NATIONAL COUNCIL OF FARMER COOPERATIVES...

LTA ConferenceFeb. 12-13, 2015 * San Diego, CA

Paradise Point

NATIONAL COUNCIL OF FARMER COOPERATIVES

Tel: 202-626-8700 Fax: 202-626-8722

50 F Street, NW Suite 900 Washington, DC 20001

www.ncfc.org

Representing the Business Interests of Agriculture

To: Legal, Tax and Accounting Committee Members and Guests Welcome to San Diego! I think you’ll find that we have a great lineup of topics and speakers this year. The conference program qualifies for CLE and CPE credits, so remember to sign-in each day for credit. The CFO roundtable will take place on Wednesday afternoon from 2:00-5:00 in Palm 3-5. All CFOs are invited to attend. Conference participants, spouses, and guests are invited to attend the Welcome Reception from 6:00pm – 8:00pm on the Paradise Terrace. On Thursday morning the LTA sessions open with an informal roundtable discussion of current tax developments in the Garden Room from 7:00 to 8:15 -- all are welcome and breakfast will be provided. The LTA Conference begins on Thursday morning at 8:30 with participation in the NCFC General Session in the Paradise Ballroom—Island, Pacific & Royal. The LTA session starts at 10:30a.m. in Mission Bay. Please plan to attend the Cooperators reception on Thursday evening from 6:00-8:00 in the Sunset Ballroom; spouses and guests are also welcome. On Friday morning you are invited to hear Terry Barr give his economic outlook for 2015 in the Paradise Ballroom from 7:00 to 8:15. A plated breakfast will be served. The LTA Conference begins at 8:30 in Mission Bay and ends at noon. NCFC welcomes your feedback on all aspects of the conference, so please take the time to complete the evaluation form you will find on your chair each day. If you need additional information or assistance, please contact me at 202-468-6021 or see the NCFC staff at the registration desk. Best regards,

Marlis Carson Senior Vice President & General Counsel

2014 EXECUTIVE COMMITTEE OF THE LEGAL, TAX AND ACCOUNTING COMMITTEE

COMMITTEE LEADERSHIP

Charles Woltmann (Chair) Senior Vice President, Law, and General Counsel Sunkist Growers, Inc. Charles Woltmann has been Sunkist’s Senior Vice President, Law, and General Counsel since 2008. Prior to that, from 1973-1974, he was a law clerk to the Honorable Samuel P. King, Chief Judge, U.S. District Court of Hawaii. From 1975-2000 he was an associate and an officer at the Los Angeles law firm of Tuttle & Taylor, and from 2000-2007 was a partner at Troy and Gould, also in Los Angeles. Charles is a graduate of Yale College (B.A., Phi Beta Kappa, Magna Cum Laude, 1969), Yale Law School (J.D. 1973), and was the Articles Editor, of the Yale Law Journal. He is co-author of “Agribusiness in California: An Introduction to Farmer Cooperatives”, Business Law News, State Bar of California, Vol. XX, Issue 1, Winter 1999 as well as “Agricultural Cooperative Associations”, California Transaction Forms, Business Entities, Vol. 5, published by Bancroft Whitney. Richard Cisne, CPA (Vice-chair) Partner Hudson, Cisne & Co. Richard L. (Dick) Cisne, Certified Public Accountant, is from Little Rock, Arkansas, and a founding partner of Hudson, Cisne & Co. He is a graduate of the University of Arkansas and an avid Razorback fan. Prior to starting his own firm, Dick was a partner in Arthur Young & Co. While with Arthur Young, he served as their National Cooperative Industry Coordinator and became very active in the National Society of Accountants for Cooperatives (NSAC) and the National Council of Farmer Cooperatives (NCFC) and its LTA Committee. He served many years as Chairman of NSAC’s Tax Committee and as a national director. Dick is past president of the Mississippi Valley Chapter of NSAC. For many years he has served as a chair or vice chair of an LTA Reporting Subcommittee. He is currently the chair of the “Financial Reporting and Audit Issues” subcommittee. He was closely involved, through the NCFC, in writing Section 1388j of the Internal Revenue Code, i.e., the netting legislation. Hudson, Cisne & Co. is the fifth largest CPA firm in Arkansas and was “Business of the Year” in Arkansas for 1999. In addition to their cooperative expertise, they serve some of Arkansas’ largest construction companies, along with many manufacturing, agri-business and professional firms. Dick is a Rotarian and director of the Central Arkansas Boys & Girls Club and Bank of the Ozarks. He is a board member of three foundations including the Arkansas State Police Foundation.

COMMITTEE MEMBERS Kevin Feeley Partner McDermott, Will & Emery LLP Kevin J. Feeley is a partner in the law firm of McDermott, Will & Emery LLP and is based in the Firm’s Chicago office. He focuses his practice on the taxation of complex transactions, with particular emphasis on structuring mergers and acquisitions, tax-free reorganizations, recapitalizations, and restructurings of financially troubled companies. In addition, Kevin has extensive experience in structuring and implementing partnership and limited liability company transactions, including joint ventures and private equity fund formations and investments. His experience also includes advising closely held companies, family offices, S corporations and cooperative organizations on tax planning issues and strategies. A significant part of Kevin’s practice includes advising sponsors of, and investors in, private equity funds, hedge funds and other alternative investment structures. His work for sponsors includes fund formation work, advising on the acquisitions and dispositions of portfolio companies, and structuring partnership equity compensation arrangements. He also routinely advises a number of large pension funds and university endowments on the tax implications of alternative investments. Kevin is a frequent lecturer, having spoken on a number of Federal tax topics at Tax Executive Institute chapter meetings, the Chicago Tax Club, Bar association meetings and trade associations. Kevin is also on the Planning Committee for the Chicago-Kent College of Law Annual Federal Tax Institute and was formerly an Advisory Board member for the bi-monthly CCH publication Journal of Taxation of Corporate Transactions. Kevin has authored a number of articles on Federal tax topics, including most recently:

Partnership Debt-for-Equity Regulations: Lenders Beware, Journal of Taxation and Regulation of Financial Institutions, (Nov./Dec., 2012) Non-Economic Risk of Loss: Allocating Partnership Debt in Controlled Groups, BNA Tax Management Real Estate Journal, (Dec. 7, 2011) Disregarding a Liquidation: The Bizarre Browning-Ferris Case, Tax Notes (June 16, 2008)

Kevin received his bachelor’s degree from the University of Illinois, graduating with honors in 1987. He received his law degree, cum laude, from Loyola University of Chicago in 1990. While in law school, Kevin was executive editor of the Law Review. Kevin is also an adjunct faculty member at both Chicago Kent College of Law and DePaul University School of Law where he teaches courses on the taxation of corporate reorganizations. Kevin is a member of the bars of the State of Illinois, the U.S. Tax Court, the U.S. Court of Appeals for the Seventh and Eighth Circuits and the Supreme Court of the United States. Steven P. Rowe Senior Vice President and General Counsel Northwest Dairy Association/Darigold, Inc. Steven P. Rowe is the Senior Vice President of the Northwest Dairy Association (NDA) and General Counsel for Darigold, Inc. and its affiliates. NDA is a 550 member farmer-owned dairy cooperative that operates throughout the Northwest including Washington, Oregon, Idaho, Montana, Utah and Northern California. NDA owns the dairy processor and milk marketer, Darigold, Inc.

Steve has spent his career in both private legal practice and as a business executive. He started with Darigold in 2005 and is currently responsible for milk supply and member services. He also oversees the communications, legal and public affairs aspects of the business. Steve holds a degree in Natural Resources from the University of Michigan and a law degree from the University of Utah. He lives on Bainbridge Island, near Seattle, Washington with his wife and three children.

PAST CHAIR Robert (Bob) Glass (Chair) Tax Director Land O’Lakes Bob Glass is the tax director at Land O’Lakes and has been with the company for 15 years. Prior to coming to Land O’Lakes, Bob was a tax manager at KPMG – after a 12 year career at the State of Minnesota as an auditor. Bob has been very active in LTA, TEI and NSAC.

2014 LTA Conference Attendees

Name Company Anthony Aaron Ice Miller LLP Kevan Acord BridgeBuilder Tax + Legal Services PA Robert Andersen Nebraska Cooperative Council Scott Anderson KFSA David Antoni KPMG LLP Sharon Appelt Northwest Dairy Association/Darigold Trica Arnold ALABAMA FARMERS Marla Aspinwall Loeb & Loeb LLP Matthew Aufman Welch Foods Inc., A Cooperative Alex Bachelor Dairy Farmers of America, Inc. Jerry Bahma Southern Minnesota Beet Sugar Cooperative Donald Barnes Porter Wright Morris & Arthur Braden Bender Sun-Maid Growers of California George Benson McDermott Will & Emery LLP Terry Bertholf KFSA Brent Bostrom GROWMARK, Inc. Larry Boyle Ocean Spray Cranberries Kim Bram Southern States Cooperative, Incorporated Jeffrey Brandenburg CliftonLarsonAllen LLP Dwaine Brown Tree Top, Inc. B Andrew Brown Dorsey & Whitney LLP Chris Brumfield Farm Credit West David Buck AKT David Burlage CoBank Linda Buss West Central John Caragozian Sunkist Growers, Inc. Teresa Castanias Teresa Castanias CPA Amy Chambers KFSA Al Cheatham Alabama Farmers Cooperative, Inc. Dick Cisne Hudson, Cisne & Co. CPA's Kevin Cody Dairy Farmers of America, Inc Robert Condron MFA Oil Company Renee Cool Dairy Farmers of America, Inc. Michael Cornett KPMG William Covey Heyl Royster Jon Cowell Ocean Spray Cranberries, Inc. John Curran Land O'Lakes, Inc. John Dauwalter Baker Tilly Virchow Krause, LLP Conrad Davis Crowe Horath LLP Sam Deeb Dairy Farmers of America Robert Dowd Griswold LaSalle Cobb Dowd & Gin LLP Christopher Duggan Dorsey & Whitney LLP Dennis Edstrom Ag Processing Inc a cooperative Theresa Egan CHS Inc. Todd Eskelsen Schiff Hardin LLP Gail Faries D Williams & Co., CPA's Kevin Feeley McDermott Will & Emery LLP Philip Fileri Harter Secrest & Emery LLP Michael Fincher Deloitte Tax LLP Mary Fortney GROWMARK, Inc. Amy Gales CoBank


Dennis Gardiner Gardiner Thomsen CPAs Mark Gardiner Gardiner Thomsen, CPA's Mark Gasbarra Forte International Tax LLC David Geisler Dairy Farmers of America, Inc. John Gerken West Central Robert Glass Land O'Lakes, Inc. Tim Goodman Dorsey & Whitney RJ Gray Oklahoma Agricultural Cooperative Council, Inc. Jon Greeley NORPAC Foods, Inc. Barry Groebel Herbein+Company, Inc. Katherine Hall Moss Adams LLP Daniel Hall GROWMARK, Inc. Rob Helmholz PricewaterhouseCoopers LLP Julian Heron Blue Diamond Tara Hibbard Baker Tilly Virchow Krause, LLP Todd Hoppe Foster Swift Collins & Smith PC Shannon Huff Tennessee Farmers Cooperative Brett Huston KPMG LLP Sacramento William Hutchison Lane Powell PC Vanessa Jacobsen Eimer Stahl LLP Peter Janzen Land O'Lakes, Inc. Tina Johnson Alabama Farmers Cooperative, Inc. Richard Kasper Minn-Dak Farmers Cooperative Leslie Kaufman Kansas Cooperative Council Patrick Kautzman Eide Bailly LLP Ellene Kebede Tuskegee University Ana Klein Sunsweet Growers Inc. Dustin Klinger Miller Nash LLP Dan Knutson Land O'Lakes, Inc. Eric Krienert CliftonLarsonAllen Eric Kroll Baker Tilly Dean La Vallee Blue Diamond Growers Christine Lau Sunsweet Growers Inc. Michael Lensmire CliftonLarsonAllen LLP Michael Lindsay DORSEY & WHITNEY LLP Kristi Livingston Missouri Institute of Cooperatives David Longinotti Hanson Bridgett LLP Kimberly Lowe National Council of Farmer Cooperatives Mashenka Lundberg CoBank Lisa Maloy American Crystal Sugar Company Mike Mayhew Clifton Larson Allen, LLP Jay McWatters Dopkins & Company, LLP Jim McWherter Tennessee Farmers Cooperative Lorrie Merker MBG Marketing Stan Mitchell Farmers Cooperative John Monica Porter Wright Morris & Arthur LLP David Moss Tennessee Farmers Cooperative Dan Mott Fredrikson & Byron, P.A. Sue Ann Nelson Fredrikson & Byron, P.A. Leslie Newton Southern States Cooperative, Inc. Daniel Nutley Moss Adams, LLP James Orcutt CoBank, ACB

Agenda


Carrie Parrish Sunkist Growers Ronald Peterson Hanson Bridgett LLP Brynjar Peterson Tree Top Danny Posch MKC John Prentice Eadie + Payne LLP Michael Regan Bergan, Paulsen & Company, P.C. Zeb Rocha Pacific Coast Producers Emily Rooney Agricultural Council of California Steven Rowe Darigold Ron Rufener AKT Harold Schenker Sunsweet Growers Inc. Dan Schultz Cooperative Consulting, LLC David Schwartz Baker Tilly Rick Shackelford Greenberg Traurig Scott Simmelink Ag Processing Inc Tim Skidmore CHS Inc. Rick Smith Dairy Farmers of America Richard Stamm Ocean Spray Cranberries, Inc. Eric Steinle KFSA David Stonesifer Herbein + Company Matt Strong Pacific Coast Producers Dave Swanson Dorsey & Whitney LLP Bill Tanimoto Farmers' Rice Cooperative Charles Telk Gardiner Thomsen, CPA's Mike Traxinger SD Wheat Growers Vivian Tseng Welch's Rick Vanderheiden West Central Samuel Wai American Crystal Sugar Company Teresa Warne American Crystal Sugar Company Rocky Weber Crosby Guenzel LLP Dan Weeden Oregon Cherry Growers, Inc. Alan Weinstein CoBank Joe Werstak United Producers, Inc. Randon Wilson Jones Waldo Holbrook & McDonough Dave Wilwerding Ag Processing Inc Charles Woltmann Sunkist Growers, Inc. Mike Woods GROWMARK, Inc. Stephen Zovickian Morgan, Lewis & Bockius LLP

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WEDNESDAY, FEBRUARY 11

2:00–5:00pm CFO Roundtable (Royal 1-3) Moderators: Joe Werstak, CFO, United Producers, Inc. Ana Klein, Vice President and CFO, Sunsweet Growers Inc. 6:00–8:00 Welcome Reception (Paradise Terrace)

Attendees and guests are welcome.

THURSDAY, FEBRUARY 12 7:00–8:30am Cooperative Tax Roundtable (Garden) Moderator: Teree Castanias, CPA Breakfast served. 8:30–10:15 LTA Conference Participation in NCFC General Session I (Sunset Ballroom) Featuring: Ken Cukier, The Economist data editor and co-author of Big Data, on data analytics and agricultural productivity 10:30-Noon LTA General Session (Mission Bay)

Moderator: Charles Woltmann, Senior Vice President, Law, and General Counsel, Sunkist Growers, Inc.

Welcome and Self Introductions Hot Topics: Current Developments in Tax, Antitrust, and Affordable Care Act Implementation Featuring: George Benson, Partner, McDermott, Will & Emery Tim Goodman, Partner, Dorsey & Whitney LLP

Michael Lindsay, Partner, Dorsey & Whitney LLP 12:15–1:45 General Session Luncheon (Sunset Ballroom) Featuring: Former White House Chief of Staff and Transportation Secretary

Andrew Card Included in LTA conference registration LTA In-House Luncheons (By invitation only) CFO Working Group (Garden) In-House General Counsels (Dockside)

Tax Directors Forum (Bay View)

AGENDA

National Council of Farmer Cooperatives Legal, Tax & Accounting Conference

Paradise Point Resort, San Diego February 11-13, 2015

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2:00-4:50 LTA General Session (Mission Bay) Moderated by: Dick Cisne, Partner, Hudson, Cisne & Co. 2:00–2:50 Food Fights: Winning the Labeling Wars Featuring: David Longinotti, Partner, Hanson Bridgett LLP

Rick Shackelford, Shareholder; Co-Chair, Los Angeles Litigation Practice, Greenberg Traurig LLP

Vivian Tseng, Vice President, General Counsel, Welch’s Inc. 2:50–3:40 Foreign Account Tax Compliance Act Reporting: Implications for Farmer

Cooperatives Moderator: Dave Antoni, Tax Managing Director, KPMG Featuring: Larry Boyle, Tax Manager, Ocean Spray Cranberries

Michael Cornett, Principal, KPMG Bob Glass, Tax Director, Land O Lakes, Inc.

3:40–4:00 Break 4:00–4:50 Replacing Member Equity with Preferred Stock: Challenges and Rewards Featuring: Tim Skidmore, Executive Vice President and CFO, CHS Inc. Theresa Egan, Controller, CHS Inc. Dave Swanson, Partner, Dorsey & Whitney LLP 6:00–8:00pm Cooperators Reception (Sunset Ballroom) Attendees and guests are welcome

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FRIDAY, FEBRUARY 13

7:00-8:15am LTA Conference Participation in NCFC General Session II Economic Outlook (Paradise Ballroom—Island, Pacific, Royal) Featuring: Dr. Terry Barr, Senior Director, Knowledge Bank, CoBank Breakfast served. 8:30-Noon LTA General Session (Mission Bay)

Moderator: Charles Woltmann, Senior Vice President, Law, and General Counsel, Sunkist Growers, Inc.

8:30–9:40 IC-DISCs: Implementation Issues for Farmer Cooperatives Moderator: Teree Castanias, CPA

Panelists: Mark Gasbarra, National Managing Director, Forte International Tax, LLC

Dean LaVallee, CFO, Blue Diamond Growers 9:40-10:30 Emerging Issues in Audit Committees Moderator: Jay McWatters, Partner, Dopkins and Co.

Featuring: Deb Erb, Audit Committee Chair, Agrimark, Inc. Joe Werstak, CFO, United Producers, Inc.

10:30-10:45 Break 10:45-11:35 Cooperatives and “B Corporation” Status

Featuring: Kim Lowe, Shareholder, Fredrikson & Byron, P.A. John Kreitler, Advisory Director, Agri-Mark, Inc. 11:35-Noon Washington Update

Featuring: Lisa Van Doren, Vice President and Chief of Staff for Government Affairs, NCFC

12:30-2:00pm LTA Executive Committee Lunch (Palm 1-2)

Hot Topics-Tax, Antitrust, and

ACA Implementation

Hot Topics: Current Developments in Tax, Antitrust, and Affordable Care Act Implementation

PRESENTER BIOGRAPHIES George Benson Partner McDermott, Will & Emery George W. Benson is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. George focuses his practice on federal income tax planning, tax controversy and tax litigation matters. George works with both public and private corporations (including S corporations), partnerships and limited liability companies and with individual taxpayers on a broad range of federal income tax issues.

In addition, George has done considerable work for cooperative organizations of all kinds, both exempt and non-exempt, engaged in marketing agricultural products, wholesale distribution of products (such as farm supplies, hardware, groceries, office products and hospital supplies), manufacturing, transportation, providing credit and other financial services, electricity and housing.

George has been particularly active in representing cooperatives involved in federal income tax controversies. He is a member of the Legal, Tax and Accounting Committee of the National Council of Farmer Cooperatives and of the Tax Committee of the National Society of Accountants for Cooperatives. He frequently writes and lectures on cooperative tax matters and is editor of the TAXFAX column in The Cooperative Accountant.

George was recognized as one of the leading tax controversies lawyers in the United States in the 2011 edition of The Legal 500 United States.

George is a member of the bars of the State of Illinois, the U.S. Tax Court, the U.S. Court of Federal Claims, the U.S. Court of Appeals for Federal Circuit and for the Seventh Circuit and the Supreme Court of the United States.

Michael Lindsay Partner Dorsey & Whitney LLP Michael Lindsay is a partner in the Trial practice and co-chair of the Antitrust practice. His practice focuses in the area of general civil litigation, with a strong emphasis on antitrust (litigation and counseling), trademark and unfair competition, commercial litigation.

Representative Litigation Antitrust: Co-chaired the trial of ITA v. Northwest Airlines (after participating in several years of

discovery), an action involving claims under the Sherman Act and the Clayton Act; has also represented employers in employee noncompete cases.

Intellectual Property: served as lead counsel for The Goodyear Tire & Rubber Company in multi-state litigation involving a national competitor's alleged Lanham Act violations and "bait and switch" sales tactics; also represented various other companies in smaller cases involving statutory and contractual aspects of intellectual property law.

Product Liability: served as court-appointed Lead Counsel for defendants in In Re: Minnesota L-tryptophan Proceedings, a mass-tort proceeding involving over ninety individual cases.

Corporate and Securities: has tried numerous public-customer securities arbitrations before panels of the NASD and NYSE; has represented corporate and individual defendants in shareholder actions and plaintiffs in D & O litigation.

Banking, Commercial, and Insurance: has tried cases for the FDIC involving insurance coverage litigation under D & O policies and blanket bonds; has also counseled other clients on D & O coverage questions.

Representative Counseling Regularly counsels clients on antitrust issues, particularly in matters involving distribution or pricing issues

(including Robinson-Patman questions), and mergers and acquisitions (including Hart-Scott-Rodino reporting issues)

Tim Goodman Partner Dorsey & Whitney LLP Tim Goodman’s practice focuses on assisting employers with executive compensation, health insurance, and employee benefit plans. Tim assists a broad array of employers, with a special focus on assisting cooperatives, agribusiness companies, tax-exempt organizations (primarily hospitals and health care entities), Alaskan Native Corporations, banks and other financial institutions, and governmental entities. This includes assisting employers on health care reform, wellness plans, and other welfare issues and welfare plan matters (including cafeteria, dependent care, education assistance, health FSAs, HRAs, HSAs, parking, and tuition plans), and severance. With respect to health care reform, Tim advises employers on the new fees imposed on employer health plans (the patient-centered outcomes research (PCOR) fee, the transition reinsurance fee, and the employer shared responsibility (play or pay) fee) and the new requirements ranging from coverage of adult children and the summary of benefits coverage to essential health benefits. Tim advises employers on qualified and nonqualified retirement plans (including pension, defined benefit, 401(k), 403(b), 457(b), and 457(f) plans, and section 409A). Tim has worked with employers on a range of retirement plan matters, including Roth contributions and in-plan Roth conversions. Employers also turn to Tim for advice on executive compensation and deferred compensation programs (including excess plans, SERPs, and other deferred compensation). His assistance includes advising employers on responding to benefit claims, answering questions regarding the extension of health coverage under COBRA and state law, drafting employee communications, complying with fringe benefit rules, payroll reporting of benefits, USERRA and HEART, complying with the HIPAA privacy and security rules, and addressing worker classification.

Tim also advises employers by updating them on legislation (such as the Affordable Care Act (ACA or PPACA – health care reform), the Pension Protection Act, the American Jobs Creation Act, the Veterans Benefits Improvement Act, and the Sarbanes-Oxley Act). This includes advising employers on the impact of section 409A on nonqualified deferred compensation plans. Tim also assists employers with new regulations, such as the health care reform regulations, GINA Part I regulations issued by the DOL, IRS, and Centers for Medicare & Medicaid Services; and the GINA Part II regulations issued by the EEOC. In addition to advice, Tim works with employers on taxation of benefits with respect to FICA taxes under section 3121(v)(2), nonresident taxes for work performed in multiple states, taxation of health benefits, and taxation and design of benefits employers provide to same-sex spouses and domestic partners. Tim also works with employers on benefits in M&A transactions and employer securities in retirement plans. Employers regularly have Tim assist them with plan drafting and design, including plan formation, IRS qualification, administration, merger, and termination of employee benefit plans, and the submission of errors under voluntary correction programs including the IRS employee plan correction program (EPCRS) and the delinquent filer program (DFVC).

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Cooperatives and Antitrust – Update

Michael A. LindsayDORSEY & WHITNEY LLP

12 February 2015

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Agenda – Recent Developments

• Mutual benefit• Non-Producer members• Advice of counsel• Class certification

Mutual Benefit – Growers v. Ocean Spray

• Allegations– “A” pool (branded products) members receive higher

prices than “B” pool (commodity product) membersviolates Capper-Volstead

– Auction process results in depressed (below-cost) pricesfor B pool, causing some producers to exit market

• Court rejects claim that having separate pools isactionable as “violation” of Capper-Volstead– But states “For this reason, I need not consider whether

plaintiffs’ interpretation of ‘mutual benefit’ requiressubstantially similar benefit for all cooperative members.”

3Growers 1-7 v. Ocean Spray Cranberries, Inc., No. 12-12016 (D. Mass. May 2, 2014)

Ocean Spray, cont’d

• Declines to dismiss (on Rule 12 motion) claimsof Sherman Act violation (monopolization,monopsonization, and attempt)

• Plaintiffs filed motion for summary judgment onmerits; opposition not yet filed

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Inadvertent Non-Producer Members and Agreements – In re Mushrooms

• Allegation of price-fixing

• Court previously rejected Capper-Volsteaddefense– “the inclusion of a non-grower distributor . . . in the

EMMC’s membership was sufficient to destroydefendants’ Capper-Volstead immunity”

– “the Act’s exemption did not extend to protectcooperatives that conspire with entities not engaged inagricultural production”

• Court entertained motion for reconsideration

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Mushrooms, cont’d

• District court denied motion for reconsiderationbut granted petition for interlocutory review– Considers argument under American Needle, member

entity and non-member producer are single person• Rejects as to one, finds indeterminate as to another

• Rejects principle that American Needle excuses membershipby non-grower affiliate of grower

– Rejects “good-faith reliance on advice of counsel” asdefense to member liability

– Acknowledges Third Circuit’s previous statement:• “the question, whether the arguably inadvertent inclusion of an

ineligible member strips an agricultural cooperative of Capper-Volstead protection, is both serious and unsettled”

• Third Circuit denied petition for review6

Capper-Volstead Defense and Privilege – In re Fresh & Process Potatoes

• Allegations of supply constraints

• Defendants assert both Capper-Volstead andgood-faith belief / advice of counsel– District court preliminarily rejected C-V defense on

early motion

– Defendants continue to rely on “advice of counsel”defense

– Plaintiffs seek discovery of privileged documents

7In re Fresh & Process Potatoes Antitrust Litig., 2014 WL 1413676 (D. Id. 2014)

Capper-Volstead and Privilege, cont’d

• On discovery motion, court gives broad readingto both waiver doctrine and parties’ stipulation– “because of the defense of reliance upon the advice of

counsel, Defendants may not exclude the rest of theattorney-client privileged documents . . . fromproduction”

– “It would be patently unfair for a party to assert thatthey relied upon the advice of counsel, yet deprive theopponent of the opportunity to understand why theadvice was given, what other alternatives were lookedat, why certain advice was rejected, and how theadvice was interrelated to other business decisions.”

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Class Certification – CWT Litigation

• Allegation of supply constraint– Complaint alleges that “CWT and its members have

engaged in a nationwide conspiracy to limit theproduction of raw farm milk, and thus increase theprice of raw milk, through premature ‘herdretirements’”

• Motion for certification of indirect purchaserclass (consumers) alleging claims under laws of16 states– Motion denied as to WVA for lack of plaintiff

• Court expressly does not address merits ofCapper-Volstead exemption

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Edwards v. National Milk Producers Federation, No. C 11-04766 JSW (N.D. Cal. Sept. 16, 2014)

Class Certification Granted – CWT Litigation

• District court grants class certification– Common legal issue (whether Capper-Volstead

exemption applies)

– Damages can be determined on class-wide basis• Omitted variables goes to weight, not admissibility

• Petition for interlocutory appeal of classcertification denied

• Fact discovery to conclude shortly, expertdiscovery in May, and dispositive motions to besubmitted in July

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Class Certification – In re Processed Eggs

• Allegation of supply constraints– “Several of the nation's largest egg producers

allegedly conspired to control and limit the supply ofeggs and egg products, resulting in artificially inflatedprices during the period of 2000-2008.”

• Direct-purchaser class action– “a putative class of entities and individuals that

purchased eggs or egg products directly fromDefendants

• Motion to certify class pending

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Class Certification – In re Processed Eggs

• Motion to disqualify plaintiffs’ expert economistbefore class certification hearing– Court permits economist to testify that:

• Industry structure is conducive to collusion

• Facts and documents are consistent with collusion and notconsistent with non-collusive self-interest

• All or virtually all class members were affected– Despite use of averages to reach that conclusion

– Despite omission of variables in regression analysis (court findsmissing variables speculative)

• More to come at and after hearing on classcertification (March 10-11, 2015)

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In re: Processed Egg Products Antitrust Litigation, No. 08-md-2002 (E.D. Pa. Jan. 26, 2015)

Michael A. Lindsay

Dorsey & Whitney LLP

T. 612.340.7819

[email protected]

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Hot Topics – Tax

Annual Meeting of the LTA Committee

of the National Council of Farmer Cooperatives

San Diego – February 12, 2015

George W. Benson

A. Section 199 – quick history

• Originally enacted in the American JobsCreation Act of 2004, effective for fiscalyears beginning in 2005.

NCFC actively involved in getting special language for coops in Section 199.

• Substantially rewritten as part of the GulfOpportunity Zone Act of 2005.

NCFC worked with Treasury and Senate Finance Committee Staff on revised language.

• Regulatory process – Notice 2005-14;Proposed regulations; Final regulations– T.D. 9263 (May 24, 2006).

NCFC submitted extensive comments in March, 2005.

• Amended regulations – T.D. 9317(March 19, 2007).

NCFC met with Treasury and the IRS and worked to get surprise changes in the final regulations corrected.

Private letter rulings

To date, the IRS has issued 40 private letter rulings concluding that payments to members for their farm products are per-unit retain allocations paid in money (PURPIMs) which can be added back in the Section 199 computation.

– First dairy cooperative ruling – Ltr. 200838011 (June 18, 2008).

– First grain cooperative ruling – Ltr. 200942022 (July 9, 2009).

– Also rulings for sugarbeets, tobacco, vegetables, turkeys, pigs, cattle,etc.

IRS pushback from the field

CCA 201008043 (January 26, 2010) – the domesticproduction activities deduction (DPAD) cannot create apatronage loss; DPAD related to patronage income cannotbe used to offset nonpatronage income.

CCA 20105101F (November 19, 2010) – a coop may not goback and reclassify payments to members as per-unit retainallocations paid in money.

Instructions to Form 8903 released (posted on IRS websiteon February 9, 2011) – coops are required to do separatepatronage and nonpatronage DPAD computations. See also,CCA 20131802F (February 27, 2013).

B. Controversy – going back to claim refunds

After IRS began issuing rulings, many grain coops filed amendedreturns claiming refunds for prior years as a result of treating grainpayments to members as PURPIMs.

Based upon CCA 20105101F (November 19, 2010), a team ofagents in Des Moines disallowed many of the claims.

Many of the coops appealed.

There were over 100 coops involved, most local grain or grain andsupply coops.

I have reported on these cases over the past few years.

– Appeals coordinated the cases and ultimately proposed a settlement.

– Most of the coops settled, getting part, but not all of what they claimed.

Ag Processing Inc a cooperative v. Commissioner, Tax Court Docket No. 23497-14

This case involves several issues.

Among other things, the IRS is arguing that AGP can not goback and claim refunds resulting from treating soybeanpayments to members as PURPIMs.

The IRS arguments are based on CCA 20105101F(November 19, 2010).

C. Controversy: LLCs and Section 199

Many coops have consolidated their marketing activities(particularly in grain), forming LLCs with neighboring coops.

Different approaches have been taken:

1. LLCs that provide marketing services, but never actually own thegrain they market.

2. LLCs that function like federated coops; coop members buy grainfrom their members and sell it to the LLC.

3. LLCs that function as “collaborations,” with coop memberscontinuing to be responsible for significant origination functions, butwith no coop grain ownership.

4. LLCs that do everything.

The issue

Can a coop that is a member of an LLC claim DPAD for grainmarketed through the LLC?

The answer likely turns on how the LLC is structured and what rolethe coop plays in grain marketing activities.

Where coops are actively involved in buying and reselling grain,they should be entitled to the DPAD – this should cover the firsttwo kinds of LLC structures described above.

See, Ltrs. 201010013 (November 24, 2009) and 201152006(September 21, 2011). In each, the coops played a significant rolein originating the products of their members, buying and resellingtheir members’ products and paying their members.

Coop/LLC collaborations

In a coop/LLC “collaboration,” the coops continue to play asignificant role in grain origination, but never own the grain.

In one case, a coop that was part of a “collaboration” soughtto get the IRS to confirm that it could treat payments by theLLC to its members as PURPIMs. When the IRS would not,the arrangement was restructured, making the coopmembers of the LLC purchasers of some of the grain, whichthey then sold to the LLC. Ltr. 201225009 (September 11,2012). The IRS then ruled that the coop’s grain paymentswere PURPIMs that could be added back in the Section 199computation.

LLCs that do everything

But what if the LLC does everything?

This may be the most efficient way to run the business, but ifa coop member never owns the grain and all payments aremade by the LLC directly to farmers, can the payments betreated as PURPIMs?

That appears to be what is at issue in a pending Tax Courtcase.

South Central FS v. Commissioner, Tax Court Docket No. 15593-14.

South Central is a local coop headquartered in Effingham, Illinois.

Historically, South Central was involved in both the farm supplyand grain marketing business, but in 2006 it transferred its grainassets and business to Total Grain Marketing, LLC (“TGM”), alimited liability company taxed as a partnership. South Centralremains actively involved in the supply business.

South Central has a 36% interest in TGM. TGM has two othercoops as members.

Pursuant to an agreement, South Central provides managementand support services to South Central.

However, producers (including those that are members of SouthCentral) sell their grain directly to TGM and are paid by TGM.South Central does not buy and resell any of the grain.

South Central FS (cont.)

The case presents two issues.

First, is South Central entitled to treat a portion of its allocableshare of TGM’s cost of goods sold (“COGS”) as PURPIMs incomputing its DPAD?

– South Central takes the position that the portion of its allocable share ofTGM’s COGS that is attributable to purchases from South Central’smembers constitutes PURPIMs.

Second, must South Central “allocate and substantiate the amountof PURPIM from patronage and non-patronage sources” as thestatutory notice asserts?

– South Central says nothing in the Code or regulations “requires Petitionerto allocate or differentiate the amount of DPAD from patronage andnonpatronage sources or places any limitations on the type of income thatmay be reduced by Petitioner’s DPAD under I.R.C. Section 199.”

D. Controversy – one computation or two?

The IRS has taken the position that nonexempt coops must dotwo separate DPAD computations – one for their patronageactivities and one for their nonpatronage activities.

Because of the way that DPAD is computed, doing twocomputations often leads to a worse result than doing onecomputation – coops may end up with excess QPAI in aseparate patronage computation and excess wages in aseparate nonpatronage computation.

Example

Patronage Nonpatronage Combined

QPAI/TI 10,000,000 100,000 10,100,000

9% 900,000 9,000* 909,000

Wages 500,000 100,000 600,000

50% 250,000* 50,000 300,000*

DPAD 250,000 9,000 300,000

total 259,000 300,000

GROWMARK, Inc. v. Commissioner, Tax Court Docket No. 23797-14

The issue in this case is whether a cooperative mustcompute its DPAD separately for its patronage andnonpatronage activities, or whether it can do a singlecomputation.

When the computation is done separately, GROWMARKends up with a lower number because it is limited by wagesin its patronage computation and QPAI in its nonpatronagecomputation.

The Ag Processing case also involves this issue.

E. Biodiesel/ethanol mixture credit issue

The GROWMARK and Ag Processing cases involve an unrelatedissue, namely, whether biodiesel and ethanol excise tax creditsmust be included in taxable income.

Two recent CCAs take the position that the answer is:

– no, if the credits result in refunds, and

– yes, if the credits are used to offset excise taxes otherwise due.

This is currently an issue for some taxpayers (coops and others)who claimed biodiesel and ethanol excise tax credits in the past.

– The ethanol credit expired several years ago.

– On December 19, the biodiesel excise tax credit was renewedretroactively for 2014. However, on December 31, it expired again. Will itbe extended again?

© 2015 DORSEY & WHITNEY LLP

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Affordable Care Act:Implementation and Challenges Affordable Care Act:Implementation and Challenges

National Council of Farmer CooperativesFebruary 12, 2015

Tim GoodmanDorsey & Whitney(612) [email protected]

OR

“The ACA – Fees, Forms, and Mandates”

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Employer Shared Responsibility Fee Employer Shared Responsibility Fee

• $2,000 multiplied by all employees– 530 employees equals $1 million in fees

• $3,000 per employee– 33 employees equals $100,000 in fees


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• Two potential penalties if one employee enrolls onexchange and receives tax credit (subsidy)

• Big penalty– Employer does not offer minimum essential coverage (MEC)

to 95% of full-time employees (FTs)– Penalty is $2,000 x (number of employees – 30)

• Not as big penalty– Employer offers MEC to 95% or more of FTs, but coverage is

not minimum value and affordable– $3,000 x number of employees who enroll on exchange and

receive subsidy– Capped at big penalty

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• Fee applies to employers with 50 or more full-timeequivalent employees (FTEs)– Part-time employees to determine if employer is covered– If workforce exceeded 50 employees on 120 or fewer days

due to seasonal employees an exception may apply

• Fee assessed on FTs (not FTEs) – employeesworking 30 hours a week or more

• Employee means a common law employee– Guidance indicates employee includes or may include

• Long-term leased employees• Interns• Certain seasonal employees


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• Fee is assessed on a month-by-month basis– Two methods of measuring

• Monthly method• Look-back method

– Both methods require hour counting

• Hour counting– Actual hours for hourly employees– Equivalency for exempt employees

• 8 hours if employee works during day• 40 hours if employee works during week

– Need to count on-call and other hours

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• Seasonal employees pose a particular challenge• Status as a large employer

– Seasonal employees counted; however, if workforceexceeded 50 employees on 120 or fewer days due toseasonal employees an exception may apply

• Employer shared responsibility fee– Starting point – is employee anticipated to work 30 hours or

more a week• Monthly method – seasonal employees counted• Look back method – if seasonal employees work for a

limited time during measurement period do not have tooffer coverage; however, then need to apply look-backmethod to broader category of employees

• If eligible, 90-day waiting period limit applies


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• 2015 transition relief• Employers with50but less than100full-timeemployees

– For 2015, these employers will not be subject to fee if theymeet certain conditions

– May not reduce workforce or overall hours before 12/31/14(other than for bona fide business reasons)

– May not reduce or eliminate coverage before 12/31/14– Must certify eligibility under section 6056

• Coverage percentage– For 2015, section 4980H(a) will not apply if employer covers

at least 70% of full-time employees (rather than 95%, whichstarts in 2016)

– Note: The not as big penalty (section 4980H(b)) still applies• Calculation of the big penalty

– For 2015, section 4980H(a) will have an exclusion for 80employees rather than 30 employees

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Coverage ReportingCoverage Reporting

• The ACA requires reporting to IRS so that IRS canassess employer shared responsibility fee andindividual mandate fee– Section 6055 – reporting of minimum essential coverage– Section 6056 – reporting of employer-provided coverage

• Employers should review their payroll systems toconfirm they are tracking information that will need tobe reported in January 2016 for 2015


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Coverage ReportingCoverage Reporting

• Entities responsible for reporting– For minimum essential coverage

• Employer for self-insuredplan (except multiemployerplan)– Aggregation rules under section 414 do not apply– Each employer responsible for reporting– However, an entity may file on behalf of others

• Insurer for insured plan

• For employer shared responsibility fee– Applicable large employer is responsible for reporting

• Aggregation rules under section 414 apply to determine ifan employer is an applicable large employer

• Each employer, however, is responsible for reporting• However, an entity may file on behalf of others

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Transitional Reinsurance FeeTransitional Reinsurance Fee

• Transitional reinsurance fee is to protect insurer riskdue to expansion in coverage

• Amount of fee– Fee of $63 per life in 2014 (effectively, $150 per employee)– Fee of $44 per life in 2015 (effectively, $105 per employee)– Fee of $27 per life in 2015 (effectively, $65 per employee)

• Payment– Employer (through TPA) for self-insured plans and insurer for

insured plans– Due in January of following year

• States may charge additional fees• Paid to HHS (See pay.gov (search for reinsurance))


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Patient Centered Outcomes Research Fee Patient Centered Outcomes Research Fee

• Patient centered outcomes research (PCOR) fee is toimprove design and delivery

• Amount of fee– $2 per covered life for plan years ending on and after 10/1/13

through 9/30/14 (effectively, $5 per employee)

– $2.08 per covered life for plan years ending on and after10/1/14 through 9/30/15 (effectively, $5 per employee)

• Payment– Employer for self-insured plans and insurer for insured plans– Due on July 31 following end of plan year

• Paid to IRS– Use Form 720

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Cadillac TaxCadillac Tax

• The Cadillac tax is designed to penalize employersoffering generous health plans

• Effective January 1, 2018• A 40% excise tax on the value of employer-provided

coverage that exceeds– $10,200 for single coverage (as adjusted)– $27,500 for family coverage (as adjusted)– A number of adjustments may apply

• Non-deductible so employers will seek to avoid• Points of particular concern

– Collective bargaining agreements that apply in 2018 or later– Health coverage for employees in high-cost areas– Retiree medical plans


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Health Plan ComplianceHealth Plan Compliance

• Employers need to confirm compliance with mandates• Mandates include

– Covering adult children– Including a non-English language statement in documents– Prohibiting waiting periods exceeding 90 days– Capping cost sharing limits– Covering certain clinical trials

• Other ACA requirements include– Prohibiting discrimination in favor of highly paid– Specifying uses of refunds from insurance companies

(medical loss ratio (“MLR”) rebates)– Providing required notices

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Litigation RisksLitigation Risks

• FLSA – Possible whistleblower claims– Employers are prohibited from retaliating against employees

(including applicants and former employees)• For reporting a violation of Title I of the ACA• For testifying or assisting in a proceeding investigating

such a potential violation of Title I of the ACA• For refusing to participate in activity that might violate

Title I of ACA– See OSHA fact sheet:

www.osha.gov/Publications/whistleblower/OSHAFS-3641.pdf

• ERISA – Possible section 510 claims– Provides it is unlawful to discriminate against a participant for

exercising a right under a plan or to interfere with aparticipant from attaining a right to which the participant maybecome entitled


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Court ChallengesCourt Challenges

• Court challenges continue

• Supreme Court is hearing King v. Burwell, a case thatcould impact the employer shared responsibility fee– Issue: Tax credits available only for coverage obtained

through an exchange established by a state undersection 1311 of the ACA

• Federal exchange offered if a state did not create an exchange

• IRS has interpreted the ACA to mean that if a state uses thefederal exchange it has been established by the state

• In some cases, if individuals do not purchase health insurancethey are subject to the individual mandate tax

– If Supreme Court disagrees with IRS, individuals will not gettax credits in more than 30 states and will mean there may beless likelihood of an employer shared responsibility fee

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2015 Key Dates2015 Key Dates

• January 1, 2015– Employer shared responsibility fee effective date– Transition relief for 2015

• January 15, 2015– Due date for all or first part of transition reinsurance fees for 2014

• June 29, 2015– Supreme Court decision in King v. Burwell (possibly earlier)

• July 31, 2015– Due date for patient centered outcomes research (PCOR) fee for

employer-provided health coverage provided in 2014

• October 2015– Open enrollment – review coverage

• November 15, 2015– Due date for second part of transition reinsurance fees for 2014– Calculate covered lives for transition reinsurance fees for 2015


17

Contact InformationContact Information

Partner(612) 340-2825 : [email protected]

Tim Goodman

18

Legal NoticeandTreasury Circular230 Notice Legal NoticeandTreasury Circular230 Notice

This presentation is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created through this presentation.

To comply with certain Internal Revenue Service ("IRS") rules, please note that any U.S. federal tax advice contained in this presentation, including handouts, is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed by the IRS. We understand that you do not intend to use or refer to anything contained in this presentation to promote, market, or recommend any particular entity, investment plan, or arrangement.

1

Affordable Care Act: Implementation and Challenges National Council of Farmer Cooperatives February 12, 2015

Tim Goodman Dorsey & Whitney (612) 340-2825 [email protected]

Checklist

This checklist provides a list of questions to ask an employer with respect to ACA compliance. The checklist starts with by identifying the employer’s health plans, affiliates, and workforce.

I. Review Employer Information

A. Employer’s Health Plans

1. Identify the employer’s health plans that may be subject to the ACA.• What is the main medical plan and are there multiple options (HMO, PPO, high-

deductible health plan, etc.).• Does the employer have a retiree medical plan?• Does the employer have a health reimbursement arrangement (an HRA)?• Does the employer have an employee assistance program (an EAP) that provides

significant medical benefits or allows employees to receive counseling? (Note:Whether an EAP is a health plan for purposes of the ACA is complex and should bereviewed.)

• Does the employer make contributions to health flexible spending accounts?

2. Are the health plans insured or self-insured?• An insured health plan is a health plan where the insurer bears the risk of claims. The

smaller the employer the more likely it is that the employer’s health plan is insured.• A self-insured health plan is a health plan where an employer usually hires an

insurance company or other third-party administrator to administer the plan, but theemployer is responsible for the claims. To limit its risk, the employer usuallypurchases stop-loss insurance.

B. Employer’s Corporate Structure and Workforce

1. Identify the employer’s corporate structure.• Does the employer have subsidiaries, affiliates, or joint ventures?• Are these other entities under common control with the employer?

In general, an entity controls another entity if it owns 80% or more of the other entity.This is referred to as a parent-subsidiary controlled group. In addition, entities withsimilar owners may be under common control. This is referred to as a brother-sistercontrolled group.

mailto:[email protected]

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2. Identify the employer’s workforce • Does the employer have collectively bargained or union employees? • Does the employer have seasonal or temporary employees? • Does the employer have on-call employees? • Does the employer have paid interns? • Does the employer have leased employees? • Does the employer have independent contractors?

II. Fees

A. Employer Shared Responsibility Fee

1. Does the employer have 50 or more full-time equivalent employees? Note: For 2015, there is transition relief if an employer has less than 100 full-time

equivalent employees. Employer should confirm transition relief applies. 2. Does the employer’s health plan cover at least 95% of the employer’s full-time

employees (employees working 30 hours a week or more)? Note: For 2015, there is transition relief if an employer’s health plan covers at least 70%

of the employer’s full-time employees. Employer should confirm transition relief applies.

3. Does the employer’s health plan cover dependents (children)? 4. Does the employer’s health plan cover all employees working 30 hours a week or more? 5. Does the employer’s health plan cover all exempt employees? Note: If not, then the employer has to apply the equivalency rules for determining hours.

For simplicity, the employer may wish to cover all exempt employees. 6. Has the employer determined whether it will use the look-back measurement method or

the monthly measurement method? a. Does the employer have a significant number of variable hour employees? If so, it may wish to use the look-back measurement method. b. Does the employer have a significant number of seasonal employees? If so, it may wish to use the look-back measurement method. 7. Does the employer use long-term leased employees? If so, the employer should review its leased-employee agreement to assure that the leased

employees have health coverage and that it is clear the employer is paying extra for the cost of the coverage (see the regulations for the guidance on this).

7. Does the employer use independent contractors? If so, the employer should review its classification of these workers.

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B. Transition Reinsurance Fee 1. If the employer has a self-insured health plan, has the employer budgeted for the

transition reinsurance fee? Note: If the employer has multiple health plans (for example, an insured plan and a health reimbursement arrangement), the employer may owe a fee for each plan.

2. If the employer has a self-insured health plan, has the employer (or its third party

administrator) paid the transition reinsurance fee for 2014 (all or majority due by January 15, 2015)?

C. PCOR Fee

1. If the employer has a self-insured health plan, has the employer budgeted for the PCOR

fee? Note: If the employer has multiple health plans, the employer may owe a fee for each plan.

2. If the employer has a self-insured health plan, has the employer paid the PCOR fee for

the 2012 plan year (due July 31, 2013)? 3. If the employer has a self-insured health plan, has the employer paid the PCOR fee for

the 2013 plan year (due July 31, 2014)?

D. Cadillac Tax Has the employer examined the current value of its health plan coverage and projected

these costs forward to 2018 to determine whether the coverage may be subject to the Cadillac tax? a. If the employer has retiree medical benefits, this is more important to consider. b. If the employer has union employees covered under a multiemployer plan, this is

more important to consider. c. If the employer has employees in states where health care costs are higher (for

example, the Northeastern United States, California, or Florida), this is more important to consider.

III. Mandates

A. In General

Has the employer gone through its health plan to assure it complies with the mandates (covers adult children if children are covered, no annual or lifetime limits on essential health benefits, offers external review of claims denied on appeal, etc.)?

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B. Selected Mandates 1. Does the employer have a system in place to assure that a summary of benefits coverage

is distributed to each new employee and at open enrollment? (Failure to do so can result in a fine.)

2. Has the employer reviewed whether any of its employees live in counties where more

than 10% of the population has a primary language other than English? a. If they have employees in such a county, do communications (SPDs, claim letters,

etc.) include the sentence noting assistance is available in the other language? b. Has the employer assured that its insurer or administrator can handle calls in the other

language? c. List of counties available at CMS web site:

http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-CLAS-County-Data_12-05-14_clean_508.pdf

3. Does anyone (employee, spouse, or dependent) need to wait more than 90-days before

they can become covered under the health plan? 4. If the employer has a wellness program, has it reviewed it in light of the new wellness

regulations? a. Has the employer updated the disclosure language regarding the wellness program? b. Does the wellness program satisfy the new reasonable alternatives requirements?

5. If the employer offers incentives to employees who do not use tobacco, are the incentives

within the new restrictions on such incentives?

IV. Additional Points A. Medical Loss Ratio Rebate If the employer’s plan is insured: a. Has the employer received a medical loss ratio rebate? b. If so, did the employer allocate the rebate according to the DOL and other guidance? B. Nondiscrimination If the plan is insured: a. Does the employer provide better insurance coverage for executives?

b. Does the employer have executive agreements that provide for coverage after termination from employment?

V. Communications

A. Exchange Notice

Has the employer revised the exchange notice to indicate the value of employer-provided health coverage (employer payment of part of the premium and pre-tax payment of the premium)?

B. COBRA Notice

Has the employer revised its COBRA notices to indicate that as an alternative to COBRA the employee can elect coverage under an exchange?



Food Fights: Winning the Labeling Wars


PRESENTER BIOGRAPHIES David Longinotti Partner Hanson Bridgett LLP

David C. Longinotti is a partner at Hanson Bridgett, LLP, a law firm of 160 attorneys located in San Francisco, California. David is an experienced business attorney, providing general counsel, corporate, tax, regulatory and international licensing and distribution expertise to the Firm’s agribusiness clients, including many cooperatives. David is a member of Hanson’s Food Practice Group and is Chair of the NCFC LTA Food Labeling Working Group. He is an adjunct Professor at the University of San Francisco School of Law. Rick Shackelford Shareholder; Co-Chair, Los Angeles Litigation Practice Greenberg Traurig LLP

Rick L. Shackelford, co-chair of Greenberg Traurig’s Los Angeles Litigation Practice, focuses on complex litigation in numerous fields, including consumer class actions, product liability, and false advertising with an emphasis in serving clients in the food and beverage industries. He has considerable experience in consumer class action litigation, having served as first chair in class actions in federal courts in several states. He has defended clients in consumer product liability cases, including Proposition 65 claims. Rick’s significant experience in the field of false advertising can be noted in the successful defense of three major juice companies in federal jury trials in cases brought by competitors alleging false advertising in violation of the Lanham Act. He has also represented several other food and juice makers in consumer class actions alleging deceptive trade practices and false advertising, including challenges to nutrition, ingredient and health claims made in a variety of media. Rick was recognized as a BTI Client Service All Star in 2011 and was listed by the Los Angeles and San Francisco Daily Journal as having one of the "Top 20 Defense Verdicts," of 2011.

Vivian Tseng Vice President, General Counsel Welch’s Vivian Tseng is vice president, general counsel and secretary of Welch’s and chief legal officer of Welch’s parent, the National Grape Cooperative Association, Inc. where she is in charge of all of the legal, regulatory and government affairs of the companies. Previously, Vivian was engaged in private practice with Foley Hoag & Eliot in Boston and Tillinghast, Collins & Graham in Providence. Vivian has served on the Board of Trustees of the Boston Bar Foundation, the Council of the Boston Bar Association, and the Board of Editors of the Boston Bar Journal. Vivian is also a member of the Asian American Lawyers Association of Massachusetts, the National Asian Pacific American Bar Association and the Legal, Tax & Accounting Committee of the National Council of Farmer Cooperatives. Vivian served as president of South Cove Manor, a non-profit nursing home providing bilingual and bicultural long term care in Boston. She has also served as President and member of the Board of Directors of Congregation Beth El of the Sudbury River Valley. Vivian is a graduate of New College and Georgetown University Law Center, and she holds graduate degrees from Yale University and Boston University School of Law (LLM, Tax).


2015 NCFC Legal, Tax and Accounting Conference

February 12, 2015

Presenters: David LonginottiRick Shackelford

Vivian Tseng

WHAT WE WILL COVER How did we get here? A brief history of the legal developments that gave rise

to the current spate of food mislabeling claims Where are we now? A look at recent developments and what comes next

What management practices can minimize cooperativerisk?

Your questions

HOW DID WE GET HERE? A combination of federal labeling laws, judicial

interpretations, ambiguous regulatory pronouncements,state consumer laws and an aggressive plaintiff’s barhas resulted in an onslaught of lawsuits filed vs. thecountry’s largest food manufacturers including manycooperatives.

ESTABLISHING FEDERAL JURISDICTION

• The 1906 food & drug act established federal jurisdiction inthe area of food labeling Mainly concerned with “Patent Medicine” Claims Also addressed Food Adulteration Claims Peaceably co-existed with development of state law

doctrines of merchantability and strict product liability incases of personal injury

CLARIFYING PREEMPTION ISSUES

• The federal food drug and cosmetic act (“FDCA”) andnutrition labeling and education act (“NLEA”) clarifiedpreemption and right to sue issues No private right of action to enforce label violations Express preemption of any state law requirements that

are different from or in addition to federal requirements

LITIGATION BASED ONSTATE REGULATORY CLAIMS

A California Supreme Court Case opened the door to litigation on stateregulatory claims

In re Farm Raised Salmon, 42 Cal.4th 1077 (2008)

Fish raised in ponds on farms had compounds added to their food tomake flesh the same color as wild salmon; otherwise flesh would havebeen a pale gray instead of pink;

FDCA regulations requires this additive to be disclosed; claim was thatfailure to do so violated FDCA regulations

How to Circumvent “No Private Right of Action”?

California Sherman Law – Mirror image state label regulations

California Consumer Protection Laws

Violation of Sherman Law = Unlawful Business Practice

State action allowed to go forward based on regulatory violation; nopreemption;

FDA’s LACK OF CLARITY ON EMERGING LABELING ISSUES

Draft guidance for “all natural” Nothing artificial or synthetic has been included in a food that

would not normally be expected to be in the food. AlexiaFoods, Inc. Nov. 16,2011FR2302, 2407 (January 6, 1993)

Draft guidance for “evaporated cane juice” The commonly understood term “dried cane syrup” should be

used. Guidance for Industry: Ingredients Declared asEvaporated Cane Juice, USFDA (October 2009)

But compare the relative certainty of regulations adopted toimplement the Federal Organic Foods Production Act of1990.

FEDERAL CLASS ACTIONS NATIONWIDE ENSUE An organized plaintiffs bar relies on State Consumer

Protection laws to bring federal class actionsnationwide.

Federal Class Action Fairness Act allows federalclass actions based on State Consumer ProtectionLaws, e.g. California Legal Remedies Act.

Over fifty lawsuits brought on this basis by anationwide consortium of plaintiffs lawyer led byPierce Gore and Associates out of San Jose,California

WHERE ARE WE NOW? Traditional Defense Arguments Have Not Gained Traction at

the Pleading Stage Efforts to have more states adopt reasoning and result of

Farm Raised Salmon, which undermines preemption U.S. Supreme Court Pom v. Coke, decision; yet to be seen

how much this Lanham Act case will spill over intoconsumer cases

Primary Jurisdiction Arguments Limited success: Courts have become more inventive in

involving doctrine as dockets have become morecrowded

Better success on more novel issues, especially if FDAopens up rule making, e.g. Evaporated Cane Juice

WHERE ARE WE NOW? Some success in dismissing transparently silly claims Cap’n Crunch; Fruit Loops

Some cases dismissed or limited based upon Article IIIstanding, especially for similar products the plaintiffnever bought

Other types of claims being limited or dismissed basedupon lack of reliance or unreasonable interpretations

Most claims now are limited to labels as opposed to webcontent or other advertising, in order to address issue ofwhether plaintiff was exposed to the content in question

WHERE ARE WE NOW? Current battleground: Class Certification Ascertainability of “Say So” Classes Extra-Territorial Application of Single State’s Consumer

Protection Laws Remedies Full Purchase Price Refund Disgorgement of Profits Before and After Impact of Label Claim “Hedonic” Damages

The more a court thinks a case might actually be tried, theless likely it will be, or will remain, certified. In re Pom Wonderful, LLC, WL 1225184 (C.D. Cal.

2014)

WHERE ARE WE NOW? Ascertainability

Look for smaller classes against retailers using customer loyaltyprograms as a means of identifying class members

Retailer indemnity claims against manufacturers

Refinement of Remedies and use of “Big Data” Cuts both ways when it comes to identifying competitive products

Consumer Surveys: Required or Not?

Trials

Appeals So far, very limited number of appellate decisions in food label litigation

Expansion Beyond California and Florida to Other States withConsumer Friendly Laws Zombie litigation Massachusetts, Illinois, District of Columbia

WHERE ARE WE NOW? Settlements Rewards litigious behavior Implicates more products and product lines Greater financial impact to defendants in wake of

Dennis v. Kellogg’s

Risk Mitigation If you have a problem claim or label, consider

changing it Demonstrate lack of market impact Different labels in market simultaneously complicates

plaintiff’s case

Risk* Mitigation - LTA February 2015 *As used here, “risk” refers to the risk of meritless and abusive

private litigation that attacks truthful and properly substantiated marketing claims in an attempt to create nuisance settlement value. These opportunistic lawsuits, which have targeted the food industry in recent years, are expensive to defend even when the manufacturer prevails. Therefore, it is in the manufacturer’s interest to avoid facing such litigation in the first place. Any risk/reward balancing discussed here apply only to marketing claims that are truthful, non-misleading and fully substantiated as required by law.

RISK MITIGATION Best Management Practices Inter-department communication is key Monitor & educate Involve non-legal gatekeepers Instill culture of compliance & communication via check

points in product development processes to evaluate &substantiate claims

Establish substantiation checklist Assign RASCI Supplier Review: trust, but verify Establish clear document retention policy

Policy Engagement Insurance

BEST MANAGEMENT PRACTICES

“All You Need is Love… “ among Legal/Marketing/Research&QA/Procurement

Inter-Department communication is key

BEST MANAGEMENT PRACTICE:MONITOR & EDUCATE Legal Monitors: Lawsuits & Settlements Websites: plaintiffs bar; advocacy groups;

standard setting organizations; FDA, USDA Social Media Proposed legislation, regulations and guidance

(Yea for NCFC/LTA!) Check relevant foreign jurisdictions

Legal Educates: Periodic “Legal 101”

BEST MANAGEMENT PRACTICE:INVOLVE NON-LEGAL GATEKEEPERS Health & Nutrition Marketing Manager: combines

legal/regulatory and scientific sensitivities andmarketing expertise

Regulatory Scientist: food scientist steeped in regulatoryworld Key to product formulation GRAS status of ingredients Assures compliance with regulatory scientific

standards Claims Support Team: H&N Marketing Manager,

Regulatory Scientist & Legal

BEST MANAGEMENT PRACTICE: INSTILL CULTURE OF COMPLIANCE & COMMUNICATION VIA CHECK POINTS IN PRODUCT DEVELOPMENT PROCESSES TO EVALUATE & SUBSTANTIATE CLAIMSKey Stage Gate Intersection Points

Discovery

Gate 1

Gate 2

IdeationConcept

Definition Verification

Gate 3

Commercialization

Stage 1 Stage 2 Stage 3 Stage 4

Post Launch

(Before Ideation)H&N Lead• Shares nutrition trends, policy

updates and reviews of the food environment.

• Go-to nutrition resource

(During Ideation)H&N Lead: • Provides guidance .

• Partners with the IdeationTeam Leads (John/Jane) to identify which project teamswill require ongoing H&Nsupport.

(Before Concept Definition)H&N Lead: • Acts as member on all relevant project

teams (identified in Stage I), attending meetings and aiding with the creation/optimization of ideas and concepts—flagging important watch outs, as well as opportunities.

Regulatory Science: • Serves as a resource for Product Dev.,

answering one-off, project team questions, as needed.

(Post Concept Definition in Stage 2)H&N Lead: • Marketing alerts Legal, who brings

Product Dev. and Regulatory Science together to a) review all winning ideas —including marketing message, desired claims and graphics, and the intended product formula—and b) capture input on risks/solutions, claim substantiation needs , and formulation considerations. Example input

Legal and Regulatory Science:• Aids with final claim design and, as

needed, helps with idea/concept refinement if re-testing is needed.*

• Partners with Product Dev. and Marketing on claim substantiation (as needed) and ensures all claims are supported.* (Marketing kicks off and ensures the completion and approval of the claim approval form, and, where needed, either leads the execution of claim substantiation plans or partners with Product Dev. who leads this exercise – depending on the claim.)

Legal & Label Compliance (John):• Reviews/Approves final claims and

labels.*

Marketing:• Leads relevant risk/reward reviews

with Legal,.*

Legal:• Contributes to and

participates in the development, design and review of all relevant (H&N is part of the product story/ positioning) ICPs, agency briefs, communications plans, and final materials.

• Reviews/Approves all final materials.

BEST MANAGEMENT PRACTICE:SUBSTANTIATION CHECKLIST

• Functional Ingredient Assessment:Capture the below information for each ingredient used in support of Health &Nutrition claims(s)‒ GRAS/safety status‒ Form of compound‒ Stability in intended formula‒ Relevant clinical work completed on the ingredients‒ Supplier suggested relevant dosage‒ Supplier suggested claim language‒ Supplier suggested name(s) in ingredient statement‒ Additional comments

Literature Review/Testing:‒ Note description of the literature search (dates, databases, key words

included in search) and/or test methods used to verify/substantiate the proposed claim

‒ List the key references (citations) and summarize findings (table or text description)

BEST MANAGEMENT PRACTICE:SUPPLIER REVIEW Trust, but verify: Supplier Warranties 3rd Party Certifications/Auditors Conduct Own Due Diligence Not just lowest cost Industry reputation Check References In-person visits

Annual Supplier Certification via Questionnaire Linked by raw material code, administered by

Procurement

BEST MANAGEMENT PRACTICE: RASCIResponsible * Accountable * Support * Consulted * Informed

Product Development

including Tech Serv

Jane(Reg Sci)

John(Label

Compliance)

Joe(Graphics)

Sue(Legal)

Labeling & claims during exploratory phase A,R C I C

Claims where new scientific substantiation is required, for either new or existing products (e.g., GE/GMO)

A,R S,C I C

Labeling issues that could affect many platforms S,CProject specific

A,R I I C

Labeling & claims during commercialization phase of all products, including new launches, existing products and line extensions

A,R C I C

Develop finished product specifications A,R C I

Review final package labels R I, C A C

Approve final package labels R A R

CLAIMS EVOLUTION: BE SPECIFIC, AVOID “NATURAL”

RISK MITIGATION: POLICY ENGAGEMENT Legislative & Regulatory Engagement Support industry sponsored legislation Participate in regulatory process Meet with FDA, USDA Comment on proposed regulations

Influencers Outreach: Tell your story to the advocacygroups and other NGO’s

RISK MITIGATION: INSURANCE Directors & Officers and Organization Liability Antitrust Sublimit:

“Antitrust Claim means any Claim alleging a violation of the Sherman Antitrust Act or similar federal, state or local statutes governing antitrust violations, price fixing, price discrimination, unfair competition, deceptive trade practices and/or monopolies.”

Focus on $ Amounts of Policy Limit and Retention

FATCA Reporting: Implementation for

Farmer Cooperatives

Foreign Account Tax Compliance Act Reporting: Implications for Farmer Cooperatives

MODERATOR BIOGRAPHY Dave Antoni Tax Managing Director KPMG Dave Antoni is a senior manager with KPMG LLP in Philadelphia, Pennsylvania. He has worked in the KPMG Philadelphia office’s tax practice for the over 17 years. His clients include cooperatives and other business organizations in the food, consumer markets and industrial markets lines of business.

PRESENTER BIOGRAPHIES Michael Cornett Principal KPMG Mike Cornett is a principal in the International Tax group of the Washington National Tax practice of KPMG. He began practicing in the federal income tax field in 1984 with an emphasis in international tax issues since 1988. Mike specializes in international corporate tax issues including international corporate restructuring and supply chain structuring. Specific areas of substantive expertise include subpart F planning, cross border transactional planning and structuring, mergers and acquisitions (domestic and international), joint venture structuring, entity classification, check the box planning, intangible property planning, and electronic commerce issues. Mike is also one of KPMG’s FATCA leaders for nonfinancial entities. In addition to having worked for other Big 4 accounting firms and major law firms, he was the Special Counsel to the Associate Chief Counsel (International) in the Chief Counsel’s Office at the Internal Revenue Service. As Special Counsel, he reviewed and assisted in developing positions for PLRs, FSAs, TAMs and controversy matters on numerous issues. During the course of his career, Mike also has handled negotiations with the IRS on various international tax matters including cost sharing arrangements and Competent Authority matters. Bob Glass Tax Director, Land O Lakes, Inc. Bob Glass is the tax director at Land O’Lakes and has been with the company for 16 years. Prior to coming to Land O’Lakes, Bob was a tax manager at KPMG – after a 12 year career at the State of Minnesota as an auditor. Bob has been very active in LTA, TEI and NSAC.

Larry Boyle Tax Manager Ocean Spray Cranberries

Larry Boyle is the tax manager at Ocean Spray and has been with the company for 2 years. Prior to coming to Ocean Spray, Larry held various tax management positions in both public accounting and with multinational entities. Larry is active in LTA, TEI, NSAC and the Associated Industries of Massachusetts.

© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 177853

0

Foreign Account Tax Compliance Act Reporting: Implications for Farmer Cooperatives

Dave Antoni – Tax Managing Director, KPMG

Michael Cornett –Principal, KPMG

Bob Glass – Tax Director, Land O Lakes, Inc.

Larry Boyle – Tax Manager, Ocean Spray Cranberries, Inc.

National Council of Farmer CooperativesLegal, Tax & Accounting ConferenceParadise Point Resort, San DiegoFebruary 12, 2015


Notice

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information

without appropriate professional advice after a thorough examination of the particular situation.

Overview of FATCA


FATCA: What is it?

FATCA is not a tax.

It’s an information reporting regime with a “tax” imposed as a noncompliance penalty.


FATCA – Overview

In the fallout of various U.S. tax evasion scandals, Congress passed the Foreign Account Tax Compliance Act (FATCA), IRS sections 1471 through 1474

Aimed at identifying U.S. tax evaders, FATCA requires foreign payees to disclose theirinvolvement with significant U.S. investors (i.e., substantial US accountholders and owners)

Foreign payees who fail to comply suffer a 30 percent charge on their own cross-borderpayments

Why is this a big deal?

- This is a mandatory reporting regime

- Most U.S. persons, even cooperatives, are making some kind of in-scope payments

- Secondary liability can hurt

- FATCA is in effect now


FATCA – Overview

First forms 1042 and 1042-S are due for 2015 payments

Withholding and reporting starts on U.S. source FDAP payments made on preexisting obligations.

This is the effective deadline for completing documentation for vendors with preexisting obligations

20162015 2017

March 15 July 1

By January 1, 2015, companies should have put in place on-boarding processes for new vendors that comply with withholding and reporting requirements, and

determined the FATCA status of their affiliated foreign payees and foreign pension plans.

Withholding and reporting starts for (i) payments on new obligations and (ii) payments to prima facie FFIs that have not documented FATCA-compliant status.

Obligations existing before this date are “preexisting,” and are diligenced on an extended timetable.

Jan 1

Gross proceeds and pass-through payment rules come into effect

Jan 1


FATCA – Overview

FATCA multiplies the IRS’ streams of information regarding US taxpayers’overseas assets. Now, the foreign entities that hold those assets arerequired to report US investors, or suffer their own penalty.

Withholding agent

Foreign Payee

Owners

IRS

Accountholders

Substantial US investor information

$$$ subject to a 30% penalty in cases of

noncompliance

Documentation demonstrating

compliance

Returns that may not fully disclose investment

information


Two Potential Paths to

Avoiding FATCA Withholding:

FATCA – Overview

Withholding Agent Could Be Making Excepted

Payments

Payee Could BE FATCA Compliant or Eligible for

an Exception


FATCA is both broader and narrower than §1441 withholding

FATCA applies to US source “FDAP” (expanded version)

Plus (starting in 2017) gross proceeds from the disposition of property thatgives rise to US source dividends and interest

BUT there are two major exceptions from withholding:

1. Payments on grandfathered (pre-July 1, 2014) obligations

Need to have an “obligation”

The obligation cannot be “materially modified” (and treated as a brandnew obligation) after July 1, 2014, or it loses its grandfathered status

FATCA – A Look at Payments


2. Low risk, nonfinancial payments (“excluded nonfinancial payments”)

The exception covers payments for services and the use of property,and a few additional items (e.g., freight, prizes and awards)

Payments for “stuff” (inventory, materials, etc.) are still not FDAP, so noneed to except explicitly

Also includes interest on accounts payable arising from the acquisitionof goods and services

Explicitly excludes certain financial services-type payments, such aspayments on financial instruments, insurance premiums, broker orcustodian fees, dividends, and other types of interest



U.S. Source FDAP

Tax Speak

U.S. source “fixed or determinable, annual or periodic” income paid to foreign beneficial owners is subject to U.S. withholding tax

Real People Speak

“In the U.S.” means:Interest – borrower is U.S.

Dividends – corporation is U.S.

Services – performed in the U.S.

Royalties – Intellectual Property (IP)used in the U.S.

Rents – property is in the U.S.

Sales income – seller is U.S. or sellingthrough a U.S. office

Insurance premiums – insuring U.S. risk.


US Parent Corporation

ForeignIP Co

US source royalties

Bottom line: There are withholding implications for all kinds of “typical” cross-border payments. Most of these payments are subject to chapter 3 withholding and reporting; some will also be tagged by FATCA. All will be subject to IRS scrutiny.

USOpCo

Foreign 3PVendor

Interest on product-

related A/P

Foreign Bank

US source interest

US source dividends and (post-

2016) stock redemption proceeds

Foreign 3PLaw Firm

Foreign Shipper

US source services

feesUS risk-related

premiums

public

Foreign Insurer

International shipping fees



Undisclosed interests in

foreign entities

U.S. persons

Unreported foreign

assets in financial accounts

Foreign financial institutions (FFIs) are required to identify their substantial U.S. accounts, obtain U.S. accountholder tax information, and report to the IRS

Non-financial foreign entities (NFFEs) are required to report their substantial U.S. owners, or to certify that they are eligible for excepted, “low-risk” status

To avoid 30% withholding, foreign payees need to demonstrate compliance with the FATCA requirements.

FATCA – A Look at Payees


Foreign payees will certify FATCA status on new Forms W-8BEN-E

FATCA – A Look at Payees

What Should You Be Doing Now


Overview of Issues

Parent

U.S. Group

U.S. Sub U.S. Sub

ForeignHoldCo

ForeignSub

ForeignSub

On the Payment Side

Payors as Withholding Agents (often US entities):

What payments are inscope?

What documentation do Ineed to collect?

What are my reportingobligations?

What payments must Iwithhold upon?

Exposures if Non-Compliant:

Secondary liability,penalties and interest

Penalties for reportingfailures

Strain on vendorrelationships

On the Payee Side

Classificationand documentation responsibilities:

What is myclassification?

What do I need to do toavoid being withheld on?

Exposures if Non-Compliant:

30% withholding

Foreign bank account,brokerage, or custodyaccount termination


General Counsel

Payee

PayeeProcurementAccounts Payable

Vendor On Boarding Process

Treasury PayeeSAP

Oracle PeopleSoft

Tax Reporting

IRS

Contract

Consider:

Does each payment center have its own process?

What information do they collect during on-boarding, andis it enough to meet new reporting requirements?

Who collects it?

What are the systems of record for information collected?

Assessment Phase (Payments)


Pros and Cons of the Two Approaches to Avoiding Withholding?

Challenges • Payor must classify payments• Systems/ Processes needed to classify• Ongoing review of contracts (material

modification)

• Counterparties provide W-8 information• Systems and Process to collect and compile W-8 information

Incremental efforts

• For financial payments need to collectW-8 forms

• For non-responsive payees, need to determine paymentexceptions

Reporting • 1042-S reflecting exemption codes • 1042-S reflecting payee status

Risk • Misclassification risk generally on payor • Misclassification risk generally on payee

• Non-FinancialorGrandfatheredObligation

• Payor toClassify

• FATCA Classification

• Payeeprovides W-8

Payment Exception Payee Exception

Solution: Most often a combination of the two approaches, depending on company involved


1. Collect W-8s and W-9s from every vendor

• Pros: No exposure for unidentified or mischaracterized payments; zerodiscretion means consistency

• Cons: Strain on vendor relationships; significant initial hurdle

2. Collect forms only from vendors receiving in-scope payments

• Pros: Low hassle, especially for clients that mostly pay for “stuff”; for serviceproviders, risk can be minimized via invoice requirements

• Cons: Relies on systems that typically do not feature the necessary paymentvisibility; exposure for change in payment stream remains

3. Collect complicated forms from financial payees, simple (substitute)forms from nonfinancial vendors

• Pros: Mid-level hassle, focused on higher risk areas

• Cons: Must be reviewed / modified with internal “mission creep”; exposure forchange in payment stream remains

Some Practical Options


Tales from the trenches…

Hidden payment centers, unidentified payment streams

Automation is a double-edged sword – minimal flexibility in vendor accountsystems means volume compliance or volume non-compliance

Chapter 3 remediation is a big deal

Both vendors and in-house tax / AP / vendor accounts are confused by the newforms

Hot Buttons on the Payments Side


Foreign Financial Institution

s(FFI)

Investment Entities Custodians

Banks

Foreign Financial Institution Nonfinancial Foreign Entity

An NFFE is any foreign entity that is not an FFI.

An NFFE may either:

1. Disclose substantial US owners tothe withholding agent or directly tothe IRS

2. Assert Excepted NFFE status

– Foreign publicly tradedcorporation or a subsidiary offoreign publicly tradedcorporation

– Active: 50 & 50 test

Treasury Centers and

HoldCos Affiliated with

FFIs

Specified Insurance

Companies

The Payee Side of FATCA


Classification Characteristics

Bank (Depository) • Accepts deposits and performs banking activities (e.g.,makes loans) in the ordinary course of business

Custodian • Holds, as a substantial percentage of business, financialassets for the benefit of one or more persons

• Substantial Percentage: ≥ 20% of gross income during 3year testing period

Investment Entity • Primarily conducts one of the following on behalf of itscustomers:

• Trading, Money Market, Currency, Securities,• Portfolio Management; or,• Investing, administering funds or financial assets.

• Primarily conducts: ≥ 50% of gross income over 3 years

Insurance Company or Holding Co

• EAG has insurance company or insurance holdco issuingcash value policies or annuities

Holding Co or TreasuryCenter

• EAG includes bank, custodian, insurance company,investment entity or is used for investment activities

Types of Financial Institutions


Potential Relief from FFI Status for Nonfinancial Groups

Possible movement from FFI to NFFE if both:

A. Expanded Affiliated Group (“EAG”) qualifies as “nonfinancial”1. ≤25% of the group’s gross income is passive; and

2. ≤25% of group’s assets are passive; and

3. ≤5 % of the group’s gross income is derived by FFIs.

B. Substantially all of the tested entity’s activities are as:1. Holding Company: Primary activity consists of holding the stock of EAG subsidiaries;

and/or

2. Treasury Center: Primary activity is to enter into hedging, financing, cash pooling, etc.arrangements with or for EAG members; and/or

3. Captive Finance Company: Primary activity is to enter into financing or leasingtransactions with or for suppliers, distributors, dealers or customers of such entity or anyNFFE member of the EAG.


Intergovernmental Agreements

What is an IGA?

Foreign law may restrict an FFI’s ability to comply with the FATCA regulations.

The United States has developed an alternative approach to FATCA compliancethat takes these restrictions into account – Intergovernmental Agreements (IGAs)

Under an IGA, the foreign jurisdiction agrees

– To report to the foreign jurisdiction, which in turn will report information to the IRS, under a“Model 1 IGA;” or

– To allow its financial institutions to report directly to the IRS, under a “Model 2 IGA”


Tales from the trenches…• Physical cash pooling or “pay on behalf of” arrangements (which may

trigger depository entity, investment entity or custodial entity issues)

• The “nonfinancial group” exception is confusing and missing a lot ofhelpful rules

• Classification is necessary under the IGAs as they come into effect, andthe FATCA regulations before that

• Foreign pension plans may be off-balance sheet FFIs

Hot Buttons on the Payee Side


What’s at Stake?

ACo pays a foreign entity (“FC”) $1 million of US source interest. ACo obtains no W-8BEN-E, withholds nothing, and files no 1042 or 1042-S.

ACo is liable for withholding and penalties described below. In addition, interest will run on the $428,571 withholding payment and any accuracy-related or failure to file penalties due, starting on March 15, 2015 (the due date for ACo’s Form 1042).

* This total takes into account the maximum withholding agent liability plus penalties (taking into account a limited offsetpermitted under the rules) but no withholding agent liability or interest.

Consequence Calculation Maximum DueWithholding Agent’s Liability 30% x $1,000,000 $300,000

Gross Up or Pyramid Effect $1,000,000/.7 = $1,428,571

Total Liability with Gross Up 30% x $1,428,571 $428,571

Penalty Calculation Maximum DueFailure to File $428,571 x 5%/month 25% = $107,143

Failure to Pay $428,571 x .5%/month 25% = $107,143

Failure to Deposit $428,571 x 10% $42,857Failure to File Information Reporting Return

2 x $100 $200

Total Penalty Calculation $246,628

Intentional Disregard Penalty $1,428,571 x 10% x 2 $285,714

Total Potential Liability $960,713*

Relevant Forms for FATCA and 1441 Withholding


Form W-8BEN-EPart I, Line 5, FATCA Classification

Withhold 30% unless FATCA withholding exception applies

May commonly see from financial payees. Will need to check GIIN on the IRS website.

US or foreign income tax ID number is necessary for treaty relief

May commonly see from nonfinancial vendors. If direct reporting NFFE, will need to check GIIN on the IRS website.


Form W-8BEN-E Supporting FATCA Representations

If this box is checked, the ownership disclosures on the last page should be completed.

Common nonfinancial vendor classifications must also be supported by representations (referenced on line

5)


Form 1042-S

MMG network of independent MG nG nG tet oetwo krk ork of if inf inddepedepe dndenndenttt

Common Ch 4 exemption codes:• 14 – Effectively connected Income• 15 – Payee not subject to chapter 4 withholding• 16 – Excluded nonfinancial payment

• Ties to status noted on W-8BEN-E• NOT required if the payment is eligible for a

withholding exception• If no other payment-related exemption applies and line

13i filled in, exemption code 15 (payee not subject toch 4 withholding) should be used

US TIN or foreign income tax ID number necessary to claim treaty benefit

Common Ch 3 exemption codes:• 01 – Effectively connected Income• 04 – Exempt under tax treaty• 12 – Payee subjected to chapter 4

withholding

30

Pressure to Classify Affiliated Foreign Entities


Tax: Companies receiving FATCA withholdable payments risk 30% withholding ifthey cannot demonstrate (on their own Forms W-8BEN-E) FATCA compliantstatus

Regulatory: Companies with FFIs in their group should be complying withFATCA or IGA-based due diligence and reporting obligations

Commercial: Companies maintaining foreign bank or other financial accountsrisk account closure if they don’t comply with their bank’s due diligence/intakerequests for FATCA information

What’s at Stake?

Companies Generally Have a Fiduciary Duty to Ensure That Their Foreign Pensions Are Compliant


Foreign pension funds are presumptively treated as foreign financial institutions(e.g., as collective investment vehicles)

Most foreign pension funds have U.S. investment assets

To avoid the 30% withholding tax on their U.S. investment returns (and,beginning in 2017, the gross proceeds from sales of U.S. securities) foreignpension funds must be FATCA compliant or qualify for exempt status

What’s at Stake?


Foreign Pension Fund Classification

Foreign pension funds may qualify for FATCA-exempt status if:

A. Fund has qualifying legal status

• IGA exemption available

• Fund qualifies for tax treaty benefits, including eligibility under LOB provisions

• Fund is 401(a)-equivalent

B. Fund has qualifying features, for example –• Fund is subject to foreign regulation as a pension or retirement fund, including

annual (revenue agency) reporting requirements

• No beneficiaries have the right to receive greater than a specified percentage ofFund assets

• Specific rules limit the amount and/or nature of contributions

• Pre-retirement/death/disability distributions are either precluded entirely or aresubject to penalty

Questions? Contact:

Dave Antoni, Tax Managing [email protected]

Michael Cornett, [email protected]

Bob Glass, Tax [email protected]

Lawrence M. Boyle, Tax [email protected]

Building the Balance Sheet with Preferred

Stock

Building the Balance Sheet with Preferred Stock

PRESENTER BIOGRAPHIES Timothy Skidmore Executive Vice President and CFO CHS Inc. Timothy Skidmore is executive vice president and chief financial officer for CHS, the nation's leading farmer-owned cooperative and a global energy, grains and foods company. Tim joined CHS in August 2013 and is responsible for finance, business planning, accounting, patron equity, insurance risk management and strategic sourcing. He previously served as vice president of finance and strategy for Campbell North America, Campbell's largest operating division. Tim joined Campbell as assistant treasurer in 2001 and has held numerous leadership positions in finance including leading the cash management, corporate finance and international treasury functions and serving in various business unit CFO roles including the U.S. soup, simple meals, beverages and international businesses where he was responsible for financial strategy, planning, reporting and balance sheet management. Prior to joining Campbell, Tim spent 15 years at DuPont Co., where he held a variety of financial leadership positions, including leading DuPont's finance function across Asia Pacific. Tim began his career at Conoco Philips. He holds a bachelor's degree in risk management from the University of Georgia and a Master of Business Administration in finance from Widener University, Chester, Penn. Theresa Marie Egan Controller CHS Inc. Theresa Marie Egan has been corporate controller at CHS, Inc. since 2011 and serves as its vice president and principal accounting officer. Theresa served as vice president of Accounting at CHS, Inc. Theresa joined CHS in 1992 and served as its director of financial reporting since January 2007. In that position, she has been responsible for company filings with the SEC, consolidating monthly financial statements, acting as a key liaison for external auditors, leading the financial team's Sarbanes-Oxley compliance efforts and overseeing its Patron Equities department. From 1994 to 2006, Theresa served as CHS's Corporate Accounting/Financial Reporting Manager and from 1992 to 1994she served as an accountant for its former Country Services department. Theresa was employed at Old Mutual Asset Managers (UK) Limited. Theresa serves on the member boards of Ag States Agency, LLC and Impact Risk Solutions, LLC, and is a trustee of the CHS Member Cooperatives Pension Plan. She is a former director of United Harvest, LLC. She earned a bachelor's degree in business administration/accounting from Eastern Washington University and an associate degree in computer science from the University of Maryland, European Division, and received a Certified Public Accountant certificate in 1990. David Swanson Partner Dorsey & Whitney LLP Dave Swanson is a partner in the Corporate practice group, Chair of the Agribusiness, Cooperatives and Electric Associations practice group and co-Chair of the Project Development and Finance practice group. For 25 years, he has focused on organizational issues, financing and transactions for energy project participants, agricultural and rural electric cooperatives, as well as cooperative financial institutions. Dave is a graduate of St. Cloud State University and Vanderbilt University Law School.

© 2014 CHS Inc.

Building the Balance Sheetwith Preferred Stock

NCFC LTA Conference

February 12, 2015 2

Tim SkidmoreExecutive Vice President and Chief Financial Officer, CHS Inc.

Theresa EganVice President, Accounting and Corporate Controller, CHS Inc.

David SwansonPartner – Corporate, Dorsey & Whitney LLP

2015

DISCLOSURE STATEMENT

This presentation contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management's current expectations and assumptions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the potential results discussed in the forward-looking statements. CHS undertakes no obligation to revise any forward-looking statements to reflect future events or circumstances, except as required by applicable law. For a discussion of additional factors that may materially affect management's estimates and predictions, please view the CHS Inc. annual report filed on Form 10-K for the year ended Aug. 31, 2014, which can be found on the Securities and Exchange Commission web site (www.sec.gov) or on the CHS web site www.chsinc.com.

3

ABOUT CHS

• Serves producers and consumers throughout the UnitedStates

• Energy, grains, fertilizer, food and food ingredients,business services

• Supplies grain and other products to customers in 65countries

• About 11,000 employees in the U.S. and 25 other countries

CHS OWNERSHIP

1,100 locally owned cooperatives serving more

than 550,000 producers

Voting equity30%

Voting equity70%

Voting equity0%

75,000 individual producers (through

company-owned facilities)

Preferred stockholders

(CHSCP, CHSCO, CHSCN, CHSCM,

CHSCL) onNASDAQ Exchange

THE CHS FINANCIAL FOUNDATION

The financial foundation will stand the test of time through

• Maintaining Performance Momentum: Profitable growth

• Competitive cash returns through patronage, equity retirement, dividends

• Invest to help our owners and customers grow

• Sustain solid ROAE

• Maintaining Financial Strength: Strong balance sheet

• Maintain financial flexibility and liquidity

• Access to capital to fuel growth

• Optimize capital structure

6

BALANCE SHEET MANAGEMENT OBJECTIVE

What is profitable growth?

Pay competitive cash returns toour owners today, including:

• Cash patronage

• Equity retirement

• Preferred stock dividends

Invest in long-lived assets andcapabilities:

• Future cash returns to ourowners

How is profitable growth measured?

Return on adjusted equity (ROAE) =

(Net Income – Preferred Dividends) /(Beg. Equity – Preferred Stock)

Reinvestment Rate =

(Capital Expenditures + M&A) / (Depreciation + Amortization)

7

Maintain a strong balance sheet that enables CHS to profitable grow –

FINANCIAL FOUNDATION SCORECARD

82013 2014 2015 Q1

LT Debt / Equity

2013 2014 2015 Q1

Debt / Cash Flow

2013 2014 2013 2014

Reinvestment Rate

LT Debt / Cash FlowLT Debt / Equity

(2) Reinvestment Rate = Capital Expenditures / Annual Depreciation and Amortization

% ROAE (1) Reinvestment Rate (2)

____________________(1) ROAE = (Net Income – Preferred Dividends)

(Beg. Equity – Beg. Preferred Stock)

Times

% %

TOOLS FOR A STRONG BALANCE SHEET

Cash return to owners

Investments in the future

Debt Qualified Owner Equity

Non-qualified Owner Equity

Unallocated Reserve

Tools fora sound

balance sheet

9

Preferred StockPreferred Stock

PREFERRED STOCK ATTRACTIVE VERSUS HISTORICAL US TREASURY RATES

10

30-yr UST Yield Currently Near All Time Lows

10-yr UST Yield Currently Near All Time Lows

____________________Source: BofAML Trading Desk and Bloomberg TRACE

0%

2%

4%

6%

8%

10%

12%

14%

16%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

0%

2%

4%

6%

8%

10%

12%

14%

16%

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

High: 15.842%

Low: 1.388%

Current: 2.163%

10‐year UST Yield

High: 15.212%

Low: 2.454%

Current: 2.780%

30‐year UST Yield

PREFERRED STOCK:EVOLVING PERSPECTIVES

• Initial preferred stock issuances added capital to balancesheet; allowed redemption of member-owner equity withoutcash

• Today we see preferred stock as an important strategicbalance sheet management tool, including member-ownerequity redemption

11

EARLY HISTORY:SEC REGISTRATION AND PREFERRED STOCK

1997 – Former Harvest States becomes SEC registrant through registration of securities to create its direct farmer-owner investment program for wheat milling and oilseed processing

1998 – CHS formed; new company maintains SEC registration

2001 – Direct investment program ends

2001 – $10 million in preferred stock sold in direct sale program

2003 – $86 million in preferred stock issued; trades on NASDAQ as CHSCP

2004 – $13 million in CHSCP used to redeem member-owner equity

12

RECENT DEVELOPMENTS

• Mid-January offering of $518 million inCHSCL at 7.5 percent fixed rate

• Currently has about $2.3 billion inpreferred stock trading on NASDAQ

• One-time use to retire $200 million inqualified equity as CHSCO preferred stockexecuted in August 2014

• Preferred stock is non-voting

• Ownership and voting control of CHSremains with cooperatives and producers

• CHS has no plans to become aconventional publicly traded company

13

PREFERRED STOCK SNAPSHOT

NASDAQTicker

Market Value($millions)

Dividend Rate

CHSCP $371 8%

CHSCO $505 7.875%

CHSCN $453 7.1%*

CHSCM $484 6.75%*

CHSCL $518 7.5%

Total $2,330

*Floating rate after 10 years

14

CHS PREFERRED STOCK

15

$9 $9 $94 $107 $127 $151 $186 $233 $283 $319 $319 $319 $319

$1,190

$2,189

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ in millions (shares at par value)

Building the Balance Sheet to Support Growth

EQUITY RETIREMENT WITH PREFERRED STOCKHISTORY

• Since 2003, CHS has retired owner equity with preferredstock seven times

• Six issuances ranging from $13 million to $50 million in equityretired with CHSCP

• August 2014 -- $200 million in equity retired with CHSCO

• Combined with FY2014 equity redemption, CHS eligiblemember cooperative equity redeemed through FY2004 anda portion of FY2005

16

SUMMARY:EQUITY RETIREMENT WITH PREFERRED STOCK

Objectives

• Manage qualified equity revolvement and member expectations

Benefits

• Build additional permanent capital on CHS balance sheet by replacingqualified member equity with perpetual preferred stock

• Member liquidity is provided by the capital markets

• Member earns market based dividend yield

• CHS conserves cash and maintains balance sheet equity

• Members receive equity retirement sooner

17

2014 EQUITY RETIREMENT WITH PREFERRED STOCK

Description

• Redeemed $200 million of capital equity certificates with preferred stock

• Included both coop members and individuals based on current split ofoutstanding equity (70/30 = $140m/$60m)

• Included only active members; excluded those with past due accountsreceivable; $5,000 threshold

• Based on oldest equity, retiring $140 million of coop member equity broughtredemption partially through 2005. For consistency, individual equity retiredon a pro-rata basis for equity older than 2005

• Exchanged at market price, which provided an attractive cost of permanentequity

• Members, as holders of preferred, will earn market based dividend

18

SEC REGISTRATION

• Time consuming and complex. An education process for entire company

• Sensitivity to disclosure items related to business, as well as for directors and namedexecutive officers (NEOs)

• IT systems must be in place to ensure accurate, timely data and information to supportdisclosures

• High standards for corporate governance

• Increased liability for company's officers and directors

• Requires that company achieve and maintain compliance with Sarbanes-Oxley (SOX)

• Additional staff expertise and/or outside resources may be required

• Initial and subsequent offerings

• Quarterly and annual financial filings

• Filings at time of other events (8K, stock transactions by officers/directors)

• Cost involved (will vary by organization)

• Attorneys

• Accountants

• Systems

19

FORM 10-K AND PROSPECTUS

20

Our cooperative structure limits our ability to access equity capital.

As a cooperative, we may not sell common stock in our company. In addition, existing laws and our articles ofincorporation and bylaws contain limitations on dividends of 8% per annum on any preferred stock that we may issue. Theselimitations may restrict our ability to raise equity capital and may adversely affect our ability to compete with enterprises that

do not face similar restrictions.

COULD THIS WORK FOR YOUR CO-OP?

• How would it fit in your balance sheet management strategy?

• How will you generate cash to pay preferred stock dividends?

• Do you have a plan for member-owner communication? What is stakeholder readiness forsuch a change?

• Do you have or can you meet internal systems and staffing needs to achieve/maintaininternal control and reporting requirements?

• Do articles and bylaws authorize preferred shares? Key terms for capital markets aredividend priority over patronage payments, and preferred priority over patrons’ equity in aliquidation.

21

PREFERRED STOCK CONSIDERATIONS

• Have clear strategic goals

• Know financial implications of using preferred stock

• Registration process can be time-consuming, complex andcarries expense

• SEC registration followed by specific process for eachpreferred stock offering; easier with S-3 “shelf registration”

• Success requires appropriate timing with market conditions

• Will you sell directly to institutional investors only?

• Will shares trade through listing on public market?

• Capable, trusted partners are essential (legal, financial,“market makers”)

22

HOW DO PREFERRED STOCK INVESTORS VIEWCHS?

Diversified U.S. Agribusiness with Growing Global Presence

Clearly Defined Growth Plan Leveraging the CHS Enterprise

Strong Financial Profile

Investment Grade Balance Sheet

Conservative Patronage Dividend & Equity Redemption Policy

Proven and Experienced Management Team

STRONG FINANCIAL PROFILE

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 11/30/14 LTM

$25.3

$36.9 $40.6

$44.5 $42.7 $41.1

$0

$10

$20

$30

$40

$50

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 11/30/14 LTM

$535

$1,061 $1,336

$996 $1,083 $1,218

$0

$400

$800

$1,200

$1,600

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 11/30/14 LTM

____________________Source: Company financial disclosures.(1) Net income presented here includes net income attributable to noncontrolling interests.

Diverse business portfolio

Strong domestic and

expanding global footprint

Focused on adding value

along selected agricultural

related value chains

The decrease in FY 2013

earnings is primarily from

reduced margins on refined

fuels at Laurel, Montana

refinery due to shutdown

related to major maintenance

and reduced grain export

margins attributable to a

severe drought.

Total Revenues (In Billions)

Net Income (1) (In Millions)

EBITDA

$ $ $ $ $ $

%%

%% %

%$ %

INVESTMENT GRADE BALANCE SHEET

Total Leverage (2)

Debt / Total Capital (1)

Debt / Equity (1)Capitalization

____________________Source: CompanyNote: In USD Millions.(1) Includes current portion of long term debt of $131.7 mm and long term debt of $1,210.7 mm.(2) Total Leverage = EBITDA / Long-Term Debt (1)

Cash $1,669

Debt:

$ 2.5 bn 5-Year Unsecured Revolver (Due June 2018) $0

Long Term Debt (1) 1,342

Notes Payable 1,293

Total Debt $2,636

Total Net Debt 967

Equity:

Preferred Stock $1,667

Equity Certificates 3,801

Accumulated Other Comprehensive Losses (158)

Capital Reserves 1,837

Noncontrolling Interest 12

Total Equity $7,159

Total Capitalization $9,794

As of 11/30/14

Aug 2012 Aug 2013 Aug 2014 Nov 2014

Aug 2012 Aug 2013 Aug 2014 Nov 2014

Strong commitment to maintaining an

investment grade balance sheet

Decision to access preferred market supports

this commitment

Aug 2012 Aug 2013 Aug 2014 Nov 2014

PREFERRED STOCK VS. LONG-TERM DEBT

Preferred Stock Long-Term DebtPerpetual, no repayment obligation Finite life, repayment/refinancing risk

Higher rate, subordinated to debt Lower rate, senior to preferred

No impact on patronage income Reduces patronage income

No financial or other restrictive covenants Financial or other restrictive covenants

Dividend payment by Board action Missed interest payment triggers default

Expands leverage capacity Utilizes leverage capacity

Public market requires SEC registration Public, private and banks

Relative small market, co-ops 8% cap Deep, liquid market

26

QuestionsThank you

27

28

IC-DISCs: Implementation Issues

for Farmer Cooperatives

IC-DISCs Panel Discussion

MODERATOR BIOGRAPHY

Teresa H. Castanias, CPA Teresa H. (Teree) Castanias has a tax consulting practice focused on cooperative issues and other business and individual tax matters. She retired from KPMG in September 2009 where she was the firm’s National Director for Technical Tax Services for Cooperatives and was responsible for providing tax consulting, compliance and tax provision services to Consumer and Industrial Markets, and Financial Services clients, including cooperatives and non-cooperative enterprises in food production, manufacturing, distribution and retail, rural electric and telephone, Farm Credit System agricultural lending, banking and financial services. Teree has had a broad range of experience with all types of cooperatives and non-cooperative businesses, but particularly with pooling marketing cooperatives. Teree’s professional accounting experience with KPMG spanned over 32 years and 29 years serving cooperatives as a focus area.

Professional and Industry Experience

Teree has substantial experience leading and coordinating tax engagements. She has served as lead tax partner with responsibility for planning, budgeting, execution, and delivery of federal and state tax work to many clients. She has also provided subject matter knowledge and guidance on cooperative issues in her role as National Director of Technical Tax Services for Cooperatives. Teree hosted KPMG’s Annual Cooperative Tax Roundtable which is a popular conference for KPMG’s cooperative clients each May. Teree started and maintained KPMG’s on-line publication “Tax News Flash – Cooperatives” which summarizes current tax developments affecting cooperatives. Teree was a member of the Executive Committee on the Legal, Tax and Accounting Committee of the National Council of Farmer Cooperatives (“NCFC”). Teree is also the immediate past Chairman and a member of the Tax Committee of the National Society of Accountants for Cooperatives (“NSAC”). Teree is also past board member of NSAC’s National board and Far Western Chapter. Teree is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. Teree is also a frequent speaker concerning tax issues related to cooperatives at annual meetings of the NCFC and NSAC. In addition, she is a periodic contributor of articles on current developments in cooperative taxation for the NSAC’s “Cooperative Accountant” publication.

PRESENTER BIOGRAPHIES Mark Gasbarra National Managing Director Forte International Tax, LLC With over 30 years of industry experience, Mark Gasbarra has helped many of the country’s most successful enterprises implement all aspects of international taxation. A hallmark of Mark’s career has been leveraging technology to improve tax department performance. Prior to founding Forte International Tax, Mark held leadership positions at PwC, Ernst & Young, and CliftonLarsonAllen. Mark leads the firm on its mission of achieving global tax minimization through process efficiency. Dean LaVallee CFO Blue Diamond Growers Dean LaVallee assumed the role as Blue Diamond’s Chief Financial Officer in 2011 following a 20-year career with Kraft Foods. Dean’s more than 25 years of finance experience includes senior Finance leadership positions in Accounting, Branded Retail, Food Service, Manufacturing, as well as Procurement. As CFO, Dean has responsibility for all financial planning & analysis both at the enterprise and business unit level; Accounting, Treasury and Information Technology and Services. Dean holds a Bachelor of Commerce Degree from Laurentian University in Sudbury, Ontario, and is a Certified Management Accountant (CMA).

National Council of Farmer CooperativesLegal, Tax & Accounting Committee Meeting

IC‐DISC Panel DiscussionSan Diego, CaliforniaFebruary 13, 2015

Moderator – Teree Castanias, CPAPanel – Mark Gasbarra, National Managing Director,

Forte International Tax, LLC andDean LaVallee, CFO, Blue Diamond Growers

Teree CastaniasTeresa Castanias, CPA Firm’s focus is delivering tax advice to helpcooperatives best utilize their cooperative structure forthe benefit of the cooperative and the members.

More than 35 years experience in providing tax adviceacross a broad range of businesses organized ascooperatives. Teree led the cooperative tax practice ofKPMG for over 10 years. She organized and led agroup of cooperatives to lobby Congress for the specialprovisions which were enacted in Section 199 in 2006.

Mark Gasbarra, CPANational Managing DirectorForte International Tax, LLC

Firm’s focus is delivering processes and tools,including VantagePoint™, to help internationalbusinesses minimize their global tax cost

More than 30 years experience in maximizingexport tax incentives across a broad range ofindustries. Mark led the export incentivespractices of both Ernst & Young and PriceWaterhouse.

Dean LaVallee – Chief Financial Officer Coopers & Lybrand Chartered Accountants ‐ 4 1/2 years

Canada Post Corporation ‐ 1 1/2 years

Kraft: 21 years (Canada, United States and United Kingdom)

Positions at Kraft:

VP Finance Transformation (Chicago)

VP Procurement Cheese & Dairy (Chicago)

VP Finance International Manufacturing (London, U.K.)

Sr. Dir FP&A Kraft Foods International (New York)

Dir Operation Finance – (Toronto)

Dir Financial Planning & Analysis – (Toronto)

Numerous Finance positions – Toronto

Blue Diamond Growers – Since November 2011 (Sacramento)

Chief Financial Officer

IC‐DISC Opening Remarks Why have IC‐DISCs become such a big discussion itemfor cooperatives? And why now?

Farmers have been profitable

Exports have been growing

2013 tax law change that made permanent the specialcapital gains tax rate on “qualified dividends”

IC‐DISC dividends are “qualified dividends”

So rate differential can be 15.8% (39.6% less 23.8%)

Capital gain rate is 20% plus potential additional “netinvestment income tax” of 3.8%

IC‐DISC Opening Remarks

DISC was the precursor to the Foreign SalesCorporation, Extraterritorial Income and Section 199rules

With each change to these special rules, cooperatives gotmore involved in making sure the rules were writtenwith special provisions for the unique taxation ofcooperatives

Now cooperatives wanted to explore how to make theDISC rules work for them

IC‐DISC Opening Remarks

Panel members

Mark Gasbarra will discuss

How IC‐DISC rules work in general

How cooperatives can take advantage of them

What the key issues are for implementing one in a cooperative

Dean LaVallee will discuss

Implementation of the structure at Blue Diamond

Teree Castanias

Wrap‐up on next steps

Any tax advice included in this communication is not intended or written to be used, and it cannot beused by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.

© Forte International Tax, LLC All rights reserved. www.forteintax.com

IC-DISC Tax Rules for Cooperatives

Mark Gasbarra, CPA

February 13, 2015

San Diego, California

99

Introduction

Mark Gasbarra, CPANational Managing Director

Forte International Tax, LLC

Firm’s focus is delivering processes and tools,including VantagePoint™, to help internationalbusinesses minimize their global tax cost

More than 30 years experiences in maximizingexport tax incentives across a broad range ofindustries. Mark led the export incentivespractices of both Ernst & Young and PriceWaterhouse.

1010

Discussion Outline

IC-DISC Essentials

Revenue Ruling 77-484

Structural Alternatives– Grower is the Related Supplier & Shareholder

– Cooperative is the Related Supplier & Shareholder

– Cooperative is the Related Supplier & Growers are the Shareholders

Interplay with Section 199 – DPAD

Maximizing IC-DISC & DPAD Savings– Statutory Underpinnings and Other Authorities

– Computational Examples of Alternatives

Administering IC-DISC Program

Special Topics and Next Steps

1111

IC-DISC History

Domestic International Sales Corporation (“DISC”) – circa 1971– Separate Entity

– Mechanical profit split between the DISC and its Related Supplier

DISC’s are replaced into Two Separate Provisions – 1984– Interest Charge Domestic International Sales Corporations (“IC-DISC”)

Limited deferral regime

Precisely the same mechanics as the DISC

– Foreign Sales Corporations (exclusion)

Extraterritorial Income Exclusion (“EIE”) replaces FSC – 2000

American Jobs Creation Act– EIE is Phased Out => Section 199 DPAD is Phased In

Qualified Dividend Income => creates unlimited permanent taxsavings potential for individuals through the IC-DISC

1212

Key Terms

Qualified Export Receipts– Produced within the U.S.

– Sold for Consumption outside the U.S.

Administrative Pricing methods to split taxable income betweenthe tax exempt IC-DISC and its Related Supplier– 4% Export Receipts limited to the following “no-loss” rules

100% of combined taxable income, or

Overall profit x Qualified Export Receipts

– 50% Combined Taxable Income Full costing or Marginal costing limited to overall profit percentage

Profits are transferred via a deductible Commission or as aBuy/Sell transaction

Related Supplier - Controlled by the same interests as the IC-DISC

1313

Important Points

Combined Taxable Income– Whether profits are transferred via deductible Commission or Buy/Sell the

combined taxable income of the IC-DISC and its Related Supplier is thelimiting factor

Related Supplier– Determines how combined taxable income is computed because there are

very specific rules associated with cooperatives that are not available tothe growers

– Determines the applicability of Revenue Ruling 77-484

Shareholder of the IC-DISC– Determines the Tax Treatment of IC-DISC Dividends and whether

permanent tax savings are achieved

– Only individuals are entitled to the lower tax rates resulting from QualifiedDividend Income treatment (either directly or indirectly)

1414


1515


Casts a dark shadow over Growers acting in the capacity of aRelated Supplier to an IC-DISC

Grower was both the Related Supplier and the Shareholder of theDISC

Denied DISC benefits to the Grower crops sold through anAgricultural Cooperative

Coop was able identify the aggregate amount of export grossreceipts

Coop was not able to specifically identify qualified export receipts

IRS Audit Guide– Released March 2012

– Cites Revenue Ruling 77-484

1616

Coop as Related Supplier and Shareholder

1717

Coop as Related Supplier and Shareholder

What if the Cooperative is the Related Supplier to the IC-DISC andits Shareholder?

The Cooperative would only pay Deductible DISC Commissionswith respect to Qualified Export Receipts– Specific growers crop is irrelevant to the Coop as long as it was grown

within the U.S. and is exported

– The deduction would reduce the amounts otherwise payable to theGrower/Members of the Coop

Bypasses Revenue Ruling 77-484

Cooperative is not entitled to earn qualified dividend income

Deferral benefit only limited to earnings attributable to$10,000,000 of export gross receipts

1818

Coop/Related Supplier + Member/Owner

1919

Coop/Related Supplier + Member Owner

What if the Cooperative is the Related Supplier to the IC-DISC andthe Coop’s Members are the Shareholders of the IC-DISC?

Members interests can be managed through an LLC or Trust

The Cooperative would only pay Deductible DISC Commissionswith respect to Qualified Export Receipts– Specific growers crop is irrelevant to the Coop as long as it was grown

within the U.S. and is exported

– The deduction would reduce the amounts otherwise payable to theGrower/Members of the Coop

Bypasses Revenue Ruling 77-484

Members that are individuals are eligible to receive qualifieddividend income from the IC-DISC

Permanent tax savings are achieved

2020

Computing CTI for a Cooperative

The DISC Regulations do not have examples of how anAgricultural Cooperative should calculate combined taxableincome for purposes of determining the amount of its deductibleDISC Commission

IRS Private Letter Rulings – addressed the DISC context– PLR 7945014

– PLR 8208011

Successor FSC/ETI Regulations are Clear

IRC Section 199 – DPAD is Clear

Conclusion– The deductions allowed under IRC Section 1382(b) and (c) for patronage

dividends and per-unit retains should not be deducted for purposes ofcomputing combined taxable income for an Agricultural Cooperative

2121

IRC 1382 – Taxable Income of Coops

a) Gross income – “shall be determined without any adjustment (as areduction in gross receipts, an increase in cost of goods sold, orotherwise) by reason of any allocation or distribution to a patron outof the net earnings of such organization or by reason of any amountpaid to a patron as a per-unit retain allocation”

b) Patronage Dividends and Per-Unit Retains – “In determining thetaxable income of an organization to which this part applies, thereshall not be taken into account amounts paid during the paymentperiod for patronage dividends, in money or as per-unit retainallocations

For purposes of this title, any amount not taken into account under the preceding sentence be treated in the same manner as an item of gross income and as a deduction therefrom

2222

IC-DISC/DPAD Interplay

Direct Descendants of the DISC– IC-DISC

– FSC and ETI (both repealed)

– Section 199 Domestic Production Activities Deduction

The computation of combined taxable income (“CTI”) for purposesof the IC-DISC and qualified production activities income (“QPAI”)income for DPAD are essentially the same with the identicalstatutory underpinning

IC-DISC commission should reduce QPAI in determining theamount of the Domestic Production Activities Deduction(“DPAD”) passed through to the Coop’s Members

CTI and QPAI should be computed consistently

2323

Establishing the IC-DISC Structure

Recommendation and Approvals– Related Supplier

– Ownership Structure

– LLC Agreement

– Document Preparation

New Corporation – any State (CA, NV, DE)– State tax considerations

IC-DISC Election - IRS Form 4876-A– Approval by all Shareholders

– Due at any time within 90 days of entity formation with retroactive effect

– All exports shipped after effective date qualify

2424

Ongoing Computations & Maintenance

Tracking Qualified Export Receipts

Computing IC-DISC Commission Deduction

Integration with Section 199 DPAD

Related Supplier and IC-DISC Accounting– Managing Different Year Ends

– 60 Day Rule

– 90 Day Rule

Managing Distributions and Reporting

Preparing IRS Form 1120-IC DISC

Preparing Partnership Return and Schedule K’s

Blue Diamond GrowersIC‐DISC ImplementationDean LaVallee, CFO

Dean LaVallee – Chief Financial Officer Coopers & Lybrand Chartered Accountants ‐ 4 1/2 years

Canada Post Corporation ‐ 1 1/2 years

Kraft: 21 years (Canada, United States and United Kingdom)

Positions at Kraft:

VP Finance Transformation (Chicago)

VP Procurement Cheese & Dairy (Chicago)

VP Finance International Manufacturing (London, U.K.)

Sr. Dir FP&A Kraft Foods International (New York)

Dir Operation Finance – (Toronto)

Dir Financial Planning & Analysis – (Toronto)

Numerous Finance positions – Toronto

Blue Diamond Growers – Since November 2011 (Sacramento)

Chief Financial Officer

IC‐DISC Implementation

Began with ‘How To’ discussions Comingling…Fungibility

Legal structure…one class of shares

Board approval in December 2013

Legal counsel created structures and documentation Articles of Incorporation

DISC Corporation and LLC

Operating Agreements

Bylaws

CPA firm filed necessary IRS documentation SS‐4 (EIN Application)

IC‐DISC Election – Form 4876A

Road shows Explaining IC‐DISC to our Member Relations & Growers

Phone calls from Member’s CPA

Set‐up cost avoidance for Cooperative members

Accounting process and system modification Full International Sales P&L required

Corporate/Central Cost Allocations

Distribution to members (1099‐PATR & Schedule K‐1)

Reporting Tax Returns: Form 112o IC‐DISC

Schedule K‐1

IC‐DISC Implementation

Blue Diamond DISC Structure1. Grower sells crop to BDG2. BDG sells to foreign customer3. Foreign customer pays BDG4. BDG pays commission to IC‐DISC5. BDG pays patronage dividend to Grower6. IC‐DISC pays qualified dividend7. Partnership distributes dividend to

Growers

Significant amount of work for Finance and IT No real patronage earnings benefit

Some added cost but significant added burden

For a cooperative…breaking trail, little experience todraw upon (makes it more costly and uncertain) Many nuances for a cooperative

Significant Grower tax benefit due to Blue Diamond’sInternational business And avoidance of individual IC‐DISC set‐up cost

Benefit may be temporary Selling price decline reducing benefit vs. cost

Tax regulation change

Final Comments

Other issues to consider State tax consequences

Year end of LLC must be calendar, and year end of Coopmay be fiscal ‐ creates complexities in implementation

Biggest issue: How is the IC‐DISC commissioncomputed for a cooperative? Without clarity on this issue, many coops are reluctantto move forward

NCFC is forming a coalition to pursue obtaining aRevenue Procedure from the IRS on this issue

If your coop has significant export sales and is interestedin helping on this, please see Marlis Carson

Wrap Up

Contact InformationTeree Castanias

Teresa Castanias, [email protected](916) 761 – 8686

www.castaniascpa.com

Mark Gasbarra, CPA Dean LaValleeNational Managing Director Chief Financial OfficerForte International Tax, LLC Blue Diamond [email protected] [email protected](847) 733‐0645 (916) 446‐8524www.forteintax.com www.bluediamond.com

Emerging Issues in Audit Committees

Emerging Issues in Audit Committees

MODERATOR BIOGRAPHY Jay McWatters Partner Dopkins and Co. Jay McWatters is the partner-in charge of Dopkins & Company’s Audit practice and serves on the Executive Committee. Jay joined the Firm 11 years ago after a 23-year career with KPMG, LLP. Jay was the managing partner of KPMG’s Buffalo office and the Upstate New York Audit practice up until his decision to leave the Firm. While at KPMG, Jay served clients in the manufacturing sector with a primary focus on food and agribusiness. His practice included agricultural cooperatives and large, publicly-held multinational companies. Since joining Dopkins & Company, Jay has remained active in the food industry and continues to work extensively with agricultural cooperatives. In serving cooperative clients for over thirty-years, Jay has had significant experience with a variety of issues including mergers and an acquisition, capital expansion, cost allocations, audit committee training, refinancing transactions and, joint ventures and has worked extensively with cooperative audit committees. In addition, Jay is active in a number of cooperative-based industry organizations including the National Council of Farmer Cooperatives’ Legal, Tax and Accounting Committee where he currently serves as Chair of its subcommittee, Financial Reporting and Audit Issues of Agricultural Cooperatives. He is also a member of the National Society of Accountants for Cooperatives and has twice won its Silver Pen award for cooperative-based articles. Jay is also an active member of the Northeast Cooperative Council and has been a frequent facilitator of their leadership forums. In addition to his professional and Firm responsibilities, Jay is very active in the community and is presently serving as Chair of the 2015 United Way of Buffalo and Erie County fundraising campaign and, among other things, is a member of the Audit Committee of the Catholic Health System of Buffalo. Jay has BBA and MBA degrees and is a CPA in both New York and Massachusetts. Dopkins & Company, LLP is a full-service, regional public accounting firm based in Buffalo, New York.

PRESENTER BIOGRAPHIES Deb Erb Audit Committee Chair Agrimark, Inc. Deb Erb and her husband, Doug, own and operate Springvale Farms, a registered Holstein dairy farm in Landaff NH. They also own and operate a farmstead cheese business, Landaff Creamery, next door to their farm. Deb has served as a director of the Agri-Mark dairy cooperative, which owns the Cabot and McCadam cheese brands, for 10 years, and serves as chairman of the Audit committee. She is also a member of the Landaff Planning Board. Joe Werstak CFO United Producers, Inc. Joe Werstak has thirty–three years of experience working for cooperatives with broad knowledge of cooperative issues including accounting and taxation. He also has extensive experience with mergers and acquisitions. For the last sixteen years he has been employed as Chief Financial Officer and Treasurer for United Producers, Inc. UPI is a livestock marketing cooperative which operates in seven central states. He also has business experience in sporting goods and construction equipment.

Joe serves as vice chair for the NCFC CFO working group.

He holds an MBA from Kent State University and a BBA in accounting from Cleveland State University. He is a Certified Public Accountant.

An Inside Look at Cooperative Audit

Committees

Presented to theLTA Annual Meeting

February 13, 2015

Presenters

Deb Erb, Landaff Creamery, Springvale Farms, Chair of Agri-Mark Audit Committee

Joe Werstak, Chief Financial Officer, United Producers, Inc.

Jay McWatters, Audit Partner, Dopkins & Company, LLP

Purpose and Agenda• Outgrowth of 2014 Report by LTA’s Subcommittee,

“Financial Reporting and Audit Issues of AgriculturalCooperatives”

• Objective – Provide perspective on the role andactivities of cooperative audit committees and considerwhat is (or should be) on their agendas in today’s world

• Today’s Agendao Provide separate perspectives of an audit committee

member and member of managemento Summarize Subcommo ittee’s observations regarding today’s audit committee

agendao Open discussion

Some Perspective• The roles and responsibilities of audit committees

have evolved greatly over the last 15 yearso SECo Blue Ribbon Panel on Audit Committee effectiveness - 1999o Sarbanes-Oxley Act of 2002o Dodd Franko NYSE and NASDAQ listing requirements

• Today’s concept of audit committee oversightresponsibilitieso All things independent audit and independent auditorso Internal audit functiono Integrity of the financial statements (including internal controls)o Legal and regulatory compliance

Insert other slides here

Board members have a fiduciary responsibility to understand and protect the assets of the cooperative

• In-depth New director training, overview wholecompany

• Board provides financial oversight

• Sets policy and strategic direction

• Members expect an engaged Board.

Young Cooperator Program

• 110 attended 2014 Summer Conference• YC officers attend the monthly Board of Director

meetings of Agri-Mark• YC’s also attend other national educational events:

NECC, NMPF, NCFC

The Process of Resolutions

• The Resolution Committeewrites resolutions or receivesthem from individual members

• Voting Representatives fromeach membership region voteon resolutions which becomecooperative policy if adopted

• These resolutions guide theboard and cooperative.

The Agri‐Mark Board receives

detailed monthly financials

• Profit and Loss• Balance Sheet• Inventory details• Status of credit line• Key products performance• Manufacturing performance

Board toured every facility• The Board of Directors toured every facility

• This has given the Board a detailed educationabout the company they own.

Board approves Operating Budget and Capital Budget after detailed

presentation

• Ongoing projects are regularly updated• Projects over $150,000 must come to the Board

Agri‐Mark has a Hard Close every month

• No revisions prior month

• Overhead rates adjusted throughout year

• Accounting uses lower cost or market and write-downs as needed monthly

Audit Committee • Committee of the Board

• Training as committee changes

• Selects and recommends auditor, to full board

• Pre-audit meeting with Auditor

• Post- audit meeting with auditor

• Recommends additional areas for audit to cover.

Audit Committee (continued)

• Goes through details of audit with auditor

• Long history and Culture of transparency, fostersquestions and involvement.

• Sense of responsibility to be engaged.

• Must have a healthy dose of skepticism, courage toask tough questions and expect informativeanswers.

Audit Committee

• Key topics:• Risk, controls in place sufficient?• Risk, succession plans?

• Critical to work together, yet be independent:Auditor, Audit committee and Management.

• Validates process and integrity of numbers – Criticalfor membership/Board.

United Producers Inc.’s Audit Committee

A NEW MEMBER OF UPI’S AUDIT COMMITTEE

UPI’s Audit Committee• The committee’s responsibilities include areasof finance, audit and enterprise riskmanagement

• The committee members are four farmermembers from the UPI Board of Directors

• The committee chair is experienced havingserved on multiple cooperative boards overthe years and is vice chair for the cooperative

UPI’s Audit Committee• Another member of the committee isChairman of the Board for UPI’s subsidiary andhas served on the committee for a number ofyears

• Of the two remaining members, one is ayounger Director which provides for futurecontinuity

UPI’s Audit Committee Training

Director Certification Program includes the following:

In depth review of interim financials and most recent audit.

Completion of the Advanced Governance Series from Farm Credit Council Services.

Access to Outside Resources• Law firm

• Auditing firm

• NCFC, trade associations and othercooperatives

• Other boards, directors and committees

Committee’s Duties

• The committee meets at least fourtimes per year.

• Every six years the committee reviewsaudit proposals from auditing firmsand makes a recommendation to theBoard.

• Meets with independent auditors atleast twice per year; includes privatesessions.

Committee’s Duties

• Request additional areas to be included inannual audit

• Annually recommends the hiring ofindependent auditors to the Board

• Reviews audit reports in depth with auditors• Review management letter and response frommanagement

• Recommends acceptance of report to theBoard

Committee’s Duties• Review internal audit reports

• Review and discuss annual budget and interimfinancial reports

• Review and discuss enterprise riskmanagement plans and strategies

• Review and advise the Board on significantfinancial transactions

Audit Committee Issues• Communication skills of auditing firm partner

• Disagreement within the audit firm aboutspecific accounting treatment

• Effectiveness of internal audit function

• Data overload of committee members andBoard

• Cooperative taxation

• Pension plan

Value of the Audit Committee

• Part of the overall governance plan andfiduciary responsibilities of the Board

• Provides representation of the members andoversight in the overall audit process

• Can communicate issues not readily apparentto management or the auditor

• Can help in the communication process ofproviding members with financial information

Highlights From Today’s Audit

Committee Agenda• A compendium from a variety of sources; not a

definitive guide (the agenda needs to vary depending onthe relevant facts and circumstances affecting the entity)o Internal controls over financial reporting

• New COSO Framework has elevated the conversation• PCAOB focus

o Risk Assessment• An area of increasing focus in corporate governance

(recent financial challenges. SEC focus, Dodd Frank)• Audit committees are a natural intersection point

though other risk governance structures are emerging• Understand the process to identify, assess and mitigate

key risks confronting the organization

Highlights From Today’s Audit

Committee Agenda(continued)• IT and cybersecurity

o Pervasive nature of IT in the delivery of financial statementso Role of IT in systems of internal controlso Increasing complexity and capabilities of IT systemso Occurrence (and visibility) of cyber attacks

• Other matterso Derivatives and hedgingo Defined benefit pension planso Cooperative equity and capitalization planningo Other topics delivered from an understanding of risk and risk

managemento Etc., etc.

Agenda Overload??

“Today’s meeting will be endless with a half‐hour break for lunch”

In Summary• Assess whether the classical audit committee

responsibilities are being executed at some level withinthe governance structure

• Each cooperative’s AC agenda needs to be responsiveto the particular issues facing the organization

o Align Board and member needs and interests

• Agenda should be risk-responsive• Employ a thoughtful approach as to Committee

membership• Stay within reach of AC best practices• Allow sufficient time to address the agenda items• Consider need for audit committee training

Harder Than it Looks

Cooperatives and “B Corporation” Status

Cooperatives and “B Corporation” Status

PRESENTER BIOGRAPHIES Kimberly Lowe Shareholder Fredrikson & Byron Kimberly Lowe partners with entrepreneurs, executive management, boards of directors, multi-generational families, shareholders and investors on all aspects of the business life cycle from formation to operation to exit. Kim advises social ventures, private and public companies and partnerships, nonprofit organizations and cooperatives on general business matters, corporate governance, debt and equity financing, mergers and acquisitions, SEC and IRS compliance, business strategy, joint ventures and complex reorganizations. Kim advises public charities, private operating foundations, private foundations, social ventures, churches, trade associations, schools, athletic, recreational and community organizations on all aspects of the nonprofit business life cycle including entity selection, formation, obtaining and maintaining tax-exemption, board governance, investigations, financing, sustainable revenue strategies, joint ventures, reorganizations, mergers and dissolutions. Kim brings her extensive travel experience to the table for all clients, regardless of sector, purpose or goals. John Kreitler Advisory Director Agri-Mark, Inc.

John Kreitler is the advisory director with Agri-Mark Inc., a position he has held since 2010. In this role he is the non-farmer member of the Board of Directors of Agri-Mark’s 1200 member dairy cooperative. John is a retired attorney, and spent 29 years as a partner in the Business Law department of Shipman & Goodwin in Hartford, Connecticut. At Shipman & Goodwin, he was chair of the Business Law department and a member of the firm’s Executive Committee. John was a clerk for Justice Connor T. Hansen in the Wisconsin Supreme Court prior to his time at Shipman & Goodwin. He is also a veteran of the U.S. Navy.

John received his bachelor of science at Wesleyan University, and his JD, Cum Laude, Order of the Coif, from the University of Wisconsin School of Law.

Cooperatives and “B” Corporation StatusFebruary 13, 2015

© 20__ Fredrikson & Byron, P.A.

Kimberly A. LoweFredrikson & Byron, [email protected]

What is a Zonkey?From Zebra

StripesNose Shape

From DonkeyBody TypeEar Shape

Zonkeys are Real

What is a Social Business?From Non-Profit

Legal Social PurposeImpact Reporting

From For-ProfitPrivate Ownership

Profit Distribution Allowed

Social Businesses are Real

Social Business in 3DSharing x Selling x Sourcing

Social BySelling & Sourcing

The Basics“B Corp” Benefit Corporation

vs.

The Basics

• Certified B Corporation is acertification conferred by the nonprofitB Lab.

• Benefit corporation is a legal “status”conferred under state law enablingstatutes .

• Benefit corporations do NOT need tobe certified.

NCFC - February 13, 2015

B CORP CERTIFICATION

AGRI-MARK, INC.

AGRI-MARK, INC.

1180 Member DairyCooperative

New England/Up-State NY

Cabot Cheese, Butter, DairyProducts

Delaware Corporation

Certified B Corporation since2012

Advisory Director

To B, or not to B . . .

Certified B Corporation

B Labs - A non-profit certifying agency

B Corp Theme: Using business as a force for good to change the world!

Parallels to Cooperative movement

ICA Principals: Cooperatives owned and run by their members, driven by values, not just profits, acting together to build a better world.

B Certification Process

Biennial 3-step Process

Benefit Impact Statement

Meet Legal Requirements (if applicable)

B Corp Declaration of Interdependence

❖ Benefit Impact Statement (80 out of 200)

❖ Governance (transparency; promote social/environmental goals; legal structure to preserve/perpetuate mission)

❖ Workers (compensation fairness: development/training; participation in ownership; employee safety)

❖ Community (civic engagement; job creation for chronically unemployed; diversity; supply chain (buy “local” and encourage social/environmental consciousness of suppliers)

❖ Environmental (sustainability; life-cycle impact of products; energy efficiency; emissions/waste management; supply chain)

B Certification Process

❖ Convert to Public Benefit Corporation - 4 years post adoption of enabling legislation

❖ Alternative: Enforceable Charter provision to consider social and environmental goals in decision-making

❖ QUESTIONS:

❖ Are even most devout willing to go this far?

❖ Are there regulatory risks (Capper-Volstead?)

❖ Effective in preserving mission and shielding against suits by non-owner stakeholders?

Governance Legal Requirement

❖ Strengthens Product Brand

❖ Independent performance verification of value programs, standards and practices

❖ Encourage attitude of community, environment and social responsibility — not just profit

❖ Employee recruitment

❖ Partner with respected peers

Certified B Corp Benefits

The Basics“B Corp” Benefit Corporation

vs.

Charter Benefit Corporations: Trend or Here to stay?

Source: B Lab

Chartered Benefit CorporationHow is it possible?• State enabling statute – overlay of corporate law (or other entity statutes if so

elected)– New benefit corporation – formed at incorporation by stating in its articles that it is a benefit

corporation.

– Existing entity – converted to a benefit corporation by amending its articles of incorporation to state that it is a benefit corporation. The amendment must be adopted by at least the minimum status vote.

What does it mean for the business?

• See Model Legislation and Delaware Statute• Consideration of interests of constituencies other than the shareholders

– General public benefit purpose – A benefit corporation shall have a purpose of creating general public benefit in addition to its purpose under corporation law.

– Optional specific public benefit purpose – The incorporation document of a benefit corporation may identify one or more specific public benefits purpose in addition to its general public benefit purpose and purpose under corporation law.

Certified B Corp Benefits• Strengthens Product Brand

• Independent performance verification of value programs, standardsand practices

• Encourage attitude of community, environment and socialresponsibility — not just profit

• Employee recruitment

• Partner with respected peers

PLUS• Protects the board & management from shareholder actions if put

another stakeholder above shareholder maximization of profit.

• Locks in the social purpose

Chartered Benefit Corporation Advantages

Chartered Benefit Corporation: Option for Cooperatives?

What’s the rub?• Activities

– Sharing

– Selling

– Sourcing

• Director & Officer Liability

– Consideration of theinterests of constituenciesother than the members

– Can the members beserved while the coop isalso serving a generaland specific public benefitpurpose?

Unique Coop Attributes• State Law Issues

– States with cooperativestatutes -- overlay

– Delaware

• The Capper-Volstead Act

– Antitrust protection for agassociations “operated for themutual benefit of the members”

– Members must be producers

• Is it possible to put social purposeco-equal or superior to distributionsto members?

Washington Update

Washington Update

PRESENTER BIOGRAPHY Lisa Van Doren Vice President and Chief of Staff, Government Affairs National Council of Farmer Cooperatives Lisa Van Doren serves as Vice President and Chief of Staff for Government Affairs at the National Council of Farmer Cooperatives (NCFC). In this capacity, she oversees NCFC’s government affairs staff and directs NCFC’s public policy agenda. She serves as NCFC liaison to the Congressional Farmer Cooperative Caucus and coordinates the activities of the NCFC Government Affairs Committee. Prior to joining NCFC in March 2008, Lisa was Director of Public Policy for the National Corn Growers Association. She also served as Professional Staff for the House Committee on Agriculture, and worked in the personal offices of former Rep. Charles Stenholm (D-TX) and former Rep. Ciro D. Rodriguez (D-TX). A native Texan, Lisa was raised in Hondo, about 45 miles west of San Antonio, on a beef cattle and horse ranch. She graduated from Texas A&M University with a Bachelor of Science in Agricultural Development in 1998. Lisa also earned a Masters of Science in Environmental Sciences from The Johns Hopkins University in 2002.

The Elections, Public Policy & Farmer Co-ops

Lisa Van DorenVP & Chief of StaffGovernment [email protected]

The 114th Congress:Out with the Old; In with the Old

The next two years hold two options for how they can go:

1—Partisan rancor, congressional gridlock, more of the same

2— Common interests align to make progress possible

Major Issues to Watch

• Spending Caps/Sequester

• Debt Limit

• Budget Reconciliation

• Tax Reform

• Minimum Wage

• Iran/Middle East Relations

• GHG Emissions Regulations

• EPA Regulations

• Keystone XL

• Health LawRepeal/Modifications

• Cybersecurity/Data Breaches

• Highway Bill Funding

• Export-Import Bank

• Trade/TPA

• Financial Regulation

• Immigration Reform

• Food and Nutrition policy

Proving Conventional Wisdom Wrong

Trade

Key Items for the Trade Agenda

• Trade Promotion Authority (TPA) to allowPresident to negotiate deals & bring to Congressfor an up or down vote– Agriculture will determine whether or not the

President is given TPA.

• Resolving difference over sensitive products withJapan in Trans Pacific Partnership (TPP)– Access for farmers is holding up this agreement.

Key Items for the Trade Agenda

• Jumpstarting the seemingly stalled TransatlanticTrade & Partnership (TTIP) agreement with theEU– Ag Biotech and Geographic indicators are a

major stumbling block.

• Easing trade with Cuba

Tax Reform

U.S. Corporate Taxes Vs. Other Countries

Tax Reform & Co-ops

Farmer Co-op & Producer Tax Priorities

• Patronage Dividend Deduction (Sub T)

• Section 199 Domestic Production ActivitiesDeduction

• Deduction for Interest on Debt

• Estate Taxes

• Depreciation

GMOs

Pro-GMO labeling activists continue state labeling initiatives through a well-funding and coordinated campaign.

Any guesses who put this out?

Coalition for Safe & Affordable Food

• Brings together broad range ofstakeholders from across food & agvalue chain

• Co-chaired by GMA & NCFC,includes AFBF, Corn Growers &Soybeans on steering committee

• Focused on a national solution tothe state-by-state GMO labelinginitiatives

Where the Effort Stands

• HR 4432 (Safe & Affordable Food Labeling Act)introduced last Congress

• Looking to reintroduce the legislation with somemodifications

• Would require Sec of Ag to develop GMO freelabel similar to organic label

• Seek better involvement of agriculturecommittees in drafting a new bill

• Ramp up the effort in the Senate

Immigration Reform

Farmer Co-op Sustainability

Co-ops have a vital role to play in defining sustainability for their

members—and if co-ops don’t do it, others will.

How important is sustainability to your cooperative?

How important is sustainability to your customers?

Please list any factors outside of your cooperative that may be influential to your sustainability program:

Respondents for cooperatives that have an internal sustainability program

Thank you.

Thank You!

Join us next year in Phoenix, AZ

February 10-12Westin Kierland

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