Rev. Rul. 65-241

Under the provisions of the Farm Credit Act of 1955, 12 U.S.C. 1134, farmers' cooperatives are required to own at least one share of class C stock in a bank for cooperatives in order to obtain a loan from such a bank. In addition to paying interest on loans obtained from such a bank, each borrower is required for each calendar quarter to purchase further class C stock of the bank in an amount not less than a specified percentage of the amount of interest payable on its loans during the calendar quarter. The percentage so required to be purchased is prescribed by the board of directors of each bank for cooperatives with the approval of the Farm Credit Administration and ranges from 10 to 25 percent of the interest payable on loans during the quarter. Borrowers also acquire class C stock as patronage dividends.

Class C stock is the only voting stock issued by banks for cooperatives. Holders of such stock are entitled to only one vote regardless of the number of shares held. Such stock does not bear interest nor yield dividends and it may be issued or transferred only to cooperatives eligible to borrow from banks for cooperatives. It may be redeemed only at par value.

Held , costs incurred by cooperatives in purchasing class C stock are not deductible either as a business expense under section 162 or as interest under section 163 of the Internal Revenue Code of 1954. Whether such stock will be considered a capital asset upon subsequent disposition by a farmers' cooperative will depend upon the facts in the particular case. See Rev. Rul. 58-40, C.B. 1958-1, 275.