Deduction for income attributable to domestic production activities of specified agricultural or horticultural cooperatives

(A) In general In the case of a taxpayer which is a specified agricultural or horticultural cooperative, there shall be allowed as a deduction an amount equal to 9 percent of the lesser of— (i) the qualified production activities income of the taxpayer for the taxable year, or (ii) the taxable income of the taxpayer for the taxable year.

(B) Limitation (i) In general The deduction allowable under subparagraph (A) for any taxable year shall not exceed 50 percent of the W–2 wages of the taxpayer for the taxable year. (ii) W–2 wages For purposes of this subparagraph, the W–2 wages of the taxpayer shall be determined in the same manner as under subsection (b)(4) (without regard to subparagraph (B) thereof and after application of subsection (b)(5)), except that such wages shall not include any amount which is not properly allocable to domestic production gross receipts for purposes of paragraph (3)(A).

(C) Taxable income of cooperatives determined without regard to certain deductions For purposes of this subsection, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under subsection (b) or (c) of section 1382 (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).

(A) In general In the case of any eligible taxpayer who receives a qualified payment from a specified agricultural or horticultural cooperative, there shall be allowed as a deduction for the taxable year in which such payment is received an amount equal to the portion of the deduction allowed under paragraph (1) to such cooperative which is— (i) allowed with respect to the portion of the qualified production activities income to which such payment is attributable, and (ii) identified by such cooperative in a written notice mailed to such taxpayer during the payment period described in section 1382(d).

(B) Limitation based on taxable income The deduction allowed to any taxpayer under this paragraph shall not exceed the taxable income of the taxpayer determined without regard to section 68 or the deduction allowed under this paragraph and after taking into account any deduction allowed to the taxpayer under subsection (a) for the taxable year.

(C) Cooperative denied deduction for portion of qualified payments The taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section 1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under subparagraph (A) with respect to such payment.

(D) Eligible taxpayer For purposes of this paragraph, the term “eligible taxpayer” means— (i) a taxpayer other than a corporation, or (ii) a specified agricultural or horticultural cooperative.

(E) Qualified payment For purposes of this section, the term “qualified payment” means, with respect to any eligible taxpayer, any amount which— (i) is described in paragraph (1) or (3) of section 1385(a), (ii) is received by such taxpayer from a specified agricultural or horticultural cooperative, and (iii) is attributable to qualified production activities income with respect to which a deduction is allowed to such cooperative under paragraph (1).

For purposes of this subsection—

(A) In general The term “qualified production activities income” for any taxable year means an amount equal to the excess (if any) of— (i) the taxpayer’s domestic production gross receipts for such taxable year, over (ii) the sum of— (I) the cost of goods sold that are allocable to such receipts, and (II) other expenses, losses, or deductions (other than the deduction allowed under this subsection), which are properly allocable to such receipts.

(B) Allocation method The Secretary shall prescribe rules for the proper allocation of items described in subparagraph (A) for purposes of determining qualified production activities income. Such rules shall provide for the proper allocation of items whether or not such items are directly allocable to domestic production gross receipts.

(C) Special rules for determining costs (i) In general For purposes of determining costs under subclause (I) of subparagraph (A)(ii), any item or service brought into the United States shall be treated as acquired by purchase, and its cost shall be treated as not less than its value immediately after it entered the United States. A similar rule shall apply in determining the adjusted basis of leased or rented property where the lease or rental gives rise to domestic production gross receipts. (ii) Exports for further manufacture In the case of any property described in clause (i) that had been exported by the taxpayer for further manufacture, the increase in cost or adjusted basis under clause (i) shall not exceed the difference between the value of the property when exported and the value of the property when brought back into the United States after the further manufacture.

(D) Domestic production gross receipts (i) In general The term “domestic production gross receipts” means the gross receipts of the taxpayer which are derived from any lease, rental, license, sale, exchange, or other disposition of any agricultural or horticultural product which was manufactured, produced, grown, or extracted by the taxpayer (determined after the application of paragraph (4)(B)) in whole or significant part within the United States. Such term shall not include gross receipts of the taxpayer which are derived from the lease, rental, license, sale, exchange, or other disposition of land. (ii) Related persons (I) In general The term “domestic production gross receipts” shall not include any gross receipts of the taxpayer derived from property leased, licensed, or rented by the taxpayer for use by any related person. (II) Related person For purposes of subclause (I), a person shall be treated as related to another person if such persons are treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or ( o ) of section 414, except that determinations under subsections (a) and (b) of section 52 shall be made without regard to section 1563(b).

For purposes of this section—

(A) In general The term “specified agricultural or horticultural cooperative” means an organization to which part I of subchapter T applies which is engaged— (i) in the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, or (ii) in the marketing of agricultural or horticultural products.

(B) Application to marketing cooperatives A specified agricultural or horticultural cooperative described in subparagraph (A)(ii) shall be treated as having manufactured, produced, grown, or extracted in whole or significant part any agricultural or horticultural product marketed by the specified agricultural or horticultural cooperative which its patrons have so manufactured, produced, grown, or extracted.

(A) Special rule for affiliated groups (i) In general All members of an expanded affiliated group shall be treated as a single corporation for purposes of this subsection. (ii) Partnerships owned by expanded affiliated groups For purposes of paragraph (3)(D), if all of the interests in the capital and profits of a partnership are owned by members of a single expanded affiliated group at all times during the taxable year of such partnership, the partnership and all members of such group shall be treated as a single taxpayer during such period. (iii) Expanded affiliated group For purposes of this subsection, the term “expanded affiliated group” means an affiliated group as defined in section 1504(a), determined— (I) by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and (II) without regard to paragraphs (2) and (4) of section 1504(b). (iv) Allocation of deduction Except as provided in regulations, the deduction under paragraph (1) shall be allocated among the members of the expanded affiliated group in proportion to each member’s respective amount (if any) of qualified production activities income.

(B) Special rule for cooperative partners In the case of a specified agricultural or horticultural cooperative which is a partner in a partnership, rules similar to the rules of subsection (f)(1) shall apply for purposes of this subsection.

(C) Trade or business requirement This subsection shall be applied by only taking into account items which are attributable to the actual conduct of a trade or business.

(D) Unrelated business taxable income For purposes of determining the tax imposed by section 511, this section shall be applied by substituting “unrelated business taxable income” for “taxable income” each place it appears in this section (other than this subparagraph).

(E) Special rule for cooperative with oil related qualified production activities income (i) In general If a specified agricultural or horticultural cooperative has oil related qualified production activities income for any taxable year, the amount otherwise allowable as a deduction under paragraph (1) shall be reduced by 3 percent of the least of— (I) the oil related qualified production activities income of the cooperative for the taxable year, (II) the qualified production activities income of the cooperative for the taxable year, or (III) taxable income. (ii) Oil related qualified production activities income For purposes of this subparagraph, the term “oil related qualified production activities income” means for any taxable year the qualified production activities income which is attributable to the production, refining, processing, transportation, or distribution of oil, gas, or any primary product thereof (within the meaning of section 927(a)(2)(C), as in effect before its repeal) during such taxable year.

The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this subsection, including regulations which prevent more than 1 taxpayer from being allowed a deduction under this subsection with respect to any activity described in paragraph (3)(D)(i). Such regulations shall be based on the regulations applicable to cooperatives and their patrons under section 199 (as in effect before its repeal).