In Uncategorized on 10/16/2019 at 15:59

AG Processing, Inc. A Cooperative and Subsidiaries, 153 T. C. 3, filed 10/16/19, is an agricultural cooperative “…engaged in procuring, processing, marketing, and transporting oilseeds, grains, and related products.  AGP’s businesses include soybean processing, vegetable oil refining, renewable fuels, grain and agricultural products, and international businesses.  AGP operates soybean processing plants, soybean oil refineries, and biodiesel production facilities.” 153 T. C. 3, at p. 6.

Most of the 52 (count ‘em, 52) pages of Judge Paris’ prose involve PURPIMs, which I didn’t know either are per-unit retain allocations paid in money for purposes of I.R.C. secs. 1382(b)(3) and 1388(f), as opposed to those paid by certificates, and the Domestic Production Activity Deduction.  I leave all that to the specialists in agricultural and horticultural cooperatives, both exempt and nonexempt. All I know about horticulture can be summed up in Dorothy Parker’s famous quip, which I cannot repeat in a blog meant for family reading.

What is interesting is the Court’s reiteration that the duty of consistency does not apply “…to one taxpayer where the period of limitations has expired with respect to a different taxpayer.” 153 T. C. 3, at p. 37 (Footnote omitted, but it’s important).

“This Court has previously recognized that under the duty of consistency a representation by one party may bind another party where the two are deemed to be in privity.  See, e.g., Estate of Letts v. Commissioner, 109 T.C. 290, 298 (2004).  However, respondent does not argue, and the Court does not address, whether a similar concept should apply with respect to a cooperative and its patrons.” 153 T. C. 3, at p. 37, Footnote 26.

An interesting observation this, here in NYC, where there are many housing cooperatives. Does a decision or position taken by the Board of Directors involving taxes bind the shareholders?

And once again the Court stresses the great gulf fixed between patronage and nonpatronage income and deductions to prevent paying out taxable dividends as patronage (nontaxable) dividends.

“…the purpose of distinguishing and separating patronage income from nonpatronage income is to ensure that patronage dividends are not paid out of earnings from business done with nonpatrons by virtue of applying patronage-specific deductions or expenses (or a loss created by such deductions or expenses) to nonpatronage income.” 153 T. C. 3, at pp. 43-44. (Footnote omitted, but it’s important).

“A cooperative taxpayer reports taxable income from both patronage and nonpatronage earnings on Form 1120-C, and net income from patronage earnings is taxable to the extent the cooperative does not distribute it as a patronage dividend.  For tax purposes cooperative taxpayers distinguish patronage income and expenses/deductions from nonpatronage income and expenses/deductions on Form 1120-C Schedule G.” 153 T. C. 3, at p. 45, Footnote 31.

Note that AGP doesn’t have to compute patronage and nonpatronage income separately for DPAD purposes, because of the language of the statute, but that’s an outlier.

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