PLR: Treatment of patronage dividends from financing cooperative

Treatment of patronage dividends

The IRS publicly released a private letter ruling* concluding that patronage dividends from a financing cooperative are included in the taxpayer’s gross income under section 1385, but are excluded from gross income for purposes of sections 856(c)(2) and (c)(3). PLR 201602003 (released January 8, 2016, and dated October 13, 2015)

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Read text of PLR 201602003 [PDF 52 KB]

The taxpayer elected to be treated as a real estate investment trust (REIT), and it receives annual patronage dividends from lenders that are subchapter T cooperatives. 

The IRS concluded that patronage dividends paid by a subchapter T cooperative are a return of earnings to its cooperative patrons based on the amount of business that the patron transacts with the cooperative. Furthermore, the IRS explained that patronage dividends paid by a subchapter T financing cooperative effectively reduce the costs that its patrons incur to borrow funds from the cooperative. In conclusion, it was noted that amounts paid by lenders as patronage dividends represent earnings that the cooperatives are able to refund to the taxpayer based on the average amounts that the taxpayer borrowed from the lenders during the prior year.


*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues. 


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

David Antoni | +1 (267) 256-1627 |


Or Associate National Director of KPMG’s Cooperative Tax Services:

Brett Huston | +1 (916) 554-1654 |

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