Credit Union and Cooperative Patronage Refunds - Filene ...

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income) on a patronage basis to members, maintain patronage records, or pay a cash refund. 24 Members pay income tax only upon the receipt of cash the Land Bank pays as cash refunds or to redeem allocated equity. Further, these co-ops are not subject to the unrelated business tax. Land Banks are closely regulated by the FCA. Regulations include direction about how farm credit associations distribute income and manage their capital. For example, the FCA regulates the capitalization provisions contained in Land Banks’ bylaws (12 CFR 615.5220), the distribution of earnings (12 CFR 615.5215), and the implementation of co-op principles by farm credit associations (12 CFR 615.5230). Credit Unions (26 U.S.C. 501(c)(14)) State credit unions are exempt from income taxation under 501(c) (14), while federal credit unions are exempt from income tax under 501(c)(1). Even though credit unions operate on co-op principles of democratic control and subordination of capital, they are not required to maintain records or apportion earnings individually from member business. At dissolution, federal credit unions distribute remaining funds on the basis of share ownership at the time of the dissolution. 25 The dissolution provisions of the statutes and law of the state in Credit union dissolutions are unlike dissolutions of other cooperatives in that the last credit union member standing benefits is chartered will govern its dis- which a 501(c)(14) credit union disproportionately to former members who have died or who solution and the distribution no longer have a share account. of remaining proceeds after all creditors and superior claims are paid. We have not reviewed the statutes of all 50 states, but it appears that based on a sampling of statutes from Iowa, Kentucky, North Dakota, and Wisconsin, state statutory requirements are likely to follow the federal scheme in 12 CFR 701.6. 26 Credit union dissolutions are unlike dissolutions of other cooperatives in that the last credit union member standing benefits disproportionately to former members who have died or who no longer have a share account. Credit unions report payments of dividends to holders of share accounts for payments in excess of $10 on form 1099-INT. Credit unions also report mortgage interest refunded with form 1098. 31
CHAPTER 5 Use of Patronage Refunds by Other Cooperatives In this chapter we compare and contrast Georgia- based AgGeorgia Farm Credit ACA and Wisconsin- based Badgerland Financial ACA. These associations illustrate widely differing views of patronage refund philosophies. Some argue that cooperatives pay out their dividends in better everyday rates. Others argue that the co-op should reward member- owners in a more measured, visible way.
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 and 32: The subject of this chapter is a th
Page 33 and 34: CHAPTER 4 Tax Differences between C
Page 35 and 36: Figure 2: Contrast Statutes Governi
Page 37 and 38: Patronage earnings that are allocat
Page 39: When rural electric cooperatives ar
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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