Proposed regulations were released June 18, clarifying how the section 199A passthrough deduction applies to cooperatives and their patrons. Among other things, the proposed regulations specify that cooperatives must calculate and provide to their patrons certain information the patrons will need in order to calculate their section 199A deduction.
These regulations help implement statutory changes Congress enacted in 2018 that addressed the so-called “grain glitch” - provisions in section 199A as originally enacted that potentially advantaged businesses that sold product to cooperatives over those who did not.
The regulations also provide guidance to specified agricultural and horticultural cooperatives and their patrons, who may be claiming the domestic production activities deduction, and propose to remove final regulations and withdraw proposed regulations under former section 199.
The guidance is proposed to apply to tax years beginning after the date when the regulations are published in final form in the Federal Register. However, taxpayers can rely on the proposed regulations before that date if they do so in their entirety.