributions related
to the excluded foreign trade income.
For details, see section 941(b)(2).
Any patronage dividends or per-unit
retain allocations that are allocated to
qualifying foreign trade income of the
cooperative may be treated as
qualifying foreign trade income of the
patron. In order to qualify, the amount
must be designated by the cooperative
in a written notice mailed to its patrons
not later than the 15th day of the 9th
month following the close of the tax
year. For more details, see section
943(g).
Lines 1 and 2 apply only to section
521 cooperatives.

Line 1. Dividends Paid on
Capital Stock (Section 521
Cooperatives Only)
Enter the amount actually or
constructively paid as dividends during
the tax year on:
• Common stock (whether voting or
nonvoting),

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•
•
•
•
•

Preferred stock,
Capital retain certificates,
Revolving fund certificates,
Letters of advice, or
Other documentary evidence of a
proprietary interest in the cooperative
association.
See Regulations section 1.1382-3(b)
for more information.

Line 2. Nonpatronage
Income Allocated to Patrons
(Section 521 Cooperatives
Only)
Enter nonpatronage income allocated
to patrons. Payment may be in:
• Money,
• Qualified written notices of allocation,
or
• Other property (except nonqualified
written notices of allocation).
The amounts must be paid during
the payment period that begins on the
first day of the tax year and ends on the
15th day of the 9th month after the end
of the tax year in which the income was
earned.
Nonpatronage income.
Nonpatronage income includes
incidental income from sources not
directly related to:
• Marketing,
• Purchasing,
• Service activities of the cooperative,
or
• Income from business done with or
for the U.S. Government, or any of its
agencies.
See the instructions for line 3 for a
definition of “qualified written notice of
allocation.” See section 1382(c)(2)(B)
for deductibility of amounts paid in
redemption of nonqualified written
notices of allocation. See section
1388(d) for a definition of a nonqualified
written notice of allocation.

Line 3. Patronage Dividends
To be deductible, patronage dividends
must be paid during the payment period
that begins on the first day of the tax
year in which the patronage occurs and
ends on the 15th day of the 9th month
after the end of that tax year.
See sections 1382(e) and (f) for
special rules for the time when
patronage occurs if products are
marketed under a pooling arrangement,
or if earnings are includible in the gross
income of the cooperative for a tax year
after the year in which the patronage
occurred.
Patronage dividends include any
amount paid to a patron by a
cooperative based on the quantity or
value of business done with or for that
patron under a pre-existing obligation to

pay that amount. The amount is
determined by reference to the net
earnings of the organization from
business done with or for its patrons.
Note. Net earnings are not reduced by
dividends paid on capital stock of the
organization if there is a legally
enforceable agreement that such
dividends are in addition to amounts
otherwise payable to patrons derived
from business done with or for patrons.
Patronage dividends may be paid in:

• Money,
• Qualified written notices of allocation,
or

• Other property (except nonqualified
written notices of allocation).
Line 3b. Qualified written notices of
allocation. A written notice of
allocation means:
• Any capital stock,
• Revolving fund certificate,
• Retain certificate,
• Certificate of indebtedness,
• Letter of advice, or
• Other written notice, which states the
dollar amount allocated to the patron by
the cooperative and the part, if any,
which is a patronage dividend.
In general, a qualified written notice
of allocation is a written notice of
allocation that is:
• Paid as part of a patronage dividend,
in money or by qualified check equal to
at least 20% of the patronage dividend,
and
• One of the following conditions is
met:
1. The patron must have at least 90
days from the date the written notice of
allocation is paid to redeem it in cash,
and must receive written notice of the
right of redemption at the time the
patron receives the allocation; or
2. The patron must agree to have
the allocation treated as constructively
received and reinvested in the
cooperative. See section 1388(c)(2)
and the related regulations for
information on how this consent must
be made.
Line 3d. Nonqualified written notices
of allocation. If a written notice of
allocation does not qualify, no
deduction is allowable at the time it is
issued. However, the cooperative is
entitled to a deduction or refund of tax
when the nonqualified written notice of
allocation is finally redeemed, if that
notice was paid as a patronage
dividend during the payment period for
the tax year during which the patronage
occurred. The deduction or refund is
allowed, but only to the extent that
amounts paid to redeem the
nonqualified written notices of allocation

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are paid in money or other property
(other than written notices of allocation)
which do not exceed the stated dollar
amounts of the nonqualified written
notices of allocation. See section
1382(b), Regulations section 1.1382-2,
and section 1383.
See Rev. Rul. 81-103, 1981-1 C.B.
447, for the redemption of nonqualified
written notices of allocation issued to
patrons by a payment of cash and a
crediting of accounts receivable due
from patrons.
See section 1383 for special rules
for figuring the cooperative’s tax in the
year nonqualified written notices of
allocation are redeemed. The
cooperative is entitled to:
1. A deduction in the tax year the
nonqualified written notices of allocation
are redeemed (if permitted under
section 1382(b)(2) or (4) or section
1382(c)(2)(B), or
2. A tax credit based on a
recomputation of tax for the year(s) the
nonqualified written notices of allocation
were issued. See the instructions for
line 29h.
Amounts paid to patrons are not
patronage dividends if paid:
1. Out of earnings not from
business done with or for patrons;
2. Out of earnings from business
done with or for other patrons to whom
no amounts or smaller amounts are
paid for substantially identical
transactions;
3. To redeem capital stock,
certificates of indebtedness, revolving
fund certificates, retain certificates,
letters of advice, or other similar
documents; or
4. Without reference to the net
earnings of the cooperative
organization from business done with or
for its patrons.
Line 4. Domestic production
activities deduction allocation
(section 199). An agricultural or
horticultural cooperative (as defined in
Regulations section 1.199-6(f)) must
reduce its section 1382 deduction by
the amount of the domestic production
activities deduction that was allocated
to patrons.
Note. Only include on line 4 the portion
of the domestic production activities
deduction attributable to the amounts
reported on this schedule. Marketing
cooperatives that distribute patronage
as per-unit retain allocations must
attach a schedule showing the amount
of the section 199(a) deduction
attributable to the per-unit retain
allocations.

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adjustments and tax preference items is
more than the smaller of:
• $40,000, or
• The cooperative’s allowable
exemption amount (from Form 4626).
See the Instructions for Form 4626
for definitions and details on how to
figure the tax.

Schedule J
Tax Computation
Line 1. Members of a
Controlled Group
If the cooperative is a member of a
controlled group, check the box on line
1 and complete Schedule O (Form
1120). See Schedule O and its
instructions for more information.

Line 2. Income Tax
Most cooperatives figure their tax by
using the Tax Rate Schedule next.
Exceptions apply to members of a
controlled group (see Schedule O).
Tax Rate Schedule
If taxable income on Form 1120-C, line 27, is:

Over —

But not
over —

Tax is:

Of the
amount
over —

$0
$50,000
15%
$0
50,000
75,000
$ 7,500 + 25%
50,000
75,000
100,000
13,750 + 34%
75,000
100,000
335,000
22,250 + 39% 100,000
335,000 10,000,000
113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000
15,000,000 18,333,333 5,150,000 + 38% 15,000,000
18,333,333
----35%
0

Deferred tax under section 1291. If
the cooperative was a shareholder in a
passive foreign investment company
(PFIC), and the cooperative received
an excess distribution or disposed of its
investment in the PFIC during the year,
it must include the total increase in
taxes due under section 1291(c)(2) in
the amount entered on line 2, Schedule
J. On the dotted line next to line 2,
Schedule J, enter “Section 1291” and
the amount.
Do not include on line 2 any interest
due under section 1291(c)(3). Instead,
show the amount of interest owed in
the bottom margin of page 1, Form
1120-C, and enter “Section 1291
interest.” If the cooperative has a tax
due, include the interest due in the
payment. If you would otherwise
receive a refund, reduce the refund by
the interest due. For details, see Form
8621.

Line 3. Alternative Minimum
Tax (AMT)
Unless the cooperative is treated as a
small corporation exempt from the
AMT, it may owe AMT if it has any of
the adjustments and tax preference
items listed on Form 4626, Alternative
Minimum Tax – Corporations. The
cooperative must file Form 4626 if its
taxable income (or loss) before the
NOL deduction combined with these

Line 5a. Foreign Tax Credit
To find out when a cooperative can
take the credit for payment of income
tax to a foreign country or U.S.
possession, see Form 1118, Foreign
Tax Credit – Corporations.

Line 5b. Qualified Electric
Vehicle Credit
Use Form 8834, Qualified Electric
Vehicle Credit, if the cooperative can
claim a credit for a qualified electric
vehicle placed in service in 2006.

Line 5c. General Business
Credit
Enter on line 5c the cooperative’s total
general business credit.
The following credits are not
reported on Form 3800. Check the box
for the credit(s) the cooperative is
claiming.
• Credit for Alcohol Used as Fuel
(Form 6478 (see Allocation to patrons
below)),
• Empowerment Zone and Renewal
Community Employment Credit (Form
8844), or
• Renewable Electricity, Refined Coal,
and Indian Coal Production Credit
(Form 8835, Section B only (see
Allocation to patrons below)).
If the cooperative is claiming one or
more of the following general business
credits in conjunction with Form 3800,
check the “Form 3800” box and include
the allowable credit on line 5c. See the
Instructions for Form 3800.
• Investment Credit (Form 3468).
• Work Opportunity Credit (Form
5884).
• Welfare-to-Work Credit (Form 8861).
• Credit for Increasing Research
Activities (Form 6765).
• Low-Income Housing Credit (Form
8586).
• Enhanced Oil Recovery Credit (Form
8830).
• Disabled Access Credit (Form 8826).
• Renewable electricity production
credit (Form 8835, Section A only (see
Allocation to patrons below)).
• Indian Employment Credit (Form
8845).
• Credit for Employer Social Security
and Medicare Taxes Paid on Certain
Employee Tips (Form 8846).
• Orphan Drug Credit (Form 8820).
• New Markets Credit (Form 8874).
• Credit for Small Employer Pension
Plan Startup Costs (Form 8881).

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• Credit for Employer-Provided

Childcare Facilities and Services (Form
8882).
• Qualified Railroad Track
Maintenance Credit (Form 8900).
• Biodiesel and Renewable Diesel
Fuels Credit (Form 8864).
• Low Sulfur Diesel Fuel Production
Credit (Form 8896).
• Distilled Spirits Credit (Form 8906).
• Nonconventional Source Fuel Credit
(Form 8907).
• Energy Efficient Home Credit (Form
8908).
• Energy Efficient Appliance Credit
(Form 8909).
• Alternative Motor Vehicle Credit
(Form 8910).
• Alternative Fuel Vehicle Refueling
Property Credit (Form 8911).
• Credit for Contributions to Selected
Community Development Corporations
(Form 8847).
• Credit for Employers Affected by
Hurricane Katrina, Rita, or Wilma (Form
5884-A).
• Mine Rescue Team Training Credit
(Form 8923).
Elective allocations to patrons of
subchapter T cooperatives. The
cooperative may elect to allocate any or
all of certain credits (Forms 6478, 8835
(Section A or Section B), 8864, or
8896) among the patrons based on the
quantity or value of business done with
or for such patrons. For the allocation
to take effect, the cooperative must
designate the apportionment in a
written notice mailed to its patrons
before the due date of the cooperative’s
return. The credit amount allocated to
patrons cannot be included on line 5c.
Once made, the election cannot be
revoked. For more information, see the
instructions for Form 6478, 8835, 8864,
or 8896. For tax associated with a
decrease in the credit allocated to
patrons, see Other Taxes later.
Required allocations to patrons of
subchapter T cooperatives. Any
excess investment credit (Form 3468),
work opportunity credit (Form 5884),
credit for employers affected by
Hurricane Katrina, Rita, or Wilma (Form
5884-A), Indian employment credit
(Form 8845), empowerment zone or
renewal community employment credit
(Form 8844), welfare-to-work credit
(Form 8861), or energy efficient
appliance credit (Form 8909) not used
by the cooperative (because of the tax
liability limitation) must be passed
through to the patrons. These credits
cannot be carried back or over by the
cooperative. See the forms for details.
For tax associated with a recapture of
credit, see Other Taxes, later.

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Line 5d. Credit for Prior Year
Minimum Tax
To figure the minimum tax credit and
any carryforward of that credit, use
Form 8827, Credit for Prior Year
Minimum Tax – Corporations.
Also see Form 8827 if any of the
cooperative’s 2005 nonconventional
source fuel credit, or qualified electric
vehicle credit was disallowed solely
because of the tentative minimum tax
limitation. See section 53(d).

Line 6. Total Credits
Add lines 5a through 5d and enter the
total on line 6. If you have a credit from
Form 8860, Qualified Zone Academy
Bond Credit, write “QZAB” on the
dotted lines, and include the total in the
amount claimed on line 6.

Line 8. Other Taxes
Include any of the following taxes and
interest in the total on line 8. Check the
appropriate box(es) for the form, if any,
used to compute the total.

Alternative Tax on Qualifying
Shipping Activities
Enter any alternative tax on qualifying
shipping activities from Form 8902.
Check the box for Form 8902.

Recapture of Investment Credit
If the cooperative disposed of
investment credit property or changed
its use before the end of its useful life
or recovery period, see Form 4255,
Recapture of Investment Credit, for
details.

Recapture of Low-Income
Housing Credit
If the cooperative disposed of property
(or there was a reduction in the
qualified basis of the property) for which
it took the low-income housing credit, it
may owe a tax. See Form 8611,
Recapture of Low-Income Housing
Credit.

Other
Additional taxes and interest amounts
can be included in the total entered on
line 8. Check the box for “Other” if the
cooperative includes any additional
taxes and interest such as the items
discussed below. See How to report,
below, for details on reporting these
amounts on an attached schedule.
• Recapture of the qualified electric
vehicle (QEV) credit (see Regulations
section 1.30-1).
• Recapture of the Indian employment
credit (see Form 8845 and section
45A).
• Recapture of new markets credit (see
Form 8874).

• Recapture of employer-provided

childcare facilities and services credit
(see Form 8882).
• Interest on deferred tax attributable
to (a) installment sales of certain
timeshares and residential lots (section
453(l)(3)) and (b) certain nondealer
installment obligations (section
453A(c)).
• Interest due on deferred gain (section
1260(b)).
• For tax years beginning after October
22, 2004, tax on income from notional
shipping income. See Income from
qualifying shipping activities on page 6.
Report the section 1352(a) tax on
Schedule J, line 2, and report the
section 1352(2) tax on Schedule J, line
8, and check the box for Form 8902.
Recapture of elective allocation of
credit to patrons. If the amount of
any of the following elective credits
apportioned to any patron is decreased,
there is a tax imposed on the
cooperative, not the patron.
• Small ethanol producer credit (Form
6478). See section 40(g)(6)(B)(iii) for
how to figure the tax.
• Renewable electricity, refined coal,
and Indian coal production credit (Form
8835). See section 45(e)(11)(C) for how
to figure the tax.
• Small agri-biodiesel producer credit
(Form 8864). See section
40A(e)(6)(B)(iii) on how to figure the
tax.
• Low sulfur diesel fuel production
credit (Form 8896). See section
45H(g)(3) for how to figure the tax.
Recapture of required excess credit
allocated to patrons. If the
cooperative allocated excess credit to
patrons, any credit recapture applies as
if the cooperative had claimed the
entire credit. For details, see section
46(h) (as in effect prior to enactment of
the Revenue Reconciliation Act of
1990). This applies to the following
credits.
• Investment credit (Form 3468).
• Indian employment credit (Form
8845).
• Work opportunity credit (Form 5884).
• Empowerment zone and renewal
community employment credit (Form
8844).
• Welfare-to-work credit (Form 8861).
• Credit for employers affected by
Hurricane Katrina, Rita, or Wilma (Form
5884-A).
• Energy Efficient Appliance Credit
(Form 8909).
For details on the recapture of the
investment credit, see Form 4255,
Recapture of Investment Credit. For
details on recapture of the other credits,
see the instructions for the form shown.
How to report. If the cooperative
checked the “Other” box, attach a
schedule showing the computation of

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each item included in the total for line 8,
identify the applicable Code section and
the type of tax or interest.

Line 9. Total Tax
Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 9. See Form 8621, Part V and How
to report, below.
Subtract any deferred tax on the
cooperative’s share of undistributed
earnings of a qualified electing fund
(see Form 8621, Part II).
How to report. If deferring tax, attach
a schedule showing the computation of
each item included in, or subtracted
from, the total for line 9. On the dotted
line next to line 9, specify (a) the
applicable Code section, (b) the type of
tax, and (c) the amount of tax.

Schedule K
Other Income
The following instructions apply to Form
1120-C, page 4, Schedule K. Complete
all items that apply to the cooperative.
Item 5. Check the “Yes” box if:
1. The cooperative is a subsidiary in
an affiliated group (defined below), but
is not filing a consolidated return for the
tax year with that group, or
2. The cooperative is a subsidiary in
a parent-subsidiary controlled group
(defined below).
Any cooperative that meets either of
the above requirements should check
the “Yes” box. This applies even if the
cooperative is a subsidiary member of
one group and the parent corporation of
another.
If the cooperative is an “excluded
member” of a controlled group (see
section 1563(b)(2)), it is still considered
a member of a controlled group for this
purpose.
Affiliated group. An “affiliated
group” is one or more chains of
includible corporations (section
1504(a)) connected through stock
ownership with a common parent
corporation. The common parent must
be an includible corporation and the
following requirements must be met:
1. The common parent must directly
own stock that represents at least 80%
of the total voting power and at least
80% of the total value of the stock of at
least one of the other includible
corporations, and
2. Stock that represents at least
80% of the total voting power and at
least 80% of the total value of the stock
of each of the other corporations
(except for the common parent) must

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be owned directly by one or more of the
other includible corporations.
For this purpose, stock generally
does not include any stock that (a) is
nonvoting, (b) is nonconvertible, (c) is
limited and preferred as to dividends
and does not participate significantly in
corporate growth, and (d) has
redemption and liquidation rights that
do not exceed the issue price of the
stock (except for a reasonable
redemption or liquidation premium).
See section 1504(a)(4).
See section 1563(d)(1) for the
definition of “stock” for purposes of
determining stock ownership above.
Item 7. Enter the corporation’s total
assets (as determined by the
accounting method regularly used in
keeping the corporation’s books and
records) at the end of the tax year. If
there are no assets at the end of the
tax year, enter -0-.
If the corporation is required to
complete Schedule L, enter total assets
from Schedule L, line 13, column (d) on
page 4, item 7. If filing a consolidated
return, report total consolidated assets
for all corporations joining in the return.
Item 8. Check the “Yes” box if one
foreign person owned at least 25% of
(a) the total voting power of all classes
of stock of the cooperative entitled to
vote, or (b) the total value of all classes
of stock of the cooperative.
The constructive ownership rules of
section 318 apply in determining if a
cooperative is foreign owned. See
section 6038A(c)(5) and the related
regulations.
Enter on line 8a the percentage
owned by the foreign person specified
in Item 8. On line 8b, enter the name of
the owner’s country.
Note. If there is more than one
25%-or-more foreign owner, complete
lines 8a and 8b for the foreign person
with the highest percentage of
ownership.
Foreign person. The term “foreign
person” means:
• A foreign citizen or nonresident alien,
• An individual who is a citizen of a
U.S. possession (but who is not a U.S.
citizen or resident),
• A foreign partnership,
• A foreign corporation,
• Any foreign estate or trust within the
meaning of section 7701(a)(31), or
• A foreign government (or one of its
agencies or instrumentalities) to the
extent that it is engaged in the conduct
of a commercial activity as described in
section 892.
Owner’s country. For individuals,
the term “owner’s country” means the
country of residence. For all others, it is

the country where incorporated,
organized, created, or administered.
Requirement to file Form 5472. If
the cooperative checked “Yes,” it may
have to file Form 5472, Information
Return of a 25% Foreign Owned U.S.
Corporation or a Foreign Corporation
Engaged in a U.S. Trade or Business.
Generally, a 25% foreign-owned
cooperative that had a reportable
transaction with a foreign or domestic
related party during the tax year must
file Form 5472. See Form 5472 for filing
instructions and penalties for failure to
file.
Item 10. Show any tax-exempt interest
income received or accrued. Include
any exempt-interest dividends received
as a shareholder in a mutual fund or
RIC. Also, if required, include the same
amount on Schedule M-1, line 7.
Item 12. If the cooperative has an NOL
for its 2006 tax year, it can elect, under
section 172(b)(3), to waive the entire
carryback period for the NOL and
instead carry the NOL forward to future
tax years. To do so, check the box in
item 12 and file the return by its due
date, including extensions (do not
attach the statement described in
Temporary Regulations section
301.9100-12T). Once made, the
election is irrevocable. See Pub. 542,
section 172, and Form 1139 for more
details.
Cooperatives filing a consolidated
return must check the box and attach
the statement required by Regulations
section 1.1502-21(b)(3)(i) or (ii).
Item 13. Enter the amount of the NOL
carryover to the tax year from prior
years, even if some of the loss is used
to offset income on this return. The
amount to enter is the total of all NOLs
generated in prior years but not used to
offset income (either as a carryback or
carryover) in a tax year prior to 2006.
Do not reduce the amount by any NOL
deduction reported on line 26b.

joining in the return. See Consolidated
Return on page 5 of these instructions.
Corporations with total assets
non-consolidated (or consolidated for
all corporations included within the tax
consolidation group) of $10 million or
more on the last day of the tax year
must complete Schedule M-3 (Form
1120) instead of Schedule M-1. See the
separate instructions for Schedule M-3
(Form 1120) for provisions also
affecting Schedule L.

Line 5. Investments
Tax-exempt securities. Include on
this line:
• State and local government
obligations, the interest on which is
excludable from gross income under
section 103(a), and
• Stock in a mutual fund or other
Regulated Investment Companies
(RIC) that distributed exempt-interest
dividends during the tax year of the
cooperative.

Line 26. Adjustments to
Shareholders’ Equity
Some examples of items to report on
this line include:
• Unrealized gains and losses on
securities held “available for sale.”
• Foreign currency translation
adjustments.
• The excess of additional pension
liability over unrecognized prior service
cost.
• Guarantees of employee stock
(ESOP) debt.
• Compensation related to employee
stock award plans.
If the total adjustment to be entered
on line 26 is a negative amount, enter it
in parentheses.

Schedule M-1
Reconciliation of Income
(Loss) per Books With
Income per Return

Schedule L
Balance Sheets per Books
The balance sheet should agree with
the cooperative’s books and records.
Include certificates of deposit as cash
on line 1, Schedule L.
Cooperatives with total receipts (line
1a plus lines 4 through 9 on page 1)
and total assets at the end of the tax
year less than $250,000 are not
required to complete Schedules L, M-1,
and M-2 if the “Yes” box on Schedule
K, question 14 is checked.
If filing a consolidated return, report
total consolidated assets, liabilities, and
shareholder’s equity for all cooperatives

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If the cooperative’s total receipts (line
1a plus lines 4 through 9 on page 1 of
the return) for the tax year and its total
assets at the end of the tax year are
less than $250,000, the cooperative is
not required to complete Schedules L,
M-1, and M-2.

Line 5c. Travel and
Entertainment
Include on line 5c any of the following:
• Meals and entertainment not
deductible under section 274(n).
• Expenses for the use of an
entertainment facility.
• The part of business gifts over $25.

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• Expenses of an individual in excess

of $2,000, which are allocable to
conventions on cruise ships.
• Employee achievement awards over
$400.
• The cost of entertainment tickets
over their face value (also subject to
the 50% limit under section 274(n)).
• The cost of skyboxes over the face
value of nonluxury box seat tickets.
• The part of luxury water travel not
deductible under section 274(m).
• Expenses for travel as a form of
education.
• Other nondeductible expenses for
travel and entertainment.
For more information, see Pub. 542.

Line 7. Tax-exempt Interest
Show any tax-exempt interest received
or accrued including any
exempt-interest dividends received as a
shareholder in a mutual fund or RIC.
Also report this same amount on
Schedule K, item 10.
Privacy Act and Paperwork
Reduction Act Notice. We ask for the
information on this form to carry out the

Internal Revenue laws of the United
States. You are required to give us the
information. We need it to ensure that
you are complying with these laws and
to allow us to figure and collect the right
amount of tax. Section 6109 requires
return preparers to provide their
identifying numbers on the return.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated average time is:

-22-

Recordkeeping . . . . . . . .
Learning about the law or
the form . . . . . . . . . . . . .
Preparing the form . . . . . .
Copying, assembling, and
sending the form to the IRS

70 hr., 33 min.
15 hr., 48 min.
20 hr., 27 min.
0 hr., 48 min.

If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the Internal
Revenue Service, Tax Products
Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111
Constitution Ave. NW, IR-6406,
Washington, DC 20224. Do not send
the tax form to this office. Instead, see
Where To File on page 2.

Page 23 of 26

Instructions for Form 1120-C

12:55 - 18-JAN-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120-C
Principal Business Activity Codes
This list of principal business activities and their
associated codes is designed to classify an
enterprise by the type of activity in which it is
engaged to facilitate the administration of the
Internal Revenue Code. These principal business
activity codes are based on the North American
Industry Classification System.

Using the list of activities and codes below,
determine from which activity the company derives
the largest percentage of its “total receipts.” Total
receipts is defined as the sum of gross receipts or
sales (page 1, line 1a) plus all other income (page 1,
lines 4 through 9). If the company purchases raw
materials and supplies them to a subcontractor to
produce the finished product, but retains title to the
product, the company is considered a manufacturer
and must use one of the manufacturing codes
(311110-339900).

Once the principal business activity is determined,
entries must be made on Form 1120-C, Schedule K,
lines 2a, 2b, and 2c. For the business activity code
number, enter the six digit code selected from the list
below. On the next line (line 2b), enter a brief
description of the company’s business activity.
Finally, enter a description of the principal product or
service of the company on line 2c.

Code

Code

Code

Code

Agriculture, Forestry, Fishing
and Hunting

Heavy and Civil Engineering
Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil
Engineering Construction
Specialty Trade Contractors
238100 Foundation, Structure, &
Building Exterior Contractors
(including framing carpentry,
masonry, glass, roofing, &
siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors
238300 Building Finishing
Contractors (including
drywall, insulation, painting,
wallcovering, flooring, tile, &
finish carpentry)
238900 Other Specialty Trade
Contractors (including site
preparation)

Wood Product Manufacturing
321110 Sawmills & Wood
Preservation
321210 Veneer, Plywood, &
Engineered Wood Product
Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard
Mills
322200 Converted Paper Product Mfg
Printing and Related Support
Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries
(including integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal
Products Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine
Mfg
325500 Paint, Coating, & Adhesive
Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory
Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product
Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral
Product Mfg
Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy
Mfg
331200 Steel Product Mfg from
Purchased Steel
331310 Alumina & Aluminum
Production & Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product
Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural
Metals Mfg
332400 Boiler, Tank, & Shipping
Container Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned
Product; & Screw, Nut, & Bolt
Mfg

332810 Coating, Engraving, Heat
Treating, & Allied Activities
332900 Other Fabricated Metal
Product Mfg
Machinery Manufacturing
333100 Agriculture, Construction, &
Mining Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service
Industry Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, &
Commercial Refrigeration
Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg
333900 Other General Purpose
Machinery Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral
Equipment Mfg
334200 Communications Equipment
Mfg
334310 Audio & Video Equipment
Mfg
334410 Semiconductor & Other
Electronic Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing &
Reproducing Magnetic &
Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment
Mfg
335200 Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment
Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer
Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts
Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building
336990 Other Transportation
Equipment Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment &
Supplies Mfg
339900 Other Miscellaneous
Manufacturing

Crop Production
111100 Oilseed & Grain Farming
111210 Vegetable & Melon Farming
(including potatoes & yams)
111300 Fruit & Tree Nut Farming
111400 Greenhouse, Nursery, &
Floriculture Production
111900 Other Crop Farming
(including tobacco, cotton,
sugarcane, hay, peanut,
sugar beet & all other crop
farming)
Animal Production
112111 Beef Cattle Ranching &
Farming
112112 Cattle Feedlots
112120 Dairy Cattle & Milk
Production
112210 Hog & Pig Farming
112300 Poultry & Egg Production
112400 Sheep & Goat Farming
112510 Animal Aquaculture (including
shellfish & finfish farms &
hatcheries)
112900 Other Animal Production
Forestry and Logging
113110 Timber Tract Operations
113210 Forest Nurseries & Gathering
of Forest Products
113310 Logging
Fishing, Hunting and Trapping
114110 Fishing
114210 Hunting & Trapping
Support Activities for Agriculture
and Forestry
115110 Support Activities for Crop
Production (including cotton
ginning, soil preparation,
planting, & cultivating)
115210 Support Activities for Animal
Production
115310 Support Activities For
Forestry

Mining
211110
212110
212200
212310
212320

Oil & Gas Extraction
Coal Mining
Metal Ore Mining
Stone Mining & Quarrying
Sand, Gravel, Clay, &
Ceramic & Refractory
Minerals Mining & Quarrying
212390 Other Nonmetallic Mineral
Mining & Quarrying
213110 Support Activities for Mining

Utilities
221100 Electric Power Generation,
Transmission & Distribution
221210 Natural Gas Distribution
221300 Water, Sewage & Other
Systems
221500 Combination Gas & Electric

Construction
Construction of Buildings
236110 Residential Building
Construction
236200 Nonresidential Building
Construction

Manufacturing
Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery
Product Mfg
311400 Fruit & Vegetable Preserving
& Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering and
Processing
311710 Seafood Product Preparation
& Packaging
311800 Bakeries & Tortilla Mfg
311900 Other Food Mfg (including
coffee, tea, flavorings &
seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product
Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel
Contractors
315220 Men’s & Boys’ Cut & Sew
Apparel Mfg
315230 Women’s & Girls’ Cut & Sew
Apparel Mfg
315290 Other Cut & Sew Apparel Mfg
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product
Manufacturing
316110 Leather & Hide Tanning &
Finishing
316210 Footwear Mfg (including
rubber & plastics)
316990 Other Leather & Allied
Product Mfg

-23-

Wholesale Trade
Merchant Wholesalers, Durable
Goods
423100 Motor Vehicle & Motor
Vehicle Parts & Supplies
423200 Furniture & Home
Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies

Page 24 of 26

Instructions for Form 1120-C

12:55 - 18-JAN-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120-C (continued)
Code

Code

Code

Code

423500 Metal & Mineral (except
Petroleum)
423600 Electrical & Electronic Goods
423700 Hardware, & Plumbing &
Heating Equipment &
Supplies
423800 Machinery, Equipment, &
Supplies
423910 Sporting & Recreational
Goods & Supplies
423920 Toy & Hobby Goods &
Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious
Stone, & Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists’ Sundries
424300 Apparel, Piece Goods, &
Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum
Products
424800 Beer, Wine, & Distilled
Alcoholic Beverages
424910 Farm Supplies
424920 Book, Periodical, &
Newspapers
424930 Flower, Nursery Stock, &
Florists’ Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous
Nondurable Goods
Wholesale Electronic Markets and
Agents and Brokers
425110 Business to Business
Electronic Markets
425120 Wholesale Trade Agents &
Brokers

445120
445210
445220
445230
445291
445292
445299

Truck Transportation
484110 General Freight Trucking,
Local
484120 General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi Service
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground
Passenger Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for
Road Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers
492210 Local Messengers & Local
Delivery
Warehousing and Storage
493100 Warehousing & Storage
(except lessors of
miniwarehouses &
self-storage units)

518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates &
libraries)

Retail Trade
Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441221 Motorcycle Dealers
441222 Boat Dealers
441229 All Other Motor Vehicle
Dealers
441300 Automotive Parts,
Accessories, & Tire Stores
Furniture and Home Furnishings
Stores
442110 Furniture Stores
442210 Floor Covering Stores
442291 Window Treatment Stores
442299 All Other Home Furnishings
Stores
Electronics and Appliance Stores
443111 Household Appliance Stores
443112 Radio, Television, & Other
Electronics Stores
443120 Computer & Software Stores
443130 Camera & Photographic
Supplies Stores
Building Material and Garden
Equipment and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Stores
444130 Hardware Stores
444190 Other Building Material
Dealers
444200 Lawn & Garden Equipment &
Supplies Stores
Food and Beverage Stores
445110 Supermarkets and Other
Grocery (except
Convenience) Stores

Convenience Stores
Meat Markets
Fish & Seafood Markets
Fruit & Vegetable Markets
Baked Goods Stores
Confectionery & Nut Stores
All Other Specialty Food
Stores
445310 Beer, Wine, & Liquor Stores
Health and Personal Care Stores
446110 Pharmacies & Drug Stores
446120 Cosmetics, Beauty Supplies,
& Perfume Stores
446130 Optical Goods Stores
446190 Other Health & Personal
Care Stores
Gasoline Stations
447100 Gasoline Stations (including
convenience stores with gas)
Clothing and Clothing Accessories
Stores
448110 Men’s Clothing Stores
448120 Women’s Clothing Stores
448130 Children’s & Infants’ Clothing
Stores
448140 Family Clothing Stores
448150 Clothing Accessories Stores
448190 Other Clothing Stores
448210 Shoe Stores
448310 Jewelry Stores
448320 Luggage & Leather Goods
Stores
Sporting Goods, Hobby, Book, and
Music Stores
451110 Sporting Goods Stores
451120 Hobby, Toy, & Game Stores
451130 Sewing, Needlework, & Piece
Goods Stores
451140 Musical Instrument &
Supplies Stores
451211 Book Stores
451212 News Dealers & Newsstands
451220 Prerecorded Tape, Compact
Disc, & Record Stores
General Merchandise Stores
452110 Department Stores
452900 Other General Merchandise
Stores
Miscellaneous Store Retailers
453110 Florists
453210 Office Supplies & Stationery
Stores
453220 Gift, Novelty, & Souvenir
Stores
453310 Used Merchandise Stores
453910 Pet & Pet Supplies Stores
453920 Art Dealers
453930 Manufactured (Mobile) Home
Dealers
453990 All Other Miscellaneous Store
Retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454110 Electronic Shopping &
Mail-Order Houses
454210 Vending Machine Operators
454311 Heating Oil Dealers
454312 Liquefied Petroleum Gas
(Bottled Gas) Dealers
454319 Other Fuel Dealers
454390 Other Direct Selling
Establishments (including
door-to-door retailing, frozen
food plan providers, party
plan merchandisers, &
coffee-break service
providers)

Transportation and
Warehousing
Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation

Information
Publishing Industries (except
Internet)
511110 Newspaper Publishers
511120 Periodical Publishers
511130 Book Publishers
511140 Directory & Mailing List
Publishers
511190 Other Publishers
511210 Software Publishers
Motion Picture and Sound
Recording Industries
512100 Motion Picture & Video
Industries (except video
rental)
512200 Sound Recording Industries
Broadcasting (except Internet)
515100 Radio & Television
Broadcasting
515210 Cable & Other Subscription
Programming
Internet Publishing and
Broadcasting
516110 Internet Publishing &
Broadcasting
Telecommunications
517000 Telecommunications
(including paging, cellular,
satellite, cable & other
program distribution,
resellers, & other
telecommunications)
Internet Service Providers, Web
Search Portals, and Data Processing
Services
518111 Internet Service Providers
518112 Web Search Portals

-24-

Finance and Insurance
Depository Credit Intermediation
522110 Commercial Banking
522120 Savings Institutions
522130 Credit Unions
522190 Other Depository Credit
Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers &
originators)
522293 International Trade Financing
522294 Secondary Market Financing
522298 All Other Nondepository
Credit Intermediation
Activities Related to Credit
Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, &
money transmitting)
Securities, Commodity Contracts,
and Other Financial Investments and
Related Activities
523110 Investment Banking &
Securities Dealing
523120 Securities Brokerage
523130 Commodity Contracts
Dealing
523140 Commodity Contracts
Brokerage
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment
advice)
Insurance Carriers and Related
Activities
524140 Direct Life, Health, & Medical
Insurance & Reinsurance
Carriers
524150 Direct Insurance &
Reinsurance (except Life,
Health & Medical) Carriers
524210 Insurance Agencies &
Brokerages
524290 Other Insurance Related
Activities (including
third-party administration of
insurance and pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee
Benefit Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525930 Real Estate Investment
Trusts (Form 1120-REIT)
525990 Other Financial Vehicles
(including closed-end
investment funds)
“Offices of Bank Holding Companies”
and “Offices of Other Holding
Companies” are located under
Management of Companies (Holding
Companies) (code beginning with
551).

Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential
Buildings & Dwellings

Page 25 of 26

Instructions for Form 1120-C

12:55 - 18-JAN-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Forms 1120-C (continued)
Code

Code

Code

Code

531114 Cooperative Housing
531120 Lessors of Nonresidential
Buildings (except
Miniwarehouses)
531130 Lessors of Miniwarehouses &
Self-Storage Units
531190 Lessors of Other Real Estate
Property
531210 Offices of Real Estate Agents
& Brokers
531310 Real Estate Property
Managers
531320 Offices of Real Estate
Appraisers
531390 Other Activities Related to
Real Estate
Rental and Leasing Services
532100 Automotive Equipment Rental
& Leasing
532210 Consumer Electronics &
Appliances Rental
532220 Formal Wear & Costume
Rental
532230 Video Tape & Disc Rental
532290 Other Consumer Goods
Rental
532310 General Rental Centers
532400 Commercial & Industrial
Machinery & Equipment
Rental & Leasing
Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
533110 Lessors of Nonfinancial
Intangible Assets (except
copyrighted works)

541800 Advertising & Related
Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional,
Scientific, & Technical
Services

621340 Offices of Physical,
Occupational & Speech
Therapists, & Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other
Miscellaneous Health
Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory
Surgical & Emergency
Centers
621498 All Other Outpatient Care
Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic
Laboratories
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care
Services
621900 Other Ambulatory Health
Care Services (including
ambulance services & blood
& organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care
Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing,
& Emergency & Other Relief
Services
624310 Vocational Rehabilitation
Services
624410 Child Day Care Services

721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler
Accommodation
721210 RV (Recreational Vehicle)
Parks & Recreational Camps
721310 Rooming & Boarding Houses
Food Services and Drinking Places
722110 Full-Service Restaurants
722210 Limited-Service Eating
Places
722300 Special Food Services
(including food service
contractors & caterers)
722410 Drinking Places (Alcoholic
Beverages)

Professional, Scientific, and
Technical Services
Legal Services
541110 Offices of Lawyers
541190 Other Legal Services
Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and
Related Services
541310 Architectural Services
541320 Landscape Architecture
Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying &
Mapping Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and
Related Services
541511 Custom Computer
Programming Services
541512 Computer Systems Design
Services
541513 Computer Facilities
Management Services
541519 Other Computer Related
Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting
Services
541700 Scientific Research &
Development Services

Management of Companies
(Holding Companies)
551111 Offices of Bank Holding
Companies
551112 Offices of Other Holding
Companies

Administrative and Support
and Waste Management and
Remediation Services
Administrative and Support Services
561110 Office Administrative
Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation
Services
561420 Telephone Call Centers
561430 Business Service Centers
(including private mail centers
& copy shops)
561440 Collection Agencies
561450 Credit Bureaus
561490 Other Business Support
Services (including
repossession services, court
reporting, & stenotype
services)
561500 Travel Arrangement &
Reservation Services
561600 Investigation & Security
Services
561710 Exterminating & Pest Control
Services
561720 Janitorial Services
561730 Landscaping Services
561740 Carpet & Upholstery Cleaning
Services
561790 Other Services to Buildings &
Dwellings
561900 Other Support Services
(including packaging &
labeling services, &
convention & trade show
organizers)
Waste Management and
Remediation Services
562000 Waste Management &
Remediation Services

Educational Services
611000 Educational Services
(including schools, colleges,
& universities)

Health Care and Social
Assistance
Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
621210 Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except
Physicians)

Arts, Entertainment, and
Recreation
Performing Arts, Spectator Sports,
and Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including
sports clubs & racetracks)
711300 Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for
Artists, Athletes, Entertainers,
& Other Public Figures
711510 Independent Artists, Writers,
& Performers
Museums, Historical Sites, and
Similar Institutions
712100 Museums, Historical Sites, &
Similar Institutions
Amusement, Gambling, and
Recreation Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement &
Recreation Industries
(including golf courses, skiing
facilities, marinas, fitness
centers, & bowling centers)

Accommodation and Food
Services
Accommodation
721110 Hotels (except Casino Hotels)
& Motels

-25-

Other Services
Repair and Maintenance
811110 Automotive Mechanical &
Electrical Repair &
Maintenance
811120 Automotive Body, Paint,
Interior, & Glass Repair
811190 Other Automotive Repair &
Maintenance (including oil
change & lubrication shops &
car washes)
811210 Electronic & Precision
Equipment Repair &
Maintenance
811310 Commercial & Industrial
Machinery & Equipment
(except Automotive &
Electronic) Repair &
Maintenance
811410 Home & Garden Equipment &
Appliance Repair &
Maintenance
811420 Reupholstery & Furniture
Repair
811430 Footwear & Leather Goods
Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care
Services (including diet &
weight reducing centers)
812210 Funeral Homes & Funeral
Services
812220 Cemeteries & Crematories
812310 Coin-Operated Laundries &
Drycleaners
812320 Drycleaning & Laundry
Services (except
Coin-Operated)
812330 Linen & Uniform Supply
812910 Pet Care (except Veterinary)
Services
812920 Photofinishing
812930 Parking Lots & Garages
812990 All Other Personal Services
Religious, Grantmaking, Civic,
Professional, and Similar
Organizations
813000 Religious, Grantmaking,
Civic, Professional, & Similar
Organizations (including
condominium and
homeowners associations)

Page 26 of 26

Instructions for Form 1120-C

12:55 - 18-JAN-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index

A
Accounting methods . . . . . . . . 4
Accounting period . . . . . . . . . . 4
Address change . . . . . . . . . . . . 6
Affiliated group . . . . . . . . . . . . 20
Alternative minimum
tax . . . . . . . . . . . . . . . . . . . . . . 19
Amended return . . . . . . . . . . . . 6
Assembling the return . . . . . . 3
B
Backup withholding . . . . . . . . 14
Bad debts . . . . . . . . . . . . . . . . . . 9
Balance sheets . . . . . . . . . . . . 21
Business start-up and
organizational costs . . . . . . 8
C
Capital construction fund:
Charitable
contributions . . . . . . . . . . . . 10
Compensation of
officers . . . . . . . . . . . . . . . . . . . 9
Contributions to reduce debt
held by the public . . . . . . . . . 2
Controlled group:
Member of . . . . . . . . . . . . . . 19
Cost of goods sold . . . . . . . . . 14
Credits:
Foreign tax . . . . . . . . . . . . . . 19
Form 2439 . . . . . . . . . . . . . . 13
Form 4136 . . . . . . . . . . . . . . 13
General business . . . . . . . . 19
Recapture of . . . . . . . . . . . . 20
Reducing expenses . . . . . . 9
Reducing salaries . . . . . . . . 9
D
Deductions . . . . . . . . . . . . . . . . . 8
Deductions and adjustments
under section 1382 . . . . . . 17
Depletion . . . . . . . . . . . . . . . . . . 11
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . 3
Depreciation . . . . . . . . . . . . . . . 11
Disclosure statement,
reportable transaction . . . . 5
Dividends . . . . . . . . . . . . . . . . . . . 7

Dividends and special
deductions . . . . . . . . . . . . . . 15
E
Electronic Federal Tax
Payment System
(EFTPS) . . . . . . . . . . . . . . . . . 3
Employee benefit
programs . . . . . . . . . . . . . . . . 11
Employer identification
number (EIN) . . . . . . . . . . . . . 6
Estimated tax:
Overpaid . . . . . . . . . . . . . . . . 13
Payments . . . . . . . . . . . . . . . 13
Penalty . . . . . . . . . . . . . . . . . . . 4
Extension of time to file . . . . . 3
Extraterritorial income . . . . . . . 6
F
Final return . . . . . . . . . . . . . . . . . 6
Foreign tax credit . . . . . . . . . . 19
Forms and publications, How
to get . . . . . . . . . . . . . . . . . . . . 2
G
General business
credit . . . . . . . . . . . . . . . . . . . . 19
Golden parachute
payments . . . . . . . . . . . . . . . . 8
Gross receipts . . . . . . . . . . . . . . 6
Gross rents and
royalties . . . . . . . . . . . . . . . . . . 7
I
Income . . . . . . . . . . . . . . . . . . . . . 6
Income from qualifying
shipping activities . . . . . . . . . 6
Initial return . . . . . . . . . . . . . . . . . 6
Installment sales . . . . . . . . . . . . 6
Interest:
Income . . . . . . . . . . . . . . . . . . . 7
Tax-exempt (See
investments)
Interest and penalties . . . . . . . 4
Interest expense . . . . . . . . . . . 10
Inventory:
Valuation methods . . . . . . . 15
Investments . . . . . . . . . . . . . . . 21

L
Limitations on deductions:
Section 263A uniform
capitalization rules . . . . . 8
Lobbying expenses . . . . . . . . 12
N
Name change . . . . . . . . . . . . . . 6
Net operating loss . . . . . . . . . 13
Nonpatronage income . . . . . 18
O
Organizational costs,
Business start-up and . . . . 8
Other deductions . . . . . . . . . . 11
Other income . . . . . . . . . . . . . . . 7
Other taxes:
Recapture . . . . . . . . . . . . . . . 20
P
Paid preparer
authorization . . . . . . . . . . . . . 3
Passive activity
limitations . . . . . . . . . . . . . . . . 8
Patronage dividends . . . . 7, 18
Payment, Depository methods
of . . . . . . . . . . . . . . . . . . . . . . . . 3
Penalty:
Estimated tax . . . . . . . . . . . 14
Late filing . . . . . . . . . . . . . . . . . 4
Late payment . . . . . . . . . . . . 4
Pension, profit-sharing, etc.,
plans . . . . . . . . . . . . . . . . . . . . 11
Per-unit retain
allocations . . . . . . . . . . . . . . . . 7
Preparer, tax return . . . . . . . . . 3
Principal business activity
codes . . . . . . . . . . . . . . . . . . . 23
Private delivery services . . . . 2
Q
Qualified written notice of
allocation . . . . . . . . . . . . . . . . 18
Qualifying shipping activities,
Income from . . . . . . . . . . . . . . 6

-26-

R
Reconciliation of income (Sch
M-1) . . . . . . . . . . . . . . . . . . . . . 21
Recordkeeping . . . . . . . . . . . . . 5
Refund . . . . . . . . . . . . . . . . . . . . 14
Related taxpayer
transactions . . . . . . . . . . . . . . 8
Rents (expense) . . . . . . . . . . . . 9
Repairs and
maintenance . . . . . . . . . . . . 12
S
Salaries and wages . . . . . . . . . 9
Schedule:
A . . . . . . . . . . . . . . . . . . . . . . . . 14
C . . . . . . . . . . . . . . . . . . . . . . . . 15
H . . . . . . . . . . . . . . . . . . . . . . . . 17
J . . . . . . . . . . . . . . . . . . . . . . . . 19
K . . . . . . . . . . . . . . . . . . . . . . . . 20
L . . . . . . . . . . . . . . . . . . . . . . . . 21
M-1 . . . . . . . . . . . . . . . . . . . . . 21
M-3 (Form 1120) . . . . . . . . . 6
O . . . . . . . . . . . . . . . . . . . . 1, 19
Signature . . . . . . . . . . . . . . . . . . . 3
T
Tax computation . . . . . . . . . . . 19
Tax issues, unresolved . . . . . 1
Tax rate schedule . . . . . . . . . 19
Taxes and licenses . . . . . . . . . 9
Taxpayer Advocate . . . . . . . . . 1
Travel and
entertainment . . . . . . . . . . . 21
Travel, meals, and
entertainment . . . . . . . . . . . 12
W
When to file . . . . . . . . . . . . . . . . 2
Where to file . . . . . . . . . . . . . . . . 2
Who must file . . . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . 3
Worksheet:
Schedule C . . . . . . . . . . . . . . 16
Written notice of
allocation . . . . . . . . . . . . . . . . 18

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