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that the dividends should be classified as patronage
income. Id. at 993. According to the court, “because the
transactions actually facilitated the cooperative’s
activities by providing financing on terms favorable to
the cooperative, the income from the bank stock was from a
patronage source and therefore was properly deductible as a
patronage dividend.” Id.
In the same vein, the Commissioner ruled in Rev. Rul.
75-228, 1975-1 C.B. 278, that the dividends received by the
taxpayer, a farmers' cooperative, from its wholly owned
Domestic International Sales Corp. (DISC), should be
classified as patronage income. The ruling formulates the
“directly related” test to be used in classifying patronage
and nonpatronage income as follows:
The classification of an item of income as
from either patronage or nonpatronage sources is
dependent upon the relationship of the activity
generating the income to the marketing, purchas-
ing, or service activities of the cooperative.
Thus, if the income is produced by a transaction
directly, connected with marketing patrons'
products, the income is from patronage sources.
[Rev. Rul. 75-228, supra, 1975-1 C.B. 179.]
The ruling notes that the dividends paid by the DISC were
from the selling commissions earned by the DISC from
selling the products of the taxpayer's patrons.
Accordingly, the ruling concludes that the dividend income
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