AICPA Submits Recommendations to IRS Regarding Treasury Regulations for Cooperatives and Their Patrons

September 9, 2019

Washington, D.C. (September 9, 2019) –The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) concerning the proposed section 199A Department of the Treasury regulations for cooperatives and their patrons.

The proposed regulations provide guidance on the application of sections 199A(a), 199A(b)(7) and 199A(g) regarding the deduction for qualified business income as well as guidance to specified agricultural and horticultural cooperatives and their patrons.  While section 199A(a) is generally available to patrons of all cooperatives, sections 199A(b)(7) and 199A(g) apply only to specified agricultural or horticultural cooperatives and their patrons.  In addition, these new proposed regulations suggest withdrawing the regulations under former section 199, which were repealed as part of the H.R. 1625.

The AICPA offers the following comments and recommendations related to the Treasury and the IRS notice of proposed rulemaking REG-118425-18:

  • Definition of Patronage and Nonpatronage Through the Directly Related Use Test
  • Allocation of C Corporation Patron Deduction
  • Election Out of the Section 199A Deduction
  • Determination of Income Received from Cooperatives
  • Qualified Payments
  • Qualified Activities

Specifically, Christopher Hesse, CPA, Chair, AICPA Tax Executive Committee, recommends that “Treasury and the IRS should remove the definition of patronage and nonpatronage in Prop. Treas. Reg. § 1.1388-1(f).  The definition places pressure on the general application of Subchapter T and the determination of patronage and nonpatronage sources of income and deductions.”