[Federal Register Volume 87, Number 221 (Thursday, November 17, 2022)]
[Rules and Regulations]
[Pages 68898-68900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24576]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9947]
RIN 1545-BO90


Section 199A Rules for Cooperatives and Their Patrons; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to Treasury Decision 9947, 
published in the Federal Register on Tuesday, January 19, 2021. 
Treasury Decision 9947 contained final regulations under the qualified 
business income provisions of the Internal Revenue Code regarding the 
deduction for income attributable to domestic production activities of 
specified agricultural or horticultural cooperatives.

DATES: These corrections are effective on November 17, 2022 and 
applicable after January 19, 2021.

FOR FURTHER INFORMATION CONTACT: Jason Deirmenjian at (202) 317-4470 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations (TD 9947) subject to this correction are 
issued under sections 1381 through 1388 and section 199A(g) of the 
Internal Revenue Code.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.199A-7 is amended by:
0
a. Revising the first sentence of paragraph (c)(1).
0
b. Revising the second sentence of paragraph (c)(2) introductory text.
0
c. Revising paragraphs (c)(2)(ii) and (iii).
0
d. Revising the first sentence of paragraph (c)(3).
0
e. Revising the first sentence of paragraph (d)(1).
0
f. Revising the first sentence of paragraph (d)(3)(i).
0
g. Redesignating paragraph (d)(3)(ii)(B)(i2) as paragraph 
(d)(3)(ii)(B)(2).
    The revisions read as follows:


Sec.  1.199A-7  Section 199A(a) Rules for Cooperatives and their 
patrons.

* * * * *
    (c) * * *
    (1) * * * QBI means the net amount of qualified items of income, 
gain, deduction, and loss with respect to any trade or business as 
determined under the rules of section 199A(c)(3) and Sec.  1.199A-3(b). 
* * *
    (2) * * * In situations where the patron receives distributions 
described in paragraph (c)(1) of this section, the Cooperative must 
determine whether those distributions include qualified items of 
income, gain, deduction, and loss as determined under rules of section 
199A(c)(3) and Sec.  1.199A-3(b). * * *
* * * * *
    (ii) The distributions are qualified items of income, gain, 
deduction, and loss as determined under rules of section 199A(c)(3) and 
Sec.  1.199A-3(b) at the Cooperative's trade or business level;
    (iii) The distributions are not items from an SSTB as defined in 
section 199A(d)(2) at the Cooperative's trade or business level (except 
as permitted by the threshold rules in section 199A(d)(3) and Sec.  
1.199A-5(a)(2)); and
* * * * *
    (3) * * * In the case of a Cooperative that makes distributions 
described in paragraph (c)(1) of this section to a patron, the 
Cooperative must determine the amount of qualified items of income, 
gain, deduction, and loss as determined under the rules of section 
199A(c)(3) and Sec.  1.199A-3(b) in those distributions. * * *
    (d) * * *
    (1) * * * This section provides guidance on the determination of 
SSTBs as defined in section 199A(d)(2) and Sec.  1.199A-5. * * *
* * * * *
    (3) * * *
    (i) * * * In the case of a Cooperative that makes distributions 
described in paragraph (c)(1) of this section to a

[[Page 68899]]

patron, the Cooperative must determine the amount of qualified items of 
income, gain, deduction, and loss as determined under the rules of 
section 199A(c)(3) and Sec.  1.199A-3(b) with respect to SSTBs directly 
conducted by the Cooperative. * * *
* * * * *

0
Par. 3. Section 1.199A-8 is amended by:
0
a. Adding a heading to paragraph (d)(1).
0
b. Revising the first sentence of paragraph (d)(2)(i).
0
c. Revising the fourth sentence of paragraph (d)(3).
0
d. Revising the second sentence of paragraph (e)(3)(ii).
0
e. Revising the second sentence of paragraph (e)(4)(ii).
0
f. Revising the third sentence of paragraph (e)(6)(i).
0
g. Revising the second through fourth and sixth sentences of paragraph 
(e)(6)(ii).
0
h. Revising the second and fourth through sixth sentences of paragraph 
(e)(7)(i).
0
i. Revising the first and second sentences of paragraph (e)(7)(ii).
0
j. Revising the second and third sentences of paragraph (e)(8)(i).
0
k. Revising the first through third sentences of paragraph (e)(8)(ii).
0
l. Revising the first sentence of paragraph (f).
    The revisions read as follows:


Sec.  1.199A-8   Deduction for income attributable to domestic 
production activities of specified agricultural or horticultural 
cooperatives.

* * * * *
    (d) * * *
    (1) Permitted amount-- * * *
    (2) * * *
    (i) * * * A Specified Cooperative is permitted to pass through an 
amount equal to the portion of the Specified Cooperative's section 
199A(g) deduction that is allowed with respect to the portion of the 
cooperative's QPAI that is attributable to the qualified payments the 
Specified Cooperative distributed to the patron during the taxable year 
and identified on the notice required in Sec.  1.199A-7(f)(3) on an 
attachment to or on the Form 1099-PATR, Taxable Distributions Received 
From Cooperatives (Form 1099-PATR), (or any successor form) issued by 
the Specified Cooperative to the patron, unless otherwise provided by 
the instructions to the Form 1099-PATR. * * *
* * * * *
    (3) * * * The Specified Cooperative must report the amount of 
section 199A(g) deduction passed through to the patron on an attachment 
to or on the Form 1099-PATR (or any successor form) issued by the 
Specified Cooperative to the patron, unless otherwise provided by the 
instructions to the Form 1099-PATR.
* * * * *
    (e) * * *
    (3) * * *
    (ii) * * * C's QPAI and taxable income both equal $1,000 ($1,800-
$800). * * *
    (4) * * *
    (ii) * * * C's section 199A(g) deduction attributable to patronage 
sources is the same as the deduction calculated by the nonexempt 
Specified Cooperative in Example 3 in paragraph (e)(3) of this section.
* * * * *
    (6) * * *
    (i) * * * D pays $300,000 for its patrons' corn at the time the 
grain was delivered in the form of per-unit retain allocations and its 
W-2 wages (as defined in Sec.  1.199A-11) for 2020 total $300,000. * * 
*
    (ii) * * * D's QPAI and taxable income is $1,200,000. D's section 
199A(g) deduction for its taxable year 2020 is $108,000 (.09 x 
$1,200,000). Because this amount is less than 50% of D's W-2 wages, the 
entire amount is allowed as a section 199A(g) deduction. * * * The 
section 199A(g) deduction of $108,000 is applied to, and reduces, D's 
taxable income.
    (7) * * *
    (i) * * * D declares a patronage dividend for its 2020 taxable year 
of $900,000, which it pays on March 15, 2021. * * * On March 15, 2021, 
Patron A receives a $9,000 patronage dividend that is a qualified 
payment under paragraph (d)(2)(ii) of this section from D. In the 
notice that accompanies the patronage dividend, Patron A is designated 
a $1,080 section 199A(g) deduction. Under paragraph (a) of this 
section, Patron A may claim a $1,080 section 199A(g) deduction for the 
taxable year ending December 31, 2021, subject to the limitations set 
forth under paragraph (d)(4) of this section. * * *
    (ii) Under paragraph (d)(7) of this section, D is required to 
reduce its section 1382 deduction of $1,200,000 by the $108,000 section 
199A(g) deduction passed through to patrons (whether D pays patronage 
dividends on book or Federal income tax net earnings). As a 
consequence, D is entitled to a section 1382 deduction for the taxable 
year ending December 31, 2020, in the amount of $1,092,000 ($1,200,000-
$108,000) and to a section 199A(g) deduction in the amount of $108,000 
($1,200,000 x .09). * * *
    (8) * * *
    (i) * * * In 2020, D pays its patrons a $400,000 ($900,000-$500,000 
already paid) patronage dividend in cash or a combination of cash and 
qualified written notices of allocation. Under paragraph (d)(7) of this 
section and section 1382, D is allowed a deduction of $1,092,000 
($1,200,000-$108,000 section 199A(g) deduction), whether patronage net 
earnings are distributed on book or Federal income tax net earnings.
    (ii) The patrons will have received a gross amount of $1,200,000 in 
qualified payments under paragraph (d)(2)(ii) of this section from 
Cooperative D ($300,000 paid as per-unit retain allocations, $500,000 
paid during the taxable year as advances, and the additional $400,000 
paid as patronage dividends). If D passes through its entire section 
199A(g) deduction to its patrons by providing the notice required by 
paragraph (d)(3) of this section, then the patrons will be allowed a 
$108,000 section 199A(g) deduction, resulting in a net $1,092,000 
taxable distribution from D. Pursuant to paragraph (d)(8) of this 
section, any of the $1,200,000 received by patrons that are Specified 
Cooperatives from D is not taken into account for purposes of 
calculating the patrons' section 199A(g) deduction. * * *
    (f) * * * In the case described in section 199A(g)(5)(B), where a 
Specified Cooperative is a partner in a partnership, the partnership 
must separately identify and report on the Schedule K-1 of the Form 
1065, U.S. Return of Partnership Income (or any successor form) issued 
to the Specified Cooperative partner the cooperative's share of gross 
receipts and related deductions, W-2 wages, and COGS, unless otherwise 
provided by the instructions to the Form. * * *
* * * * *

0
Par. 4. Section 1.199A-9 is amended by:
0
a. Revising the first sentence of paragraph (c)(3)(ii).
0
b. Redesignating paragraphs (j)(3)(i)(B)(1) introductory text and 
(j)(3)(i)(B)(1)(i) and (ii) as paragraphs (j)(3)(i)(B)(1) introductory 
text and (j)(3)(i)(B)(1)(i) and (ii).
0
c. Revising newly redesignated paragraph (j)(3)(i)(B)(1)(ii).
0
d. Redesignating paragraphs (j)(3)(i)(B)(2) introductory text and 
(j)(3)(i)(B)(2)(i) and (ii) as paragraphs (j)(3)(i)(B)(2) introductory 
text and (j)(3)(i)(B)(2)(i) and (ii).
0
e. Redesignating paragraphs (j)(3)(i)(B)(3) introductory text and 
(j)(3)(i)(B)(3)(i) through (iii) as

[[Page 68900]]

paragraphs (j)(3)(i)(B)(3) introductory text and (j)(3)(i)(B)(3)(i) 
through (iii).
0
f. Redesignating paragraphs (j)(3)(i)(B)(4) introductory text and 
(j)(3)(i)(B)(4)(i) and (ii) as paragraphs (j)(3)(i)(B)(4) introductory 
text and (j)(3)(i)(B)(4)(i) and (ii).
0
g. Redesignating paragraph (j)(3)(i)(B)(5) as paragraph 
(j)(3)(i)(B)(5).
    The revisions read as follows:


Sec.  1.199A-9  Domestic production gross receipts.

* * * * *
    (c) * * *
    (3) * * *
    (ii) * * * A Specified Cooperative's applicable gross receipts as 
provided in Sec.  1.199A-8(b) and/or (c) may be treated as non-DPGR if 
less than 10 percent of the Specified Cooperative's total gross 
receipts are DPGR. * * *
* * * * *
    (j) * * *
    (3) * * *
    (i) * * *
    (B) * * *
    (1) * * *
    (ii) The warranty is neither separately offered by the Specified 
Cooperative nor separately bargained for with customers (that is, a 
customer cannot purchase the agricultural or horticultural products 
without the warranty).
* * * * *

0
Par. 5. Section 1.199A-12 is amended by:
0
a. Redesignating paragraphs (e)(i) and (ii) as paragraph (e)(1) and 
(2).
0
b. Further redesignating newly redesiganted paragraphs (e)(2)(A) and 
(B) as paragraphs (e)(2)(i) and (ii).
0
c. Revising the last sentence of newly redesignated paragraph 
(e)(2)(ii).
    The revision reads as follows:


Sec.  1.199A-12   Expanded affiliated groups.

* * * * *
    (e) * * *
    (2) * * *
    (ii) * * * Accordingly, P is allocated $1,080 ($1,350 x $16,000/
$20,000) and S is allocated $270 ($1,350 x $4,000/$20,000).
* * * * *

Oluwafunmilayo A. Taylor,
Branch Chief, Legal Processing Division, Associate Chief Counsel, 
(Procedure and Administration).
[FR Doc. 2022-24576 Filed 11-16-22; 8:45 am]
BILLING CODE 4830-01-P