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treated as “long-term capital gains or long-term capital
losses” under section 1231(a)(1) (by reason of the fact
that the aggregate section 1231 gains exceed the aggregate
section 1231 losses for the taxable year), then each
section 1231 gain and loss realized during the year is
automatically deemed to be a nonpatronage item under the
per se rule. On the other hand, if the section 1231 gains
and losses for the taxable year are not “treated as gains
and losses from sales or exchanges of capital assets” under
section 1231(a)(2) (by reason of the fact that the
aggregate section 1231 gains do not exceed the aggregate
section 1231 losses for the taxable year), then each
section 1231 gain and loss realized during the year is
deemed to be a patronage item under the per se rule.
Under respondent’s position, therefore, the patronage
classification of gains and losses from the sale or
exchange of property used in the trade or business is
determined by the mathematical result of the netting
process under section 1231. It has nothing to do with
whether the property or the transactions from which the
gains or losses arose are related to the operations of the
cooperative. This is contrary to section 1.1382-3(c)(2),
Income Tax Regs., which formulates the distinction between
patronage and nonpatronage in terms of whether the item is
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