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its business. We held that the interest earned by the taxpayer
on its short-term instruments was income from patronage sources
and not investment income. Id. at 460. The taxpayer's money
management activities were "inseparably intertwined with the
overall conduct of its cooperative enterprise, and the interest
income which it earned was therefore patronage-sourced". Id.
Petitioner earned interest income from money market and
savings accounts and from certificates of deposits with terms
ranging from 2 months to 2 years. The record contains no
evidence linking the savings and money market accounts to
petitioner's cooperative activities. The 2-month to 2-year
certificates of deposit were investments that provided income to
petitioner and did not facilitate the accomplishment of
petitioner's cooperative business activities. See Washington-
Oregon Shippers Coop., Inc. v. Commissioner, T.C. Memo. 1987-32
(taxpayer's money management activities were not integrally
linked to the overall conduct of its cooperative enterprise and
did nothing more than add to its overall profitability).
Petitioner alleged in the petition5 that its interest income
was patronage-sourced income that can be offset by patronage
deductions. Respondent denied this allegation in the answer.
Thus, petitioner has been on notice that the character of its
5 In the petition, petitioner stated: “This is a co-
operative housing, not a membership, corporation. Further,
income from ancillary sources is used to maintain and/or reduce
maintenance. Deductions are allowed. IRC 1388(j)(1).”
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