Frequently Asked Questions
1. What is the Domestic Production Activities Deduction?
The Domestic Production Activities Deduction (DPAD), otherwise known as the IRS section 199 deduction, is a provision in the U.S. income tax code for taxpayers engaged in domestic manufacturing, processing, growing or extracting (MPGE) activities. The deduction was a part of the 2004 American Jobs Creation Act. The deduction is a tax incentive to encourage job creation in those business activities. For 2010, the deduction equals the lesser of 9% of taxable income realized from MPGE activities or 50% of W-2 wages paid. Therefore, a grower or producer with no employees would not benefit from the DPAD. However, there are special tax rules which allow farmer cooperatives to claim the DPAD for agricultural products marketed for the members.
2. What is a Per Unit Retain Allocations?
The IRS defines the term “per-unit retain allocation” (PUR) to be any allocation by a farmer cooperative to a patron with respect to products marketed for him, the amount of which is fixed without reference to the net earnings of the cooperative. Based on recent IRS rulings, gross grain payments made by AgVantage FS are considered to be per-unit retain allocations paid in money.
Why are these PUR’s being reported to me now? The IRS has required Cooperatives to report Per-Unit Retain Allocations for several years. However, most grain cooperatives have traditionally considered grain payments to be inventory purchases and not per-unit retain allocations. Recent IRS rulings issued in 2009 clarified that grain payments should be treated as per-unit retains paid in money.
Why is AgVantage FS only reporting four months worth of grain sales made by producers? AgVantage FS has been operating on a cooperative basis since September 1, 2009. Prior to
September 1st, AgVantage FS was not a cooperative. Accordingly, grain purchases prior to that date are not subject to these reporting requirements.
5. Why did AgVantage FS report this PUR in a letter and not on a 1099-PATR for 2009?
Due to the timing of recent IRS rulings and your need for timely information to complete your 2009 tax return, AgVantage FS sent a letter to provide notice to producers that their gross grain payments should be considered PUR’s. AgVantage FS did not have the necessary patron tax information to properly report the information on a 2009 1099-PATR. Therefore, in lieu of 1099-