Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 69-52

1969-1 C.B. 161

Sec. 521

IRS Headnote

A farmers' cooperative will continue to qualify for exemption under section 521 of the Code where reasonable amounts of patronage dividends are withheld from nonmembers to meet the cost of its operation; G.C.M. 11068 superseded.

Full Text

Rev. Rul. 69-52 /1/

A farmers' cooperative is engaged in marketing products of member and nonmember producers. All members pay an annual membership fee. An amount up to the annual membership fee is withheld from patronage dividends otherwise due each nonmember. If the patronage dividend due a nonmember is less than the annual membership fee, his total dividend is withheld. The membership fees and the amounts withheld from nonmembers are used to finance the operation of the cooperative.

Held, the method of distributing the patronage dividends here does not involve a discrimination between members and nonmembers that would preclude the cooperative from being exempt from Federal income tax under section 521 of the Internal Revenue Code of 1954. The requirement that nonmembers pay a reasonable annual fee is no more than a requirement that those who avail themselves of the facilities offered by the cooperative pay their share of the cost of the operations of the organization.

G.C.M. 11068, C.B. XII-1, 122 (1933), is hereby superseded since the outstanding portion relating to withholding patronage dividends from nonmembers to meet the cost of the cooperative operations is restated under the current statute and regulations in this Revenue Ruling. Other portions of G.C.M. 11068 have become obsolete because of revisions in the applicable regulations.

/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.