# § 1385. Amounts includible in patron’s gross income
**(a)** **General rule** Except as otherwise provided in subsection (b), each person shall include in gross income—
**(1)** the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a),
**(2)** any amount, described in section 1382 (c)(2)(A) (relating to certain nonpatronage distributions by tax-exempt farmers’ cooperatives), which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a)(1), and
**(3)** the amount of any per-unit retain allocation which is paid in qualified per-unit retain certificates and which is received by him during the taxable year from an organization described in section 1381(a).
**(b)** **Exclusion from gross income** Under regulations prescribed by the Secretary, the amount of any patronage dividend, and any amount received on the redemption, sale, or other disposition of a nonqualified written notice of allocation which was paid as a patronage dividend, shall not be included in gross income to the extent that such amount—
**(1)** is properly taken into account as an adjustment to basis of property, or
**(2)** is attributable to personal, living, or family items.
**(c)** **Treatment of certain nonqualified written notices of allocation and certain nonqualified per-unit retain certificates**
**(1)** **Application of subsection** This subsection shall apply to—
**(A)** any nonqualified written notice of allocation which—
**(i)** was paid as a patronage dividend, or
**(ii)** was paid by an organization described in section 1381(a)(1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c)(2)(A), and
**(B)** any nonqualified per-unit retain certificate which was paid as a per-unit retain allocation.
**(2)** **Basis; amount of gain** In the case of any nonqualified written notice of allocation or nonqualified per-unit retain certificate to which this subsection applies, for purposes of this chapter—
**(A)** the basis of such written notice of allocation or per-unit retain certificate in the hands of the patron to whom such written notice of allocation or per-unit retain certificate was paid shall be zero,
**(B)** the basis of such written notice of allocation or per-unit retain certificate which was acquired from a decedent shall be its basis in the hands of the decedent, and
**(C)** gain on the redemption, sale, or other disposition of such written notice of allocation or per-unit retain certificate by any person shall, to the extent that the stated dollar amount of such written notice of allocation or per-unit retain certificate exceeds its basis, be considered as ordinary income.
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**Source Credit**: (Added Pub. L. 87–834, § 17(a), Oct. 16, 1962, 76 Stat. 1048; amended Pub. L. 89–809, title II, § 211(b)(1)–(4), Nov. 13, 1966, 80 Stat. 1582; Pub. L. 94–455, title XIX, §§ 1901(b)(3)(I), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834.)
## Editorial Notes
### Amendments
1976—Subsec. (b). , struck out “or his delegate” after “Secretary”.
Subsec. (c)(2)(C). , substituted “ordinary income” for “gain from the sale or exchange of property which is not a capital asset”.
1966—Subsec. (a)(3). , added par. (3).
Subsec. (c). –(4), inserted “and certain nonqualified per-unit retain certificates” in heading, inserted provisions to par. (1) for the application of the subsection to any nonqualified per-unit retain certificates which were paid as per-unit retain allocations, and inserted references to per-unit retain certificates in par. (2).
## Statutory Notes and Related Subsidiaries
### Effective Date of 1976 Amendment
Amendment by effective for taxable years beginning after , see , set out as a note under .
### Effective Date of 1966 Amendment
Amendment by applicable to per-unit retain allocations made during taxable years of an organization described in (relating to organizations to which part I of subchapter T of chapter 1 applies) beginning after , with respect to products delivered during such years, see , set out as a note under .
### Effective Date
Section applicable, except as otherwise provided, to taxable years of organizations described in beginning after , see , set out as a note under .