Collapse to view only § 1388. Definitions; special rules
§ 1388. Definitions; special rules
(a) Patronage dividendFor purposes of this subchapter, the term “patronage dividend” means an amount paid to a patron by an organization to which part I of this subchapter applies—
(1) on the basis of quantity or value of business done with or for such patron,
(2) under an obligation of such organization to pay such amount, which obligation existed before the organization received the amount so paid, and
(3) which is determined by reference to the net earnings of the organization from business done with or for its patrons.
Such term does not include any amount paid to a patron to the extent that (A) such amount is out of earnings other than from business done with or for patrons, or (B) such amount is out of earnings from business done with or for other patrons to whom no amounts are paid, or to whom smaller amounts are paid, with respect to substantially identical transactions. For purposes of paragraph (3), net earnings shall not be reduced by amounts paid during the year as dividends on capital stock or other proprietary capital interests of the organization to the extent that the articles of incorporation or bylaws of such organization or other contract with patrons provide that such dividends are in addition to amounts otherwise payable to patrons which are derived from business done with or for patrons during the taxable year.
(b) Written notice of allocation
(c) Qualified written notice of allocation
(1) DefinedFor purposes of this subchapter, the term “qualified written notice of allocation” means—
(A) a written notice of allocation which may be redeemed in cash at its stated dollar amount at any time within a period beginning on the date such written notice of allocation is paid and ending not earlier than 90 days from such date, but only if the distributee receives written notice of the right of redemption at the time he receives such written notice of allocation; and
(B) a written notice of allocation which the distributee has consented, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385(a).
Such term does not include any written notice of allocation which is paid as part of a patronage dividend or as part of a payment described in section 1382(c)(2)(A), unless 20 percent or more of the amount of such patronage dividend, or such payment, is paid in money or by qualified check.
(2) Manner of obtaining consentA distributee shall consent to take a written notice of allocation into account as provided in paragraph (1)(B) only by—
(A) making such consent in writing,
(B) obtaining or retaining membership in the organization after—
(i) such organization has adopted (after October 16, 1962) a bylaw providing that membership in the organization constitutes such consent, and
(ii) he has received a written notification and copy of such bylaw, or
(C) if neither subparagraph (A) nor (B) applies, endorsing and cashing a qualified check, paid as a part of the patronage dividend or payment of which such written notice of allocation is also a part, on or before the 90th day after the close of the payment period for the taxable year of the organization for which such patronage dividend or payment is paid.
(3) Period for which consent is effective
(A) General ruleExcept as provided in subparagraph (B)—
(i) a consent described in paragraph (2) (A) shall be a consent with respect to all patronage of the distributee with the organization occurring (determined with the application of section 1382(e)) during the taxable year of the organization during which such consent is made and all subsequent taxable years of the organization; and
(ii) a consent described in paragraph (2) (B) shall be a consent with respect to all patronage of the distributee with the organization occurring (determined without the application of section 1382(e)) after he received the notification and copy described in paragraph (2)(B)(ii).
(B) Revocation, etc.
(i) Any consent described in paragraph (2)(A) may be revoked (in writing) by the distributee at any time. Any such revocation shall be effective with respect to patronage occurring on or after the first day of the first taxable year of the organization beginning after the revocation is filed with such organization; except that in the case of a pooling arrangement described in section 1382(e), a revocation made by a distributee shall not be effective as to any pool with respect to which the distributee has been a patron before such revocation.
(ii) Any consent described in paragraph (2)(B) shall not be effective with respect to any patronage occurring (determined without the application of section 1382(e)) after the distributee ceases to be a member of the organization or after the bylaws of the organization cease to contain the provision described in paragraph (2)(B)(i).
(4) Qualified check
(d) Nonqualified written notice of allocation
(e) Determination of amount paid or receivedFor purposes of this subchapter, in determining amounts paid or received—
(1) property (other than a written notice of allocation or a per-unit retain certificate) shall be taken into account at its fair market value, and
(2) a qualified written notice of allocation or qualified per-unit retain certificate shall be taken into account at its stated dollar amount.
(f) Per-unit retain allocation
(g) Per-unit retain certificate
(h) Qualified per-unit retain certificate
(1) Defined
(2) Manner of obtaining agreementA distributee shall agree to take a per-unit retain certificate into account as provided in paragraph (1) only by—
(A) making such agreement in writing, or
(B) obtaining or retaining membership in the organization after—
(i) such organization has adopted (after November 13, 1966) a bylaw providing that membership in the organization constitutes such agreement, and
(ii) he has received a written notification and copy of such bylaw.
(3) Period for which agreement is effective
(A) General ruleExcept as provided in subparagraph (B)—
(i) an agreement described in paragraph (2)(A) shall be an agreement with respect to all products delivered by the distributee to the organization during the taxable year of the organization during which such agreement is made and all subsequent taxable years of the organization; and
(ii) an agreement described in paragraph (2)(B) shall be an agreement with respect to all products delivered by the distributee to the organization after he received the notification and copy described in paragraph (2)(B)(ii).
(B) Revocation, etc.
(i) Any agreement described in paragraph (2)(A) may be revoked (in writing) by the distributee at any time. Any such revocation shall be effective with respect to products delivered by the distributee on or after the first day of the first taxable year of the organization beginning after the revocation is filed with the organization; except that in the case of a pooling arrangement described in section 1382(e) a revocation made by a distributee shall not be effective as to any products which were delivered to the organization by the distributee before such revocation.
(ii) Any agreement described in paragraph (2)(B) shall not be effective with respect to any products delivered after the distributee ceases to be a member of the organization or after the bylaws of the organization cease to contain the provision described in paragraph (2)(B)(i).
(i) Nonqualified per-unit retain certificate
(j) Special rules for the netting of gains and losses by cooperativesFor purposes of this subchapter, in the case of any organization to which part I of this subchapter applies—
(1) Optional netting of patronage gains and losses permitted
(2) Certain netting permitted after section 381 transactionsIf such an organization acquires the assets of another such organization in a transaction described in section 381(a), the acquiring organization may, in computing its net earnings for taxable years ending after the date of acquisition, offset losses of 1 or more allocation units of the acquiring or acquired organization against earnings of the acquired or acquiring organization, respectively, but only to the extent—
(A) such earnings are properly allocable to periods after the date of acquisition, and
(B) such earnings could have been offset by such losses if such earnings and losses had been derived from allocation units of the same organization.
(3) Notice requirements
(A) In generalIn the case of any organization which exercises its option under paragraph (1) for any taxable year, such organization shall, on or before the 15th day of the 9th month following the close of such taxable year, provide to its patrons a written notice which—
(i) states that the organization has offset earnings and losses from 1 or more of its allocation units and that such offset may have affected the amount which is being distributed to its patrons,
(ii) states generally the identity of the offsetting allocation units, and
(iii) states briefly what rights, if any, its patrons may have to additional financial information of such organization under terms of its charter, articles of incorporation, or bylaws, or under any provision of law.
(B) Certain information need not be providedAn organization may exclude from the information required to be provided under clause (ii) of subparagraph (A) any detailed or specific data regarding earnings or losses of such units which such organization determines would disclose commercially sensitive information which—
(i) could result in a competitive disadvantage to such organization, or
(ii) could create a competitive advantage to the benefit of a competitor of such organization.
(C) Failure to provide sufficient noticeIf the Secretary determines that an organization failed to provide sufficient notice under this paragraph—
(i) the Secretary shall notify such organization, and
(ii) such organization shall, upon receipt of such notification, provide to its patrons a revised notice meeting the requirements of this paragraph.
Any such failure shall not affect the treatment of the organization under any provision of this subchapter or section 521.
(4) Patronage earnings or losses defined
(k) Cooperative marketing includes value-added processing involving animals
(Added Pub. L. 87–834, § 17(a), Oct. 16, 1962, 76 Stat. 1049; amended Pub. L. 89–809, title II, § 211(c), Nov. 13, 1966, 80 Stat. 1582; Pub. L. 91–172, title IX, § 911(b), Dec. 30, 1969, 83 Stat. 722; Pub. L. 94–455, title XIX, § 1901(a)(153), Oct. 4, 1976, 90 Stat. 1789; Pub. L. 95–600, title III, § 316(b)(3), Nov. 6, 1978, 92 Stat. 2830; Pub. L. 99–272, title XIII, § 13210(a), Apr. 7, 1986, 100 Stat. 323; Pub. L. 101–508, title XI, § 11813(b)(24), Nov. 5, 1990, 104 Stat. 1388–555; Pub. L. 108–357, title III, §§ 312(a), 316(a), Oct. 22, 2004, 118 Stat. 1467, 1469.)