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discounts accorded patrons from the purchase price it charges
those patrons in determining gross receipts.
We shall consider further the nature of patronage dividends.
c. Patronage Dividends Considered Price Adjusments
We have said: “Patronage dividends are considered rebates
on purchases or deferred payments on sales, allocated or
distributed pursuant to a preexisting obligation of the
cooperative, and, as such, do not constitute taxable income to
the cooperative.” Buckeye Countrymark, Inc. v. Commissioner, 103
T.C. 547, 558 (1994).
The notion that a cooperative should not be taxed on
patronage-based payments because those payments amount to nothing
more than price adjustments is a longstanding rationale
underlying the Federal income tax treatment of patronage
dividends. Subchapter T was added to the Internal Revenue Code
by the Revenue Act of 1962 (the 1962 Act), Pub. L. 87-834,
section 17, 76 Stat. 1045. Before the 1962 Act, non-tax-exempt
cooperatives were taxed as corporations. See Ravenscroft, “The
Proposed Limitation on the Patronage Dividend Deduction”, 12 Tax
L. Rev. 151, 152 (1957). However, under administrative
practices, judicially affirmed, they could exclude from gross
income the amounts allocated to patrons as patronage dividends.
E.g., Farmers Coop. Co. v. Birmingham, 86 F. Supp. 201, 219
(N.D. Iowa 1949) (collecting administrative rulings). Primarily,
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