Patronage Dividend Law and Legal Definition
According to 26 USCS § 1388 [Title 26. Internal Revenue Code; Subtitle A. Income Taxes; Chapter 1. Normal Taxes And Surtaxes; Subchapter T. Cooperatives And Their Patrons; Part III. Definitions; Special Rules], the term "patronage dividend" means "an amount paid to a patron by an organization to which part I of this subchapter [26 USCS § § 1381 et seq.] applies--
(1) on the basis of quantity or value of business done with or for such patron,
(2) under an obligation of such organization to pay such amount, which obligation existed before the organization received the amount so paid, and
(3) which is determined by reference to the net earnings of the organization from business done with or for its patrons.
Such term does not include any amount paid to a patron to the extent that (A) such amount is out of earnings other than from business done with or for patrons, or (B) such amount is out of earnings from business done with or for other patrons to whom no amounts are paid, or to whom smaller amounts are paid, with respect to substantially identical transactions. For purposes of paragraph (3), net earnings shall not be reduced by amounts paid during the year as dividends on capital stock or other proprietary capital interests of the organization to the extent that the articles of incorporation or bylaws of such organization or other contract with patrons provide that such dividends are in addition to amounts otherwise payable to patrons which are derived from business done with or for patrons during the taxable year."