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should not be included in its income. Petitioner bears the
burden of proof on this issue. Rule 142(a); Welch v. Helvering,
290 U.S. 111 (1933).
To resolve this issue, we must examine the taxation of
nonexempt cooperatives. A complete overview of the regime under
which nonexempt cooperatives are taxed is set forth in Buckeye
Countrymark, Inc. v. Commissioner, 103 T.C. 547, 554-555 (1994).
Consequently, we shall discuss only those cooperative concepts
that are necessary to resolve the issue involved herein.
Cooperatives initially determine gross income without making
any adjustments for allocations or distributions made to patrons
from net earnings from business with or for patrons. Sec.
1382(a). After determining gross income in this manner, section
1382(b) permits cooperatives to compute taxable income by
allowing deductions for, inter alia, "patronage dividends",
defined in section 1388(a). Gold Kist Inc. v. Commissioner, 104
T.C. 696, 708 (1995). A "patronage dividend", generally, is an
amount that is allocated or paid to a patron out of the net
earnings of the cooperative from business done with or for its
patrons and that is based upon the quantity or value of business
done with or for the patron, under a preexisting obligation to
pay such amount. Sec. 1388(a); Buckeye Countrymark, Inc. v.
Commissioner, supra at 555.
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