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allocated a portion of the gain to each of its four
petroleum-related allocation units (bulk petroleum, farm
fuels, propane, and lube oil and grease). The portion of
total gain allocable to each unit was determined by the
ratio of gross savings allocable to such unit to the
combined gross savings of all four units.
Applying the patronage income computation formula
described above, petitioner reported all but approximately
6 percent of the gain from the sale of Terra stock as
patronage income in 1983, and all but approximately 9
percent as patronage income in 1984. All of the gain
reported in 1986 was treated as patronage income. On its
return for the taxable year ending August 31, 1983, the
gain reported as patronage income was entirely offset by
current and unutilized prior years' losses from patronage
operations. Part of the gain reported on petitioner's
return for the taxable year ending August 31, 1984, was
also offset by patronage losses.
Several transactions took place between petitioner
and Terra prior to and in anticipation of the sale of
Terra stock. On May 19, 1983, Terra paid a $20 million
dividend to petitioner. On the same day, petitioner paid
$21 million to the Fourth National Bank & Trust Co. in
Tulsa, Oklahoma, in payment of a loan Terra had previously
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