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(2) under an obligation of such
organization to pay such amount, which
obligation existed before the organization
received the amount paid, and
(3) which is determined by reference to
the net earnings of the organization from
business done with or for its patrons.
Such term does not include any amount paid to a
patron to the extent that (A) such amount is out
of earnings other than from business done with
or for patrons, or (B) such amount is out of
earnings from business done with or for other
patrons to whom no amounts are paid, or to whom
smaller amounts are paid, with respect to
substantially identical transactions.
By patronage income we mean income derived from “business
done with or for” patrons of the cooperative, such that it
can be included in computing the net earnings from which a
patronage dividend can be paid. Sec. 1388(a). By
nonpatronage income we mean income that is derived other
than from business done with or for patrons. See sec.
1388(a).
Petitioner argues that the classification of gains and
losses as patronage or nonpatronage income depends on the
factual relationship between the activity producing the
gain or loss and the operations of the cooperative,
regardless whether the gains or losses are capital or
ordinary in nature. Petitioner argues that, if the
activity producing the gain or loss is “directly related”
to or facilitates the cooperative’s operations, then the
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