TP has purchased stock in a bio diesel plant. He is receiving 1099 patronage from them. He is a farmer, but buying stock shouldn't make that taxable, should it? Is it a reduction in basis? Should I put on Sch F as dividend, but not taxable? I feel it should be listed somewhere.
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Patronage Dividends
This sounds like a cooperative to me. Patronage dividends are paid to member/shareholders of cooperatves based on purchases from the co-op. It sounds to me like the farmer is buying fuel from the co-op. Some co-ops (ie Southern States) have retail operations where anyone can walk in and purchase, but to be a "member" and participate in dividends you must buy stock. Some co-ops may issue additional shares based on purchases in lieu of cash. If this is indeed a co-op, then the dividends are taxable and reported on schedule F. This is assuming the purchases were for fuel used in the farm operation, and not for personal use. -
The taxability of this is if he is buying something he's taking a farm deduction for. It is a coop, but if he isn't buying anything from this coop, then it won't be taxable?Comment
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Patronage Dividends
By definition (Farmers Tax Guide), a patronage dividend is a refund. You must make purchases or sales to the co-op. to receive one. If you owned stock in a co-op but had no transactions, I suppose you could get a dividend, but it would be an ordinary dividend, not a patronage dividend. Either way, they are reportable as taxable income.
An additional thought. He could be selling grain to the co-op, in which case he would be getting PATR's, or per-unit retain certificates, either of which is reported as above.Comment
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