Rev. Rul. 61-47

Amounts distributed by a nonexempt cooperative association to its member-stockholders on the basis of man-hours worked by such stockholders for the cooperative association do not constitute true patronage dividends and, therefore, are not excludable from the gross income of the cooperative association for Federal income tax purposes. This is true even though a state law may provide that work performed as a member of a workers' cooperative shall be deemed to be patronage of the cooperative. The exclusion of true patronage dividends from the gross income of a cooperative association is based upon the fact that such patronage dividends represent either an additional consideration due the patron for goods sold through the association or a reduction in the purchase price of supplies or equipment purchased by the patron through the association. See Rev. Rul. 54-10, C.B. 1954-1, 24. Thus, the true patronage dividend is treated as a corrective and deferred price adjustment, which serves to reduce the amount of the cooperative association's gross profit from sales. See I.T. 3208, C.B. 1938-2, 127; and Rev. Rul. 57-59, C.B. 1957-1, 24.