Co-Operative Oil Ass'n v. COMMISSIONER OF INT. REVENUE, 9393.
| Decision Date | 23 January 1941 |
| Docket Number | No. 9393.,9393. |
| Citation | 115 F.2d 666 |
| Parties | CO-OPERATIVE OIL ASS'N, Inc., v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Ninth Circuit |
J. L. Eberle, of Boise, Idaho, and Walter Griffiths, of Caldwell, Idaho, for petitioner.
Samuel O. Clark, Jr., Asst. U. S. Atty. Gen., and Sewall Key and Lee A. Jackson, Sp. Assts. to Atty. Gen., for respondent.
Before WILBUR, HANEY, and HEALY, Circuit Judges.
The question presented by the petition to review a decision of the Board of Tax Appeals involves the right to deduct, as a liability to the members of a cooperative association, amounts earned but not distributed to such members.
Petitioner was incorporated in 1933 as a non-profit cooperative association under the laws of Idaho, and deals in petroleum products and auto supplies. Idaho Code Ann. § 22-2002, relating to such associations provides: "Associations organized hereunder shall be deemed non-profit, inasmuch as they are not organized to make profits for themselves, as such, or for their members, as such, but only for their members as producers."
Membership in the petitioner is limited to those engaged in the production of agriculture products and is conditioned upon the purchase of one share of common stock and the execution of a membership agreement. Petitioner's authorized capital stock is 5,000 shares of $1 par common stock and 3,000 shares of redeemable non-voting, nonparticipating 6% $5 par preferred stock. The articles of incorporation contain the following provision: "The net income of this corporation, except such amounts as by law are required to be set aside for reserve funds, or which may be set aside as reserve funds, by the Board of Directors or by vote of stockholders shall be distributed to the stockholding patrons of this corporation who have signed the corporation's purchasing agreement on the basis of their patronage and as shall be provided by the Board of Directors."
By virtue of that provision, it can be seen that the interest of a member in the earnings of petitioner is determined on the basis of "patronage" or amount of purchases.
Section 1, Article IX, of the by-laws is as follows: "Before distribution of patronage dividends herein provided for it shall be the duty of the board of directors, and they shall have the right to retain and accumulate out of the net earnings of the corporation such amounts as, in the judgment of said board of directors are necessary and proper to create a reserve or reserve funds necessary to provide working capital and the proper facilities for carrying on the business of the corporation."
Section 1, Article X, of such by-laws provides:
The membership agreement provided in part: "* * * before distribution of patronage dividends, it is the duty of the board of directors, and they shall retain and accumulate out of the net earnings of the corporation, such amounts as in their judgment are necessary and proper to create a reserve or reserve funds necessary to provide working capital, depreciation and other reserves and the proper facilities for carrying on the business of the corporation."
On May 1, 1934, petitioner sent to its members a circular...
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