Credit Union and Cooperative Patronage Refunds - Filene ...

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Equity redemption policies are adopted by the board of directors minimally to maintain an alignment between each member’s equity capitalization and his or her use of the cooperative. The board of directors is not required to redeem any allocated equity. Case law generally supports the board’s discretion to redeem allocated equity, but it also appears that courts are inclined to order redemptions if they conclude that the co-op had surplus working capital that it did not need. Redemption policies include the redemption of allocated equities when a member or former member dies. For more successful cooperatives, the redemption of allocated equities occurs when a member reaches a certain age (e.g., age 70) or by year of allocation (e.g., in 2011, the co-op redeems equities that were allocated in 1990). Some boards of directors adopt base capital plans that tie the amount of allocated equity to the member’s use of the cooperative. When the member’s use increases, the member’s base capital requirement also increases, and more of that member’s patronage distribution is retained, or redemptions to that member are slowed to build up the member’s base capital. Some bo ards of directors adopt base capital plans that tie the amount of allocated equity to the member’s use of the cooperative. When the member’s use increases, the member’s base capital requirement also increases, and more of that member’s patronage distribution is retained, or redemptions to that member are slowed to build up the member’s base capital. When the member’s use of the cooperative decreases and thus less base capital is required, then retained earnings are reduced or redemptions of allocated equity are increased to reduce the member’s level of base capital. So far we have discussed patronage refunds in the abstract. Next we will drill down into the tax mechanics of patronage refunds. 23
CHAPTER 4 Tax Differences between Cooperatives Governed by different statutes, credit unions and other cooperatives operate under a mix of tax obligations. The distribution and accounting of patronage dividends is a key component affecting the corporate tax liability of cooperatives.
Page 1 and 2: Credit Union and Cooperative Patron
Page 3 and 4: Copyright © 2011 by Filene Researc
Page 5 and 6: Acknowledgments We appreciate and a
Page 7 and 8: List of Figures 1. Average of 27 Cr
Page 9 and 10: What Are the Credit Union Implicati
Page 11 and 12: Introduction There are many ways in
Page 13 and 14: to us is a philosophical gulf betwe
Page 15 and 16: CHAPTER 1 Patronage Refunds Are Mor
Page 17 and 18: activities with their credit union
Page 19 and 20: members standing on the basis of ow
Page 21 and 22: epayment, and/or if the asset is on
Page 23 and 24: If the co-op’s earnings are not d
Page 25 and 26: principles. When we discuss other c
Page 27 and 28: A recent post to the Filene Researc
Page 29 and 30: Our response to the blog post quest
Page 31: The subject of this chapter is a th
Page 35 and 36: Figure 2: Contrast Statutes Governi
Page 37 and 38: Patronage earnings that are allocat
Page 39 and 40: When rural electric cooperatives ar
Page 41 and 42: CHAPTER 5 Use of Patronage Refunds
Page 43 and 44: Figure 4: Present Value of Patronag
Page 45 and 46: y row 9). All in all, this is a ver
Page 47 and 48: Badgerland, all of this association
Page 49 and 50: AgGeorgia’s members probably expe
Page 51 and 52: All three credit unions use their p
Page 53 and 54: The capital accumulated through ear
Page 55 and 56: As we visited with Hanson, it was d
Page 57 and 58: on share deposits is not a patronag
Page 59 and 60: Patronage Refunds: A Differentiator
Page 61 and 62: Figure 6: Potential Tax Effects of
Page 63 and 64: ather than later, particularly if t
Page 65 and 66: of the cooperative were deducting t
Page 67 and 68: Patronage Refunds and Capital M ana
Page 69 and 70: Appendix Exhibit A: 2007 Newsletter
Page 71 and 72: Due to careful planning and prudent
Page 73 and 74: Think of how much more you, and oth
Page 75 and 76: contrast, the 27 credit unions paid
Page 77 and 78: to redemptions. Think Diamond Walnu

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