Domestic Production Activity Deduction for Members of Cooperatives

Farmers are receiving Form 1099-PATR as well as statements about the pass-through of the domestic production activities deduction (DPAD) from their cooperatives. These forms and statements have generated a number of questions from farmers and their income tax preparers. While the rules are confusing, they can have a significant positive effect on the tax returns of members of cooperatives that elect to pass the DPAD through to their members.

Many questions have been raised, but one of the most common questions is how the increased amounts being reported in Box 3 of the Form 1099-PATR should be reported on a farmer’s income tax return. To address that question and related issues, this article begins with a discussion of the DPAD as it applies to cooperatives and their members and then directly addresses the questions raised by the tax forms and statements being sent by cooperatives.