U.S. Income Tax Return for Cooperative Associations.

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Instructions for Form 1120-C

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2009

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 . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . .
Tax, Refundable Credits, and
Payments . . . . . . . . . . . . . .
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
• The cooperative can elect to defer
income from cancellation of debt in
connection with an applicable debt
instrument reacquired after December
31, 2008, and before January 1, 2011,
and include the deferred income over a
5-year period. In addition, any
applicable accrued original issue
discount (OID) is allowed as a
deduction ratably over the 5-year period
that the income from cancellation of
debt is includible in income. See
section 108(i). Also, see the instructions
for lines 9 and 16.
• The American Recovery and
Reinvestment Act of 2009 expanded
the rules that apply to limitations on
deductions for executive compensation.
These rules now apply to any entity that
receives or has received financial
assistance under the Troubled Asset
Relief Program (TARP). See the
instructions for line 11.
• The limitations on net operating loss
(NOL) carryforwards following an
ownership change do not apply to
certain ownership changes after
February 17, 2009, made according to
a restructuring plan under the
Emergency Economic Stabilization Act
of 2008. See the instructions for
line 26b.
• The Worker, Homeownership, and
Business Assistance Act of 2009 allows
most cooperatives to elect a 3, 4, or
5-year carryback period for an
applicable NOL for a tax year ending
after December 31, 2007, and
beginning before January 1, 2010.
However, this relief is not available for
a cooperative that received payments
under TARP. Other special rules apply.
See Rev. Proc. 2009-52, 2009-49 I.R.B.
744. Also see the instructions for
line 27.
• The election to accelerate the
minimum tax and research credits in
Cat. No. 17211X

lieu of claiming any additional first year
special depreciation allowance for
eligible qualified property has been
extended to eligible qualified extension
property. See the instructions for
line 29g.
• The maximum 15% alternative tax
does not apply to qualified timber gain
after May 22, 2009. See the
instructions for Schedule J, line 2.
• Certain tax benefits for Midwestern
disaster areas, including special
charitable contribution benefits, have
expired. See Pub. 4492-B, Information
for Affected Taxpayers in the
Midwestern Disaster Areas.
For the latest information, see
www.irs.gov/formspubs.

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
The Taxpayer Advocate Service (TAS)
is an independent organization within
the IRS whose employees assist
taxpayers who are experiencing
economic harm, who are seeking help
in resolving tax problems that have not
been resolved through normal
channels, or who believe that an IRS
system or procedure is not working as it
should. The service is free, confidential,
tailored to meet your needs, and is
available for businesses, as well as
individuals.
The cooperative can contact the
TAS as follows.
• Call the TAS toll-free case intake line
at 1-877-777-4778 or TTY/TDD
1-800-829-4059 to see if the
cooperative is eligible for assistance.
• Call or write the cooperative’s local
taxpayer advocate, whose phone
number and address are listed in the
local telephone directory and in Pub.

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Instructions for Form 1120-C

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1546, Taxpayer Advocate Service –
Your Voice at the IRS.
• File Form 911, Request for Taxpayer
Advocate Service Assistance (And
Application for Taxpayer Assistance
Order), or ask an IRS employee to
complete it on the cooperative’s behalf.
For more information, go to
www.irs.gov/advocate.

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. Do not add the
contributions to any tax the cooperative
may owe. 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;
• View Internal Revenue Bulletins
(IRBs) published in recent years; and
• Sign up to receive local and national
tax news by email.
DVD for tax products. You can order
Pub. 1796, IRS Tax Products DVD, and
obtain the following.
• Current-year forms, instructions, and
publications.
• Prior-year forms, instructions, and
publications.
• Tax Map: an electronic research tool
and finding aid.
• Tax law frequently asked questions
(FAQs).
• Tax Topics from the IRS telephone
response system.
• Internal Revenue Code – Title 26 of
the U.S. Code.
• Fill-in, print, and save features for
most tax forms.
• Internal Revenue Bulletins.
• Toll-free and email technical support.
• The DVD is released twice during the
year.
– The first release will ship the
beginning of January 2010.
– The final release will ship the
beginning of March 2010.

Purchase the DVD from National
Technical Information Service at
www.irs.gov/cdorders for $30 (no
handling fee) or call 1-877-233-6767 toll
free to purchase the DVD for $30 (plus
a $6 handling fee).
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.

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
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 to
persons 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 Department of the Treasury,
Internal Revenue Service Center,
Ogden, UT 84201-0012.
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 Center, 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

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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.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx
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 Extension of Time To File
Certain Business Income Tax,
Information, and Other Returns, to
request a 6-month extension of time to
file. Generally, the cooperative must 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,

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Instructions for Form 1120-C

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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 2009 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.
The authorization will automatically
end no later than the due date
(excluding extensions) for filing the
cooperative’s 2010 tax return. If the
cooperative wants to expand the paid
preparer’s authorization or revoke the
authorization before it ends, see Pub.
947, Practice Before the IRS and
Power of Attorney.

Assembling the Return
To ensure that the cooperative’s tax
return is correctly processed, attach all
schedules and other forms after page 5
of Form 1120-C, in the following order.
1. Schedule N (Form 1120), Foreign
Operations of U.S. Corporations.
2. Schedule O (Form 1120),
Consent Plan and Apportionment
Schedule for a Controlled Group.
3. Form 4626, Alternative Minimum
Tax — Corporations.

4. Form 8302, Electronic Deposit of
Tax Refund of $1 Million or More.
5. Form 4136, Credit for Federal
Tax Paid on Fuels.
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 enter
“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
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 2010 if:
• The total deposits of such taxes in
2008 were more than $200,000, or
• The cooperative was required to use
EFTPS in 2009.
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.

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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. Records of the deposits will
be sent to the IRS.
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.”
Note. The Financial Agent cannot
process foreign checks. If the
cooperative sends a check written on a
foreign bank to pay a federal tax
deposit, it may be charged a deposit
penalty.
To help ensure proper crediting,
enter the cooperative’s EIN, the tax
period to which the deposit applies, and
“Form 1120-C” on the check or money
order. On the coupon, darken the
“1120” box under “Type of Tax” and the
appropriate “Quarter” box under “Tax
Period” on the coupon. See the
instructions for Form 8109 for details on
how to complete the appropriate
“Quarter” box for income tax deposits.
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.

!

For more information on deposits,
see the instructions for Form 8109 and
Pub. 15 (Circular E), Employer’s Tax
Guide.

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. See the instructions for
Form 8109 for details on how to

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Instructions for Form 1120-C

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complete the coupon for estimated tax
deposits.
• 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 on page 14.
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
cooperative 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 2009, 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 Form
1120-C, line 30.

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 $135. 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 944, Employer’s ANNUAL
Federal Tax Return; or
• 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,
Pub. 15 (Circular E), 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.
Generally, the cooperative must get
IRS consent to change the method of
accounting used to report taxable
income (for income as a whole or for
the treatment of any material item). To
do so, the cooperative generally must

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file Form 3115, Application for Change
in Accounting Method. See Form 3115,
the Instructions for Form 3115, and
Pub. 538 for more information.
There are some instances when the
cooperative can obtain automatic
consent from the IRS to change to
certain accounting methods. See Rev.
Proc. 2008-52, 2008-36 I.R.B. 587, and
Rev. Proc. 2009-39, 2009-38 I.R.B.
371. Also, see the Instructions for Form
3115.

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.
See the Instructions for Form 1128
and Pub. 538 for more information on
accounting periods and tax years.

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.
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.

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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
following are reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to one of the types
of transactions that the IRS has
determined to be a tax avoidance
transaction and identified by notice,
regulation, or other published guidance
as a listed transaction.
2. Any transaction offered under
conditions of confidentiality for which
the cooperative (or a related party) paid
an advisor a fee of at least $250,000.
3. Certain transactions for which the
cooperative (or a related party) 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. Any transaction identified by the
IRS by notice, regulation, or other
published guidance as a “transaction of
interest.” See Notice 2009-55, 2009-31
I.R.B. 170.
For more information, see
Regulations section 1.6011-4. Also see
the Instructions for Form 8886.
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. Penalties
may also apply under section 6707A if
the cooperative fails to file Form 8886
with its cooperative return, fails to
provide a copy of Form 8886 to the
Office of Tax Shelter Analysis (OTSA),
or files a form that fails to include all the
information required (or includes
incorrect information). Other penalties,
such as an accuracy-related penalty
under section 6662A, may also apply.
See the Instructions for Form 8886 for
details on these and other penalties.
Reportable transactions by material
advisors. Material advisors to any
reportable transaction must disclose
certain information about the reportable
transaction by filing Form 8918,
Material Advisor Disclosure Statement,
with the IRS. For details, see the
Instructions for Form 8918.

Transfers to a cooperative controlled
by the transferor. Every significant
transferor (as defined in Regulations
section 1.351-3(d)) that receives stock
of a cooperative in exchange for
property in a nonrecognition event must
attach the statement required by
Regulations section 1.351-3(a) to its
return for the tax year of the exchange.
The transferee cooperative must
include the statement required by
Regulations section 1.351-3(b) for the
tax year of the exchange, unless all the
required information is included in any
statement(s) provided by a significant
transferor that is attached to the same
return for the same section 351
exchange.
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
annual certification as provided in
Regulations section 1.1503-2(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. If the
transferor is a controlled foreign
corporation, its controlling U.S.
shareholder(s) can make the election.
The common parent of a consolidated
group can make the election for the
group.
Once made, the election is
irrevocable. See section 362(e)(2)(C)
and Notice 2005-70.
Other forms and statements. See
Pub. 542, Corporations, 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 2009 return for calendar year
2009 and fiscal years that begin in
2009 and end in 2010. For a fiscal or
short tax year return, fill in the tax year
space at the top of the form.
The 2009 Form 1120-C can also be
used if:

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• The cooperative has a tax year of

less than 12 months that begins and
ends in 2010, and
• The 2010 Form 1120-C is not
available at the time the cooperative is
required to file its return.
The cooperative must show its 2010
tax year on the 2009 Form 1120-C and
take into account any tax law changes
that are effective for tax years
beginning after December 31, 2009.

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. Enter the
address of the cooperative’s principal
office or place of business. 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
instead.
Note. Do not use the address of the
registered agent for the state in which
the cooperative is incorporated. For
example, if the cooperative is
incorporated in Delaware or Nevada
and the cooperative’s principal office is
located in Little Rock, AR, the
cooperative should enter the Little Rock
address.
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. Also, for 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 the cooperative is a farmers’
tax exempt cooperative and
CAUTION checked Item C, box 1, it 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.

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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.
4. A reconciliation of income per
books with income per return.
5. A reconciliation of retained
earnings.
Enter on Form 1120-C the totals for
each item of income, gain, loss,
expense, or deduction, net of
eliminating entries for intercompany
transactions between cooperatives/
corporations within the consolidated
group. Attach consolidated balance
sheets and a reconciliation of
consolidated retained earnings.
The cooperative does not have
TIP to provide the information
requested in (3), (4), and (5)
above, if its total receipts (page 1, lines
1a plus lines 4 through 9) and its total
assets at the end of the tax year are
less than $250,000. See Form 1120-C,
Schedule K, Question 14.
For more information on
consolidated returns, see the
regulations under section 1502.
Schedule M-3 (Form 1120). A
cooperative with total assets
(non-consolidated or 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 complete Schedule M-3
(Form 1120), Net Income (Loss)
Reconciliation for Corporations With
Total Assets of $10 Million or More,
instead of Form 1120-C, 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.
If you are filing Schedule M-3, check
Item A, box 2, to indicate that Schedule
M-3 is attached. See the Instructions
for Schedule M-3 (Form 1120) for more
details.
Form 1120 filed previous year.
Check box 3 if the cooperative filed
Form 1120 in a prior year 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.
Note. Only cooperatives located in the
United States or U.S. possessions can
use the online application. Foreign
corporations must use one of the other
methods to apply.
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 information, see the Instructions
for Form SS-4.

Item C. Type of
Cooperative
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 this is the cooperative’s final return

and it will no longer 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.

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• If the cooperative must change its

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,
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.
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.
Advance payments. 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 Rev. Proc.
2004-34, 2004-22 I.R.B. 991, and Rev.
Proc. 2008-52, as clarified and modified
by Rev. Proc. 2009-39. Also see the
Instructions for Form 3115.
Installment sales. Generally, the
installment method cannot be used for

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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)
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 page 1,
line 2. Before making the entry,
complete Schedule A. For more
information, see the instructions for
Schedule A, beginning on page 15.

Line 4. Dividends
See the instructions for Schedule C,
beginning on page 16. Then, complete
Schedule C and enter on page 1, line 4,
the amount from Schedule C, line 19.
Note. 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 details.
Note. Report tax-exempt interest
income on Schedule K, Item 10. Also, if
required, include the same amount on
Schedule M-1, line 7, or Schedule M-3
(Form 1120), Part II, line 13, if
applicable.

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 include the following.
• Patronage dividends and per-unit
retain allocations (see later).
• Recoveries of bad debts deducted in
prior years under the specific charge-off
method.
• The amount included in income from
Form 6478, Alcohol and Cellulosic
Biofuel Fuels Credit.
• The amount included in income from
Form 8864, Biodiesel and Renewable
Diesel Fuels Credit.
• 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.
• Any recapture amount under section
179A for qualified clean-fuel vehicle
refueling property if, at any time before
the end of its recovery period, the
property ceases to qualify.
• 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 line 23. 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 net positive section 481(a)
adjustment. The cooperative may have

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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 this election. Also,
under certain other conditions, the
cooperative can modify the period for
taking into account a net positive
section 481 adjustment. See Rev. Proc.
2008-52 and Rev. Proc. 2009-39. If the
net section 481(a) adjustment is
negative, report it on line 23.
• Part or all of the proceeds received
from certain corporate-owned life
insurance contracts issued after August
17, 2006. See section 101(j) for details.
• Income from cancellation of debt for
the repurchase of a debt instrument for
less than its adjusted issue price.
However, for a reacquisition of an
applicable debt instrument after
December 31, 2008, and before
January 1, 2011, a cooperative can
elect, under section 108(i), to defer the
income from cancellation of debt in
connection with the election. If the
cooperative makes the election, the
income is deferred and ratably included
in income over the 5-year period
beginning with:
1. For a reacquisition occurring in
2009, the fifth tax year following the tax
year in which the reacquisition occurs;
and
2. For a reacquisition occurring in
2010, the fourth tax year following the
tax year in which the reacquisition
occurs.
To make the election, attach a
statement to the cooperative’s tax
return for the tax year in which the
applicable reacquisition occurs. The
statement must clearly identify the
applicable instrument and include the
amount of income to which the
reacquisition applies. Once made, the
election is irrevocable. See section
108(i). Also see Rev. Proc. 2009-37,
2009-36 I.R.B. 309.
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

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• 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
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).

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 the following.
• Personal property acquired for resale
if the cooperative’s (or any of its
predecessor’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).
• Capital costs incurred to comply with
EPA sulfur regulations.
• 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
page 15 of the instructions.
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

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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.
Cooperatives use Form 8926,
Disqualified Corporate Interest Expense
Disallowed Under Section 163(j) and
Related Information, to figure the
amount of any cooperative interest
expense disallowed by section 163(j).
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. Also see the instructions for
line 11.
Business start-up and organizational
costs. For business start-up and
organizational costs paid or incurred
after September 8, 2008, a cooperative
can deduct up to $5,000 of such costs
for the year it begins business (unless
the cooperative elects to capitalize all
such costs). The $5,000 deduction is
reduced by the amount the total costs
exceed $50,000. If the total costs are
$55,000 or more, the deduction is
reduced to zero. Any cost not deducted
must be amortized ratably over a
180-month period, beginning with the
month the cooperative begins business.
The cooperative is not required to
attach a statement or specifically
identify the amount deducted in order
for the election to be effective. The
cooperative can choose to forego the
deduction and instead elect to
capitalize all such costs. The election to
deduct or capitalize costs is irrevocable.
See Temporary Regulations sections
1.195-1T and 1.248-1T.
For business start-up and
organizational costs paid or incurred
after October 22, 2004, and before
September 9, 2008, a cooperative can
elect to deduct up to $5,000 of such
costs for the year it begins business

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(otherwise the cooperative must
capitalize all such costs). The $5,000
deduction is reduced by the amount the
total cost exceeds $50,000. If the total
costs are $55,000 or more, the
deduction is reduced to zero. Any costs
not deducted must be amortized ratably
over a 180-month period, beginning
with the month the cooperative begins
business. If the election is made, the
cooperative must attach any statement
required by Regulations sections
1.195-1(b) and 1.248-1(c) (as in effect
before September 8, 2008). However,
the cooperative can apply the
provisions of Temporary Regulations
sections 1.195-1T and 1.248-1T to all
expenses paid or incurred after October
22, 2004, provided the period of
limitations on assessment has not
expired for the year of the election.
Otherwise the provisions under
Regulations sections 1.195-1(b) and
1.248-1(c) will apply.
For business start-up and
organizational costs paid or incurred
before October 23, 2004, a cooperative
can elect to amortize such costs over a
period of 60-months or more.
Report the deductible amount of
such costs and any amortization on line
26. For amortization that begins during
the 2009 tax year, complete and attach
Form 4562, Depreciation and
Amortization (Including Information on
Listed Property). For more details on
business start-up and organizational
costs, see Pub. 535, Business
Expenses.
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 in 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 for the tax year, 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
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.
• Work opportunity credit (Form 5884).
• Credits for affected Midwestern
disaster area employers
(Form 5884-A).
• Credit for increasing research
activities (Form 6765).
• Orphan drug credit (Form 8820).
• Disabled access credit (Form 8826).
• Empowerment zone and renewable
community employment credit
(Form 8844).
• Indian employment credit
(Form 8845).
• Employer credit for social security
and Medicare taxes paid on certain
employee tips (Form 8846).
• Credit for small employer pension
plan start-up costs (Form 8881).
• Credit for employer-provided
childcare facilities and services
(Form 8882).
• Low sulfur diesel fuel production
credit (Form 8896).
• Mine rescue team training credit
(Form 8923).
• Agricultural chemicals security credit
(Form 8931).
• Credit for employer differential wage
payments (Form 8932).
If the cooperative has any of these
credits, figure the current year credit
before figuring the deduction for
expenses on which the credit is based.
If the cooperative capitalized any costs
on which it figured the credit, it may
need to reduce the amount capitalized
by the credit attributable to these costs.
See the instructions for the form
used to figure the applicable credit for
more details.
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. This disallowed tax-exempt
use loss can be carried over to the next

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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 officers’ compensation
on line 11. 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.
Complete Schedule E if the
cooperative’s total receipts (page 1, line
1a plus lines 4 through 9) are $500,000
or more. Include only the deductible
part of each officer’s compensation on
Schedule E. See Disallowance of
deduction for employee compensation
in excess of $1 million next. 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 principal 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 three highest
compensated officers for that tax year
(other than the principal 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

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parachute payments under section
280G.
See section 162(m) and Regulations
section 1.162-27. Also see Notice
2007-49, 2007-25 I.R.B. 1429.
Limitations on tax benefits for
executive compensation under a
Treasury Troubled Asset Relief
Program (TARP). The $1 million
compensation limit is reduced to
$500,000 for executive remuneration
and deferred deduction executive
remuneration paid to covered
executives by any entity that receives
or has received financial assistance
under TARP. The limit applies for each
period in which obligations arising from
financial assistance under TARP
remain outstanding. The $500,000 is
reduced by any amounts disallowed as
excess parachute payments. See
section 162(m)(5) for definitions and
other special rules. Also see Notice
2008-94, 2008-44 I.R.B. 1070, for
additional guidance.
In addition, a portion of any
parachute payments made to a covered
executive by an applicable employer
participating in a Treasury troubled
asset relief program is not deductible as
compensation if the payments are
made because of a severance from
employment during an applicable tax
year. For this purpose, a parachute
payment is any payment to a senior
executive officer for departure from a
company for any reason, except for
payments for services performed or
benefits accrued. These limits do not
apply to a payment already treated as a
parachute payment. See section
280G(e) and Notice 2008-94.

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.
If the cooperative claims a credit for
any wages paid or incurred, it may
need to reduce its deduction for
officers’ compensation and salaries and
wages. See Reducing certain expenses
for which credits are allowable on
page 9.
If the cooperative provided taxable
fringe benefits to its 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. If the cooperative uses the
cash method of accounting, it cannot
claim a bad debt deduction unless the
amount was previously included in
income.

Line 14. Rents

Do not deduct the following interest.

If the cooperative rented or leased a
vehicle, enter the total annual rent or
lease expense paid or incurred during
the year. Also complete Part V of Form
4562. 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 12/31/07 but before 1/1/10

$18,500

After 12/31/06 but before 1/1/08

$15,500

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

$15,200

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

$17,500

If the lease term began before January 1, 2004, 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 2010 will be
published in the Internal Revenue Bulletin in early 2010.

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
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
Note. Do not offset interest income
against interest expense.

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The cooperative must make an
interest allocation if the proceeds of a
loan were used for more than one
purpose (for example, to purchase a
portfolio investment and to acquire an
interest in a passive activity). See
Temporary Regulations section
1.163-8T for the interest allocation
rules.

• 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
2009 prepaid interest allocable to any
period after 2009 can deduct only the
amount allocable to 2009.
• 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:

• Disqualified interest on certain

indebtedness under section 163(j). See
Form 8926 and the related instructions.
• Interest on which no tax is imposed
(see section 163(j)). 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 (OID) on
certain high yield discount obligations.
See section 163(e) to determine the
amount of the deduction for OID that is
deferred, and the amount that is
disallowed on a high yield discount
obligation. The rules under section

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163(e)(5) do not apply to certain high
yield discount obligations issued after
August 31, 2008. See section
163(e)(5)(F).
• 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.
• Section 108(i) OID deduction. If the
cooperative issued an applicable debt
instrument with OID that is subject to
section 108(i)(2) because of an election
to defer the recognition of income from
cancellation of debt (COD) under
section 108(i), the interest deduction for
this OID is deferred. The accrued OID
is allowed as a deduction ratably over
the five-year period the income from
COD is included in income. The
deduction is limited to the amount of
COD subject to the section 108(i)
election. See section 108(i).

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 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 cannot 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.
• 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).

Suspension of 10% limit for
farmers and ranchers. A cooperative
that is a qualified farmer or rancher (as
defined in section 170(b)(1)(E)) that
does not have publicly traded stock,
can deduct contributions of qualified
conservation property without regard to
the general 10% limit. The total amount
of the contribution claimed for the
qualified conservation property cannot
exceed 100% of the excess of the
cooperative’s taxable income (as
computed above substituting “100%” for
“10%”) over all other allowable
charitable contributions. Any excess
qualified conservation contributions can
be carried over the next 15 years,
subject to the 100% limitation. See
section 170(b)(2)(B).
Carryover. Charitable contributions
over the 10% limitation cannot be
deducted for the tax year but can be
carried over to the next five tax years.
Special rules apply if the cooperative
has an NOL carryover to the tax year.
In figuring the charitable contributions
deduction for the current 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
section 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).
Cash contributions. For contributions
of cash, checks, or other monetary gifts
(regardless of the amount), 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 $250 or more.
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.

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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
contribution of certain property. See the
Instructions for Form 8283.
Qualified conservation
contributions. Special rules apply to
qualified conservation contributions,
including contributions of certain
easements on buildings located in a
registered historic district. See section
170(h) and Pub. 526, Charitable
Contributions.
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).
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 (see section
170(e)(3)), including contributions of
“apparently wholesome food” (see
section 170(e)(3)(C)), and contributions
of qualified book inventory to public
schools (see section 170(e)(3)(D));
• Scientific equipment used for
research made to institutions of higher
learning or to certain scientific research
organizations (other than by personal
holding companies and service
organizations (see section 170(e)(4));
and
• Computer technology and equipment
for educational purposes (see section
170(e)(6)).
For more information on charitable
contributions, including substantiation
and recordkeeping requirements, see
section 170 and the related regulations,
and Pub. 526. 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 the Instructions for
Form 4562.

Line 20. Pension,
Profit-sharing, etc., Plans
Enter the deduction for contributions to
qualified pension, profit-sharing, or
other funded deferred compensation

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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 contributions to employee benefit
programs not claimed elsewhere on the
return (for example, 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
Cooperatives described in section 1381
are required to calculate the domestic
production activities deduction (DPAD)
on Form 8903 and file it with
Form 1120-C.
For purposes of determining the
section 199 deduction, a specified
agricultural or horticultural cooperative
computes qualified production activities
income (QPAI) and taxable income
without any deductions under section
1382(b) or (c). A cooperative engaged
in the marketing of agricultural or
horticultural products may allocate
some, all, or none of its DPAD to its
patrons. If any of its DPAD is passed
through to patrons, the rules of section
199(d)(3) apply. Reduce the amount
the cooperative deducts under section
1382 by the portion of the cooperative’s
DPAD allocated to patrons.
See Form 8903 and its instructions
for more information.

Line 23. Other Deductions
Attach a schedule, listing by type and
amount, all allowable deductions that
are not deductible elsewhere on Form
1120-C. Enter the total on line 23.
See Special rules, later, for limits on
certain other deductions. Also, see Pub.
535 and Pub. 542 for details on other

deductions that may apply to
cooperatives.
Examples of other deductions
include the following.
• Amortization. See Part VI of Form
4562.
• Certain business start-up and
organizational costs. See page 8 of the
instructions.
• Qualified demolition and clean-up
costs attributable to damage from
storms and tornadoes in the Kansas
and Midwestern disaster areas. See
Pubs. 4492-A and 4492-B.
• Certain qualified disaster expenses
that the cooperative elects to deduct.
See section 198A.
• 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.
• 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 (discussed
later).
• Supplies used and consumed in the
business.
• Travel, meals, and entertainment
expenses. Special rules apply
(discussed later).
• 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 52).
• Any negative net section 481(a)
adjustment. See the instructions for
line 9.
• Deduction for certain energy efficient
commercial building property placed in
service during the tax year. See section

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179D, Notice 2008-40, 2008-14 I.R.B.
725, and Notice 2006-52, 2006-26
I.R.B. 1175.
• 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,
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.
• Lobbying expenses. However, see
exceptions (discussed later).
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 for details.
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.

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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
be present at the meal.
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.
Membership dues. The
cooperative can deduct amounts paid
or incurred for membership dues in
civic or public service organizations,
professional organizations (such as bar
and medical associations), business
leagues, trade associations, chambers
of commerce, boards of trade, and real
estate boards. However, no deduction
is allowed if a principal purpose of the
organization is to entertain, or provide
entertainment facilities for, members or
their guest.
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 usually considered
entertainment, amusement, or
recreation.
Amounts 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, Wage and Tax
Statement, for an employee or on Form
1099-MISC, Miscellaneous Income, 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,
they are deductible. See section
162(e)(5)(B).

Line 25. Taxable Income
Before Section 1382, NOL
Deduction, and Special
Deductions
At-risk rules. Generally, special
at-risk rules under section 465 apply to
closely held cooperatives (see Passive
activity limitations on page 9) 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. (See below.)
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); or
• 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, 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. Complete and
attach Form 6198, At-Risk Limitations,
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.

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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.

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
incurred in one tax year to reduce its
taxable income in another tax year.
Enter on line 26b the total NOL
carryovers from other tax years, 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 Schedule K, Item 12.
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 Regulations section
1.382-11(a), with its income tax return
for each tax year that it is a loss
cooperative in which an ownership shift,
equity structures shift, or other
transaction described in Temporary
Regulations section 1.382-2T(a)(2)(i)
occurs. If the cooperative makes the
closing-of-the-books election, see
Regulations section 1.382-6(b).
The limitations under section 382 do
not apply to certain ownership changes
after February 17, 2009, made
according to a restructuring plan under
the Emergency Economic Stabilization
Act of 2008. See section 382(n).
For guidance in applying section 382
to loss cooperatives whose instruments
were acquired by Treasury under

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certain programs under the Emergency
Economic Stabilization Act of 2008, see
Notice 2009-38, 2009-18 I.R.B. 901,
and Notice 2010-2, 2010-2 I.R.B. 251.
• 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).
• If a cooperative has a loss
attributable to a disaster, special rules
apply. See the Instructions for
Form 1139, Corporation Application for
Tentative Refund.
For more details on the NOL
deduction, see section 172, the
Instructions for Form 1139, and
Pub. 542.

Line 26c. Special Deductions
See the instructions for Schedule C
beginning on page 16.

Line 26d. Total Section 1382,
NOL, and Special Deductions
Combine lines 26a through 26c and
enter the result on line 26d.

Tax, Refundable Credits,
and Payments
Line 27. Taxable Income
See Schedule K, Question 14, to
determine if the cooperative needs to
complete Schedule G. Taxable income
reported on page 1, line 27, 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 may have
an NOL that can be carried back or
forward as a deduction to other tax
years.

!

Generally, a cooperative first carries
back an NOL 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 on page 22.
See the Instructions for Form 1139
for details on 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 tax return.
Extended carryback period for an
applicable 2008 or 2009 NOL. A
cooperative can elect a 3, 4, or 5-year
carryback period for an applicable NOL
for a tax year ending after December
31, 2007, and beginning before
January 1, 2010. However, this relief is
not available for a cooperative that
received payments under the Troubled
Asset Relief Program (TARP). An NOL
carried back five years may offset no
more than 50 percent of a cooperative’s
taxable income in that fifth preceding
year. This limitation does not apply to
the fourth or third preceding year.
The cooperative can make the
election by attaching an election
statement to Form 1120-C (or an
amended return) for the year of the
applicable NOL. In lieu of using Form
1120-C, the cooperative can make the
election by attaching the election
statement to Form 1139. The election
must be filed by the due date (including
extensions) for filing the cooperative’s
tax return for its last tax year beginning
in 2009. The statement must indicate
that the cooperative is electing to apply
section 172(b)(1)(H) under Rev. Proc.
2009-52, and that the cooperative is not
a TARP recipient, nor in 2008 or 2009,
an affiliate of a TARP recipient. The
statement must also specify the length
of the NOL period the cooperative
elects. If the cooperative previously
filed a carryback application or claim,
the statement must also indicate that
the election amends a previous
carryback application or claim. Once
made, the election is irrevocable.
The election is generally available
for one tax year. However, if an eligible
small business made a valid election
under Rev. Proc. 2009-26 to use a 3, 4,
or 5-year carryback period for an
applicable 2008 NOL, that cooperative
can make the election under Rev. Proc.
2009-52 for another tax year. For more
information on the election to carry
back an eligible small business loss,
see Rev. Proc. 2009-26, 2009-19 I.R.B.
935. Also see the Instructions for Form
1139.
Note. The cooperative cannot revoke
an election made under Rev. Proc.
2009-26 to make an election under
Rev. Proc. 2009-52.

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A cooperative that made an election
under section 172(b)(1)(3) to waive the
carryback period for an applicable NOL
arising in a tax year ending before
November 6, 2009, can revoke that
election, and make the election under
Rev. Proc. 2009-52 to use the 3, 4, or
5-year carryback period.
For more information on making the
election, see Rev. Proc. 2009-52.
Merchant Marine capital
construction fund. 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.

Line 29a. 2008 Overpayment
Credited to 2009
Enter amount of overpayment credited
to 2009 from the tax return filed for
2008.

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. The overpayment
must be at least 10% of the
cooperative’s expected income tax
liability and 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 29d. Net Tax Payments
Combine lines 29a through 29c and
enter the result on line 29d.

Line 29f. Credits
Form 2439. Enter any 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

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cooperative’s income. Attach Form
2439 to Form 1120-C.
Form 4136. Enter any credit from
Form 4136, Credit for Federal Tax Paid
on Fuels. Attach Form 4136 to Form
1120-C.
Credit for tax on ozone-depleting
chemicals. Include on line 29f any
credit the cooperative is claiming under
section 4682(g)(2) for tax on
ozone-depleting chemicals. Enter
“ODC” next to the entry space.

Line 29g. Refundable Credits
From Forms 3800 and 8827
The cooperative can elect to claim
certain unused research and minimum
tax credits instead of claiming any
additional first-year special depreciation
allowance for eligible qualified property
and qualified extension property placed
in service during the tax year. If the
cooperative makes the election, enter
on line 29g the combined amounts from
line 19c of Form 3800, General
Business Credit, and line 8c of Form
8827, Credit for Prior Year Minimum
Tax — Corporations, if applicable. See
the instructions for these forms. Also,
see Rev. Proc. 2008-65, 2008-44 I.R.B.
1082, Rev. Proc. 2009-16, 2009-6
I.R.B. 449, and Rev. Proc. 2009-33,
2009-29 I.R.B. 150.

Line 29h. Section 1383
Adjustment
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 adjustment
was figured. This adjustment is treated
as a payment, and any amount that is
more than the tax on line 28 will be
refunded.

Line 29i. Total Payments,
Refundable Credits, and
Section 1383 Adjustments
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
paid 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.
Cooperatives that account for
inventoriable items 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.

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Enter amounts paid for all raw
materials and merchandise during the
tax year 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.

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 for a special
rule for figuring the cooperative’s tax in

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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.
• 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.

However, if the cooperative is using
the cash method of accounting, it is
required to use cost.
If a cooperative uses the average
cost (rolling average) method for
financial accounting purposes, there
are two safe harbors under which this
method will be deemed to clearly reflect
income for federal income tax
purposes. See Rev. Proc. 2008-43,
2008-30 I.R.B. 186, and Rev. Proc.
2008-52, 2008-36 I.R.B. 587, for
details.
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 unusable 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 the bona fide
selling price, minus the direct cost of
disposition (but not less than scrap
value). Bona fide selling price means
actual offering of goods during a period
ending not later than 30 days after
inventory date.
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 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 method to LIFO
and had to write up the opening
inventory to cost in the year of election,
report the effect of this write-up as
income (page 1, line 9) proportionately
over a 3-year period that begins with

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the year of the LIFO election (section
472(d)).
For more information on inventory
valuation methods, see Pub. 538. For
more information on changes in the
method of accounting for inventory, see
Form 3115 and the Instructions for
Form 3115.

Schedule C.
Dividends and Special
Deductions
Note. Do not report income from
patronage dividends on Schedule C.
Report income from patronage
dividends and per-unit retain allocations
on page 1, line 9.
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 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.
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, and
• Qualified for the 70% deduction
under section 243(a)(1).
Also include in line 1 the following.

• Taxable distributions from an interest

charge domestic international sales
corporation (IC-DISC) or former
domestic international sales corporation
(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.

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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) that are received from
20%-or-more-owned domestic
corporations subject to income tax and
that are subject to the 80% deduction
under section 243(c), and
• Taxable distributions from an
IC-DISC or former DISC that are
considered eligible for the 80%
deduction.

Line 3, Column (a)
Enter the following.
• 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).
Generally, debt-financed stock is stock
that the cooperative acquired by
incurring a debt (for example, it
borrowed money to buy the stock).
• 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.

Line 3, Columns (b) 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) before making this
computation for an additional limitation
that applies to dividends received from
foreign corporations. Attach a schedule
to Form 1120-C showing how the
amount on line 3, column (c), was
figured.

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 foreign
sales corporation (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).

Line 8, Column (a)
Enter dividends received from wholly
owned foreign subsidiaries that are
eligible for the 100% deduction under
section 245(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).

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Worksheet for Schedule C, line 9
(keep for your records)
1. Refigure page 1, line 25, Form
1120-C, without any domestic
production activities deduction,
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) . . . . . . . . . . . . . .

Line 10, Columns (a) and (c)
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 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.

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Line 12, Columns (a) and (b)
Enter in column (a) 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 that are engaged in the
marketing of agricultural or horticultural
products and are shareholders in a
FSC, multiply the total dividends
reported in column (a) by 15/23, for the
exempt portion of the dividends that are
attributable to foreign trade income, and
enter the amount in column (c). See
sections 245(c)(2) and
923(a)(4)(repealed) for additional
information.

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 controlled foreign corporations
(CFCs) under subpart F. This amount
should equal the total subpart F income
reported on Schedule I of Form 5471,
Information Return of U.S. Persons
With Respect To Certain Foreign
Corporations.

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).

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
rule 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 elsewhere
on Schedule C.

Line 18, Column (c)
Section 247 allows public utilities a
deduction of 40% of the smaller of (a)
dividends paid on their preferred stock
during the tax 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).

Line 17, Column (a)

Schedule G.
Allocation of Patronage
and Nonpatronage
Income and Deductions
Note. If the cooperative’s total receipts
(page 1, line 1a plus lines 4 through 9)
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. See
Form 1120-C, Schedule K, Question
14.
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.
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.

Line 8 (columns a and b)
Complete Schedule H before entering
an amount on this line. Allocate the
amount on Schedule H, line 5, between
patronage and nonpatronage. Only
farmers’ cooperatives exempt under
section 521 are allowed to take a
deduction in column (b) 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
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) in a
written notice to its patrons.

Line 9b (columns a and b)

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

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

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Instructions for Form 1120-C

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Line 10 (columns a and b)
The taxable income reported on page
1, line 27, may not be less than the
nonpatronage taxable income shown
on Schedule G, line 10 (column b).

Line 11 (column a)
Combine lines 10(a) and 10(b).
Note. Any patronage source losses
(line 10, column (a)) cannot be used to
offset nonpatronage income (line 10,
column (b)).

Line 12 (column a)
Enter any unused patronage loss from
line 10, column (a).

Line 13 (column b)
Enter any unused nonpatronage loss
from line 10, column (b).

Schedule H.
Deductions and
Adjustments Under
Section 1382
Note. Cooperatives engaged in the
marketing of agricultural or horticultural
products may be eligible to exclude
applicable 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. 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.

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),
• 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 3b below
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

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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
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 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:

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Instructions for Form 1120-C

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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
page 1, 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.

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. Complete and attach Schedule O
(Form 1120), Consent Plan and
Apportionment Schedule for a
Controlled Group. Component
members of a controlled group must
use Schedule O (Form 1120) to report
the apportionment of taxable income,
income tax, and certain tax benefits
between the members of the group.
See Schedule O (Form 1120) and the

Instructions for Schedule O (Form
1120) for more information.

Line 2. Income Tax
If the cooperative is a member of a
controlled group and is filing Schedule
O (Form 1120), enter the cooperative’s
tax from Part III of Schedule O (Form
1120). Most cooperatives that are not
members of a controlled group and not
filing a consolidated return figure their
tax by using the Tax Rate Schedule
below.
Tax Rate Schedule
If taxable income on Form 1120-C, page 1, 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

Alternative tax for cooperatives with
qualified timber gain. A cooperative
that has net capital gain and qualified
timber gain (as defined in section
1201(b)(2)) is subject to an alternative
tax computation. The alternative tax
applies to tax years beginning after
May 22, 2008, and tax years beginning
before May 23, 2009. The tax is figured
on Schedule D (Form 1120), Part IV.
Enter on Schedule J, line 2, the tax
from Schedule D (Form 1120), Part IV,
line 26.
Deferred tax under section 1291. If
the cooperative was a shareholder in a
passive foreign investment company
(PFIC) and received an excess
distribution or disposed of its
investment in the PFIC during the year,
it must include the increase in taxes
due under section 1291(c)(2) in the
total for line 2. On the dotted line next
to line 2, 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 the AMT if it has any
of the adjustments and tax preference

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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
adjustments and tax preference items is
more than the smaller of:
• $40,000, or
• The cooperative’s allowable
exemption amount (from Form 4626).
For this purpose, taxable income does
not include the NOL deduction.
See the Instructions for Form 4626
for definitions and details on how to
figure the tax.

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
Enter any qualified electric vehicle
passive activity credits from prior years
allowed for the current tax year from
Form 8834, Qualified Plug-in Electric
and Electric Vehicle Credit, line 29.
Also include on line 5b any credits from
Form 5735, American Samoa
Economic Development Credit. See the
Instructions for Form 5735.

Line 5c. General Business
Credit
Enter on line 5c the cooperative’s total
general business credit.
The cooperative is required to file
Form 3800 to claim most business
credits. For a list of allowable credits,
see Form 3800. Enter on line 5c the
allowable credit from Form 3800, Part
II, line 32. Also, see the applicable
credit form and its instructions.
Elective allocations to patrons of
subchapter T cooperatives. The
cooperative may elect to allocate any or
all of certain credits among the patrons
based on the quantity or value of
business done with or for such patrons.
This includes the following:
• Alcohol and cellulosic biofuel fuels
credit (Form 6478);
• Renewable electricity, refined coal,
and Indian coal production credit
(Form 8835);
• Biodiesel and renewable diesel fuels
credit (Form 8864); and
• Low sulfur diesel fuel production
credit (Form 8896).
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

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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 of the following credits that are
not used by the cooperative because of
the tax liability limitation must be
passed through to the patrons.
• Work opportunity credit (Form 5884).
• Indian employment credit
(Form 8845).
• Empowerment zone and renewal
community employment credit
(Form 8844).
• Energy efficient appliance credit
(Form 8909).
These credits cannot be carried back or
over by the cooperative. See the
applicable form and related instructions
for details. For tax associated with a
recapture of credit, see Other Taxes,
later.

Line 5d. Credit for Prior Year
Minimum Tax
To figure the minimum tax credit and
any carryforward of that credit, use
Form 8827.

Line 6. Total Credits
Add lines 5a through 5d and enter the
total 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.
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, it may owe a tax. See
Form 4255, Recapture of Investment
Credit.
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.
Alternative tax on qualifying
shipping activities. Enter any
alternative tax on qualifying shipping
activities from Form 8902. Check the
box for Form 8902.
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)).
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).
• Renewable electricity, refined coal,
and Indian coal production credit (Form
8835). See section 45(e)(11)(C).
• Small agri-biodiesel producer credit
(Form 8864). See section
40A(e)(6)(B)(iii).
• Low sulfur diesel fuel production
credit (Form 8896). See section
45H(f)(3).
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).
• Work opportunity credit (Form 5884).
• Empowerment zone and renewal
community employment credit
(Form 8844).
• Indian employment credit
(Form 8845).
• 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 applicable
form.
How to report. If the cooperative
checked the “Other” box, attach a
schedule showing the computation of
each item included in the total for line 8
and identify the applicable Code section
and the type of tax or interest.

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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 Information
Complete all items and questions that
apply to the cooperative.

Item 2
See the list of Principal Business
Activity Codes beginning on page 24 of
the instructions. Using the list of codes
and activities, determine from which
activity the cooperative derives the
highest percentage of its total receipts.
Enter on lines 2a, 2b, and 2c the
principal business activity code number,
the cooperative’s business activity, and
a description of the principal product or
service of the cooperative.

Question 5
Check the “Yes” box for Question 5 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.
For a definition of a parent-subsidiary
controlled group, see the Instructions
for Schedule O (Form 1120).
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.
Note. If the cooperative is an
“excluded member” of a controlled
group (see definition in the Instructions
for Schedule O (Form 1120)), 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

Page 22 of 27

Instructions for Form 1120-C

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be an includible corporation and the
following requirements must be met.
1. The common parent must own
directly 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
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 cooperative’s total assets (as
determined by the accounting method
regularly used in keeping the
cooperative’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 cooperative is required to
complete Schedule L, enter total assets
from Schedule L, line 13, column (d). If
filing a consolidated return, report total
consolidated assets for all cooperatives
and corporations joining in the return.

Question 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 Question 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 received
or accrued. Include any exempt-interest
dividends received as a shareholder in
a mutual fund or other RIC. Also, if
required, include the same amount on
Schedule M-1, line 7 (or Schedule M-3
(Form 1120), Part II, line 13, if
applicable).

Item 12
If the cooperative has an NOL for its
current tax year, it generally can elect
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.
However, an exception applies for
an applicable 2008 or 2009 NOL. See
the instructions for line 27 on page 14.
Also, see the Instructions for Form
1139 for more details.
Cooperatives filing a consolidated
return that elects to waive the entire
carryback period for the group must
check the box in Item 12 and attach the
statement required by Regulations
section 1.1502-21(b)(3) or the election
will not be valid.

Item 13
Enter the amount of the NOL carryover
to the tax year from prior years, even if

-22-

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 2009.
Do not reduce the amount by any NOL
deduction reported on line 26b.

Schedule L.
Balance Sheets per
Books
The balance sheets should agree with
the cooperative’s books and records.
Include certificates of deposit as cash
on Schedule L, line 1.
Cooperatives with total receipts
(page 1, line 1a plus lines 4 through 9)
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.
Cooperatives with total assets
non-consolidated (or consolidated for
all cooperatives and 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 that also affect
Schedule L.
If filing a consolidated return, report
total consolidated assets, liabilities, and
shareholder’s equity for all cooperatives
and corporations joining in the return.
See Consolidated return on page 5 of
these instructions.

Line 5. Investments
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 RIC
that distributed exempt-interest
dividends during the tax year of the
cooperative.

Line 26. Adjustments to
Shareholders’ Equity
Some examples of adjustments 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.

Page 23 of 27

Instructions for Form 1120-C

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If the total adjustment to be entered
on line 26 is a negative amount, enter
the amount in parentheses.

Schedule M-1.
Reconciliation of Income
(Loss) per Books With
Income per Return
Cooperatives with total receipts (page
1, line 1a plus lines 4 through 9) 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.
Cooperatives with total assets
non-consolidated (or 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 complete Schedule M-3
(Form 1120) 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 Instructions for
Schedule M-3 (Form 1120) for more
information.

Line 5c. Travel and
Entertainment
Include any of the following:

• Meals and entertainment expenses
not deductible under section 274(n).

• Expenses for the use of an
entertainment facility.

• The part of business gifts over $25.
• Expenses of an individual over

$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
expenses 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
Report any tax-exempt interest
received or accrued including any
exempt-interest dividends received as a
shareholder in a mutual fund or other
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.

-23-

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:
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-6526,
Washington, DC 20224. Do not send
the tax form to this office. Instead, see
Where To File on page 2.

Page 24 of 27

Instructions for Form 1120-C

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Form 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 on line 2a the six digit code selected
from the list below. On the next line (Form 1120-C,
Schedule K, line 2b), enter the company’s business
activity. Finally, enter a brief description of the
principal product or service of the company on Form
1120-C, Schedule K, 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 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

-24-

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 25 of 27

Instructions for Form 1120-C

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Form 1120-C (continued)
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)

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
Telecommunications
517000 Telecommunications
(including paging, cellular,
satellite, cable & other
program distribution,
resellers, other
telecommunications, &
internet service providers)
Data Processing Services
518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates,
libraries, internet publishing &
broadcasting)

-25-

Code

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
525990 Other Financial Vehicles
(including mortgage REITs &
closed-end investment funds)
“Offices of Bank Holding Companies”
and “Offices of Other Holding
Companies” are located under
Management of Companies (Holding
Companies) on page 26.

Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential
Buildings & Dwellings
(including equity REITs)
531114 Cooperative Housing
(including equity REITs)
531120 Lessors of Nonresidential
Buildings (except
Miniwarehouses) (including
equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including
equity REITs)

Page 26 of 27

Instructions for Form 1120-C

14:09 - 12-FEB-2010

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

Form 1120-C (continued)
Code

Code

Code

Code

531190 Lessors of Other Real Estate
Property (including equity
REITs)
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)

541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional,
Scientific, & Technical
Services

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
541800 Advertising & Related
Services
541910 Marketing Research & Public
Opinion Polling

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)
621340 Offices of Physical,
Occupational & Speech
Therapists, & Audiologists

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

-26-

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 27 of 27

Instructions for Form 1120-C

14:09 - 12-FEB-2010

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 . . . . . . . . . . . . 21
Allocation of patronage and
nonpatronage income and
deductions . . . . . . . . . . . . . . 18
Allocations to patrons:
Elective . . . . . . . . . . . . . . . . . 20
Recapture of elective
allocation of credit to
patrons . . . . . . . . . . . . . . . 21
Recapture of required
excess credit allocated to
patrons . . . . . . . . . . . . . . . 21
Required . . . . . . . . . . . . . . . . 21
Alternative minimum
tax . . . . . . . . . . . . . . . . . . . . . . 20
Amended return . . . . . . . . . . . . 6
Amortization . . . . . . . . . . . . . . . . 8
Assembling the return . . . . . . 3
At-risk rules . . . . . . . . . . . . . . . . 13
B
Backup withholding . . . . . . . . 15
Bad debts . . . . . . . . . . . . . . . . . 10
Balance sheets per
books . . . . . . . . . . . . . . . . . . . 22
Business start-up
expenses . . . . . . . . . . . . . . . . . 8
C
Capital construction fund
(See Merchant Marine
capital construction fund)
Charitable
contributions . . . . . . . . . . . . 11
Compensation of
officers . . . . . . . . . . . . . . . . . . . 9
Consolidated return . . . . . . . . 22
Contributions to reduce debt
held by the public . . . . . . . . . 2
Contributions,
charitable . . . . . . . . . . . . . . . 11
Controlled group:
Member of . . . . . . . . . . . . . . 20
Cost of goods sold . . . . . . 7, 15
Credits:
Foreign tax . . . . . . . . . . . . . . 20
Form 2439 . . . . . . . . . . . . . . 14
Form 4136 . . . . . . . . . . . . . . 14
General business . . . . . . . . 20
Recapture of . . . . . . . . . . . . 21
Reducing expenses . . . . . . 9
D
Deductions . . . . . . . . . . . . . . . . . 8
Deductions and adjustments
under section 1382 . . . . . . 19
Depletion . . . . . . . . . . . . . . . . . . 12
Deposit with Form 8109 . . . . . 3
Depository methods of tax
payment . . . . . . . . . . . . . . . . . . 3
Depreciation . . . . . . . . . . . . . . . 11

Disclosure statement,
reportable transaction . . . . 5
Dividends . . . . . . . . . . . . . . . . . . . 7
Dividends and special
deductions . . . . . . . . . . . . . . 16
Domestic production activities
deduction . . . . . . . . . . . . . . . 12
Domestic production activities
deduction allocation . . . . . 20
Dues, membership and
other . . . . . . . . . . . . . . . . . . . . 13
E
Electronic Federal Tax
Payment System
(EFTPS) . . . . . . . . . . . . . . . . . 3
Employee benefit
programs . . . . . . . . . . . . . . . . 12
Employer identification
number (EIN) . . . . . . . . . . . . . 6
Estimated tax . . . . . . . . . . . . . . . 3
Overpaid . . . . . . . . . . . . . . . . 14
Payments . . . . . . . . . . . . . . . 14
Penalty . . . . . . . . . . . . . . . . . . . 4
Extension of time to file . . . . . 2
F
Final return . . . . . . . . . . . . . . . . . 6
Foreign person
(defined) . . . . . . . . . . . . . . . . 22
Foreign tax credit . . . . . . . . . . 20
Forms and publications, How
to get . . . . . . . . . . . . . . . . . . . . 2
G
General business
credit . . . . . . . . . . . . . . . . . . . . 20
General instructions . . . . . . . . 2
Golden parachute
payments . . . . . . . . . . . . . . . . 8
Gross receipts . . . . . . . . . . . . . . 6
Gross rents and
royalties . . . . . . . . . . . . . . . . . . 7
I
Identifying information . . . . . . 5
Income . . . . . . . . . . . . . . . . . . . . . 6
Income from qualifying
shipping activities . . . . . . . . . 6
Initial return . . . . . . . . . . . . . . . . . 6
Installment sales . . . . . . . . . . . . 6
Interest:
Income . . . . . . . . . . . . . . . . . . . 7
Interest and penalties . . . . . . . 4
Interest expense . . . . . . . . . . . 10
Interest income:
Tax-exempt . . . . . . . . . 22, 23
Inventory:
Section 263A uniform
capitalization rules . . . . 8,
16
Valuation methods . . . . . . . 16
L
Limitations on
deductions . . . . . . . . . . . 8, 11

Lobbying expenses,
nondeductibility . . . . . . . . . . 13

Qualifying shipping activities,
Income from . . . . . . . . . . . . . . 6

M
Merchant Marine capital
construction fund:
Deduction for
contributions . . . . . . . . . . 14
Minimum tax:
Prior year, credit for . . . . . 21

R
Reconciliation of income (Sch
M-1) . . . . . . . . . . . . . . . . . . . . . 23
Recordkeeping . . . . . . . . . . . . . 4
Refund . . . . . . . . . . . . . . . . . . . . 15
Refundable credits . . . . . . . . . 15
Related taxpayer
transactions . . . . . . . . . . . . . . 8
Rents (expense) . . . . . . . . . . . 10
Repairs and
maintenance . . . . . . . . . . . . 12

N
Name and address . . . . . . . . . 5
Name change . . . . . . . . . . . . . . 6
Net operating loss . . . . . 13, 22
Nonaccrual experience
method . . . . . . . . . . . . . . . . . . . 7
Nonpatronage income . . . . . 19
O
Other deductions:
Amortization . . . . . . . . . . . . . 12
Depletion . . . . . . . . . . . . . . . . 12
Entertainment
expenses . . . . . . . . . . . . . 12
Insurance premiums . . . . . 12
Legal and professional
fees . . . . . . . . . . . . . . . . . . . 12
Organizational costs . . . . . 12
Reforestations costs . . . . . 12
Repairs and
maintenance . . . . . . . . . . 12
Start-up costs . . . . . . . . . . . 12
Supplies . . . . . . . . . . . . . . . . . 12
Travel expenses . . . . . . . . . 12
Utilities . . . . . . . . . . . . . . . . . . 12
Other income . . . . . . . . . . . . . . . 7
Other information . . . . . . . . . . 21
Other taxes:
Recapture . . . . . . . . . . . . . . . 21
P
Paid preparer
authorization . . . . . . . . . . . . . 3
Passive activity
limitations . . . . . . . . . . . . . . . . 9
Patronage dividends . . . . 7, 19
Payment, depository methods
of . . . . . . . . . . . . . . . . . . . . . . . . 3
Penalty:
Estimated tax . . . . . . . . . . . 15
Late filing . . . . . . . . . . . . . . . . . 4
Late payment . . . . . . . . . . . . 4
Pension, profit-sharing, etc.,
plans . . . . . . . . . . . . . . . . . . . . 11
Per-unit retain
allocations . . . . . . . . . . . . . . . . 7
Preparer, tax return . . . . . . . . . 2
Principal business activity
codes . . . . . . . . . . . . . . . . . . . 24
Private delivery services . . . . 2
Q
Qualified written notice of
allocation . . . . . . . . . . . . . . . . 19

-27-

S
Salaries and wages . . . . . . . . 10
Schedule:
A . . . . . . . . . . . . . . . . . . . . . . . . 15
C . . . . . . . . . . . . . . . . . . . . . . . . 16
G . . . . . . . . . . . . . . . . . . . . . . . 18
H . . . . . . . . . . . . . . . . . . . . . . . . 19
J . . . . . . . . . . . . . . . . . . . . . . . . 20
K . . . . . . . . . . . . . . . . . . . . . . . . 21
L . . . . . . . . . . . . . . . . . . . . . . . . 22
M-1 . . . . . . . . . . . . . . . . . . . . . 23
M-3 (Form 1120) . . . . . . . . . 6
O . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1382, deductions and
adjustments . . . . . . . . . . . . . 13
Section 1383
adjustment . . . . . . . . . . . . . . 15
Section 263A costs . . . . . . . . 16
Shareholders’ equity
adjustments . . . . . . . . . . . . . 22
Signature . . . . . . . . . . . . . . . . . . . 2
Specific instructions . . . . . . . . . 5
T
Tax computation . . . . . . . . . . . 20
Tax issues, unresolved . . . . . 1
Tax rate schedule . . . . . . . . . 20
Taxes and licenses . . . . . . . . 10
Tax-exempt securities . . . . . 22
Taxpayer Advocate . . . . . . . . . 1
Travel and
entertainment . . . . . . . . . . . 23
Travel, meals, and
entertainment . . . . . . . . . . . 12
Type of cooperative . . . . . . . . . 6
W
When to file . . . . . . . . . . . . . . . . 2
Where to file . . . . . . . . . . . . . . . . 2
Who must file . . . . . . . . . . . . . . . 2
Who must sign . . . . . . . . . . . . . 2
Worksheet:
Schedule C . . . . . . . . . . . . . . 17
Written notice of allocation:
Nonqualified . . . . . . . . . . . . . 19
Qualified . . . . . . . . . . . . . . . . 19

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