- 75 -
624 F.2d at 1051-1052. As the court said in Twin County
Grocers, Inc. v. United States, 2 Cl. Ct. 657, 662 (1983):
A common thread runs through each of the cases
and rulings above summarized. Although the
income at issue is generated by transactions
between nonexempt cooperatives and nonpatrons,
it is deemed to be patronage sourced because
those transactions facilitate the basic functions
of the cooperative in some way other than simple
money management or overall profitability.
In applying the “directly related” standard, the
courts have classified dividend income from a subsidiary
of the cooperative as patronage income if the business of
the subsidiary, out of which the dividends are paid, is
reasonably related to the basic purpose of the cooperative.
For example, in Linnton Plywood Association v. Commis-
sioner, 410 F. Supp. 1100 (D. Or. 1976), the court held
that dividends received by the taxpayer, a workers'
cooperative, with respect to the capital stock it held in
a glue manufacturing enterprise constituted patronage
income. The taxpayer in that case was engaged in the
manufacture and sale of plywood and plywood products.
See id. To secure a reliable supply of glue, a material
essential to the manufacture of plywood, the taxpayer
and another cooperative organized a glue manufacturing
enterprise. See id. Each cooperative owned 50 percent
of the capital stock of the glue manufacturer. During
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