Farmland Industries, Inc. - Page 99




                                       - 94 -                                         
             incidental income that contributed to the overall                        
             profitability of the cooperative but did not actually                    
             facilitate the accomplishment of the cooperative’s                       
             marketing, purchasing, or service activities on behalf of                
             its patrons.  See, e.g., Cotter & Co. v. United States, 765              
             F.2d at 1106.  This determination requires an examination                
             of the factual relationship between the activity producing               
             the gains or losses and  the cooperative’s patronage                     
             activities.                                                              
                  Respondent acknowledges that the directly related test              
             as formulated in Rev. Rul. 69-576, 1969-2 C.B. 166, supra,               
             has been adopted and applied by the courts.  However,                    
             respondent argues that the directly related test as applied              
             by the courts “is an overly simplistic approach to the                   
             question at hand.”  Respondent asks the Court to apply a                 
             new 2-part test.  As we understand it, respondent argues                 
             that the Court should not only determine whether the                     
             transaction from which the subject income arose is directly              
             related to the cooperative enterprise, but it should also                
             determine whether the type of income at issue is the                     
             “customary operating income of the cooperative.”                         
             Respondent formulates the test as follows:                               

                  The proper test focuses on identifying the                          
                  regular, everyday operating activities of the                       
                  cooperative and the anticipated ordinary profits                    





Page:  Previous  84  85  86  87  88  89  90  91  92  93  94  95  96  97  98  99  100  101  102  103  Next

Last modified: May 25, 2011