The IRS Office of Chief Counsel issued a redacted version of a field advice memorandum* concluding that the taxpayer—a non-exempt cooperative and that is also a partner in a limited liability company (LLC) that is taxable as a partnership—cannot treat the partnership’s grain purchases as the taxpayer cooperative’s per-unit-retain-paid-in-money (PURPIM) under Code section 1388(f), if the partnership purchases grain from the cooperative’s current or former patrons. 20150801F (release date February 20, 2015, and dated April 22, 2014)
Read text of the 21-page field advice memo [PDF 311 KB]
*Field advice memo documents are prepared by IRS field attorneys in the Office of Chief Counsel, are reviewed by an Associate Office, and are subsequently issued to IRS field or service center employees. The memo cannot be used or cited as precedent.
The question asked in the field advice memo is: Can the taxpayer treat the partnership’s grain purchases as the taxpayer’s per-unit-retain-paid-in-money (PURPIM) under section 1388(f) if the partnership purchases grain from the taxpayer’s current or former patrons?
The IRS field advice memo answered this question with a “no” because, assuming the partnership is not an agent of the cooperative, the cooperative cannot treat the partnership’s grain purchases as the cooperative’s PURPIMS because the cooperative did not purchase the grain from its current or former patrons.
The IRS memo continues to explain that an LLC that is taxable as a partnership, and that is neither a cooperative nor an agent of a cooperative with respect to the company’s grain purchases, and that has the burdens and benefits of ownership of these grain purchased from patrons or former patrons of one of its members, that operates on a cooperative basis, can neither issue nor create PURPIMs of its own within the meaning of section1388(f) or of Subchapter T of the Code.
The IRS memo concludes that the LLC’s grain purchases are not the purchases of its cooperative member, merely because these purchases are made from the cooperative’s former or current patrons. The cooperative surrendered its grain dealer’s license. The fact that the LLC is taxable as a partnership for federal income tax purposes and that the cooperative member’s income from the LLC flows through to the cooperative member (as if the cooperative were a partner) is irrelevant, as the LLC itself, is not a cooperative and, thus, cannot ascribe to itself the attributes and ability of a member cooperative to issue PURPIMs.
For more information, contact KPMG’s National Director of Cooperative Tax Services:
David Antoni | +1 (267) 256-1627 | email@example.com
Or Associate National Director of KPMG’s Cooperative Tax Services:
Brett Huston | +1 (916) 554-1654 | firstname.lastname@example.org
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