DEPARTMENT OF AGRICULTURE


and about half of the agricultural cooperative associa-
tions have elected to proceed on a nonexempt basis. Many
of these associations are engaged in the distribution
among their members of any small earnings that are
made on non-member business. If an association is not
eligible for exemption from the payment of federal in-
come taxes, it will still be desirable to organize such an
association so that it will be under a firm obligation to
account to each of its members for all amounts received
on account of business done with or for him, over and
above his share of the operating and maintenance costs
and expenses of the association. Of course, the associa-
tion should be obligated to account either in cash or in
some other appropriate way.

PATRONAGE REFUNDS NOT ALWAYS
DEDUCTIBLE:

 "Many persons have assumed that so-called patronage
refunds or dividends may always be deducted or ex-
cluded by any corporation in computing its income taxes.
This is a false assumption. The Tax Court of the United
States in at least two cases, one of which was affirmed
by the Circuit Court of Appeals for the Ninth Circuit,
has made it clear that patronage refunds or dividends
may be excluded or deducted in computing the income
taxes of a nonexempt association only when the associa-
tion is under a firm, mandatory obligation to account to
its members or patrons for such patronage refunds or
dividends. Its board of directors must have no discre-
tion relative to the payment of such refunds, or divi-
dends. In the case of the American Box Shook Export
Association, the association had actually paid in cash
nearly $8,000 as patronage refunds ,which the Tax Court
held that it could not exclude in computing its income
taxes because it has not been paid out in pursuance of
a firm obligation to make the disbursement. In affirming
this decision the Circuit Court of Appeals said: