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patronage income. According to the court, by keeping
short-term commercial paper the taxpayer was acting to
retain its liquidity in order to prepay for goods at a
discount and, thus, was “acting as any reasonable business
person”. Id. at 1107. The court compared the taxpayer’s
actions “to placing its funds in a bank account.” See id.
The court also agreed with the taxpayer that rental income
from leasing temporarily excess warehouse space to tenants
should be classified as patronage income. The court noted
that the warehouse space was rented only as part of the
taxpayer’s “plan to expand its space over its then-existing
needs” and not as apart of a separate warehouse rental
business. Id. at 1109. The court set forth the following
guiding principle for application of the directly related
test:
We agree with the Claims Court that
Congress did not intend the term "with or for
patrons" to be "of unlimited scope, [so that]
all income produced by cooperatives that is
passed through to patrons would be, in essence,
income obtained for patrons, and would,
therefore, be considered patronage sourced."
Cotter, 6 Cl. Ct. at 227. A cooperative cannot
merely "clothe its shareholders as patrons and
its corporate dividends as patronage payments"
and retain the benefits of Subchapter T.
Mississippi Valley, 408 F.2d at 835. But
Subchapter T was also not enacted to require
that a cooperative acting for its patrons
function in an economically unreasonable manner
or penalize it for acting reasonably. Consider-
ing the income-generating transaction in its
relation to all the activity undertaken to
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