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year, even though the FSC is not

Regulations section 1.263A-1(e)(3)

may not be deductible. This occurs

required to distribute such income

specifies other indirect costs that

when the cooperative has an

until the due date of its income tax

relate to production or resale activities

agreement (golden parachute) with

return.

that must be capitalized and those

these key employees to pay them

that may be currently deductible.

these excessive amounts if control of

Ordinary income from trade or

the cooperative changes. See section

business activities of a partnership

Interest expense paid or incurred

280G.

(from Schedule K-1 (Form 1065 or

during the production period of

1065-B)).Do not offset ordinary losses

designated property must be

Business start-up expenses.

against ordinary income. Instead,

capitalized and is governed by special

Business start-up expenses must be

include the losses on line 26, Form

rules. For more details, see

capitalized unless an election is made

990-C. Show the partnership's name,

Regulations sections 1.263A-8

to amortize them over a period of 60

address and EIN on a seperate

through 1.263A-15.

months. See section 195 and

statement attached to this return. If

Regulations section 1.195-1.

The costs required to be capitalized

the amount entered is from more than

under section 263A are not deductible

Passive activity limitations.

one partnership, identify the amount

until the property (to which the costs

Limitations on passive activity losses

from each partnership.

relate) is sold, used, or otherwise

and credits under section 469 apply

disposed of by the cooperative.

to closely held cooperatives.

Deductions

Exceptions.

For this purpose, a cooperative is

a closely held cooperative if at any

Section 263A does not apply to:

Limitations on deductions

time during the last half of the tax

Personal property acquired for

year more than 50% in value of its

Section 263A uniform

resale if the cooperative's average

outstanding stock is owned, directly

capitalization rules. The uniform

annual gross receipts for the 3 prior

or indirectly, by or for not more than

capitalization rules of section 263A

tax years were $10 million or less.

5 individuals. Certain organizations

require cooperatives to capitalize or

Timber.

are treated as individuals for

include in inventory costs, certain

Most property produced under a

purposes of this test. See section

costs incurred in connection with:

long-term contract.

542(a)(2). For rules of determining

The production of real property and

Certain property produced in a

stock ownership, see section 544 (as

tangible personal property held in

farming business.

modified by section 465(a)(3)).

inventory or held for sale in the

Research and experimental costs

Generally, the two kinds of passive

ordinary course of business.

under section 174.

activities are:

Real property or personal property

Intangible drilling costs for oil, gas,

Trade or business activities in

(tangible and intangible) acquired for

and geothermal property.

which the cooperative did not

resale.

Mining exploration and

materially participate (see Temporary

The production of real property and

development costs.

Regulations section 1.469-1T(g)(3))

tangible personal property by a

Inventory of a cash method

for the tax year, and

cooperative for use in its trade or

cooperative that does not account for

Rental activities regardless of its

business or in activity engaged in for

inventories. See Pub 553,Highlights

participation.

profit.

of 2000 Tax Changes for details.

For exceptions, see Form 8810.

Tangible personal property

For more details on the uniform

produced by a cooperative includes

An activity is a trade or business

capitalization rules, see Regulations

activity if it is not a rental activity, and:

a film, sound recording, videotape,

sections 1.263A-1 through 1.263A-3

book, or similar property.

The activity involves the conduct of

and section 1.263A-4 for rules for

a trade or business (i.e., deductions

Cooperatives subject to the rules

property produced in a farming

from the activity would be allowable

are required to capitalize not only

business.

under section 162 if other limitations,

direct costs but an allocable part of

Transactions between related

most indirect costs (including taxes)

such as the passive loss rules, did not

taxpayers. Generally, an accrual

apply) or

that (a) benefit the assets produced

basis taxpayer may only deduct

or acquired for resale or (b) are

The activity involves research and

business expenses and interest owed

incurred by reason of the

experimental costs that are deductible

to a related party in the year payment

performance of production or resale

under section 174 (or would be

is included in income of the related

activities.

deductible if the cooperative chose to

party. See sections 163(e)(3), 163(j),

deduct rather than capitalize them).

For inventory, some of the indirect

and 267 for the limitations on

expenses that must be capitalized

Cooperatives subject to the passive

deductions for unpaid interest and

are:

activity limitations must complete

expenses.

Administration expenses.

Form 8810 to compute their allowable

Section 291 limitations.

passive activity loss and credit.

Taxes.

Cooperatives may be required to

Before completing Form 8810, see

Depreciation.

adjust deductions for depletion of iron

Temporary Regulations section

Insurance.

ore and coal, intangible drilling,

1.163-8T, which provides rules for

Compensation paid to officers

exploration and development costs,

allocating interest expense among

attributable to services.

and the amortizable basis of pollution

activities. If a passive activity is also

Reworked labor.

control facilities. See section 291 to

subject to the earnings stripping rules

determine the amount of the

Contributions to pension, stock

of section 163(j) or the at-risk rules

adjustment. Also see section 43.

bonus, and certain profit-sharing,

of section 465, those rules apply

annuity, or deferred compensation

Golden parachute payments. A

before the passive loss rules. For

portion of the payments made by a

plans.

more information, see section 469,

cooperative to key personnel that

the related regulations, and Pub. 925,

exceeds their usual compensation

Passive Activity and At-Risk Rules.

Page 8

Instructions For Form 990-C - Farmers' Cooperative Association Income Tax Return - 2000 Page 8

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