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to: “deduct from gross income amounts periodically returned to
members as a refund of profits on business transacted with them,
and proportioned to the amount of such business.” Id. (emphasis
added). In United Coops., Inc. v. Commissioner, 4 T.C. 93, 107-
108 (1944), we held that an agricultural cooperative was entitled
to exclude from gross income as a patronage dividend the excess
of its net income available for distribution to its patrons (and
to which they had a right) over the amount of that income that
the cooperative had discretion to pay as dividends on its common
stock. We said:
These dividends, if paid, would be paid out of net
income. If dividends were not paid, then the net
income of petitioner available for distribution to its
patrons would be accordingly greater. The choice of
whether so much of its net income as equaled 8 percent
of the par value of its common stock should be
distributed to its stockholders as a dividend or to its
patrons as rebates was in the corporation. * * * [Id.
at 108; emphasis added.]
It hardly seems disputable that, whether by administrative or
judicial decision, or by act of Congress, the allowance of a
deduction for patronage dividends was intended not to confirm
that a trade discount is a proper adjustment to the price
reported on a particular sale of a good or service to a patron
(whether a shareholder or not) but was intended to allow a
deduction for a patronage-based return made from the excess
proceeds from many sales, to many patrons (i.e., from net
earnings), over the course of time.
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