Enter gross receipts or sales from all business operations except those that must be reported on lines 4 through 9. In general, advance payments are reported in the year of receipt. To report income from long-term contracts, see section 460. For special rules for reporting certain advance payments for goods and long-term contracts, see Regulations section 1.451-5. For adopting permissible methods for reporting certain advance payments for services and certain goods by an accrual method cooperative, see items 83 and 84 in the Instructions for Form 3115.

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

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

Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, etc. Do not offset interest expense against interest income. Special rules apply to interest income from certain below-market rate loans. See section 7872 for more information.

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.

Enter any other taxable income not reported on lines 1 through 8. List the type and amount of income on an attached schedule. If the cooperative has only one item of other income, describe it in parentheses on line 9. Examples of other income to report on line 9 are:

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

Include only the deductible part of each officer's compensation on Schedule E. Complete Schedule E, line 1, columns (a) through (f), for all officers. The cooperative determines who is an officer under the laws of the state where it is incorporated.

If a consolidated return is filed, each member of an affiliated group must furnish this information.

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.

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

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

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

Enter taxes paid or accrued during the tax year, but do not include the following.

See section 164(d) for the rule on apportionment of taxes on real property between the seller and purchaser.

Do not offset interest income against interest expense.

The cooperative must make an interest allocation if the proceeds of a loan were used for more than one purpose. See Temporary Regulations section 1.163-8T for the interest allocation rules.

Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c), and any unused contributions carried over from prior years. Special rules and limits apply to contributions to organizations conducting lobbying activities. See section 170(f)(9).

Cooperatives reporting taxable income on the accrual method can elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the current tax year. The declaration must include the date the resolution was adopted. See Regulations section 1.170A-11.

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

Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the cooperative does not claim a deduction for the current tax year. There are penalties for failure to file these forms timely and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).

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

All cooperatives described in section 1381 are required to calculate the domestic production activities deduction on Form 8903 and file it with Form 1120-C.

A cooperative engaged in the marketing of agricultural or horticultural products may allocate all or some of its domestic production activities deduction to its patrons. If it does, the rules of section 199(d)(3) apply. A specified agricultural or horticultural cooperative shall not reduce its taxable income under section 1382(b) for any patronage distributions attributable to qualified production activities income for which the cooperative was allowed a deduction under section 199(a).

Attach a schedule, listing by type and amount, all allowable deductions that are not deductible elsewhere.

See Special rules, later, for limits on certain other deductions. Also, see Pub. 535 for details on other deductions that may apply to cooperatives.

Complete Schedule H and enter the amount from line 5.

The cooperative must attach a statement separately accounting for patronage and nonpatronage-sourced NOLs.

A cooperative can use the NOL loss incurred in one tax year to reduce its taxable income in another year. Enter the total NOL carryovers from other tax years on line 26b, but do not enter more than the cooperative's taxable income (after special deductions). Attach a schedule showing the computation of the deduction. Also complete item 12 on Schedule K.

The following special rules apply.

For more details on the NOL deduction, see Pub. 542, section 172, and Form 1139, Corporation Application for Tentative Refund.

Complete Schedule C and enter the amount from line 20.

See Schedule K, Item 14, to determine if the cooperative needs to complete Schedule G. Taxable income reported on line 27, page 1 of the return, cannot be less than the nonpatronage taxable income shown on Schedule G, line 10, column b.

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

Enter any estimated tax payments the cooperative made for the tax year.

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

If the cooperative was billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax on long distance or bundled service, the cooperative may be able to request a credit for the tax paid. The cooperative had bundled service if its local and long distance service was provided under a plan that does not separately state the charge for local service. The cooperative cannot request the credit if it has already received a credit or refund from its service provider. If the cooperative requests the credit, it cannot ask its service provider for a credit or refund and must withdraw any request previously submitted to its provider.

The cooperative can request the credit by attaching Form 8913, Credit for Federal Telephone Excise Tax Paid, showing the actual amount the cooperative paid. The cooperative also may be able to request the credit based on an estimate of the amount paid. See Form 8913 for more details. In either case, the cooperative must keep records to substantiate the amount of the credit requested.

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

Add the amounts on lines 29d through 29h and enter the total on line 29i.

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

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.

Generally, inventories are required at the beginning and end of each tax year if the production, purchase, or sale of merchandise is an income-producing factor. See Regulations section 1.471-1.

However, if the cooperative is a qualifying taxpayer, or a qualifying small business taxpayer (defined below), it can adopt or change its accounting method to account for inventoriable items in the same manner as materials and supplies that are not incidental (unless its business is a tax shelter as defined in section 448(d)(3)).

A qualifying taxpayer is a taxpayer that for each prior tax year ending after December 16, 1998, has average annual gross receipts of $1 million or less for the 3 prior tax years.

A qualifying small business taxpayer is a taxpayer (a) that for each prior tax year ending on or after December 31, 2000, has average annual gross receipts of $10 million or less for the 3 prior tax years and (b) whose principal business activity is not an ineligible activity.

Under this accounting method, inventory costs for raw materials purchased for use in producing finished goods, and merchandise purchased for resale, are deductible in the year the finished goods or merchandise are sold (but not before the year the cooperative pays for the raw materials or merchandise if it is also using the cash method). For additional guidance on this method of accounting for inventoriable items, see Pub. 538 and the Instructions for Form 3115.

Enter amounts paid for all raw materials and merchandise on line 2. The amount the cooperative can deduct for the tax year is figured on line 9.

All filers not using the cash method of accounting should see Section 263A uniform capitalization rules on page 8 before completing Schedule A.

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.

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.

Enter the amount paid in money or other property (except per-unit retain certificates) to patrons to redeem nonqualified per-unit retain certificates. No deduction is allowed at the time of issuance for a nonqualified per-unit retain certificate. However, the cooperative may take a deduction in the year the certificate is redeemed, subject to the stated dollar amount of the certificate.

See section 1383 and the instructions for line 29h on page 13 for a special rule for figuring the cooperative's tax in the year of redemption of a nonqualified per-unit retain certificate.

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:

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.

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

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.

Inventories can be valued at:

The cooperative is required to use cost if it is using the cash method of accounting.

Cooperatives that account for inventory in the same manner as materials and supplies that are not incidental can currently deduct expenditures for direct labor and all indirect costs that would otherwise be included in inventory costs.

The average cost (rolling average) method of valuing inventories generally does not conform to the requirements of the regulations. See Rev. Rul. 71-234, 1971-1 C.B. 148.

The completed pool method of accounting is not an acceptable method of accounting for federal income tax purposes. See Rev. Rul. 69-71, 1969-1 C.B. 207.

Cooperatives that use erroneous valuation methods must change to a method permitted for federal income tax purposes. Use Form 3115 to make this change.

On line 10a, check the method(s) used for valuing inventories. Under lower of cost or market, the term “market” (for normal goods) means the current bid price prevailing on the inventory valuation date for the particular merchandise in the volume usually purchased by the taxpayer. For a manufacturer, market applies to the basic elements of cost—raw materials, labor, and burden. If section 263A applies to the taxpayer, the basic elements of cost must reflect the current bid price of all direct costs and all indirect costs properly allocable to goods on hand at the inventory date.

Inventory may be valued below cost when the merchandise is unsalable at normal prices or unsalable in the normal way because the goods are subnormal due to damage, imperfections, shop wear, etc., within the meaning of Regulations section 1.471-2(c). The goods may be valued at a current bona fide selling price, minus direct cost of disposition (but not less than scrap value) if such a price can be established.

If this is the first year the Last-in, First-out (LIFO) inventory method was either adopted or extended to inventory goods not previously valued under the LIFO method provided for in section 472, attach Form 970, Application To Use LIFO Inventory Method, or a statement with the information required by Form 970. Also check the LIFO box on line 10c. On line 10d, enter the amount or the percent of total closing inventories covered under section 472. Estimates are acceptable.

If the cooperative changed or extended its inventory to LIFO and had to write up its opening inventory to cost in the year of election, report the effect of this write-up as income (line 9, page 1) proportionately over a 3-year period beginning with the year of the LIFO election (section 472(d)).

For more information on inventory valuation methods, see Pub. 538.

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

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.

Enter dividends (except those received on debt-financed stock acquired after July 18, 1984-see section 246A) that are:

Report so-called dividends or earnings received from mutual savings banks, etc., as interest income. Do not treat them as dividends.

Enter on line 2:

Enter on line 3:

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

Enter dividends received 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.

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.

Enter the U.S.-source portion of dividends that:

Also include dividends received from a less-than-20%-owned FSC that:

Enter the U.S.-source portion of dividends that:

Also include dividends received from a 20%-or-more-owned FSC that:

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:

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).

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.

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.

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

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).

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

Include gross-up for taxes deemed paid under sections 902 and 960.

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:

Include the following:

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

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

Cooperatives are required to allocate income and deductions between patronage and nonpatronage business. If the transaction producing the income merely enhances the overall profitability of the cooperative, being merely incidental to the cooperative's operation, the income is from a nonpatronage source. But if the source of income or loss is from an activity that is an integral part of the cooperative's business (such as inventory), then the source may be patronage (Rev. Rul. 69-576, 1969-2 C.B. 166).

Special rules also apply if a cooperative has acquired the assets of another cooperative under a section 381(a) transaction. Cooperatives may net earnings and losses under section 1388(j) and still be eligible for tax-exempt treatment (section 521(b)(6)).

Cooperatives described in IRC section 1381 engaged in the marketing of agricultural or horticultural products may be eligible to exclude extraterritorial income if the cooperative sells qualifying foreign trade property. No deduction is allowed for patronage dividends, per-unit retain allocations, and nonpatronage distributions related to the excluded foreign trade income. For details, see section 941(b)(2).

Any patronage dividends or per-unit retain allocations that are allocated to qualifying foreign trade income of the cooperative may be treated as qualifying foreign trade income of the patron. In order to qualify, the amount must be designated by the cooperative in a written notice mailed to its patrons not later than the 15th day of the 9th month following the close of the tax year. For more details, see section 943(g).

Lines 1 and 2 apply only to section 521 cooperatives.

Enter the amount actually or constructively paid as dividends during the tax year on:

See Regulations section 1.1382-3(b) for more information.

Enter nonpatronage income allocated to patrons. Payment may be in:

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.

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.

Patronage dividends may be paid in:

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

Most cooperatives figure their tax by using the Tax Rate Schedule next. Exceptions apply to members of a controlled group (see Schedule O).

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

See the Instructions for Form 4626 for definitions and details on how to figure the tax.

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.

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

Enter on line 5c the cooperative's total general business credit.

The following credits are not reported on Form 3800. Check the box for the credit(s) the cooperative is claiming.

If the cooperative is claiming one or more of the following general business credits in conjunction with Form 3800, check the “Form 3800” box and include the allowable credit on line 5c. See the Instructions for Form 3800.

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

Also see Form 8827 if any of the cooperative's 2005 nonconventional source fuel credit, or qualified electric vehicle credit was disallowed solely because of the tentative minimum tax limitation. See section 53(d).

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

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.

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).

The following instructions apply to Form 1120-C, page 4, Schedule K. Complete all items that apply to the cooperative.

The balance sheet should agree with the cooperative's books and records. Include certificates of deposit as cash on line 1, Schedule L.

Cooperatives with total receipts (line 1a plus lines 4 through 9 on page 1) and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2 if the “Yes” box on Schedule K, question 14 is checked.

If filing a consolidated return, report total consolidated assets, liabilities, and shareholder's equity for all cooperatives joining in the return. See Consolidated Return on page 5 of these instructions.

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

Some examples of items to report on this line include:

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

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

Include on line 5c any of the following:

For more information, see Pub. 542.

Show any tax-exempt interest received or accrued including any exempt-interest dividends received as a shareholder in a mutual fund or RIC. Also report this same amount on Schedule K, item 10.