Credit Union and Cooperative Patronage Refunds - Filene ...

contrast, the 27 credit unions paid a cash patronage refund that
was 1.62% of their average equity over the years 2008, 2009,
and 2010. An IOF dividend is taxable income to the recipient,
whereas a co-op’s cash patronage refund is not taxable income
to the recipient if the refund is paid from transactions that were
not themselves deductible from or includable in income. But
recall too that the credit union’s earnings belong to the members,
not the credit union, and it would be unnatural for the
earnings to be exposed to income tax at a level other than at the
member level.
11. Wright-Patt Credit Union, Inc., “Wright-Patt Credit Union
Saved Members $26 Million in 2009 Says Credit Union
National Association,” wright4youmortgage.com/news/
10-04-21/Wright-Patt_Credit_Union_Saved_Members_
26_Million_in_2009_Says_Credit_Union_National_
Association.aspx.
12. Cooperatives are considered to be the ultimate self-help organization
in the United States and around the world. In fact,
since 1995, the United Nations General Assembly has annually
recognized “International Day of Cooperatives,” a day that
reaffirms and celebrates the role of cooperatives in economic,
social, and cultural development. Each annual celebration has
a theme; in 2010 it was “Cooperative Enterprise Empowers
Women.”
13. We do not distinguish among members, the board of directors,
and management. Each stakeholder group is as prone to wrong
decisions as the others.
14. Federal credit unions are tax exempt under 501(c)(1) as well.
Both Land Banks and federal credit unions are chartered by the
federal government.
15. Nonpatronage earnings do not arise from business done with
or for patrons. For the balance of this section on Subchapter T,
we will discuss these tax features as though the cooperative
generated only patronage- sourced income.
16. Union Cooperative Exchange v. Commissioner of Internal
Revenue, 58 T.C. 427 (U.S. Tax Court 1969).
17. Nonqualified written notices of allocation (NQNAs) are also
used to distribute and “pay” the patronage earnings to patrons.
The cooperative pays income tax on the NQNAs initially. If
and when NQNAs are redeemed (no later than at dissolution,
if not sooner), the patron pays income tax and the cooperative
receives a tax benefit equal to the tax it paid earlier. In this way,
single taxation is preserved.
18. Patronage earnings from transactions relating to personal,
living, or family purposes are not taxable. More later in this
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