The latest Cooperative Tax Brief discusses a recent technical advice memorandum concerning the Member Income Test for Telephone Cooperatives. The Service ruled that funds received by a telephone cooperative from two universal service funds were income to the cooperative, but were excluded from the Member Income Test of I.R.C. § 501(c)(12).
The telephone cooperative received a substantial amount of income from universal service funds because it served a very rural area. Because most of its income was derived from universal service funds, the treatment of such funds under the Member Income Test was extremely important to the cooperative. Fortunately, as expected, the Service ruled that such funds were excluded under a special exception for telephone cooperatives under the Member Income Test.