WATCH OUT IF YOU GET A BIG BALANCE DUE NOTICE FROM THE IRS

We recently had a client that got a deficiency notice of over $19,000. The IRS has a problem with understanding the reporting of patronage dividend from the co-ops. Here is what caused the problem. We included the taxable patronage dividend shown in Box 1 of the 1099-PATR as income which is correct. The IRS also included the amount shown in Box 3 of the 1099-PATR as income. Here is where the problem occurred. Box 3 is informational in nature and does not represent taxable income. The amount reported in Box 3 is used in the calculation of the domestic production deduction and is equal to the amount of domestic production gross receipts that must be excluded from calculation of the deduction. The IRS incorrectly picked the Box 3 up as additional income. Just another example of why you need to check with us if you receive a notice from the IRS. As with most notices we receive it is not because of something that we have done incorrectly nor you have done incorrectly, but because of an IRS error.