26 U.S.C. § 1385 | Amounts includible in patron’s gross income

(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

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)

Basis; amount of gain

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.

Pub. L. 87–834, § 17(a)Oct. 16, 196276 Stat. 1048 Pub. L. 89–809, title II, § 211(b)(1)Nov. 13, 196680 Stat. 1582 Pub. L. 94–455, title XIXOct. 4, 197690 Stat. 1793(Added , , ; amended –(4), , ; , §§ 1901(b)(3)(I), 1906(b)(13)(A), , , 1834.)

Editorial Notes

Amendments

Pub. L. 94–455, § 1906(b)(13)(A)1976—Subsec. (b). , struck out “or his delegate” after “Secretary”.

Pub. L. 94–455, § 1901(b)(3)(I)Subsec. (c)(2)(C). , substituted “ordinary income” for “gain from the sale or exchange of property which is not a capital asset”.

Pub. L. 89–809, § 211(b)(1)1966—Subsec. (a)(3). , added par. (3).

Pub. L. 89–809, § 211(b)(2)Subsec. (c). –(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 Amendment

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

Effective Date of 1966 Amendment

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

Effective Date

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