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PLR: Telephone cooperative’s gain on sale of shares is patronage-sourced income

PLR: Telephone cooperative’s gain on sale of shares

The IRS today publicly released a private letter ruling* in which the IRS concluded that gain realized on the sale of shares in a corporation that a telephone cooperative formed with other telephone companies, to provide services to the cooperative’s patrons, is patronage-sourced income and if properly allocated to the telephone cooperative’s patrons would be excluded from the cooperative’s gross income.


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Read PLR 201945011 [PDF 55 KB] (released November 8, 2019, and dated August 6, 2019)

*Private letter rulings are taxpayer-specific rulings furnished by the IRS Office of Chief Counsel in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. Pursuant to section 6110(k)(3), written determinations such as private letter rulings are not intended to be relied upon by third parties and may not be cited as precedent. These written determinations may, however, offer an indication of the IRS’s position on the issues addressed.


  • A non-exempt rural cooperative telephone company provides telecommunications and information services to its members.
  • The cooperative joined with other telephone companies to form another corporation in order to provide an interstate fiber optic network, and later joined the same companies to form additional corporations to procure lower-cost telecommunications resources to serve its members. The corporations eventually combined to form one corporation to continue to provide telecommunication services to the cooperative’s members.
  • The cooperative eventually sold its stock in the corporation formed with the other telephone companies. This sale of stock will generate gain for the cooperative. The cooperative requested a letter ruling concerning the treatment of this gain.

The IRS, noting that the cooperative’s ownership of the stock in the corporation was directly related to its cooperative business, concluded that the gain from the sale of the cooperative’s stock in the corporation is patronage-sourced income and if properly allocated to the cooperative’s patrons would be excluded from the cooperative’s gross income in the year of the sale.


For more information, contact KPMG’s National Director of Cooperative Tax Services:

David Antoni | +1 (267) 256-1627 |

Or Associate National Director of KPMG’s Cooperative Tax Services:

Brett Huston | +1 (916) 554-1654 |

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