Affiliated Foods, Inc. - Page 28

                                       - 28 -                                         
               Although patronage dividends are deductible by the                     
          cooperative, the patron must include the amount of any patronage            
          dividend in income.  Sec. 1385(a)(1).  Accordingly, when income             
          from the cooperative's business is distributed as a patronage               
          dividend, the cooperative and its patrons pay only "a single                
          current tax with respect to the income of the cooperative, either           
          at the level of the cooperative or at the level of the patron."             
          S. Rept. 1881, 87th Cong., 2d Sess. 111 (1962), 1962-3 C.B. 707,            
          822.                                                                        
               However, nonexempt cooperatives, such as petitioner, are               
          taxed like ordinary C corporations on business not conducted with           
          patrons.  Gold Kist Inc. v. Commissioner, supra at 708.                     
          "Consequently, income from nonpatronage business is taxed to the            
          cooperative, and, if the balance is distributed to patrons, the             
          income is taxed again to the patrons."  Id.                                 
               Petitioner purchases products from vendors and resells the             
          products to member and nonmember stores.  Petitioner profits from           
          its sales.  The profit from sales to nonmember stores is                    
          allocated to petitioner's retained earnings.  However, profit               
          from business conducted with patrons is treated differently.                
               As a cooperative, petitioner can distribute the profit it              
          earns from patronage business to the shareholders who own the               
          member stores and claim a deduction for this amount.  Sec.                  
          1382(b).  Thus, income from cooperative activities will be                  






Page:  Previous  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  Next

Last modified: May 25, 2011