IRS Publishes Final Regs on New Form 1120-C for Cooperatives

 DEPARTMENT OF THE TREASURY

ACTION: Final regulations.

SUMMARY: This document contains final regulations that prescribe the form that cooperatives must use to file their income tax returns. The regulations affect all cooperatives that are currently required to file an income tax return on either Form 1120, "U.S. Corporation Income Tax Return," or Form 990-C, "Farmers' Cooperative Association Income Tax Return." The new form will help the IRS to properly identify cooperatives and differentiate between cooperatives that must file returns within 2 1/2 months of the end of the taxable year and those that must file within 8 1/2 months of the end of the taxable year.

DATES: Effective date: These regulations will be effective July 30, 2007.

Applicability dates: These regulations apply to returns for taxable years ending on or after December 31, 2007. In addition, taxpayers may rely on the regulations in filing returns for taxable years ending on or after December 31, 2006, and before December 31, 2007.

FOR FURTHER INFORMATION CONTACT: Matthew P. Howard, (202) 622-4910 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Under existing regulations, all cooperatives to which subchapter T applies (Subchapter T cooperatives) are required to make income tax returns. Except in the case of farmers' cooperatives, the regulations require that the return be made on Form 1120. In the case of farmers' cooperatives, the regulations require that the return be made on Form 990-C.

Most taxpayers required to make an income tax return on Form 1120 must file their return on or before the 15th day of the third month following the close of the taxpayer's taxable year (2 1/2 month deadline). Some Subchapter T cooperatives that make their returns on Form 1120 are required to file by the 2 1/2 month deadline, but others are not required to file their returns until the 15th day of the ninth month following the close of the taxpayer's taxable year (8 1/2 month deadline). Because the Form 1120 does not distinguish between Subchapter T cooperatives that must file by the 2 1/2 month deadline and those that must file by the 8 1/2 month deadline, the IRS has difficulty determining which filing deadline applies and deciding whether to assert delinquency and failure to pay penalties in the case of returns filed after the 2 1/2 month deadline.

The Proposed Regulations

On July 29, 2005, a notice of proposed rulemaking was published in the Federal Register (REG-149436-04, 70 FR 43811). The proposed regulations in this notice of proposed rulemaking would require all Subchapter T cooperatives to make their income tax returns on Form 1120-C, "U.S. Income Tax Return for Cooperative Associations," or such other form as may be designated by the Commissioner.

One telephone comment was received in response to the notice of proposed rulemaking. The comment suggested that the new form might have a negative effect on consolidated filing. No public hearing was requested or held.

Explanation of Provisions

After consideration of the comment, the proposed regulations are adopted as revised by this Treasury decision. The final regulations retain the requirement that Subchapter T cooperatives file their returns on Form 1120-C. The information that Subchapter T cooperatives will be required to provide on new Form 1120-C will assist taxpayers and the IRS in determining the appropriate filing deadline. Having that information will reduce the burden on taxpayers and will help the IRS avoid asserting penalties in inappropriate cases. Having all Subchapter T cooperatives make their income tax returns on Form 1120-C will also eliminate confusion over which form to file and will promote efficiency in addressing income tax issues common to Subchapter T cooperatives.

The IRS and Treasury Department believe that this requirement will not have a negative effect on consolidated filing. Subchapter T cooperatives may continue to file returns on behalf of consolidated groups by indicating their filing status on Form 1120-C and complying with the regulations under section 1502 of the Internal Revenue Code (Code).

This requirement to use Form 1120-C was proposed to be effective for taxable years ending on or after December 31, 2006. Because the regulations were not finalized before the end of 2006, the final regulations delay the proposed effective date. The final regulations apply beginning with the first taxable year ending on or after December 31, 2007. Cooperatives may rely on the regulations as proposed, however, and file returns on Form 1120-C for taxable years ending on or after December 31, 2006, and before December 31, 2007.

Effect on Other Documents

The following publications are removed as of July 30, 2007.

Announcement 84-26, 1984-11 IRB 42.

Announcement 84-37, 1984-17 IRB 32.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

Drafting Information

The principal author of these regulations is Matthew P. Howard, Office of Assistant Chief Counsel (Procedure & Administration).

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1 -- INCOME TAXES

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

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

Par. 2. Section 1.6012-2 is amended by revising paragraph (f) to read as follows:

§ 1.6012-2 Corporations required to make returns of income.

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(f) Subchapter T cooperatives -- (1) In general. For taxable years ending on or after December 31, 2007, a cooperative organization described in section 1381 (including a farmers' cooperative exempt from tax under section 521) is required to make a return, whether or not it has taxable income and regardless of the amount of its gross income, on Form 1120 -- C, "U.S. Income Tax Return for Cooperative Associations," or such other form as may be designated by the Commissioner.

(2) Farmers' cooperatives. For taxable years ending before December 31, 2007, a farmers' cooperative organization described in section 521(b)(1) (including a farmers' cooperative that is not exempt from tax under section 521) is required to make a return on Form 990-C, "Farmers' Cooperative Association Income Tax Return."

(3) Effective/applicability date. This paragraph (f) is applicable on or after July 13, 2007.

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