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Ruling allows TMA’s partnered cooperatives to pass significant tax deduction on to members

Through a requested IRS Private Letter Ruling, TMA’s partnered cooperatives have found a path to pass a significant tax deduction on to the producers who are members through the Domestic Production Activities Deduction (DPAD).

DPAD, often referred to as Section 199 Deduction, is a special federal tax provision allowing a cooperative to allocate to its members a tax deduction generated by “qualified production activities.” As outlined by the Internal Revenue Service, and as it relates to the DPAD, grain payments the cooperative makes to its members are considered qualified production activities by the cooperative, thus making the cooperative and its members eligible for the tax deduction.

The favorable ruling will allow the partnered cooperatives within Team Marketing Alliance, Inc. to utilize a $5M deduction previously not available to the cooperatives or their members. The ruling, which will require specific process and documentation changes by TMA and the partnered cooperatives, will have a significant financial impact on their local communities and members.

DPAD is a tax deduction established to benefit the U.S. manufacturers and oil companies for domestic production. Farmers are domestic producers and are eligible for the tax deduction.

Similar to patronage, this deduction will be shared by members based on the amount of grain business each member does with the cooperative.

Once the Domestic Production Activities Deduction is calculated by each individual cooperative, the cooperative is allowed to pass through the deduction to its members. Once reported to the members on a 1099 Tax Form, the member will be allowed to utilize the deduction on their personal or corporate income tax return.

To learn more about the benefits of the tax deduction, TMA encourages members to address questions to their tax professional or accountant.