§ 1388. Definitions; special rules
(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—
(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
(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
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
(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—
(B)
obtaining or retaining membership in the organization after—
(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
(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—
(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
(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—
(3)
Period for which agreement is effective
(A)
General rule
Except as provided in subparagraph (B)—
(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.
(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—
(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—
(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—
(C)
Failure to provide sufficient notice
If the Secretary determines that an organization failed to provide sufficient notice under this paragraph—
(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.
(k)
Cooperative marketing includes value-added processing involving animals
For purposes of section
521 and this subchapter, the marketing of the products of members or other producers shall include the feeding of such products to cattle, hogs, fish, chickens, or other animals and the sale of the resulting animals or animal products.