A Rural Electric Cooperative

A Rural Electric Cooperative

January 01, 2009

A rural electric cooperative got the green light to buy electricity and gas customers from an investor-owned utility.

The cooperative turned the new customers into “members” in the cooperative. The IRS ruled privately in a ruling released in December that the coop will retain its status as a tax-exempt entity, notwithstanding that coops have been thought of historically as voluntary membership businesses.

Coops usually operate on a non-profit basis. They are exempted from federal income taxes as long as at least 85% of income each year comes from members for the sole purpose of paying expenses. Any leftover coop revenues are supposed to be distributed to members based on the amount of business that each member does with the coop. The coop in this case plans to group the customers into two separate divisions — one for gas and one for electricity — and use the separate divisions to price services separately to its electricity and gas customers. The IRS said the separate divisions are okay. The ruling is PLR 200849016


Keith Martin