§1385 Amounts includible in patron’s gross income

Summary

You must count as taxable income certain payments you get from a qualifying cooperative. That includes patronage dividends paid in cash, qualified written notices of allocation, or other property (but not nonqualified written notices), certain nonpatronage distributions paid the same way, and per‑unit retain payments paid as qualified per‑unit retain certificates. Under rules set by the Secretary, you do not have to include those amounts as income if they are properly applied as an adjustment to the tax cost (basis) of property or if they are for personal, living, or family items. For nonqualified written notices and nonqualified per‑unit retain certificates paid as patronage items, the holder’s tax basis is zero (except if inherited, then it keeps the decedent’s basis), and any gain on selling or redeeming them above basis is treated as ordinary income. Definitions (one line each): patronage dividend — a cooperative payment to members based on business with them; qualified/nonqualified written notice of allocation — types of paper allocations; per‑unit retain certificate — a certificate representing retained cooperative earnings paid per unit.