TAX TREATMENT OF PER-UNIT RETAIN ALLOCATIONS.

SEC. 211. TAX TREATMENT OF PER-UNIT RETAIN ALLOCATIONS. (a) Tax Treatment of Cooperatives.— (1) Section 1382(a) (relating to gross income of cooperatives) is amended by striking out the period at the end thereof and inserting “or by reason of any amount paid to a patron as a per-unit retain allocation (as defined in section 1388(f)).” (2) Section 1382(b) is amended— (A) by striking out “(b) Patronage Dividends.—” and inserting in lieu thereof “(b) Patronage Dividends and Per-Unit Retain Allocations.—”, (B) by striking out “or” at the end of paragraph (1), 80 Stat. 1581 (C) by striking out the period at the end of paragraph (2) and inserting a semicolon in lieu thereof, (D) by striking out the sentence following paragraph (2) and inserting in lieu thereof the following: “(3) as per-unit retain allocations, to the extent paid in qualified per-unit retain certificates (as defined in section 1388(h)) with respect to marketing occurring during such taxable year; or “(4) in money or other property (except per-unit retain certificates) in redemption of a nonqualified per-unit retain certificate which was paid as a per-unit retain allocation during the payment period for the taxable year during which the marketing occurred. For purposes of this title, any amount not taken into account under the preceding sentence shall, in the case of an amount described in paragraph (1) or (2), be treated in the same manner as an item of gross income and as a deduction therefrom, and in the case of an amount described in paragraph (3) or (4), be treated as a deduction in arriving at gross income.” (3) Section 1382(e) is amended to read as follows: “(e) Products Marketed Under Pooling Arrangements.— For purposes of subsection (b), in the case of a pooling arrangement for the marketing of products— “(1) the patronage shall (to the extent provided in regulations prescribed by the Secretary or his delegate) be treated as patronage occurring during the taxable year in which the pool closes, and “(2) the marketing of products shall be treated as occurring during any of the taxable years in which the pool is open.” (4) Section 1382(f) is amended by striking out “subsection (b)” and inserting in lieu thereof “paragraphs (1) and (2) of subsection (b)”. (5) The heading for section 1383 is amended by striking out the period at the end thereof and inserting “OR NONQUALIFIED PER-UNIT RETAIN CERTIFICATES.” (6) Section 1383(a) is amended— (A) by striking out “section 1382(b)(2)” and inserting in lieu thereof “section 1382(b)(2) or (4),”, (B) by striking out “nonqualified written notices of allocation” each place it appears and inserting in lieu thereof “non-qualified written notices of allocation or nonqualified per-unit retain certificates”, and (C) by striking out “qualified written notices of allocation” and inserting in lieu thereof “qualified written notices of allocation or qualified per-unit retain certificates (as the case may be)”. (7) Section 1383 (b)(2) is amended— (A) by striking out “nonqualified written notice of allocation” and inserting in lieu thereof “nonqualified written notice of allocation or nonqualified per-unit retain certificate”, (B) by striking out “qualified written notice of allocation” and inserting in lieu thereof “qualified written notice of allocation or qualified per-unit retain certificate (as the case may be)”, (C) by striking out “such written notice of allocation” and inserting in lieu thereof “such written notice of allocation or per-unit retain certificate”, and (D) by striking out “section 1382(b)(2)” and inserting in lieu thereof “section 1382(b)(2) or (4),”. 80 Stat. 1582 (8) The table of sections for part I of subchapter T of chapter 1 is amended by striking out— “Sec. 1383. Computation of tax where cooperative redeems non-qualified written notices of allocation.” and inserting in lieu thereof— “Sec. 1383. Computation of tax where cooperative redeems non-qualified written notices of allocation or nonqualified per-unit retain certificates.” (b) Tax Treatment by Patrons.— (1) Section 1385(a) is amended by striking out “and” at the end of paragraph (1), by striking out the period at the end of paragraph (2) and inserting in lieu thereof “, and”, and by adding at the end thereof the following new paragraph: “(3) the amount of any per-unit retain allocation which is paid in qualified per-unit retain certificates and which is received by him during the taxable year from an organization described in section 1381(a).” (2) The heading for section 1385(c) is amended by striking out “Allocation” and inserting in lieu thereof “Allocation and Certain Nonqualified Per-Unit Retain Certificates”. (3) Section 1385(c)(1) is amended to read as follows: “(1) Application of subsection.— This subsection shall apply “(A) any nonqualified written notice of allocation which— “(i) was paid as a patronage dividend, or “(ii) was paid by an organization described in section 1381 (a)(1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c)(2)(A),and “(B) any nonqualified per-unit retain certificate which was paid as a per-unit retain allocation.” (4) Section 1385(c)(2) is amended— (A) by striking out “nonqualified written notice of allocation” and inserting in lieu thereof “nonqualified written notice of allocation or nonqualified per-unit retain certificate”, and (B) by striking out “such written notice of allocation” each place it appears and inserting in lieu thereof “such written notice of allocation or per-unit retain certificate”. (5) The table of parts for subchapter T of chapter 1 is amended by striking out— “Part II. Tax treatment by patrons of patronage dividends.” and inserting in lieu thereof— “Part II. Tax treatment by patrons of patronage dividends and per-unit retain allocations.” (c) Definitions.— (1) (A) Section 1388(e)(1) is amended by striking out “allocation)” and inserting in lieu thereof “allocation or a per-unit retain certificate)”. (B) Section 1388(e)(2) is amended by striking out “allocation” and inserting in lieu thereof “allocation or qualified per-unit retain certificate”. (2) Section 1388 is amended by adding at the end thereof the following new subsections: “(f) Per-Unit Retain Allocation.— For purposes of this subchapter, the term ‘per-unit retain allocation’ means any allocation, by an organization to which part I of this subchapter applies, other than 80 Stat. 1583by payment in money or other property (except per-unit retain certificates) to a patron with respect to products marketed for him, the amount of which is fixed without reference to the net earnings of the organization pursuant to an agreement between the organization and the patron. “(g) Per-Unit Retain Certificate.— For purposes of this subchapter, the term ‘per-unit retain certificate’ means any written notice which discloses to the recipient the stated dollar amount of a per-unit retain allocation to him by the organization. “(h) Qualified Per-Unit Retain Certificate.— “(1) Defined.—For purposes of this subchapter, the term ‘qualified per-unit retain certificate’ means any per-unit retain certificate which the distributee has agreed, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385 (a). “(2) Manner of obtaining agreement.— A distributee shall agree to take a per-unit retain certificate into account as provided in paragraph (1) only by— “(A) making such agreement in writing, or “(B) obtaining or retaining membership in the organization after— “(i) such organization has adopted (after the date of the enactment of this subsection) a bylaw providing that membership in the organization constitutes such agreement, and “(ii) he has received a written notification and copy of such bylaw. “(3) Period for which agreement is effective.— “(A) General rule.— Except as provided in subparagraph (B)— “(i) an agreement described in paragraph (2)(A) shall be an agreement with respect to all products delivered by the distributee to the organization during the taxable year of the organization during which such agreement is made and all subsequent taxable years of the organization; and “(ii) an agreement described in paragraph (2)(B) shall be an agreement with respect to all products delivered by the distributee to the organization after he received the notification and copy described in paragraph (2)(B)(ii). “(B) Revocation, etc.— “(i) Any agreement described in paragraph (2)(A) may be revoked (in writing) by the distributee at any time. Any such revocation shall be effective with respect to products delivered by the distributee on or after the first day of the first taxable year of the organization beginning after the revocation is filed with the organization; except that in the case of a pooling arrangement described in section 1382(e) a revocation made by a distributee shall not be effective as to any products which were delivered to the organization by the distributee before such revocation. “(ii) Any agreement described in paragraph (2)(B) shall not be effective with respect to any products delivered after the distributee ceases to be a member of the organization or after the bylaws of the organization cease to contain the provision described in paragraph (2)(B)(i). 80 Stat. 1584 “(i) Nonqualified Per-Unit Retain Certificate.— For purposes of this subchapter, the term ‘nonqualified per-unit retain certificate’ means a per-unit retain certificate which is not described in subsection (h).” (d) Information Reporting.— (1) Amounts subject to reporting.— Section 6044(b)(1) is amended by striking out “and” at the end of subparagraph (B), by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, and”, and by adding after subparagraph (C) the following new subparagraphs: “(D) the amount of any per-unit retain allocation (as defined in section 1388(f)) which is paid in qualified per-unit retain certificates (as defined in section 1388(h)), and “(E) any amount described in section 1382 (b)(4) (relating to redemption of nonqualified per-unit retain certificates).” (2) Determination of amount paid.— (A) Section 6044(d)(1) is amended by striking out “allocation)” and inserting in lieu thereof “allocation or a qualified per-unit retain certificate)”. (B) Section 6044(d)(2) is amended by striking out “allocation” and inserting in lieu thereof “allocation or a qualified per-unit retain certificate”. (e) Effective Dates.— (1) The amendments made by subsections (a), (b), and (c) shall apply to per-unit retain allocations made during taxable years of an organization described in section 1381(a) (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after April 30, 1966, with respect to products delivered during such years. (2) The amendments made by subsection (d) shall apply with respect to calendar years after 1966. (f) Transition Rule.— (1) Except as provided in paragraph (2), a written agreement between a patron and a cooperative association— (A) which clearly provides that the patron agrees to treat the stated dollar amounts of all per-unit retain certificates issued to him by the association as representing cash distributions which he has, of his own choice, reinvested in the cooperative association, (B) which is revocable by the patron at any time after the close of the taxable year in which it was made, (C) which was entered into after October 14, 1965, and before the date of the enactment of this Act, and (D) which is in effect on the date of the enactment of this Act, and with respect to which a written notice of revocation has not been furnished to the cooperative association, shall be effective (for the period prescribed in the agreement) for purposes of section 1388(h) of the Internal Revenue Code of 1954 as if entered into, pursuant to such section, after the date of the enactment of this Act. (2) An agreement described in paragraphs (1)(A) and (C) which was included in a by-law of the cooperative association and which is in effect on the date of the enactment of this Act shall be effective for purposes of section 1388(h) of such Code only for taxable years of the association beginning before May 1, 1967.