Patronage dividend
A patronage dividend, for federal tax purposes, is an amount paid to a patron by a cooperative on the basis of business done with the patron, under a pre-existing obligation, and determined by reference to net earnings from that business.
This is a federal tax term from 26 U.S.C. 1388(a). It means an amount paid to a patron by an organization to which Subchapter T, part I applies (1) on the basis of the quantity or value of business done with or for that patron, (2) under an obligation existing before the organization received the amount paid, and (3) determined by reference to net earnings from business done with or for patrons. It excludes amounts from nonpatronage earnings and, to the extent specified in the statute, earnings from substantially identical transactions with other patrons who receive nothing or smaller payments C5, 1388(a).
It is not a chapter 308B term. Chapter 308B speaks of distributions of net income on the basis of patronage § 308B.725 P1. Whether a particular payment is a patronage dividend for tax purposes is a question for a tax adviser. See Understand cooperative tax basics.
Statute sections referenced
- § 308B.725 ALLOCATIONS AND DISTRIBUTIONS TO PATRON MEMBERS.
Related
Sources
- C5 26 USC 1388 — Definitions; special rules (2024 edition), U.S. Government Publishing Office / Congress. govinfo.gov (primary; accessed October 16, 2026)
- P1 Minnesota Statutes, Chapter 308B (Cooperative Associations), Office of the Revisor of Statutes, State of Minnesota. revisor.mn.gov (primary; accessed October 15, 2026)