Credit Union and Cooperative Patronage Refunds - Filene ...

Endnotes
1. Based on call reports from the NCUA website for the years
2008, 2009, and 2010.
2. Nonrecurring tax- deductible rebates are allowed only in the tax
year that the rebate is paid. Recurring rebates are deductible in
the year that the liability is fixed and determinable. Regs. Secs.
1.461-5(b)(1)(ii), (b)(1)(iii), and (b)(3).
3. A point that should please capitalists and socialists alike but not
communists.
4. Obviously, to attract capital, the cooperative must pay a reasonable
rate of return to third parties for the use of equity as in
preferred stock or debt as in subordinated debentures.
5. This is a point of disagreement with several academics in the
co-op community with whom we are familiar. It’s not clear to
us exactly why these academics resist the idea that a co-op’s
financial metrics may not reasonably allow it to allocate all
patronage earnings and redeem all the allocated equity while
it is simultaneously maintaining, building, and capitalizing its
business. Our sense is that it conflicts so violently with their
progressive point of view. One cannot help conclude that these
academics would argue that if a co-op allocates the income,
then surely it can redeem the equity. We know of nothing in a
co-op’s DNA that allows that indulgence.
6. In co-op tax-speak, apportionment is different from allocation.
Apportionment is to assign earnings and equity to members on
the co-op’s books without notification to the member. Allocation
is apportionment plus notification to the member, and
under Subchapter T, allocation also carries with it the vesting
of the equity in each member to whom patronage earnings are
distributed with allocated equity.
7. Revenue Revisions, 1947–1948: Hearings Before the Comm. on
Ways and Means, 80th Cong., pt. 4, at 3136 (1948).
8. Some bylaws call for the distribution of all or part of the
remaining proceeds to nonprofit or tax- exempt organizations
as a way of honoring a commitment to the cooperative form of
business organization.
9. Co-ops are democratically controlled on a one member–one
vote basis. Older members have bigger voices because they are
respected, and they are respected if they have lots of allocated
equity because they have loyally supported the co-op over the
years.
10. Financial firms in the S&P 500 paid an annual dividend of
1.1% of capital in 2010 and 1.4% through March 31, 2011. In
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