Form 1120-C: Tax Return for Cooperative Associations

Form 1120-C, the U.S. Income Tax Return for Cooperative Associations, is a specialized federal tax return. It is used to report the income, gains, losses, deductions, and credits of a corporation operating on a cooperative basis and to calculate its annual income tax liability to the Internal Revenue Service (IRS).

Determining Filing Requirements

Filing Form 1120-C is required for any corporation that operates on a cooperative basis as defined under Internal Revenue Code Section 1381. This includes entities that allocate amounts to their patrons based on the volume of business conducted with or for those patrons. Operating on a cooperative basis involves principles such as democratic control by members and vesting the primary ownership in its members.

This filing requirement extends to various types of cooperatives, including farmers’ cooperatives, purchasing cooperatives, and housing cooperatives. Farmers’ cooperatives that qualify as exempt organizations must file Form 1120-C, regardless of whether they have taxable income for the year.

Information and Schedules for Completion

The main page of the form requires basic identifying information, such as the cooperative’s Employer Identification Number (EIN), business address, and the date of incorporation. It also serves as the summary page for reporting total income, various deductions, and the final tax computation.

For Schedule C, “Dividends and Special Deductions,” the cooperative must gather information on all dividends received and paid. Schedule J, “Tax Computation,” requires the data to calculate the cooperative’s income tax, including any alternative minimum tax. For Schedule K, “Other Information,” the cooperative will need to provide details about its business activity code and accounting method.

A complete financial picture is necessary for Schedule L, the “Balance Sheet,” which requires a detailed breakdown of the cooperative’s assets, liabilities, and equity at the beginning and end of the tax year. Schedule M-1, “Reconciliation of Income (Loss) per Books With Income per Return,” requires the cooperative to reconcile the net income reported on its financial statements with the taxable income reported on the return.

Calculating Cooperative Specific Deductions

Cooperative taxation involves deductions that are unique to this business structure, primarily related to the distribution of earnings to patrons. The primary deduction is for patronage dividends, an amount paid to a patron that is determined by reference to the net earnings of the organization from business done with or for its patrons. To be deductible, these payments must be made under a pre-existing obligation, be based on the quantity or value of business conducted, and be properly communicated and paid to the patrons.

Another specific deduction available to cooperatives is for per-unit retain allocations. These are allocations paid to patrons with respect to products marketed for them, which are fixed without reference to the net earnings of the cooperative. The calculation of this deduction is based on the amount paid in money, qualified per-unit retain certificates, or other property.

For patronage dividends, the cooperative must pay them during the “payment period,” which ends on the 15th day of the 9th month after the end of the cooperative’s tax year. The cooperative must also provide patrons with a written notice of allocation, disclosing the stated dollar amount of the dividend.

Filing Procedures and Deadlines

The filing deadline depends on the type of cooperative. For most cooperatives, the return is due by the 15th day of the 4th month after the end of its tax year. For exempt farmers’ cooperatives, the due date is the 15th day of the 9th month following the close of the tax year. A cooperative with a fiscal tax year ending on June 30 must file by the 15th day of the 3rd month after its year-end.

If a cooperative needs more time to prepare its return, it can request an automatic six-month extension by filing Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.” This form must be filed by the original due date. An extension to file is not an extension to pay, so the cooperative must estimate and pay any expected tax liability by the original deadline to avoid penalties. Payments can be made through various methods, including the Electronic Federal Tax Payment System (EFTPS).

Completed returns can be submitted to the IRS through traditional mail or electronically. The specific mailing address depends on the cooperative’s total assets and state of operation, with these addresses available in the form’s instructions. Certain large cooperatives, those with $10 million or more in total assets, are required to e-file their returns.