Credit Union and Cooperative Patronage Refunds - Filene ...

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section on the exemption from filing 1099-PATRs for “consumer” cooperatives. 19. 26 CFR 1.6044-4: “If 85 percent of its gross receipts for the preceding taxable year, or 85 percent of its aggregate gross receipts for the preceding three taxable years, are derived from the sale at retail of goods or services of a type which is generally for personal, living, or family use.” 20. Only the allocation of member- related patronage earnings is deductible under Sub-T. 21. National Rural Electric Cooperative Association and National Rural Utilities Cooperative Finance Corporation, Capital Credits Task Force Report, January 2005. 22. Treas. Reg. § 301.6044–2(b)(2)(iii). 23. Coop Litigation News Publishing, “Coop Litigation News.” coop-litigation.com. 24. Because each ACA operates a Credit Association subsidiary that is taxed under Subchapter T, and because Sub-T co-ops must allocate patronage- sourced income or maintain patronage records, each ACA can be expected to follow a similar recordkeeping process for its Land Bank subsidiary. 25. 12 CFR 701.6. 26. Examples include Iowa Code § 533.404, Kentucky Statutes 286.6-705, Wisconsin Code 186.18, and North Dakota 6-06.1-08. 27. www.aggeorgia.com; www.badgerlandfinancial.com. The financial information discussed in this report is taken from each association’s 2007, 2008, and 2009 fiscal year-end audits. 28. 12 CFR 615.5330. 29. 12 CFR 615.5301(b)(2)(ii). 30. See our earlier discussion at note 6. 31. See discussion above on Subchapter T. Key qualifications include (1) preexisting obligation in the bylaws, (2) board of directors declares patronage refund, (3) within 8½ months following fiscal year end, prepare and send qualified written notices of allocation and qualified payment constituting at least 20% of the allocation in cash, and (4) build out accounting program to allow tracking of each member’s allocated equity. 32. See note 18 about cooperatives that primarily provide goods or services for family, personal, or living needs. 33. It is not that all conversions of co-ops are ill conceived. Conversions or demutualizations of co-ops with large equity redemption obligations improve their financial metrics because they are no longer required to devote huge capital resources 67
to redemptions. Think Diamond Walnut Growers in California. On the other hand, one wonders who benefited from the OmniAmerican conversion other than management and institutional investors. 34. Wright-Patt Credit Union, Inc., “Dividend Calculation,” www.wpcu.coop/patronagedividend/ DividendCalculation.aspx (retrieved 4/27/2011). 68
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Credit Union and Cooperative Patron
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Copyright © 2011 by Filene Researc
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Acknowledgments We appreciate and a
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List of Figures 1. Average of 27 Cr
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What Are the Credit Union Implicati
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Introduction There are many ways in
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to us is a philosophical gulf betwe
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CHAPTER 1 Patronage Refunds Are Mor
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activities with their credit union
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members standing on the basis of ow
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epayment, and/or if the asset is on
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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 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: contrast, the 27 credit unions paid
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