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e. Conclusion
We do not believe that Congress intended to subsume within
the definition of the term “patronage dividend” transaction-
specific price reductions such as are encompassed by the term
“trade discount”. While the term “rebate” may sometimes be used
in explaining the allowance of the deduction for patronage
dividends, see, e.g., Buckeye Countrymark, Inc. v. Commissioner,
103 T.C. at 558, we agree with the commentators that there is a
categorical difference between a rebate in the nature of a trade
discount and a patronage dividend. A patronage dividend is paid
under an obligation to distribute some or all of net earnings of
the enterprise on the basis of patronage.11 Respondent puts his
finger right on the difference when he argues that petitioner
cannot show that the passed-on rebates he deems petitioner to
have made “were calculated by reference to the net earnings of
the cooperative from business done with or for its patrons.”
They were not; they were calculated exclusively with reference to
the rebates accorded to petitioner by the vendors on account of
orders taken by petitioner from member stores at the food shows.
If we were to agree with respondent that, for lack of a net
11 In theory, of course, a cooperative could set its prices
so as to minimize its profit and reduce the amount available for
patronage dividends. That has been referred to as the “pricing
out” problem, which may exist more in theory than in practice.
See Patterson, The Tax Exemption of Cooperatives 89-90 (2d rev.
ed. 1961). In any event, it does not concern us here.
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