The IRS publicly released a private letter ruling* addressing the tax treatment of a farming cooperative’s share of income (or loss) from a joint venture entered into with another cooperative, when the joint venture is established as a limited liability company (LLC). The IRS also addressed the implications of this arrangement on the domestic production activities deduction under section 199. PLR 201601004 (release date December 31 2015, and dated September 28, 2015)
Read PLR 201601004 [PDF 80 KB]
The taxpayer is a cooperative that provides its members with products and services used in farming (including fertilizers, herbicides, pesticides, turf products, and fuel). The taxpayer also markets grain raised by its members. The taxpayer and a neighboring cooperative are considering combining their grain marketing operations. As part of this joint venture, they would form a limited liability company (LLC) that would be taxed as a partnership. In combining their grain marketing activities, it is anticipated that the LLC would be able to achieve significant cost savings. Each party would receive a fixed percentage interest in the LLC, and their distributive share of partnership net gain or loss (and other items) would be based on this percentage.
Among the items addressed in the letter ruling, the IRS ruled that the taxpayer’s distributive share of net income (or loss) from the LLC attributable to grain marketing activities will be patronage-sourced, and that the grain payments to members and participating patrons will constitute “per-unit retain allocations paid in money” (PURPIMs). The IRS also ruled that the taxpayer will be treated as having manufactured, produced, grown or extracted the grain purchased from its members and participating patrons for purposes of section 199, and that the section 199 domestic production activities deduction will be computed without regard to any deduction for the grain payments made to members and participating patrons.
*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.
For more information, contact KPMG’s National Director of Cooperative Tax Services:
David Antoni | +1 (267) 256-1627 | firstname.lastname@example.org
Or Associate National Director of KPMG’s Cooperative Tax Services:
Brett Huston | +1 (916) 554-1654 | email@example.com
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