IRS letter ruling: Cooperative’s distribution of lawsuit settlement proceeds

IRS letter ruling: Distribution of lawsuit settlement

The IRS publicly issued a private letter ruling concluding the proceeds that a cooperative received in settlement of a lawsuit filed against a supplier constitute patronage-sourced income. The IRS approved the cooperative’s plan for allocation of the lawsuit settlement proceeds as patronage dividends. PLR 201545001 (released November 6, 2015, and dated August 3, 2015)

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Read text of PLR 201545001 [PDF 67 KB]

The taxpayer, a wholesale distributor of grocery products, operated on a cooperative basis and provided grocery products to retail grocery operators. The taxpayer’s business was almost exclusively with its cooperative members, and the taxpayer annually distributed its patronage earnings to its members / patrons. The taxpayer filed a lawsuit against one of its suppliers. Later, the taxpayer entered into agreements to settle the lawsuit. The taxpayer proposed to allocate a portion of the settlement proceeds to the general patronage pool and the remainder allocated to patrons. The IRS approved this plan of allocation.

 

For more information, contact KPMG’s National Director of Cooperative Tax Services:

David Antoni | +1 (267) 256-1627 | dantoni@kpmg.com

 

Or Associate National Director of KPMG’s Cooperative Tax Services

Brett Huston | +1 (916) 554-1654 | bhuston@kpmg.com

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