PRIA, Government Policy, Made Personal

Summary

You must report as taxable income certain payments you get from certain cooperatives. That includes patronage dividends, certain nonpatronage distributions, and per‑unit retain allocations when they are paid to you in cash, a qualified written notice of allocation, or other property during the tax year. Under IRS rules, you do not have to include amounts that are properly used to adjust the tax basis (the cost used for tax purposes) of property or amounts that are for personal, living, or family items. Special rules apply to nonqualified written notices of allocation and nonqualified per‑unit retain certificates: the original recipient’s tax basis in those items is zero, the basis if inherited is the decedent’s basis, and any gain when they are sold or redeemed that is more than the basis is treated as ordinary income.

Title 26, §1385

Internal Revenue Code, Source: USLM XML via OLRC

(a)General rule

Except as otherwise provided in subsection (b), each person shall include in gross income—

(1)the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a),

(2)any amount, described in section 1382 (c)(2)(A) (relating to certain nonpatronage distributions by tax-exempt farmers’ cooperatives), which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a)(1), and

(3)the amount of any per-unit retain allocation which is paid in qualified per-unit retain certificates and which is received by him during the taxable year from an organization described in section 1381(a).

(b)Exclusion from gross income

Under regulations prescribed by the Secretary, the amount of any patronage dividend, and any amount received on the redemption, sale, or other disposition of a nonqualified written notice of allocation which was paid as a patronage dividend, shall not be included in gross income to the extent that such amount—

(1)is properly taken into account as an adjustment to basis of property, or

(2)is attributable to personal, living, or family items.

(c)Treatment of certain nonqualified written notices of allocation and certain nonqualified per-unit retain certificates

(1)Application of subsection (2) Basis; amount of gain

This subsection shall apply to—

(A)any nonqualified written notice of allocation which—

(i)was paid as a patronage dividend, or

(ii)was paid by an organization described in section 1381(a)(1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c)(2)(A), and

(B)any nonqualified per-unit retain certificate which was paid as a per-unit retain allocation.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1976—Subsec. (b). Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”. Subsec. (c)(2)(C). Pub. L. 94–455, § 1901(b)(3)(I), substituted “ordinary income” for “gain from the sale or exchange of property which is not a capital asset”. 1966—Subsec. (a)(3). Pub. L. 89–809, § 211(b)(1), added par. (3). Subsec. (c). Pub. L. 89–809, § 211(b)(2)–(4), inserted “and certain nonqualified per-unit retain certificates” in heading, inserted provisions to par. (1) for the application of the subsection to any nonqualified per-unit retain certificates which were paid as per-unit retain allocations, and inserted references to per-unit retain certificates in par. (2).

Statutory Notes and Related Subsidiaries

Effective Date

of 1976 AmendmentAmendment by section 1901(b)(3)(I) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date

of 1966 AmendmentAmendment by Pub. L. 89–809 applicable to per-unit retain allocations made during taxable years of an organization described in section 1381(a) of this title (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after Apr. 30, 1966, with respect to products delivered during such years, see section 211(e)(1) of Pub. L. 89–809, set out as a note under section 1382 of this title.

Effective Date

Section applicable, except as otherwise provided, to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87–834, set out as a note under section 1381 of this title.

§1385 Amounts Includible in Patron’s Gross Income

Summary

Title 26, §1385

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Citations & Metadata