Page 744

TITLE 26-INTERNAL REVENUE CODE (1) for the application of the subsection to any non- qualified per-unit retain certificates which were paid as per-unit retain allocations, and inserted references to per-unit retain certificates in par, (2). EFFECrIVE DATE OF 1976 AMENDMENT Amendment of subsec. (c)(2)(C) by section 1901(b)(3 (I of Pub. L. 94-455 effective for taxable years bej: ning after Dec. 31, 1976, see section 1901(d) of Pub. L. 04-455, set out as an Effective Date of 1976 Amendrnenr note under section 2 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Amendment by section 211 of Pub. L. 89-809 applica- ble to per-unit retain allocations made during taxable years of an organization described in section 1381(a) of this title (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after Apr. 30, 1966, with respect to products delivered during such years, see section 211(e)(1) of Pub. L. 89- 809, set out as an Effective Date of 1966 Amendment note under section 1382 of this title. EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as an Effective Date note under section 1381 of this title. SECTION REFERRED TO IN OTHER SECTIONS This section is referred to in section 1388 of this title. PART III-DEFINITIONS; SPECIAL RULES Sec. 1388. Definitions; special rules. AmENDmENTS 1962-Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1049, added the heading of Part III and item 1388. § 1388. Definitions; special rules (a) Patronage dividend For purposes of this subehapter, the term "patronage dividend" means an amount paid to a patron by an organization to which part I of this subchapter applies- (1) on the basis of quantity or value of busi- ness done with or for such patron, (2) under an obligation of such organization to pay such amount, which obligation existed before the organization reccived the amount so paid, and (3) which is determined by reference to the net earnings of the organization from busi- ness 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. (b) Written notice of allocation For purposes of this subchapter, the term "written notice of allocation" means any capital stock, revolving fund certificate, retain certifi- cate, certificate of indebtedness, letter of advice, or other written notice, which discloses to the recipient the stated dollar amount allo- cated to him by the organization and the por- tion thereof, if any, which constitutes a patron- age dividend. (c) Qualified written notice of allocation (1) Defined For purposes of this subchapter, the term "qualified written notice of allocation" means- (A) a written notice of allocation which may be redeemed in cash at its stated dollar amount at any time within a period begin- ning on the date such written notice of allo- cation is paid and ending not earlier than 90 days from such date, but only if the distri- butee receives written notice of the right of redemption at the time he receives such written notice of allocation; and (B) a written notice of allocation which the distributee has consented, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385(a). Such term does not include any written notice of allocation which is paid as part of a patronage dividend or as part of a payment described in section 1382(c)(2)(A), unless 20 percent or more of the amount of such pa- tronage dividend, or such payment, is paid in money or by qualified check. (2) Manner of obtaining consent A distributee shall consent to take a written notice of allocation into account as provided in paragraph (1)(B) only by- (A) making such consent in writing, (B) obtaining or retaining membership in the organization after- (I) such organization has adopted (after October 16, 1962) a bylaw providing that membership in the organization consti- tutes such consent, and (ii) he has received a written notifica- tion and copy of such bylaw, or (C) if neither subparagraph (A) nor (B) applies, endorsing and cashing a qualified check, paid as a part of the patronage divi- dend or payment of which such written notice of allocation is also a part, on or before the 90th day after the close of the payment period for the taxable year of the organization for which such patronage divi- dend or payment is paid. (3) Period for which consent is effective (A) General rule Except as provided in subparagraph (B)- (i) a consent described in paragraph (2) (A) shall be a consent with respect to all patronage of the distributee with the or- ganization occurring (determined with the application of section 1382(e)) during the taxable year of the organization during which such consent is made and all subse- quent taxable years of the organization; and (ii) a consent described in paragraph (2) (B) shall be a consent with respect to all patronage of the distributee with the or- ganization occurring (determined without the application of section 1382(e)) after he received the notification and copy de- scribed in paragraph (2)(B)(ii). § 1388 Page 744