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Telephone cooperative’s gain on sale of wireless spectrum, patronage-sourced income

Telephone cooperative’s gain on sale

The IRS today publicly released a private letter ruling* concluding that gain realized by a rural telephone cooperative on the sale of wireless spectrum that had been purchased for the purpose of meeting existing patron’s service demands, and potentially expanding service to new patrons, qualified as patronage-sourced income. Accordingly, as patronage-sourced income, the IRS ruled the gain was excludable under cooperative tax laws applicable to taxable rural telephone cooperatives. PLR 201704014 (released January 27, 2017, and dated October 25, 2016)


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Read PLR 201704014 [PDF 56 KB]


A rural telephone cooperative (through subsidiaries) purchased additional spectrum that was intended to be used to provide wireless service to cooperative members. However, the cooperative eventually determined that the spectrum did not meet its long-term objectives because of unanticipated inadequacy of the spectrum together with fiber options that had substantial bandwidth capacity that would be more consistent with its strategic goals. Thus, the cooperative (again, through subsidiaries) sold the spectrum to an unrelated third party. 

The cooperative requested a private letter ruling concerning the treatment of the gain arising from the sale of the spectrum.The IRS found that the cooperative’s purchase of the spectrum was directly related to its cooperative business. The IRS explained that investing in a company in order to provide wireless telephone service is directly related to the business of a rural cooperative telephone company whose "reason for existence” is to provide telephone service to its patrons. Accordingly, the IRS concluded that the cooperative’s sale of the spectrum was also directly related to its cooperative business purpose and was patronage-sourced income.


*Private letter rulings are taxpayer-specific rulings furnished by the IRS National Office in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. It is important to note that, pursuant to section 6110(k)(3), such items cannot be used or cited as precedent. Nonetheless, such rulings can provide useful information about how the IRS may view certain issues.


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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