A cooperative (or “co-op”) is an organization that is owned and run jointly by its members. And since a cooperative business belongs to the people who organized to provide the goods and services, they share the profits or benefits. Distributions to the members of the co-operative are known as patronage dividends.
IRS Form 1099-PATR (Taxable Distributions Received from Cooperatives) is an information return used by cooperatives to report distributions exceeding $10 in patronage dividends or other distributions. It is also used to report any amount of federal income tax withheld under backup withholding rules. For instance, if a payee did not furnish a tax identification number to the cooperative, the payer is required to backup withhold at 28%.
Many or most cooperatives will be required to fill out a 1099-PATR form for each recipient that received distributions. There are exemptions for some types of cooperatives for reporting these distributions. In particular, cooperatives that are mostly created for the sale of goods and services that are used for personal, living, or family expenses can apply for an exemption from the IRS. But, the IRS must first qualify the cooperative from exemption before it can be determined that no 1099-PATR form should be required. A tax professional should always be consulted if there is a question on whether or not a 1099-PATR information return should be filed.
The top of Form 1099-PATR asks for payer name, address, phone and TIN. The payer is this case is the cooperative itself. The bottom part asks for the recipient name, address and TIN.
There are 10 boxes on IRS Form 1099-PATR. Each box is discussed below:
Account number. This is a unique number the cooperative uses to distinquish it’s members or payees.
Box 1. Shows the patronage dividends paid to a member during the year.
Box 2. Shows the nonpatronage dividends paid to a member during the year.
Box 3. Shows the per-unit-retain allocations paid to a member during the year.
Box 4. Shows the federal income tax withheld or backup withholding.
Box 5. Shows redemption of nonqualified notices and retain allocations.
Box 6. Shows domestic production activities deduction.
Box 7. Shows unused investment credit passed through to a member by the cooperative.
Box 8. Shows unused work opportunity credit passed through to a member by the cooperative. This credit is scheduled to expire on December 31, 2012.
Box 9. Shows patron’s alternative minimum tax (AMT) adjustment passed through to a member by the cooperative.
Box 10. Shows other unused credits and deductions (including depreciation) passed through to a member by the cooperative.
