PART I—TAX TREATMENT OF COOPERATIVES
Editorial Notes
Amendments
1966—
1962—
§1381. Organizations to which part applies
(a) In general
This part shall apply to—
(1) any organization exempt from tax under section 521 (relating to exemption of farmers' cooperatives from tax), and
(2) any corporation operating on a cooperative basis other than an organization—
(A) which is exempt from tax under this chapter,
(B) which is subject to the provisions of—
(i) part II of subchapter H (relating to mutual savings banks, etc.), or
(ii) subchapter L (relating to insurance companies), or
(C) which is engaged in furnishing electric energy, or providing telephone service, to persons in rural areas.
(b) Tax on certain farmers' cooperatives
An organization described in subsection (a)(1) shall be subject to the tax imposed by section 11.
(c) Cross reference
For treatment of income from load loss transactions of organizations described in subsection (a)(2)(C), see section 501(c)(12)(H).
(Added
Editorial Notes
Amendments
2017—Subsec. (b).
2004—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date
"(1)
"(2)
"(3)
"(A) before the first day of the first taxable year of such organization beginning after December 31, 1962, or
"(B) on or after such first day with respect to patronage occurring before such first day,
the tax treatment of such money, written notice of allocation, or other property (including the tax treatment of gain or loss on the redemption, sale, or other disposition of such written notice of allocation) by any person shall be made under the Internal Revenue Code of 1986 without regard to subchapter T of
§1382. Taxable income of cooperatives
(a) Gross income
Except as provided in subsection (b), the gross income of any organization to which this part applies shall be determined without any adjustment (as a reduction in gross receipts, an increase in cost of goods sold, or otherwise) by reason of any allocation or distribution to a patron out of the net earnings of such organization or by reason of any amount paid to a patron as a per-unit retain allocation (as defined in section 1388(f)).
(b) Patronage dividends and per-unit retain allocations
In determining the taxable income of an organization to which this part applies, there shall not be taken into account amounts paid during the payment period for the taxable year—
(1) as patronage dividends (as defined in section 1388(a)), to the extent paid in money, qualified written notices of allocation (as defined in section 1388(c)), or other property (except nonqualified written notices of allocation (as defined in section 1388(d))) with respect to patronage occurring during such taxable year;
(2) in money or other property (except written notices of allocation) in redemption of a nonqualified written notice of allocation which was paid as a patronage dividend during the payment period for the taxable year during which the patronage occurred;
(3) as per-unit retain allocations (as defined in section 1388(f)), to the extent paid in money, qualified per-unit retain certificates (as defined in section 1388(h)), or other property (except nonqualified per-unit retain certificates, as defined in section 1388(i)) with respect to marketing occurring during such taxable year; or
(4) in money or other property (except per-unit retain certificates) in redemption of a nonqualified per-unit retain certificate which was paid as a per-unit retain allocation during the payment period for the taxable year during which the marketing occurred.
For purposes of this title, any amount not taken into account under the preceding sentence shall, in the case of an amount described in paragraph (1) or (2), be treated in the same manner as an item of gross income and as a deduction therefrom, and in the case of an amount described in paragraph (3) or (4), be treated as a deduction in arriving at gross income.
(c) Deduction for nonpatronage distributions, etc.
In determining the taxable income of an organization described in section 1381(a)(1), there shall be allowed as a deduction (in addition to other deductions allowable under this chapter)—
(1) amounts paid during the taxable year as dividends on its capital stock; and
(2) amounts paid during the payment period for the taxable year—
(A) in money, qualified written notices of allocation, or other property (except nonqualified written notices of allocation) on a patronage basis to patrons with respect to its earnings during such taxable year which are derived from business done for the United States or any of its agencies or from sources other than patronage, or
(B) in money or other property (except written notices of allocation) in redemption of a nonqualified written notice of allocation which was paid, during the payment period for the taxable year during which the earnings were derived, on a patronage basis to a patron with respect to earnings derived from business or sources described in subparagraph (A).
(d) Payment period for each taxable year
For purposes of subsections (b) and (c)(2), the payment period for any taxable year is the period beginning with the first day of such taxable year and ending with the fifteenth day of the ninth month following the close of such year. For purposes of subsections (b)(1) and (c)(2)(A), a qualified check issued during the payment period shall be treated as an amount paid in money during such period if endorsed and cashed on or before the 90th day after the close of such period.
(e) Products marketed under pooling arrangements
For purposes of subsection (b), in the case of a pooling arrangement for the marketing of products—
(1) the patronage shall (to the extent provided in regulations prescribed by the Secretary) be treated as patronage occurring during the taxable year in which the pool closes, and
(2) the marketing of products shall be treated as occurring during any of the taxable years in which the pool is open.
(f) Treatment of earnings received after patronage occurred
If any portion of the earnings from business done with or for patrons is includible in the organization's gross income for a taxable year after the taxable year during which the patronage occurred, then for purposes of applying paragraphs (1) and (2) of subsection (b) to such portion the patronage shall, to the extent provided in regulations prescribed by the Secretary, be considered to have occurred during the taxable year of the organization during which such earnings are includible in gross income.
(g) Use of completed crop pool method of accounting
(1) In general
An organization described in section 1381(a) which is engaged in pooling arrangements for the marketing of products may compute its taxable income with respect to any pool opened prior to March 1, 1978, under the completed crop pool method of accounting if—
(A) the organization has computed its taxable income under such method for the 10 taxable years ending with its first taxable year beginning after December 31, 1976, and
(B) with respect to the pool, the organization has entered into an agreement with the United States or any of its agencies which includes provisions to the effect that—
(i) the United States or such agency shall provide a loan to the organization with the products comprising the pool serving as collateral for such loan,
(ii) the organization shall use an amount equal to the proceeds of such loan to make price support advances to eligible producers (as determined by the United States or such agency), to defray costs of handling, processing, and storing such products, or to pay all or part of any administrative costs associated with the price support program,
(iii) an amount equal to the net proceeds (as determined under such agreement) from the sale or exchange of the products in the pool shall be used to repay such loan until such loan is repaid in full (or all the products in the pool are disposed of), and
(iv) the net gains (as determined under such agreement) from the sale or exchange of such products shall be distributed to eligible producers, except to the extent that the United States or such agency permits otherwise.
(2) Completed crop pool method of accounting defined
For purposes of this subsection, the term "completed crop pool method of accounting" means a method of accounting under which gain or loss is computed separately for each crop year pool in the year in which the last of the products in the pool are disposed of.
(Added
Editorial Notes
Amendments
1978—Subsec. (g).
1976—
1969—Subsec. (b)(3).
1966—Subsec. (a).
Subsec. (b).
Subsec. (e).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 1969 Amendment
Effective Date of 1966 Amendment
"(1) The amendments made by subsections (a), (b), and (c) [amending this section and
"(2) The amendments made by subsection (d) [amending
Effective Date
Section applicable, except as otherwise provided, to taxable years of organizations described in
§1383. Computation of tax where cooperative redeems nonqualified written notices of allocation or nonqualified per-unit retain certificates
(a) General rule
If, under section 1382(b)(2) or (4), or (c)(2)(B), a deduction is allowable to an organization for the taxable year for amounts paid in redemption of nonqualified written notices of allocation or nonqualified per-unit retain certificates, then the tax imposed by this chapter on such organization for the taxable year shall be the lesser of the following:
(1) the tax for the taxable year computed with such deduction; or
(2) an amount equal to—
(A) the tax for the taxable year computed without such deduction, minus
(B) the decrease in tax under this chapter for any prior taxable year (or years) which would result solely from treating such nonqualified written notices of allocation or nonqualified per-unit retain certificates as qualified written notices of allocation or qualified per-unit retain certificates (as the case may be).
(b) Special rules
(1) If the decrease in tax ascertained under subsection (a)(2)(B) exceeds the tax for the taxable year (computed without the deduction described in subsection (a)) such excess shall be considered to be a payment of tax on the last day prescribed by law for the payment of tax for the taxable year, and shall be refunded or credited in the same manner as if it were an overpayment for such taxable year.
(2) For purposes of determining the decrease in tax under subsection (a)(2)(B), the stated dollar amount of any nonqualified written notice of allocation or nonqualified per-unit retain certificate which is to be treated under such subsection as a qualified written notice of allocation or qualified per-unit retain certificate (as the case may be) shall be the amount paid in redemption of such written notice of allocation or per-unit retain certificate which is allowable as a deduction under section 1382(b)(2) or (4), or (c)(2)(B) for the taxable year.
(3) If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a)(2), then the deduction described in subsection (a) shall not be taken into account for any purpose of this subtitle other than for purposes of this section.
(Added
Editorial Notes
Amendments
1966—
Subsec. (a).
Subsec. (b)(2).
Statutory Notes and Related Subsidiaries
Effective Date of 1966 Amendment
Amendment by
Effective Date
Section applicable, except as otherwise provided, to taxable years of organizations described in