Sec. 1388. Definitions; special rules
TITLE 26,
Subtitle A,
CHAPTER 1,
Subchapter T,
PART III,
Sec. 1388
STATUTE
- (a)
- Patronage dividend
For 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.
- (b)
- Written notice of allocation
For purposes of this subchapter, the term ''written notice of
allocation'' means any capital stock, revolving fund certificate,
retain certificate, certificate of indebtedness, letter of advice,
or other written notice, which discloses to the recipient the
stated dollar amount allocated to him by the organization and the
portion thereof, if any, which constitutes a patronage dividend.
- (c)
- Qualified written notice of allocation
- (1)
- Defined
For 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 consent
A 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 rule
Except 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
For purposes of this subchapter, the term ''qualified check''
means only a check (or other instrument which is redeemable in
money) which is paid as a part of a patronage dividend, or as a
part of a payment described in section 1382(c)(2)(A), to a
distributee who has not given consent as provided in paragraph
(2)(A) or (B) with respect to such patronage dividend or payment,
and on which there is clearly imprinted a statement that the
endorsement and cashing of the check (or other instrument)
constitutes the consent of the payee to include in his gross
income, as provided in the Federal income tax laws, the stated
dollar amount of the written notice of allocation which is a part
of the patronage dividend or payment of which such qualified
check is also a part. Such term does not include any check (or
other instrument) which is paid as part of a patronage dividend
or payment which does not include a written notice of allocation
(other than a written notice of allocation described in paragraph
(1)(A)).
- (d)
- Nonqualified written notice of allocation
For purposes of this subchapter, the term ''nonqualified written
notice of allocation'' means a written notice of allocation which
is not described in subsection (c) or a qualified check which is
not cashed on or before the 90th day after the close of the payment
period for the taxable year for which the distribution of which it
is a part is paid.
- (e)
- Determination of amount paid or received
For 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
For purposes of this subchapter, the term ''per-unit retain
allocation'' means any allocation, by an organization to which part
I of this subchapter applies, to a patron with respect to products
marketed for him, the amount of which is fixed without reference to
the net earnings of the organization pursuant to an agreement
between the organization and the patron.
- (g)
- Per-unit retain certificate
For purposes of this subchapter, the term ''per-unit retain
certificate'' means any written notice which discloses to the
recipient the stated dollar amount of a per-unit retain allocation
to him by the organization.
- (h)
- Qualified per-unit retain certificate
- (1)
- Defined
For purposes of this subchapter, the term ''qualified per-unit
retain certificate'' means any per-unit retain certificate which
the distributee has agreed, in the manner provided in paragraph
(2), to take into account at its stated dollar amount as provided
in section 1385(a).
- (2)
- Manner of obtaining agreement
A 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 rule
Except 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
For purposes of this subchapter, the term ''nonqualified per-unit
retain certificate'' means a per-unit retain certificate which is
not described in subsection (h).
- (j)
- Special rules for the netting of gains and losses by
cooperatives
For 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
The net earnings of such organization may, at its option, be
determined by offsetting patronage losses (including any
patronage loss carried to such year) which are attributable to 1
or more allocation units (whether such units are functional,
divisional, departmental, geographic, or otherwise) against
patronage earnings of 1 or more other such allocation units.
- (2)
- Certain netting permitted after section 381 transactions
If 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 general
In 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 provided
An 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 notice
If 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
For purposes of this subsection, the terms ''patronage
earnings'' and ''patronage losses'' means earnings and losses,
respectively, which are derived from business done with or for
patrons of the organization.
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 521, 1382, 6044, 6072 of
this title; title 7 section 1445-1; title 12 section 3019.
SOURCE
AMENDMENTS
EFFECTIVE DATE OF 1990 AMENDMENT
EFFECTIVE DATE OF 1986 AMENDMENT
EFFECTIVE DATE OF 1978 AMENDMENT
EFFECTIVE DATE OF 1969 AMENDMENT
EFFECTIVE DATE OF 1966 AMENDMENT
EFFECTIVE DATE
SAVINGS PROVISION
PER-UNIT RETAIN CERTIFICATES COVERED BY WRITTEN AGREEMENTS BETWEEN
OCT. 14, 1965, AND NOV. 13, 1966: TRANSITION TREATMENT OF BY-LAW
PROVISIONS
REFERENCES IN TEXT
Web edition produced by John Walker