Credit Union and Cooperative Patronage Refunds - Filene ...

Patronage earnings that are allocated and distributed to patrons must
be “paid” within eight and one-half months of the cooperative’s fiscal
year end, the outside limit of the statutory time allotted to file the
cooperative tax return. At least 20% of this distribution must be paid
with cash or by qualified check.
The balance (up to 80%) of the allocation is distributed and “paid”
to patrons with qualified written notices of allocation (QNAs). 17
The written notice advises the
patron that a finite amount of
In Subchapter T cooperatives, a tax deduction is allowed to the patronage earnings (up to 80%
cooperative for patronage earnings that it allocates to patrons of allocated patronage earnings)
on the basis of their proportional patronage of the cooperative. was allocated on the cooperative’s
books to the patron on
the basis of the patron’s proportional
patronage of the cooperative. Patrons are required to consent
18 (most often contained in the bylaws, but consent can also be
obtained by endorsement of a qualified check or separate agreement)
to report these earnings on their tax returns.
Sub-T co-ops report payments to patrons who receive a distribution
of patronage earnings in cash and QNAs of $10 or more on form
1099-PATR. Consumers do not pay income tax if the transactions
from which the patronage income arose were for personal, living,
or family expenditures that were not tax deductible. In fact, some
consumer cooperatives may apply for and receive an exemption from
filing 1099-PATRs. 19 If, however, the member’s transaction with the
cooperative produces taxable income or a tax deduction, the income
reported on a 1099-PATR must be reported on the member or
patron’s tax return as well.
Sub-T cooperatives are not required to redeem allocated equities.
Case law from across the United States upholds the authority of a
board of directors to determine for itself, at its sole discretion, when
to redeem allocated equities. Some of these cases, however, also
intimate that the board cannot just retain surplus working capital
without redeeming allocated equity. This is consistent with the view
that cooperatives do not exist to hoard capital.
Sub-T cooperatives are required to maintain patronage records so
that in the event of dissolution of the cooperative, the remaining
proceeds can be distributed on the basis of historical patronage.
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