Comments on: Are cooperative patronage dividends subject to employment tax?

By: Jenny Kassan

Jenny Kassan — Tue, 22 Sep 2009 19:45:09 +0000

Yes, the co-op is actually required to report these allocations to the IRS and you are required to pay tax on them! If this is creating a hardship for the members of the co-op, you may want to discuss as an organization what percentage of patronage income should be paid out in cash versus allocations.

By: Lori Matthews

Lori Matthews — Tue, 22 Sep 2009 13:20:10 +0000

I was a worker/owner of a cooperative that declared patronage dividends for 2008. I’ve just received a letter indicating that they are reporting the dividends to the IRS and issuing a 1099-DIV form to me at the end of this year. However, they are not going to pay the dividends until a future date, currently undecided by the board. Is this legal? Can they report dividends they aren’t paying, and if so, must I pay taxes prior to receiving the dividends? Thank you.

By: Dmitriy Kustov, CPA

Dmitriy Kustov, CPA — Mon, 06 Jul 2009 18:39:54 +0000

Hopefully, the IRS will have a tough time arguing for the bonus treatment. Patronage dividends are similar to ownership draws in an S corporation setting. Because every member of a coop has strictly one share one vote, the profit participation is measured by the amount of business with of the member with the coop. Bonuses, on the other hand, are usually given based on special achievements (increased profits, discovery, commissions for new accounts, etc.), not simply on hours worked. It’s a good news, though, that they dropped the member side challenge.