The Use of Non-Qualified Distributions by Agricultural Cooperatives

Agricultural cooperatives have traditionally used qualified distributions when distributing retained patronage refunds. In a qualified distribution, the retained equity is taxable income to the patron and deductible from the taxable income of the cooperative in the year of distribution.

Recently, many cooperatives have switched to using a non-qualified distribution for their retained patronage refund. In a non-qualified distribution, the retained equity is taxable income for the patron and deductible to the cooperative when it is redeemed for cash. The cooperative still eventually deducts the distribution, preserving the single taxation characteristic of the co-op business model. The timing of the tax deduction is delayed until the equity is redeemed.

There are significant advantages and disadvantages of each form of income distribution, but non-qualified distributions are gaining in popularity for several reasons. They include the positive perception of member-patrons and the ability to allocate patronage income while also capturing the benefits of Section 199 (DPAD). The objective of this webinar is to show why non-qualified distributions are more popular and why many member-patrons prefer non-qualified distributions. We will also show how a cooperative can transition to this approach while maintaining balance sheet and cash flow neutrality at the co-op level. Topics covered include:

*Understanding qualified versus non-qualified distributions and common myths about non-qualified.

*Demonstration of after-tax cash flow impacts and members’ return.

*How cooperatives can effectively transition to non-qualified distributions while protecting the co-op and pleasing patrons.

  David Barton, Professor and Director Emeritus, Arthur Capper Cooperative Center, Kansas State University; Michael Boland, E. Fred Koller Professor in Agribusiness Management, University of Minnesota; Jim Magnuson, CEO, and Mike Thomas, CFO, Key Cooperative, Roland,  Iowa

Moderator:  Phil Kenkel, Bill Fitzwater Cooperative Chair, Oklahoma State University

Webinar link:       (enter as guest)


Participants who pre-register by contacting  will receive a copy of the presentation material and discussion summary.


Sponsors:  CoBank, State Cooperative Councils, Cooperatives Community of Practice on eXtension, USDA Rural Development Cooperative Programs


Phil Kenkel

Created by Wendi Mizer Stachler

Primary Audience: Not Set