In a recent ruling, the Service addressed a telecom cooperative that divested its cellular business to focus on broadband services.
It had transacted business through a partnership that was partially owned by various consolidated subsidiaries. Through the years, it had failed to satisfy the member income test, so it was taxed as a cooperative corporation. It treated the operating income from the partnership as patronage-sourced income, presumably because the customers of the partnership were patrons of the cooperative.
With regard to the divestiture gain, the Service used similar language to prior rulings, indicating that the gain would be patronage-sourced income to the extent applicable to the patrons’ use of the partnerships’ services.
Accordingly, the portion of Taxpayer’s income that is allocable to Taxpayer’s patrons’ use of Consolidated Subsidiary A’s and Consolidated Subsidiary C’s networks is directly related to securing cellular service for Taxpayer’s patrons and is patronage sourced income, which may be excluded from Taxpayer’s income if properly allocated to Taxpayer’s patrons.