As part of the grain glitch fix passed in March of this year, Congress added a transition provision for cooperatives with a fiscal year beginning in 2017. These cooperatives are allowed to calculate a Domestic Production Activities Deduction (DPAD) and then either keep it or pass part or all of it through to their patrons including C corporations. They must notify their patrons within 8 and half months of their year-end of any DPAD to the patron. This deduction is also reported on Form 1099-PATR.
Since the 8 and half month reporting may happen in 2019, a corporation may have a Section 199 DPAD deduction that can show up on either their 2018 or 2019 tax return or both if they transact with multiple cooperatives.
Here is an example:
Farmer Corporation (a calendar year C corporation) has a calendar year-end. ABC cooperative has a May 31, 2018 year-end. It calculates a DPAD of $5 million which is then reported on a notification to its patrons as of December 15, 2018. Farmer Corporation received a notice of $50,000 of DPAD. It is allowed to deduct this on its 2018 calendar year income tax return even though it may not deduct any other Section 199 DPAD. It also sells grain to XYZ cooperative with a June 30, 2018 year-end. Its share of DPAD from this cooperative of $35,000 is reported to Farmer Corporation on January 15, 2019. The corporation may deduct this on its 2019 income tax return.
Due to the 8 and half month reporting of the DPAD for fiscal year 2017/2018 cooperatives, the latest this deduction can be taken is sometime in 2019 (however, technically, there may be some late year-end fiscal C corporations ending in 2020 that may still get a deduction).
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