Rev. Rul. 59-322

Advice has been requested concerning the time within which allocations of patronage dividends made after the close of the taxable year must be made in order to be excluded from the gross income of a nonexempt cooperative for such taxable year.

While the statute, section 522 of the Internal Revenue Code of 1954, in the case of exempt farmers' cooperative associations provides a period of eight and one-half months following the close of the taxable year for the making of allocations and notifications to patrons of patronage dividends, no such statutory rules are provided in the case of nonexempt cooperatives.

It is the position of the Internal Revenue Service that allocations and notifications of patronage dividends, made pursuant to a pre-existing obligation by a nonexempt cooperative after the close of the taxable year in which such patronage occurred, will be considered as made before the end of such taxable year if made on or before the due date for filing the Federal income tax return (including any extension of time) for the year in which such patronage occurred. Accordingly, such patronage dividends will be excluded from the income of the cooperative for that year.

However, in order to alleviate hardship resulting because of apparent widespread uncertainty as to the rules which should be followed, it is held that for taxable years ending prior to January 1, 1960, allocations and notifications of patronage dividends made pursuant to a pre-existing obligation by nonexempt cooperatives within a period ending eight and one-half months after the close of the taxable year in which the patronage occurred (the same period allowed by statute in the case of exempt farmers' cooperatives) will be considered as made before the end of such taxable year.

¹ Based on Technical Information Release 175, dated September 16, 1959.