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Revenue Ruling

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 Rev. Rul. 70-25

1970-1 C.B. 17

IRS Headnote

Handling and storage charges paid to a farmers' cooperative under the "reseal" program by the Commodity Credit Corporation are not income from patronage sources.

Full Text

Rev. Rul. 70-25

Advice has been requested whether payments received from the Commodity Credit Corporation by a farmers' cooperative association under the current "reseal" program of the United States Department of Agriculture are income derived from patronage.

Under the "reseal" program a farmer-producer obtains a price support loan (Commodity Credit Corporation loan) by pledging his crop and putting it in storage with a cooperative association during the period of the loan. The program provides for an automatic extension of the loan for 12 months if the farmer-producer does not satisfy the obligation by the original maturity date. Under the program, the Commodity Credit Corporation is solely liable for handling and storage charges for the 12 months extended period even though title to the grain remains with the farmer-producer.

Revenue Ruling 59-107, C.B. 1959-1, 20, concerns itself, in part, with storage charges paid by the Commodity Credit Corporation for the period following default, i.e., when the grain belonged to the Commodity Credit Corporation. Revenue Ruling 59-107 holds that the charges paid by the Commodity Credit Corporation following default constitutes income not derived from patronage. Although under the reseal program the grain does not belong to the Commodity Credit Corporation during the extended period of the loan, nevertheless, the Commodity Credit Corporation is solely liable for payment of such charges and may not collect them from the farmer out of the proceeds from the sale of the grain.

It is held that the handling and storage charges paid to the cooperative association under the reseal program by the Commodity Credit Corporation for which it is solely liable is income of the cooperative association derived from business done with or for the United States or any of its agencies and is income not derived from patronage sources. See section 1382(c)(2)(A) of the Internal Revenue Code of 1954 and section 1.1382-3(c) of the Income Tax Regulations.