§1385 — Title 26 Internal Revenue Code | U.S. Code

Summary

If a cooperative pays you a patronage dividend in money, a qualified written notice of allocation, or other property, you must count it as income for the year you receive it. The same goes for certain payouts from tax-exempt farmers' cooperatives and for per-unit retain allocations paid in qualified certificates. You can leave an amount out of income if it properly adjusts the cost basis of property, or if it relates to personal, living, or family purchases rather than business. Nonqualified notices and certificates work differently: they are not taxed when received, your basis in them is zero, and when you later redeem or sell them, any gain above basis is taxed as ordinary income.

Title 26, §1385

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)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)(1)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.

(2)In the case of any nonqualified written notice of allocation or nonqualified per-unit retain certificate to which this subsection applies, for purposes of this chapter—

(A)the basis of such written notice of allocation or per-unit retain certificate in the hands of the patron to whom such written notice of allocation or per-unit retain certificate was paid shall be zero,

(B)the basis of such written notice of allocation or per-unit retain certificate which was acquired from a decedent shall be its basis in the hands of the decedent, and

(C)gain on the redemption, sale, or other disposition of such written notice of allocation or per-unit retain certificate by any person shall, to the extent that the stated dollar amount of such written notice of allocation or per-unit retain certificate exceeds its basis, be considered as ordinary income.

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