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bylaws require that net income from cooperative activities
be distributed to its patrons on a cooperative basis
consistent with the provisions of subchapter T.
Historically, petitioner’s overall approach has been to
conduct business in the most economically advantageous
fashion possible to maximize patronage dividends.
The following chart shows petitioner’s patronage and
nonpatronage income for tax years 1982 through 1986:
NOL’s and Patronage
FYE Patronage Deductible Income After Nonpatronage
8/31 Income Dividend Deductions Income
1982 ($107,448,343) -- ($107,448,343) 1$13,013,621
1983 28,048,015 ($28,048,015) -- 1,202,216
1984 104,087,552 2(103,945,724)141,828 14,778,795
1985 (17,151,510) -- (17,151,510) 3(1,936,452)
1986 23,934,347 (24,361,501) (427,154) 4(29,700,543)
1 Petitioner reported nonpatronage taxable income of $12,416,037
on its original return. The parties have stipulated that the correct
amount is $13,013,621.
2 The deduction consisted of a patronage dividend deduction of
$20,945,131, a net operating loss of $82,436,819 carried forward from
1982, and a patronage loss of $563,774 in respect of Farmland
Agriservices, a noncooperative subsidiary of petitioner, which
represented a carryover of net operating loss incurred by the company
before its liquidation into petitioner.
3 Petitioner carried back the nonpatronage loss to its taxable
year ending August 31, 1982, and applied it against the nonpatronage
income for that year.
4 Portions of the NOL were carried back and applied against
nonpatronage income for taxable years ending August 31, 1983, and
1984.
Petitioner’s consolidated operating results for fiscal
years 1984 through 1986 are as follows:
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