California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 2.5 - Personal Income Tax (Taxable Years Beginning After 12-31-54) › Subchapter 3 - Computation of Taxable Income › Article 2 - Items Specifically Included in Gross Income › Section 17086 - Patronage Dividends

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
					 Election to Consider as Income. A taxpayer who receives noncash patronage
					 allocations (as defined in subsection (g)) may elect to include such patronage
					 allocations in gross income for the taxable year received. If a taxpayer elects
					 to include such noncash patronage allocations in gross income as received,
					 their face amount shall be reported as gross income. If, upon redemption of
					 noncash patronage allocations, the taxpayer does not and cannot recover the
					 full amount of the noncash patronage allocations previously reported, any loss
					 sustained may be deducted from gross income in the taxable year during which
					 the allocations are redeemed.
(b)
					 Election to Exclude from Gross Income. In lieu of reporting noncash patronage
					 allocations (as provided in subsection (a)), a taxpayer may elect to exclude
					 noncash patronage allocations (as defined in subsection (g)) from gross income
					 until redeemed or realized upon. In case noncash patronage allocations are
					 excluded from gross income, only the amount realized when redeemed is required
					 to be included in gross income. If such allocations bear interest, the interest
					 is not includible in gross income until the allocations are redeemed or
					 realized upon, unless prior to redemption interest thereon is paid in cash. For
					 the method of electing to exclude noncash patronage allocations, see subsection
					 (c).
(c) Elections. If a taxpayer
					 includes in his gross income for his first taxable year beginning after
					 December 31, 1956, any amount attributable to noncash patronage allocations, he
					 shall be deemed to have elected to include the face amount of such allocations
					 in gross income for such year and all subsequent taxable years. Furthermore, a
					 taxpayer shall be deemed to have elected to include all noncash patronage
					 allocations in gross income, if less than the face amount of such allocations
					 are reported, or if noncash allocations have been received from more than one
					 cooperative organization and allocations attributable to one or more
					 cooperatives were included in gross income.
A taxpayer shall be deemed to have elected to exclude
						noncash patronage allocations from gross income if he omits the amount of such
						allocations from gross income for the first taxable year beginning after
						December 31, 1956, during which any noncash patronage allocations are received.
						The amount of patronage allocations which are excluded must be disclosed in the
						return or by a written statement filed with the return. If such written
						statement has not previously been filed, it must be filed before a taxpayer
						will be permitted to exclude noncash patronage allocations from gross
						income.
The elections provided for by this subsection may be
						made, regardless of the taxpayer's method of accounting. Once an election has
						been made, it may be changed only with the consent of the Franchise Tax Board.
						Application for permission to change an election shall be filed within 90 days
						after the beginning of the taxable year to be covered by the
						return.
(d) Statute of
					 Limitations. Whenever a taxpayer has elected to exclude noncash patronage
					 allocations from gross income until such allocations are redeemed or realized
					 upon, the statutory period prescribed in Section
					 19057 for the assessment of any
					 deficiency attributable to amounts excluded will not expire prior to the
					 expiration of four years from the date the Franchise Tax Board is notified by
					 the taxpayer that such deferred allocations have been redeemed or realized
					 upon. Such deficiency may be assessed prior to the expiration of such four-year
					 period notwithstanding the provisions of any other law or rule of law which
					 might bar such assessment.
A taxpayer shall notify the Franchise Tax Board that
						deferred noncash patronage allocations have been realized or redeemed by
						including the amount of such allocations in gross income for the taxable year
						that such amounts are redeemed or realized upon.
(e) Records. A taxpayer electing to exclude
					 noncash patronage allocations from gross income for the year that such
					 allocations are made must maintain such records as are necessary to clearly
					 reflect income in accordance with this regulation and Section
					 17551 (relating to accounting
					 periods and methods of accounting under Subchapter E of Chapter 1 of Subtitle A
					 of the Internal Revenue Code).
(f)
					 Cross-reference. If a taxpayer who has elected to exclude patronage allocations
					 from gross income dies before noncash patronage allocations are redeemed or
					 realized upon, the amount realized, when redeemed, constitutes income in
					 respect of a decedent that is subject to tax in the manner and to the extent
					 provided for by Section
					 17731 (relating to rules
					 applicable to estates, trusts, beneficiaries, and decedents under Subchapter J
					 of Chapter 1 of Subtitle A of the Internal Revenue Code.).
(g) Noncash Patronage Allocations Defined.
					 For purposes of this regulation the term "noncash patronage allocations" means
					 amounts allocated on the basis of the business done with or for a patron by any
					 cooperative organization, other than cash or merchandise, evidenced by any
					 document which discloses the dollar amount of such allocations, such as capital
					 stock, revolving fund certificates, certificates of indebtedness, retain
					 certificates, or letters of advice.
1.
						Editorial renumbering and amendment of former Section
						17117.5 to Section
						17086 filed 4-17-85; effective
						thirtieth day thereafter (Register 85, No. 16). For prior history of Section
						17117.5, see Registers 81, No. 52
						and 64, No. 25.
2. Change without regulatory effect amending
						subsections (d)-(f) and NOTE filed 8-18-97 pursuant to section
						100, title 1, California Code of
						Regulations (Register 97, No. 34).
Note: Authority cited: Section
						  19503,
						  Revenue and Taxation Code. Reference: Section
						  17086,
						  Revenue and Taxation Code.