-CITE-
26 USC Subchapter T - Cooperatives and Their Patrons 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
-HEAD-
SUBCHAPTER T - COOPERATIVES AND THEIR PATRONS
-MISC1-
Part
I. Tax treatment of cooperatives.
II. Tax treatment by patrons of patronage dividends and
per-unit retain allocations.
III. Definitions; special rules.
AMENDMENTS
1966 - Pub. L. 89-809, title II, Sec. 211(b)(5), Nov. 13, 1966,
80 Stat. 1582, inserted "and per-unit retain allocations" in
heading of part II.
1962 - Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1045,
added headings of subchapter T and of parts I to III.
-SECREF-
SUBCHAPTER REFERRED TO IN OTHER SECTIONS
This subchapter is referred to in title 12 section 3019.
-End-
-CITE-
26 USC PART I - TAX TREATMENT OF COOPERATIVES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART I - TAX TREATMENT OF COOPERATIVES
-HEAD-
PART I - TAX TREATMENT OF COOPERATIVES
-MISC1-
Sec.
1381. Organizations to which part applies.
1382. Taxable income of cooperatives.
1383. Computation of tax where cooperative redeems
nonqualified written notices of allocation or
nonqualified per-unit retain certificates.
AMENDMENTS
1966 - Pub. L. 89-809, title II, Sec. 211(a)(8), Nov. 13, 1966,
80 Stat. 1582, inserted "or nonqualified per-unit retain
certificates" in item 1383.
1962 - Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1045,
added heading of part I and items 1381 to 1383.
-SECREF-
PART REFERRED TO IN OTHER SECTIONS
This part is referred to in sections 521, 860E, 860L, 941, 943,
1042, 1388 of this title.
-End-
-CITE-
26 USC Sec. 1381 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART I - TAX TREATMENT OF COOPERATIVES
-HEAD-
Sec. 1381. Organizations to which part applies
-STATUTE-
(a) In general
This part shall apply to -
(1) any organization exempt from tax under section 521
(relating to exemption of farmers' cooperatives from tax), and
(2) any corporation operating on a cooperative basis other than
an organization -
(A) which is exempt from tax under this chapter,
(B) which is subject to the provisions of -
(i) part II of subchapter H (relating to mutual savings
banks, etc.), or
(ii) subchapter L (relating to insurance companies), or
(C) which is engaged in furnishing electric energy, or
providing telephone service, to persons in rural areas.
(b) Tax on certain farmers' cooperatives
An organization described in subsection (a)(1) shall be subject
to the taxes imposed by section 11 or 1201.
-SOURCE-
(Added Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1045.)
-MISC1-
EFFECTIVE DATE
Section 17(c) of Pub. L. 87-834, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"(1) For the cooperatives. - Except as provided in paragraph (3),
the amendments made by subsections (a) and (b) [enacting this
subchapter, amending sections 521 and 6072 of this title, and
repealing section 522 of this title] shall apply to taxable years
of organizations described in section 1381(a) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection
(a)) beginning after December 31, 1962.
"(2) For the patrons. - Except as provided in paragraph (3),
section 1385 of the Internal Revenue Code of 1986 (as added by
subsection (a)) shall apply with respect to any amount received
from any organization described in section 1381(a) of such Code, to
the extent that such amount is paid by such organization in a
taxable year of such organization beginning after December 31,
1962.
"(3) Application of existing law. - In the case of any money,
written notice of allocation, or other property paid by any
organization described in section 1381(a) -
"(A) before the first day of the first taxable year of such
organization beginning after December 31, 1962, or
"(B) on or after such first day with respect to patronage
occurring before such first day,
the tax treatment of such money, written notice of allocation, or
other property (including the tax treatment of gain or loss on the
redemption, sale, or other disposition of such written notice of
allocation) by any person shall be made under the Internal Revenue
Code of 1986 without regard to subchapter T of chapter 1 of such
Code [this subchapter]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 52, 860E, 1382, 1385,
6044, 6072 of this title; title 12 section 3019.
-End-
-CITE-
26 USC Sec. 1382 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART I - TAX TREATMENT OF COOPERATIVES
-HEAD-
Sec. 1382. Taxable income of cooperatives
-STATUTE-
(a) Gross income
Except as provided in subsection (b), the gross income of any
organization to which this part applies shall be determined without
any adjustment (as a reduction in gross receipts, an increase in
cost of goods sold, or otherwise) by reason of any allocation or
distribution to a patron out of the net earnings of such
organization or by reason of any amount paid to a patron as a
per-unit retain allocation (as defined in section 1388(f)).
(b) Patronage dividends and per-unit retain allocations
In determining the taxable income of an organization to which
this part applies, there shall not be taken into account amounts
paid during the payment period for the taxable year -
(1) as patronage dividends (as defined in section 1388(a)), to
the extent paid in money, qualified written notices of allocation
(as defined in section 1388(c)), or other property (except
nonqualified written notices of allocation (as defined in section
1388(d))) with respect to patronage occurring during such taxable
year;
(2) in money or other property (except written notices of
allocation) in redemption of a nonqualified written notice of
allocation which was paid as a patronage dividend during the
payment period for the taxable year during which the patronage
occurred;
(3) as per-unit retain allocations (as defined in section
1388(f)), to the extent paid in money, qualified per-unit retain
certificates (as defined in section 1388(h)), or other property
(except nonqualified per-unit retain certificates, as defined in
section 1388(i)) with respect to marketing occurring during such
taxable year; or
(4) in money or other property (except per-unit retain
certificates) in redemption of a nonqualified per-unit retain
certificate which was paid as a per-unit retain allocation during
the payment period for the taxable year during which the
marketing occurred.
For purposes of this title, any amount not taken into account under
the preceding sentence shall, in the case of an amount described in
paragraph (1) or (2), be treated in the same manner as an item of
gross income and as a deduction therefrom, and in the case of an
amount described in paragraph (3) or (4), be treated as a deduction
in arriving at gross income.
(c) Deduction for nonpatronage distributions, etc.
In determining the taxable income of an organization described in
section 1381(a)(1), there shall be allowed as a deduction (in
addition to other deductions allowable under this chapter) -
(1) amounts paid during the taxable year as dividends on its
capital stock; and
(2) amounts paid during the payment period for the taxable year
-
(A) in money, qualified written notices of allocation, or
other property (except nonqualified written notices of
allocation) on a patronage basis to patrons with respect to its
earnings during such taxable year which are derived from
business done for the United States or any of its agencies or
from sources other than patronage, or
(B) in money or other property (except written notices of
allocation) in redemption of a nonqualified written notice of
allocation which was paid, during the payment period for the
taxable year during which the earnings were derived, on a
patronage basis to a patron with respect to earnings derived
from business or sources described in subparagraph (A).
(d) Payment period for each taxable year
For purposes of subsections (b) and (c)(2), the payment period
for any taxable year is the period beginning with the first day of
such taxable year and ending with the fifteenth day of the ninth
month following the close of such year. For purposes of subsections
(b)(1) and (c)(2)(A), a qualified check issued during the payment
period shall be treated as an amount paid in money during such
period if endorsed and cashed on or before the 90th day after the
close of such period.
(e) Products marketed under pooling arrangements
For purposes of subsection (b), in the case of a pooling
arrangement for the marketing of products -
(1) the patronage shall (to the extent provided in regulations
prescribed by the Secretary) be treated as patronage occurring
during the taxable year in which the pool closes, and
(2) the marketing of products shall be treated as occurring
during any of the taxable years in which the pool is open.
(f) Treatment of earnings received after patronage occurred
If any portion of the earnings from business done with or for
patrons is includible in the organization's gross income for a
taxable year after the taxable year during which the patronage
occurred, then for purposes of applying paragraphs (1) and (2) of
subsection (b) to such portion the patronage shall, to the extent
provided in regulations prescribed by the Secretary, be considered
to have occurred during the taxable year of the organization during
which such earnings are includible in gross income.
(g) Use of completed crop pool method of accounting
(1) In general
An organization described in section 1381(a) which is engaged
in pooling arrangements for the marketing of products may compute
its taxable income with respect to any pool opened prior to March
1, 1978, under the completed crop pool method of accounting if -
(A) the organization has computed its taxable income under
such method for the 10 taxable years ending with its first
taxable year beginning after December 31, 1976, and
(B) with respect to the pool, the organization has entered
into an agreement with the United States or any of its agencies
which includes provisions to the effect that -
(i) the United States or such agency shall provide a loan
to the organization with the products comprising the pool
serving as collateral for such loan,
(ii) the organization shall use an amount equal to the
proceeds of such loan to make price support advances to
eligible producers (as determined by the United States or
such agency), to defray costs of handling, processing, and
storing such products, or to pay all or part of any
administrative costs associated with the price support
program,
(iii) an amount equal to the net proceeds (as determined
under such agreement) from the sale or exchange of the
products in the pool shall be used to repay such loan until
such loan is repaid in full (or all the products in the pool
are disposed of), and
(iv) the net gains (as determined under such agreement)
from the sale or exchange of such products shall be
distributed to eligible producers, except to the extent that
the United States or such agency permits otherwise.
(2) Completed crop pool method of accounting defined
For purposes of this subsection, the term "completed crop pool
method of accounting" means a method of accounting under which
gain or loss is computed separately for each crop year pool in
the year in which the last of the products in the pool are
disposed of.
-SOURCE-
(Added Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1046;
amended Pub. L. 89-809, title II, Sec. 211(a)(1)-(4), Nov. 13,
1966, 80 Stat. 1580, 1581; Pub. L. 91-172, title IX, Sec. 911(a),
Dec. 30, 1969, 83 Stat. 722; Pub. L. 94-455, title XIX, Sec.
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95-345, Sec.
3, Aug. 15, 1978, 92 Stat. 483.)
-MISC1-
AMENDMENTS
1978 - Subsec. (g). Pub. L. 95-345 added subsec. (g).
1976 - Pub. L. 94-455 struck out "or his delegate" after
"Secretary" wherever appearing.
1969 - Subsec. (b)(3). Pub. L. 91-172 expanded the category of
per-unit retain allocations that may not be taken into account in
determining the taxable income of an organization, by including
per-unit retain allocations paid for in money or other property
(except nonqualified per-unit retain certificates as defined in
section 1388(i) of this section).
1966 - Subsec. (a). Pub. L. 89-809, Sec. 211(a)(1), inserted
reference to amounts paid to patrons as a per-unit retain
allocation as defined in section 1388(f).
Subsec. (b). Pub. L. 89-809, Sec. 211(a)(2), inserted "and
per-unit retain allocations" in heading, added pars. (3) and (4),
and, in text following par. (4), inserted provisions making
existing text applicable only to amounts described in pars. (1) and
(2) and inserted text covering the treatment of amounts described
in pars. (3) and (4).
Subsec. (e). Pub. L. 89-809, Sec. 211(a)(3), inserted provision
that the marketing of products shall be treated as occurring during
any of the taxable years in which the pool is open.
Subsec. (f). Pub. L. 89-809, Sec. 211(a)(4), substituted
"paragraphs (1) and (2) of subsection (b)" for "subsection (b)".
EFFECTIVE DATE OF 1969 AMENDMENT
Section 911(c) of Pub. L. 91-172 provided that: "The amendments
made by this section [amending this section and section 1388 of
this title] shall apply to per-unit retain allocations made after
October 9, 1969."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 211(e) of Pub. L. 89-809 provided that:
"(1) The amendments made by subsections (a), (b), and (c)
[amending this section and sections 1383, 1385, and 1388 of this
title] shall apply to per-unit retain allocations made during
taxable years of an organization described in section 1381(a)
(relating to organizations to which part I of subchapter T of
chapter 1 applies) beginning after April 30, 1966, with respect to
products delivered during such years.
"(2) The amendments made by subsection (d) [amending section 6044
of this title] shall apply with respect to calendar years after
1966."
EFFECTIVE DATE
Section applicable, except as otherwise provided, to taxable
years of organizations described in section 1381(a) of this title
beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834,
set out as a note under section 1381 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 941, 943, 1383, 1385,
1388, 6044 of this title.
-End-
-CITE-
26 USC Sec. 1383 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART I - TAX TREATMENT OF COOPERATIVES
-HEAD-
Sec. 1383. Computation of tax where cooperative redeems
nonqualified written notices of allocation or nonqualified
per-unit retain certificates
-STATUTE-
(a) General rule
If, under section 1382(b)(2) or (4), or (c)(2)(B), a deduction is
allowable to an organization for the taxable year for amounts paid
in redemption of nonqualified written notices of allocation or
non-qualified per-unit retain certificates, then the tax imposed by
this chapter on such organization for the taxable year shall be the
lesser of the following:
(1) the tax for the taxable year computed with such deduction;
or
(2) an amount equal to -
(A) the tax for the taxable year computed without such
deduction, minus
(B) the decrease in tax under this chapter for any prior
taxable year (or years) which would result solely from treating
such nonqualified written notices of allocation or nonqualified
per-unit retain certificates as qualified written notices of
allocation or qualified per-unit retain certificates (as the
case may be).
(b) Special rules
(1) If the decrease in tax ascertained under subsection (a)(2)(B)
exceeds the tax for the taxable year (computed without the
deduction described in subsection (a)) such excess shall be
considered to be a payment of tax on the last day prescribed by law
for the payment of tax for the taxable year, and shall be refunded
or credited in the same manner as if it were an overpayment for
such taxable year.
(2) For purposes of determining the decrease in tax under
subsection (a)(2)(B), the stated dollar amount of any nonqualified
written notice of allocation or nonqualified per-unit retain
certificate which is to be treated under such subsection as a
qualified written notice of allocation or qualified per-unit retain
certificate (as the case may be) shall be the amount paid in
redemption of such written notice of allocation or per-unit retain
certificate which is allowable as a deduction under section
1382(b)(2) or (4), or (c)(2)(B) for the taxable year.
(3) If the tax imposed by this chapter for the taxable year is
the amount determined under subsection (a)(2), then the deduction
described in subsection (a) shall not be taken into account for any
purpose of this subtitle other than for purposes of this section.
-SOURCE-
(Added Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1047;
amended Pub. L. 89-809, title II, Sec. 211(a)(5)-(7), Nov. 13,
1966, 80 Stat. 1581.)
-MISC1-
AMENDMENTS
1966 - Pub. L. 89-809, Sec. 211(a)(5), inserted "or nonqualified
per-unit retain certificates" in section catchline.
Subsec. (a). Pub. L. 89-809, Sec. 211(a)(6), substituted "section
1382(b)(2) or (4)" for "1382(b)(2)" and inserted references to
per-unit retain certificates.
Subsec. (b)(2). Pub. L. 89-809, Sec. 211(a)(7), substituted
"section 1382(b)(2) or (4)" for "section 1382(b)(2)" and inserted
references to per-unit retain certificates.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable to per-unit retain
allocations made during taxable years of an organization described
in section 1381(a) of this title (relating to organizations to
which part I of subchapter T of chapter 1 applies) beginning after
Apr. 30, 1966, with respect to products delivered during such
years, see section 211(e)(1) of Pub. L. 89-809, set out as a note
under section 1382 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided, to taxable
years of organizations described in section 1381(a) of this title
beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834,
set out as a note under section 1381 of this title.
-End-
-CITE-
26 USC PART II - TAX TREATMENT BY PATRONS OF PATRONAGE
DIVIDENDS AND PER-UNIT RETAIN ALLOCATIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART II - TAX TREATMENT BY PATRONS OF PATRONAGE DIVIDENDS AND
PER-UNIT RETAIN ALLOCATIONS
-HEAD-
PART II - TAX TREATMENT BY PATRONS OF PATRONAGE DIVIDENDS AND
PER-UNIT RETAIN ALLOCATIONS
-MISC1-
Sec.
1385. Amounts includible in patron's gross income.
AMENDMENTS
1962 - Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1048,
added heading of part II and item 1385.
-End-
-CITE-
26 USC Sec. 1385 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART II - TAX TREATMENT BY PATRONS OF PATRONAGE DIVIDENDS AND
PER-UNIT RETAIN ALLOCATIONS
-HEAD-
Sec. 1385. Amounts includible in patron's gross income
-STATUTE-
(a) General rule
Except as otherwise provided in subsection (b), each person shall
include in gross income -
(1) the amount of any patronage dividend which is paid in
money, a qualified written notice of allocation, or other
property (except a nonqualified written notice of allocation),
and which is received by him during the taxable year from an
organization described in section 1381(a),
(2) any amount, described in section 1382 (c)(2)(A) (relating
to certain nonpatronage distributions by tax-exempt farmers'
cooperatives), which is paid in money, a qualified written notice
of allocation, or other property (except a nonqualified written
notice of allocation), and which is received by him during the
taxable year from an organization described in section
1381(a)(1), and
(3) the amount of any per-unit retain allocation which is paid
in qualified per-unit retain certificates and which is received
by him during the taxable year from an organization described in
section 1381(a).
(b) Exclusion from gross income
Under regulations prescribed by the Secretary, the amount of any
patronage dividend, and any amount received on the redemption,
sale, or other disposition of a nonqualified written notice of
allocation which was paid as a patronage dividend, shall not be
included in gross income to the extent that such amount -
(1) is properly taken into account as an adjustment to basis of
property, or
(2) is attributable to personal, living, or family items.
(c) Treatment of certain nonqualified written notices of allocation
and certain nonqualified per-unit retain certificates
(1) Application of subsection
This subsection shall apply to -
(A) any nonqualified written notice of allocation which -
(i) was paid as a patronage dividend, or
(ii) was paid by an organization described in section
1381(a)(1) on a patronage basis with respect to earnings
derived from business or sources described in section
1382(c)(2)(A), and
(B) any nonqualified per-unit retain certificate which was
paid as a per-unit retain allocation.
(2) Basis; amount of gain
In the case of any nonqualified written notice of allocation or
nonqualified per-unit retain certificate to which this subsection
applies, for purposes of this chapter -
(A) the basis of such written notice of allocation or
per-unit retain certificate in the hands of the patron to whom
such written notice of allocation or per-unit retain
certificate was paid shall be zero,
(B) the basis of such written notice of allocation or
per-unit retain certificate which was acquired from a decedent
shall be its basis in the hands of the decedent, and
(C) gain on the redemption, sale, or other disposition of
such written notice of allocation or per-unit retain
certificate by any person shall, to the extent that the stated
dollar amount of such written notice of allocation or per-unit
retain certificate exceeds its basis, be considered as ordinary
income.
-SOURCE-
(Added Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1048;
amended Pub. L. 89-809, title II, Sec. 211(b)(1)-(4), Nov. 13,
1966, 80 Stat. 1582; Pub. L. 94-455, title XIX, Secs.
1901(b)(3)(I), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (b). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(2)(C). Pub. L. 94-455, Sec. 1901(b)(3)(I),
substituted "ordinary income" for "gain from the sale or exchange
of property which is not a capital asset".
1966 - Subsec. (a)(3). Pub. L. 89-809, Sec. 211(b)(1), added par.
(3).
Subsec. (c). Pub. L. 89-809, Sec. 211(b)(2)-(4), inserted "and
certain nonqualified per-unit retain certificates" in heading,
inserted provisions to par. (1) for the application of the
subsection to any nonqualified per-unit retain certificates which
were paid as per-unit retain allocations, and inserted references
to per-unit retain certificates in par. (2).
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(I) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable to per-unit retain
allocations made during taxable years of an organization described
in section 1381(a) of this title (relating to organizations to
which part I of subchapter T of chapter 1 applies) beginning after
Apr. 30, 1966, with respect to products delivered during such
years, see section 211(e)(1) of Pub. L. 89-809, set out as a note
under section 1382 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided, to taxable
years of organizations described in section 1381(a) of this title
beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834,
set out as a note under section 1381 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 943, 1388 of this title.
-End-
-CITE-
26 USC PART III - DEFINITIONS; SPECIAL RULES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART III - DEFINITIONS; SPECIAL RULES
-HEAD-
PART III - DEFINITIONS; SPECIAL RULES
-MISC1-
Sec.
1388. Definitions; special rules.
AMENDMENTS
1962 - Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1049,
added heading of part III and item 1388.
-End-
-CITE-
26 USC Sec. 1388 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter T - Cooperatives and Their Patrons
PART III - DEFINITIONS; SPECIAL RULES
-HEAD-
Sec. 1388. Definitions; special rules
-STATUTE-
(a) Patronage dividend
For purposes of this subchapter, the term "patronage dividend"
means an amount paid to a patron by an organization to which part I
of this subchapter applies -
(1) on the basis of quantity or value of business done with or
for such patron,
(2) under an obligation of such organization to pay such
amount, which obligation existed before the organization received
the amount so paid, and
(3) which is determined by reference to the net earnings of the
organization from business done with or for its patrons.
Such term does not include any amount paid to a patron to the
extent that (A) such amount is out of earnings other than from
business done with or for patrons, or (B) such amount is out of
earnings from business done with or for other patrons to whom no
amounts are paid, or to whom smaller amounts are paid, with respect
to substantially identical transactions.
(b) Written notice of allocation
For purposes of this subchapter, the term "written notice of
allocation" means any capital stock, revolving fund certificate,
retain certificate, certificate of indebtedness, letter of advice,
or other written notice, which discloses to the recipient the
stated dollar amount allocated to him by the organization and the
portion thereof, if any, which constitutes a patronage dividend.
(c) Qualified written notice of allocation
(1) Defined
For purposes of this subchapter, the term "qualified written
notice of allocation" means -
(A) a written notice of allocation which may be redeemed in
cash at its stated dollar amount at any time within a period
beginning on the date such written notice of allocation is paid
and ending not earlier than 90 days from such date, but only if
the distributee receives written notice of the right of
redemption at the time he receives such written notice of
allocation; and
(B) a written notice of allocation which the distributee has
consented, in the manner provided in paragraph (2), to take
into account at its stated dollar amount as provided in section
1385(a).
Such term does not include any written notice of allocation which
is paid as part of a patronage dividend or as part of a payment
described in section 1382(c)(2)(A), unless 20 percent or more of
the amount of such patronage dividend, or such payment, is paid
in money or by qualified check.
(2) Manner of obtaining consent
A distributee shall consent to take a written notice of
allocation into account as provided in paragraph (1)(B) only by -
(A) making such consent in writing,
(B) obtaining or retaining membership in the organization
after -
(i) such organization has adopted (after October 16, 1962)
a bylaw providing that membership in the organization
constitutes such consent, and
(ii) he has received a written notification and copy of
such bylaw, or
(C) if neither subparagraph (A) nor (B) applies, endorsing
and cashing a qualified check, paid as a part of the patronage
dividend or payment of which such written notice of allocation
is also a part, on or before the 90th day after the close of
the payment period for the taxable year of the organization for
which such patronage dividend or payment is paid.
(3) Period for which consent is effective
(A) General rule
Except as provided in subparagraph (B) -
(i) a consent described in paragraph (2) (A) shall be a
consent with respect to all patronage of the distributee with
the organization occurring (determined with the application
of section 1382(e)) during the taxable year of the
organization during which such consent is made and all
subsequent taxable years of the organization; and
(ii) a consent described in paragraph (2) (B) shall be a
consent with respect to all patronage of the distributee with
the organization occurring (determined without the
application of section 1382(e)) after he received the
notification and copy described in paragraph (2)(B)(ii).
(B) Revocation, etc.
(i) Any consent described in paragraph (2)(A) may be
revoked (in writing) by the distributee at any time. Any such
revocation shall be effective with respect to patronage
occurring on or after the first day of the first taxable year
of the organization beginning after the revocation is filed
with such organization; except that in the case of a pooling
arrangement described in section 1382(e), a revocation made
by a distributee shall not be effective as to any pool with
respect to which the distributee has been a patron before
such revocation.
(ii) Any consent described in paragraph (2)(B) shall not be
effective with respect to any patronage occurring (determined
without the application of section 1382(e)) after the
distributee ceases to be a member of the organization or
after the bylaws of the organization cease to contain the
provision described in paragraph (2)(B)(i).
(4) Qualified check
For purposes of this subchapter, the term "qualified check"
means only a check (or other instrument which is redeemable in
money) which is paid as a part of a patronage dividend, or as a
part of a payment described in section 1382(c)(2)(A), to a
distributee who has not given consent as provided in paragraph
(2)(A) or (B) with respect to such patronage dividend or payment,
and on which there is clearly imprinted a statement that the
endorsement and cashing of the check (or other instrument)
constitutes the consent of the payee to include in his gross
income, as provided in the Federal income tax laws, the stated
dollar amount of the written notice of allocation which is a part
of the patronage dividend or payment of which such qualified
check is also a part. Such term does not include any check (or
other instrument) which is paid as part of a patronage dividend
or payment which does not include a written notice of allocation
(other than a written notice of allocation described in paragraph
(1)(A)).
(d) Nonqualified written notice of allocation
For purposes of this subchapter, the term "nonqualified written
notice of allocation" means a written notice of allocation which is
not described in subsection (c) or a qualified check which is not
cashed on or before the 90th day after the close of the payment
period for the taxable year for which the distribution of which it
is a part is paid.
(e) Determination of amount paid or received
For purposes of this subchapter, in determining amounts paid or
received -
(1) property (other than a written notice of allocation or a
per-unit retain certificate) shall be taken into account at its
fair market value, and
(2) a qualified written notice of allocation or qualified
per-unit retain certificate shall be taken into account at its
stated dollar amount.
(f) Per-unit retain allocation
For purposes of this subchapter, the term "per-unit retain
allocation" means any allocation, by an organization to which part
I of this subchapter applies, to a patron with respect to products
marketed for him, the amount of which is fixed without reference to
the net earnings of the organization pursuant to an agreement
between the organization and the patron.
(g) Per-unit retain certificate
For purposes of this subchapter, the term "per-unit retain
certificate" means any written notice which discloses to the
recipient the stated dollar amount of a per-unit retain allocation
to him by the organization.
(h) Qualified per-unit retain certificate
(1) Defined
For purposes of this subchapter, the term "qualified per-unit
retain certificate" means any per-unit retain certificate which
the distributee has agreed, in the manner provided in paragraph
(2), to take into account at its stated dollar amount as provided
in section 1385(a).
(2) Manner of obtaining agreement
A distributee shall agree to take a per-unit retain certificate
into account as provided in paragraph (1) only by -
(A) making such agreement in writing, or
(B) obtaining or retaining membership in the organization
after -
(i) such organization has adopted (after November 13, 1966)
a bylaw providing that membership in the organization
constitutes such agreement, and
(ii) he has received a written notification and copy of
such bylaw.
(3) Period for which agreement is effective
(A) General rule
Except as provided in subparagraph (B) -
(i) an agreement described in paragraph (2)(A) shall be an
agreement with respect to all products delivered by the
distributee to the organization during the taxable year of
the organization during which such agreement is made and all
subsequent taxable years of the organization; and
(ii) an agreement described in paragraph (2)(B) shall be an
agreement with respect to all products delivered by the
distributee to the organization after he received the
notification and copy described in paragraph (2)(B)(ii).
(B) Revocation, etc.
(i) Any agreement described in paragraph (2)(A) may be
revoked (in writing) by the distributee at any time. Any such
revocation shall be effective with respect to products
delivered by the distributee on or after the first day of the
first taxable year of the organization beginning after the
revocation is filed with the organization; except that in the
case of a pooling arrangement described in section 1382(e) a
revocation made by a distributee shall not be effective as to
any products which were delivered to the organization by the
distributee before such revocation.
(ii) Any agreement described in paragraph (2)(B) shall not be
effective with respect to any products delivered after the
distributee ceases to be a member of the organization or after
the bylaws of the organization cease to contain the provision
described in paragraph (2)(B)(i).
(i) Nonqualified per-unit retain certificate
For purposes of this subchapter, the term "nonqualified per-unit
retain certificate" means a per-unit retain certificate which is
not described in subsection (h).
(j) Special rules for the netting of gains and losses by
cooperatives
For purposes of this subchapter, in the case of any organization
to which part I of this subchapter applies -
(1) Optional netting of patronage gains and losses permitted
The net earnings of such organization may, at its option, be
determined by offsetting patronage losses (including any
patronage loss carried to such year) which are attributable to 1
or more allocation units (whether such units are functional,
divisional, departmental, geographic, or otherwise) against
patronage earnings of 1 or more other such allocation units.
(2) Certain netting permitted after section 381 transactions
If such an organization acquires the assets of another such
organization in a transaction described in section 381(a), the
acquiring organization may, in computing its net earnings for
taxable years ending after the date of acquisition, offset losses
of 1 or more allocation units of the acquiring or acquired
organization against earnings of the acquired or acquiring
organization, respectively, but only to the extent -
(A) such earnings are properly allocable to periods after the
date of acquisition, and
(B) such earnings could have been offset by such losses if
such earnings and losses had been derived from allocation units
of the same organization.
(3) Notice requirements
(A) In general
In the case of any organization which exercises its option
under paragraph (1) for any taxable year, such organization
shall, on or before the 15th day of the 9th month following the
close of such taxable year, provide to its patrons a written
notice which -
(i) states that the organization has offset earnings and
losses from 1 or more of its allocation units and that such
offset may have affected the amount which is being
distributed to its patrons,
(ii) states generally the identity of the offsetting
allocation units, and
(iii) states briefly what rights, if any, its patrons may
have to additional financial information of such organization
under terms of its charter, articles of incorporation, or
bylaws, or under any provision of law.
(B) Certain information need not be provided
An organization may exclude from the information required to
be provided under clause (ii) of subparagraph (A) any detailed
or specific data regarding earnings or losses of such units
which such organization determines would disclose commercially
sensitive information which -
(i) could result in a competitive disadvantage to such
organization, or
(ii) could create a competitive advantage to the benefit of
a competitor of such organization.
(C) Failure to provide sufficient notice
If the Secretary determines that an organization failed to
provide sufficient notice under this paragraph -
(i) the Secretary shall notify such organization, and
(ii) such organization shall, upon receipt of such
notification, provide to its patrons a revised notice meeting
the requirements of this paragraph.
Any such failure shall not affect the treatment of the
organization under any provision of this subchapter or section
521.
(4) Patronage earnings or losses defined
For purposes of this subsection, the terms "patronage earnings"
and "patronage losses" means earnings and losses, respectively,
which are derived from business done with or for patrons of the
organization.
-SOURCE-
(Added Pub. L. 87-834, Sec. 17(a), Oct. 16, 1962, 76 Stat. 1049;
amended Pub. L. 89-809, title II, Sec. 211(c), Nov. 13, 1966, 80
Stat. 1582; Pub. L. 91-172, title IX, Sec. 911(b), Dec. 30, 1969,
83 Stat. 722; Pub. L. 94-455, title XIX, Sec. 1901(a)(153), Oct. 4,
1976, 90 Stat. 1789; Pub. L. 95-600, title III, Sec. 316(b)(3),
Nov. 6, 1978, 92 Stat. 2830; Pub. L. 99-272, title XIII, Sec.
13210(a), Apr. 7, 1986, 100 Stat. 323; Pub. L. 101-508, title XI,
Sec. 11813(b)(24), Nov. 5, 1990, 104 Stat. 1388-555.)
-REFTEXT-
REFERENCES IN TEXT
The Federal income tax laws, referred to in subsec. (c)(4), are
classified generally to this title.
-MISC1-
AMENDMENTS
1990 - Subsec. (k). Pub. L. 101-508 struck out subsec. (k) which
cross-referenced section 46(h) for provisions relating to
apportionment of investment credit between cooperative
organizations and their patrons.
1986 - Subsecs. (j), (k). Pub. L. 99-272 added subsec. (j) and
redesignated former subsec. (j) as (k).
1978 - Subsec. (j). Pub. L. 95-600 added subsec. (j).
1976 - Subsec. (c)(2)(B)(i). Pub. L. 94-455, Sec. 1901
(a)(153)(A), substituted "October 16, 1962" for "the date of the
enactment of the Revenue Act of 1962".
Subsec. (h)(2)(B)(i). Pub. L. 94-455, Sec. 1901(a)(153)(B),
substituted "November 13, 1966" for "the date of the enactment of
this subsection".
1969 - Subsec. (f). Pub. L. 91-172 struck out reference to
allocations made by organizations other than by payment of money or
other property except per-unit retain certificates.
1966 - Subsec. (e). Pub. L. 89-809, Sec. 211(c)(1), inserted
references to per-unit retain certificates.
Subsecs. (f) to (i). Pub. L. 89-809, Sec. 211(c)(2), added
subsecs. (f) to (i).
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to property placed in
service after Dec. 31, 1990, but not applicable to any transition
property (as defined in section 49(e) of this title), any property
with respect to which qualified progress expenditures were
previously taken into account under section 46(d) of this title,
and any property described in section 46(b)(2)(C) of this title, as
such sections were in effect on Nov. 4, 1990, see section 11813(c)
of Pub. L. 101-508, set out as a note under section 29 of this
title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 13210(c) of Pub. L. 99-272 provided that:
"(1) In general. - Except as provided in paragraph (2), the
amendments made by this section [amending this section and section
521 of this title] shall apply to taxable years beginning after
December 31, 1962.
"(2) Notification requirement. - The provisions of section
1388(j)(3) of the Internal Revenue Code of 1954 [now 1986] (as
added by subsection (a)) shall apply to taxable years beginning on
or after the date of the enactment of this Act [Apr. 7, 1986].
"(3) No inference. - Nothing in the amendments made by this
section [amending this section and section 521 of this title] shall
be construed to infer that a change in law is intended as to
whether any patronage earnings may or not be offset by nonpatronage
losses, and any determination of such issue shall be made as if
such amendments had not been enacted."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-600 applicable to taxable years ending
after October 31, 1978, see section 316(c) of Pub. L. 95-600, set
out as a note under section 46 of this title.
EFFECTIVE DATE OF 1969 AMENDMENT
Amendment by Pub. L. 91-172 applicable to per-unit retain
allocations made after Oct. 9, 1969, see section 911(c) of Pub. L.
91-172, set out as a note under section 1382 of this title.
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable to per-unit retain
allocations made during taxable years of an organization described
in section 1381(a) of this title (relating to organizations to
which part I of subchapter T of chapter 1 applies) beginning after
Apr. 30, 1966, with respect to products delivered during such
years, see section 211(e)(1) of Pub. L. 89-809, set out as a note
under section 1382 of this title.
EFFECTIVE DATE
Section applicable, except as otherwise provided, to taxable
years of organizations described in section 1381(a) of this title
beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834,
set out as a note under section 1381 of this title.
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
PER-UNIT RETAIN CERTIFICATES COVERED BY WRITTEN AGREEMENTS BETWEEN
OCT. 14, 1965, AND NOV. 13, 1966: TRANSITION TREATMENT OF BY-LAW
PROVISIONS
Section 211(f) of Pub. L. 89-809 provided that a written
agreement between a patron and a cooperative association which met
certain qualifications and was entered into after Oct. 14, 1965 and
before Nov. 13, 1966, and which was in effect on Nov. 13, 1966, was
to be treated for purposes of subsec. (h) of this section as if
entered into after Nov. 13, 1966.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 521, 1382, 6044, 6072 of
this title; title 7 section 1445-1; title 12 section 3019.
-End-
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