The opinion
*1279 OPINION.
MoRRis:
The respondent in his answer admits that the proportion of the patronage dividends paid to stockholders during the fiscal year 1919 computed on the following basis is an allowable deduction for that year:
First compute the apparent net income of the corporation. From this amount deduct the fixed dividend paid or payable on any outstanding capital stock. The amount of such fixed dividend is the portion of net income properly attributable to the investment made in the corporation by the holders of any outstanding capital stock. The balance consists of (1) the amount available for refund to the members of the association and (2) the profits made from non-members. In the absence of evidence to the contrary it will be assumed that the dealings with members and non-members are equally profitable, and, accordingly, that the amount available for refund consists of that proportion of the apparent net profits, after deducting the fixed dividend on outstanding capital stock, which the amount of business transacted with members bears to the entire amount of business transacted. Up to the amount available for refund, thus computed, a distribution by a cooperative association to its members, upon the basis of the business transacted with them, will be deemed to be a true patronage dividend, deductible by the association in computing its taxable net income for the Federal income and profits tax purposes.
In view of that admission the only question left for our consideration is whether the 8 per cent fixed dividends on capital stock may be deducted in determining net income. In the Appeals of Sacred Heart Cooperative Mercantile Co., 2 B. T. A. 24, and Farmers Cooperative Assn., 5 B. T. A. 61, we held that such dividends are not deductible, and those decisions are controlling here.
Judgment will be entered on 15 days' notice, under Hule 50.
Lansdon not participating.