Farmland Industries, Inc. - Page 79




                                       - 74 -                                         
                  In effect, the Commissioner ruled that the patronage                
             dividend received by the taxpayer in Rev. Rul. 69-516,                   
             supra, and the interest income received by the taxpayer in               
             Rev. Rul. 74-160, supra, qualified for inclusion in the                  
             taxpayer’s net earnings from “business done with or for its              
             patrons”.  Sec. 1388(a)(3).  In neither case were patrons                
             of the taxpayer cooperative directly involved in the                     
             transaction out of which the income arose.  Compare Rev.                 
             Rul. 73-497, 1973-2 C.B. 18, in which the Commissioner                   
             ruled that interest paid to a bank for cooperatives by                   
             other farm credit banks did not qualify as patronage income              
             because the payors were “not patrons of the taxpayer”.                   
             This ruling has been criticized by the courts and it has                 
             not been followed.  See St. Louis Bank for Coops. v. United              
             States, 224 Ct. Cl. 289, 624 F.2d 1041, 1051 (1980); see                 
             also Cotter & Co. v. United States, 765 F.2d 1102, 1106                  
             (Fed. Cir. 1985).                                                        
                  Generally, under the “directly related” test, as                    
             applied by the courts, transactions with third parties can               
             qualify as business “with or for” patrons, as long as the                
             transaction is reasonably related to the business which                  
             the cooperative conducts with its patrons and benefits the               
             patrons, other than incidentally through the generation of               
             extra income.  St. Louis Bank for Coops. v. United States,               






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