9
basis and to farmers' cooperatives that are exempt under section
521.
We first decide whether petitioner is subject to subchapter
T. If petitioner is subject to subchapter T, then we must also
decide whether petitioner's interest income was patronage or
nonpatronage sourced income.
B. Whether Petitioner Is Subject to Subchapter T
1. Background
Respondent argues that petitioner is not subject to
subchapter T because it does not operate on a cooperative basis.
Respondent argues in the alternative that, if subchapter T
applies, petitioner's interest income is nonpatronage sourced
income that cannot be offset with petitioner's patronage
expenses.
Petitioner argues that it operates on a cooperative basis
within the meaning of section 1381(a)(2), and that it is governed
by subchapter T.
Section 1381(a) specifies the organizations that are subject
to subchapter T. Petitioner is not a farmers' cooperative and is
not exempt under section 521. Thus, we consider whether
petitioner is a corporation "operating on a cooperative basis".
Sec. 1381(a)(2). If a corporation operates on a cooperative
basis under section 1381(a)(2), then it is subject to subchapter
T. Trump Village Section 3, Inc. v. Commissioner, T.C. Memo.
1995-281.
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