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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
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