Section of Taxation Publications
  VOL. 53
NO. 4
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Gains and Losses Realized by Nonexempt Agricultural Cooperative on the Disposition of Stock in Three Corporations and Section 1231 Property Were Classified as Patronage Income: Farmland Industries, Inc. v. Commissioner

Alexander Y. Kymn


In Farmland Industries, Inc. v. Commissioner, the Tax Court confronted the issue of classifying gains and losses realized by a nonexempt agricultural cooperative from sales of stock and section 1231(b) property as either patronage or nonpatronage items. Finding that each transaction directly related to the activities of the cooperative, the court classified the gains and losses as patronage items. In so holding, the court rejected a per se rule that would automatically classify capital gain as nonpatronage income.

Part I of this Note describes the test used to distinguish patronage from nonpatronage items and outlines the facts of Farmland. Part II discusses the opinion of the Tax Court. Part III analyzes the court’s rejection of the per se rule and examines the implications of Farmland for patronage income derived from stock sales.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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