- 27 -
section 1402(a)(3) does not apply, the exclusion under section
1402(a)(2) operates to exclude the value-added payments because
those payments were really dividends paid with respect to
petitioners’ MCP stock. Section 1402(a)(2) excludes from the
calculation of net earnings from self-employment dividends on
stock.
Ordinarily, “dividend” is a term of art used to describe a
distribution of property made with respect to a shareholder’s
stock out of the current or accumulated earnings of a
corporation, which is taxed to the shareholder as ordinary
income. See secs. 61(a)(7), 301(c), 316(a). By its nature, a
dividend paid with respect to stock is a return on a
shareholder’s capital investment. In contrast, a patronage
distribution17 is a payment of a cooperative’s net income
calculated by reference to a member’s participation in, or
patronage of, the cooperative’s activities.
17Patronage distributions are described by a variety of
different names such as patronage dividends, patronage refunds,
and value-added payments. No matter what words are used to
describe a particular distribution, the controlling
characteristic appears to be whether the payment is determined by
the level of a member’s participation in a cooperative. See also
sec. 1388(a), which defines “patronage dividend” for purposes of
subch. T as an amount paid to a patron by a qualifying
cooperative on the basis of quantity or value of business done
with or for that patron under a preexisting obligation of the
cooperative to pay that amount, and the amount is determined by
reference to the cooperative’s net earnings from business done
with or for its patrons.
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011