13
fact, it operated at a loss in the years at issue. We conclude
that petitioner is a cooperative under the three factors stated
in Puget Sound Plywood, Inc. v. Commissioner, supra, and that
petitioner operates on a cooperative basis under section
1381(a)(2).
Because petitioner is subject to subchapter T, it is not
subject to section 277. Buckeye Countrymark, Inc. v.
Commissioner, 103 T.C. 547, 581 (1994); Trump Village Section 3,
Inc. v. Commissioner, T.C. Memo 1995-281; see also Landmark,
Inc., v. United States, 25 Cl. Ct. 100 (1992). In Buckeye
Countrymark, Inc., v. Commissioner, supra at 581, we said that
“the provisions of section 277 conflict with the provisions of
subchapter T and that the application of section 277 to nonexempt
cooperatives would lead to absurd or futile results.”
C. Whether Petitioner's Interest Income Is Patronage-Sourced
Income
Even if petitioner is a cooperative subject to subchapter T,
petitioner must pay tax on its investment income if the interest
was not patronage sourced. Petitioner bears the burden of
proving that its interest income is patronage sourced under
subchapter T. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
Petitioner argues that its interest income is patronage
sourced because petitioner earned the interest on funds its
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