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Transition DPAD from a Cooperative

We have gotten numerous emails regarding the Form 1099-PATR that farmers have received from cooperatives over the last few days. Box 6 of the Form 1099-PATR shows the amount of Domestic Production Activities Deduction (DPAD) that the cooperative has elected to pass through to the patron.

In almost all cases, the amount shown on Form 1099-PATR in this box for 2018 will be the old Section 199 DPAD. This deduction goes on Form 8903 and is deducted above the line. The only limit on this deduction is taxable income including capital gains. This is the transition DPAD brought into law by the Grain Glitch Fix.

The only way that a cooperative would have any Section 199A DPAD to pass out this year is if they elected to push this DPAD out in advance with a written notice to the patron, likely in late December. Without this written notice, there is no DPAD to the patron.

Many cooperatives passed out extra DPAD at the end of 2017; therefore many of your farmers will likely have no or very little DPAD this year. Some farmers may receive a Form 1099-PATR showing DPAD and others may not receive any DPAD from the same cooperative. That cooperative passed out extra DPAD last December and only the patrons with business with the cooperative between January 1, 2018 and the fiscal year-end of the cooperative got DPAD in 2018.

Many others have asked what happens if the cooperative does not pass out DPAD at all. In that case, the assumption is that those payments received between January 1, 2018 and the fiscal year-end of the cooperative are included in QBI. WRONG. These payments are not allowed to be used in calculating the Section 199A deduction. It does not matter if the cooperative passes out a DPAD or retains 100% of the DPAD. The patron does not get to use those payments.

, Farm Taxes | 11 Comments ยป

  • Principal
  • CliftonLarsonAllen
  • Walla Walla, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.

Comments

  • Mitch Edwards
  • February 13, 2019

We have multiple clients who sell their cotton through a cotton marketing coop. The 1099-PATR’s are only reporting patronage dividends, no per-unit retain allocations. Should we consider payments from the coop to our clients that are not reported on the 1099-PATR for purposes of payments that should be excluded from QBI?

  • Matt
  • February 12, 2019

We have a sugar beet processing co-op with a Fiscal year end of August 2018. “Pool” payments were received for 2017 crop in 2018 during April 2018 with final 2017 crop pool payment in October 2018. The first pool payment for 2018 crop year is paid in December 2018. The co-op passed a DPAD to the patrons on ALL payments received for calendar year 18′.

I understand that we need to include the April and October 2018 payments in “Bucket 1” since those are based on 2017 crop, but what about the December 2018 pool payment for crop year 2018 that is included in Section 199A DPAD? It would seem that December payment would need to be included in “Bucket 1” where it does not qualify for Section 199a QBI for the 20% deduction, otherwise there would be double dipping with a combination of Section 199A DPAD and Section 199A 20% QBI deduction. Thank you.

  • Patty N
  • February 9, 2019

Thanks for all your guidance on these posts Paul – think we’d all be lost without it this year!
Most my grain farmers use a local coop with a 10/31 year end. The Coop did NOT allocate any DPAD to farmers in 2018 and did not allocate any at end of 2017 after 10/31/17 year end.
Per your comments above – those farmers can not include ANY coop sales from 1/1/18 to 10/31/18 in 199A deduction for 2018, correct??
If so, those farmers that sell 100% to that coop will need to reduce Sch F QBI calculation by the % of 1/1-10/31 grain sales to total Sch F farm receipts, correct? So essentially Sch F QBI will be a percentage based on 2 months grain sales (nov & Dec), plus USDA, crop insur proceeds, etc.
Appreciate your guidance!

  • Marla Coffman
  • February 7, 2019

If a farmer sells to a cooperative but is not a member/owner and does not receive a 1099-PATR, should those sales be treated as regular non-cooperative grain sales?

  • Maggie
  • February 6, 2019

The instructions for Form 8903 seem to indicate that we should not use Form 8903 to report DPAD passed on a Form 1099-PATR (our software doesn’t even include Form 8903 this year). All of the farmers who have brought in their cooperative 1099’s have at least some DPAD reported in box 6. The instructions seem to indicate if they did not pay wages there is no patron reduction to QBI and instead we should increase the calculated QBI deduction by amounts reported as DPAD on the 1099-PATR box 6. Is this an incorrect way of interpreting the instructions? Also – I feel like the lady in the picture above pulling out her hair! Thanks!

  • Paul Neiffer
  • February 7, 2019

You still use Form 8903 for reporting any fiscal year partnership and S corporation flow through QPAI information plus the DPAD from a cooperative goes on this form. The deduction then flows to Schedule 1 and is deducted at the very bottom as part of line 36.

  • Brian Graham
  • February 5, 2019

I have a schedule F Loss of $100,000 (All sales to the coop before fiscal year end of August 31)
I have a schedule C income of $130,000

Are we correct in thinking we can take a QBI deduction on $130,000 of Schedule C since the F Loss is due to coop sales and now is considered Non QBI so to speak. So we not net the 2 schedules to figure QBI.

thanks Paul.

  • James
  • February 5, 2019

What if the grain co-op does not report any amount in box 3 for PURPIM. If the co-op isn’t using that amount to compute their DPAD, should the farmer be able to use those grain sales for QBI?

  • Brian Graham
  • February 5, 2019

If we have dpad pass through from an FS which is based on merchandise purchases can we still claim the domestic deduction on the federal return. It is for a partnership which is already showing a loss.

Our gut feeling is yes we can deduct on the other deductions line and pass through to the farmer and take on the farmer return assuming enough taxable income exists.

We just want to make sure we are not assuming anything since most of the dpad pass through and section 199A is based on grain sales.

thanks Paul

  • Paul Neiffer
  • February 7, 2019

The DPAD can be pushed through to the taxpayers and then they calculate on their individual tax return. If it is only purchases, there will be little or no adjustment for cooperative income.

  • Roku
  • February 4, 2019

Nice Blog thanks for sharing with us.

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