Farmland Industries, Inc. - Page 77




                                       - 72 -                                         
             cf. Land O'Lakes, Inc. v. United States, supra at 993.                   
             In Rev. Rul. 69-576, supra, the Commissioner held that an                
             amount received by the taxpayer, a nonexempt cooperative,                
             as a patronage dividend from a bank for cooperatives should              
             be considered patronage income in the taxpayer's hands.                  
             The taxpayer cooperative became eligible to receive the                  
             patronage dividend from the bank for cooperatives by reason              
             of the fact that it had borrowed from the bank to finance                
             the acquisition of agricultural supplies for resale to its               
             members.  The Commissioner reviewed section 1.1382-3(c)(2),              
             Income Tax Regs., and articulated the following test for                 
             classifying an item of income as patronage or nonpatronage               
             income:                                                                  
                       Section 1.1382-3(c)(2) of the Income Tax                       
                  Regulations defines the term “income derived                        
                  from sources other than patronage” to mean                          
                  incidental income derived from sources not                          
                  directly related to the marketing, purchasing,                      
                  or service activities of the cooperative                            
                  association.  For example, income derived                           
                  from the lease of premises, from investment                         
                  in securities, or from the sale or exchange                         
                  of capital assets, constitutes income derived                       
                  from sources other than patronage.                                  
                       The classification of an item of income as                     
                  from either patronage or nonpatronage sources                       
                  is dependent on the relationship of the activity                    
                  generating the income to the marketing, purchas-                    
                  ing, or service activities of the cooperative.                      
                  If the income is produced by a transaction which                    
                  actually facilitates the accomplishment of the                      
                  cooperative's marketing, purchasing, or service                     
                  activities, the income is from patronage sources.                   
                  However, if the transaction producing the income                    





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