This past fall, the Internal Revenue Service (IRS) approved MKC’s Private Letter Ruling (PLR) request to change the calculation of its Domestic Production Activities Deduction for upcoming years. The ruling, while requiring certain changes to grain purchasing processes, allows MKC to significantly enhance the value of it’s Domestic Production Activities Deduction (tax deduction) for its members and the company.
The Domestic Production Activities Deduction, often referred to as Section 199 Deduction, is a special federal income tax provision that allows a cooperative to allocate to its members a tax deduction generated by “qualified production activities.” As outlined by the IRS and as it relates to the Domestic Production Activities Deduction, the payments MKC makes to its members for grain are considered qualified production activities by the cooperative, thus making the cooperative and its members eligible for the tax deduction.
Danny Posch, Chief Financial Officer for MKC, commented that the coop initiated a plan at the beginning of the year to fully capture the value of the deduction for the members. “Part of that plan includes communicating details and the benefits of the Domestic Production Activities Deduction, as well as the requirements to participate in the deduction to our members,” stated Posch.
Posch added that communication to members will be rolled out over the next six to eight months and will include the following:
- Eligibility requirements to participate in the deduction (tax benefit)
- Explanation of the process changes required in the grain settlement process
- How the deduction will be calculated for individual members
- Documentation (Master Marketing Agreement) required by the IRS
- 1099 reporting for per unit retains (grain purchases)
- 1099 reporting for the domestic production activities deduction
- Future member and tax preparer informational meeting dates