1. ©2010 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. Printed in the U.S.A. Brett Huston, Tax Managing Director Matt Davis, Tax Manager KPMG LLP Brett Huston, Tax Managing Director Matt Davis, Tax Manager KPMG LLP NSAC Far Western Annual Meeting Federal/State Tax Legislative Update May 27, 2010 – Seaside, CA

2. ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

3. ©2010 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. Printed in the U.S.A. Agenda Private Letter Rulings Economic Recovery Legislation Workers, Homeownership, and Business Assistance Act of 2009 Hiring Incentives to Restore Employment Act Healthcare Reform Legislation Proposed Legislative Highlights and Recent Developments including FY 2011 Budget Proposal IRS Announcement 2010-9 California Tax Update

4. ©2010 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. Printed in the U.S.A. Private Letter Rulings IRC Section 199 – Domestic Manufacturing Deduction Rulings PLR 200930035 – Sugar Beet Ruling PLR 200942022, PLR 201002009, PLR 201005015 Grain Rulings PLR 200946021 Soybean Ruling PLR 201005013 Meat Product Ruling Chief Counsel Advice Memo 201008043 PLR 201010006 Rural telephone cooperative gain treated as patronage source

5. ©2010 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. Printed in the U.S.A. Private Letter Rulings (continued) PLR Ruling 200935019 Gain realized on cooperative sale of real property is considered patronage source income and eligible for patronage dividend exclusion

6. ©2010 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. Printed in the U.S.A. Workers, Homeownership, and Business Assistance Act of 2009 (enacted Nov. 6, 2009) Expansion of Net Operating Loss Provision Carry back up to five years for losses incurred in either 2008 or 2009 Applies to all businesses except companies whose stock or right to an equity were acquired by the federal government (TARP Funds) Need to consider the effect of the election on Section 199 deduction in the carry back year. Cooperatives need to consider whether the NOL to be carried back is patronage or non-patronage sourced.

7. ©2010 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. Printed in the U.S.A. Workers, Homeownership, and Business Assistance Act of 2009 (enacted Nov. 6, 2009) Increased penalty for Failure to File Partnership or S- Corporation returns $89 per partner/shareholder for each month late Increase to $195/month beginning after 12/31/2009. Corporate Estimated Tax Payments Required estimated tax payments otherwise due in July, August or September of 2014 are increased by 33% Extension of First-Time Homebuyer Credit

8. ©2010 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. Printed in the U.S.A. Hiring Incentives to Restore Employment Act (enacted March 18, 2010) Payroll Tax Forgiveness for Hiring Unemployed Workers Qualified individuals Employed after 2/3/2010 and before 1/1/2011. Employed not to replace another employee. Not related to the employer Employer not required to pay the employer share of the OASDI portion of Social Security Wages 6.2% of covered wages up to $106,800 1.45% of covered wages no limit

9. ©2010 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. Printed in the U.S.A. Hiring Incentives to Restore Employment Act (enacted March 18, 2010) Business Credit for Retention of Newly Hired Individuals in 2010 General business credit up to $1,000 to an employer for each worker Qualified individual same as Payroll tax forgiveness (previous slide) Employee must be employed for 52 consecutive weeks Credit allowed after retention period Wages for last 26 weeks must be at least 80% of first 26 weeks Credit equal to 6.2% of wages during 52 week period, must have at least $16,129 in wages during period for full $1,000 credit Credit that exceeds relevant tax liability can be carried back one year or carried forward 20 years. Can not be carried back to year prior to enactment.

10. ©2010 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. Printed in the U.S.A. Hiring Incentives to Restore Employment Act (enacted March 18, 2010) Increase in Expensing of Certain Depreciable Business Assets Section 179 Business Expense increased to $250,000 $250,000 amount reduced by the cost of property over $800,000

11. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation (signed March 23, 2010) Provisions Affecting Employers Small Business Tax Credit Qualified small employer that pays at least 50% of health insurance for its employees can receive up to 35% of the payments during the first phase of the credit – for tax years 2010 through 2013. Years after 2013 credit available for first 2 consecutive years if employer purchases health care from a State exchange. Credit offsets any deduction the employer takes for contributions to pay health care. Small employer has no more than 25 full-time equivalent employees whose average compensation is no more than $50,000.

12. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation (signed March 23, 2010) Shared Responsibility for Employers Large employer that does not offer minimum essential coverage at an affordable rate or pays less than 60% of the cost of health care benefits for full time employees incurs penalty. Large employer has at least 50 full-time employees in the preceding calendar year. Not offering coverage - Penalty for each month equal to the number of full-time employees times 1/12 of $2,000. Unaffordable coverage less than 60% of cost covered – Penalty equal to each employee that receives premium tax credit times 1/12 of $3,000 for each month employee receives credit.

13. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation signed March 23, 2010 Information Report and Payroll Provisions Inclusion of cost of employer-sponsored health coverage on W-2 Effective for tax years beginning after 2010. Reporting of Health Insurance Coverage Employer required to report to individual and IRS certain health care insurance information. Applies to large employers – at least 50 full-time employees. Effective for tax years beginning after 2013. Employer subject to penalties – if failure to report.

14. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation signed March 23, 2010 Other Provisions Affecting Businesses Required Information Reporting on Payments to Corporations Business is required to file information return for all payments aggregating $600 or more in calendar year to a single payee. Payments to be reported include property and services. Time for Payment of Corporate Estimated Taxes Increase corporate estimated tax payments by 15.75% for payments due July, August or September of 2014 for corporations with assets of at least $1 billion

15. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation signed March 23, 2010 Provisions Affecting Individuals Unearned Income Medicare Contribution Additional tax on investment income of highly paid individuals or couples. Additional tax is 3.8% of the lesser of net investment income or taxpayer’s modified adjusted gross income in excess of the taxpayer’s threshold. Modified adjusted gross income threshold $250,000 married, $200,000 single, $125,000 married filing joint Investment income includes - capital gain, interest income, dividends, annuity income and possibly rental income Example – net investment income $20,000 and modified AGI is $260,000 for married couple – additional tax equals 3.8% on $10,000 of income Effective for tax years beginning after 2012.

16. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation signed March 23, 2010 Additional Hospital Insurance Tax on High Income Taxpayers Act increase employee’s Medicare tax by an additional 0.9% for wages exceeding a threshold amount. Threshold amount - $250,000 for married couples filing joint return, $200,000 for single and $125, 000 for married filing separate. Employer must withhold the additional 0.9% tax on the portion of the employee’s wages that exceeds $200,000 without regard to the amount of wages received by the spouse. Employer’s portion of Medicare tax not increased. Effective for tax years beginning after 2012

17. ©2010 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. Printed in the U.S.A. Health Care Reform Legislation signed March 23, 2010 Penalties on Individuals Without Essential Health Benefits Coverage Applies to tax years beginning after 2013 Individuals required to maintain minimum essential health care coverage. Minimum coverage includes government sponsored, employer sponsored, plans in the individual market, grandfathered plans 2014 - greater of $95 or 1% of household income over threshold 2015 - greater of $325 or 2% of household income over threshold 2016 - greater of $695 or 2.5% of household income over threshold Generally threshold $9,350 single, $18,700 MFJ

18. ©2010 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. Printed in the U.S.A. Administration’s FY 2011 Tax Budget Proposals Provisions Affecting Businesses Generally Extend Bonus Depreciation Through 2010 Temporary Increase in Expensing Certain Depreciable Property Make the Research and Experimentation Credit Permanent Repeal the LIFO Method of Accounting for Inventories Repeal the Lower-of-Cost-or-Market Inventory Accounting Method Deny Deduction for Punitive Damages

19. ©2010 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. Printed in the U.S.A. Administration’s FY 2011 Tax Budget Proposals Tax Administration Proposals Require Greater E-Filing of Returns Impose a Penalty on Failure to Comply with Electronic Filing Increase Information Return Penalties Require Information Reporting on Payments to Corporations Increase Certainty with Respect to Worker Classification

20. ©2010 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. Printed in the U.S.A. Administration’s FY 2011 Tax Budget Proposals Provisions Affecting Individuals 36% Rate for Taxpayers with Income over $250,000 (MFJ) 20% Rate on Dividends and Capital Gains for Higher Income Taxpayers Limitation on Itemized Deductions and Personal Exemption Phase Out for Higher Income Taxpayers Extend credits including Making Work Pay Credit, Child Tax Credit, Child and Dependent Care Credit, American Opportunity Credit

21. ©2010 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. Printed in the U.S.A. Administration’s FY 2011 Tax Budget Proposals Estate and Gift Tax Provisions Estate Tax Exemption - $3.5 million and 45% top tax rate Gift Tax Exemption - $1.0 million exemption and 45% top tax rate

22. ©2010 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. Printed in the U.S.A. IRS Announcement 2010-9 Requires Certain Taxpayers to Provide Information about their Uncertain Tax Positions that Affect their U.S. Federal Income Tax Liability. Uncertain Tax Positions (UTP) recorded as a reserve in an audited financial statement is required to be disclosed. Applies to taxpayers with UTP and assets equal or exceeding $10 million. Applies to Corporations required to File Form 1120, U.S. Corporate Income Tax Return. Applies to 2010 calendar year returns or fiscal years that begin in 2010.

23. ©2010 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. Printed in the U.S.A. IRS Announcement 2010-9 Disclosure Requirements Concise description of each Uncertain Tax Position The maximum amount of potential federal tax liability attributable to each Uncertain Tax Position – without regard to the taxpayer’s risk analysis regarding likelihood of taxpayer prevailing. Includes reporting of current year and prior year Uncertain Tax Positions. 23

24. ©2010 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. Printed in the U.S.A.

25. California Tax Update Acceleration of Estimated Tax Payments LLC fee required to be paid on the 15 day of the six month of the current year rather than the fourth month following the close of the LLC’s tax year. June 15, 2009 for calendar year LLC’s For tax years beginning on or after January 1, 2009 corporation estimated tax payments are as follows 30% of the tax due by the 15 th day of the fourth month 30% of the tax due by the 15 th day of the sixth month 20% of the tax due by the 15 th day of the ninth and twelfth months

26. ©2010 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. Printed in the U.S.A. California Tax Update Temporary Sales and Use Tax Increase 1% increase from April 1, 2009 through July 1, 2011 Vehicle License Fee Increase Temporary increase from.65% to 1.15% New Nexus Standard for tax years beginning on or after January 1, 2011. Single Sales Factor Apportionment Sales/Gross Receipts redefined Election each year

27. ©2010 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. Printed in the U.S.A. California Tax Update - Commission on the 21 st Century Economy Final Report Recommended Tax Changes – Major Components Eliminate Corporation tax and Minimum Tax Reduce Personal Income Tax for every taxpayer Eliminate the state general purpose sales tax Establish a business net receipts tax (BNRT)

28. QUESTIONS

29. ©2010 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. Printed in the U.S.A. Brett Huston KPMG LLP 916-554-1654bhuston@kpmg.comwww.us.kpmg.com Matt Davis KPMG LLP 916-554-1635matthewbdavis@kpmg.comwww.us.kpmg.com