LEGAL CORNER
Web-based ag\co-op law
library puts valuable
resources at fingertips
By Donald Frederick
Program Leader for Law,
Policy & Governance
USDA Rural Development
email: donald.frederick@usda.gov
t is often said that a person
can find almost anything
on the Internet, if
you just know where to
look. Finding information on cooperative
and agricultural law is now easier,
using the restructured and expanded
Web site of the National Agricultural
Law Center:
www.NationalAgLawCenter.org.
Congress authorized creation of the
National Agricultural Law Center in
1987, which is part of the University of
Arkansas School of Law in Fayetteville,
Ark. The Center has been funded with
federal appropriations through the
National Agricultural Library, an entity
within the USDA Agricultural
Research Service. The Center conducts
legal research and provides information
on agricultural and food law. It is
staffed by a team of law and research
professors, lawyers, other specialists,
and graduate assistants from the
University of Arkansas School of Law’s
Graduate Program in Agricultural Law.
The Center’s Web site offers a variety
of resources that will be useful to
both the lawyer and the non-lawyer
looking for information on developments
in agricultural and cooperative
law. Key components of the library
are described below.
Reading rooms
The heart of the new Web site is a
series of subject-based “reading
rooms” that provide access to a comprehensive
list of electronic resources
on agricultural and food law topics.
The Cooperatives Reading Room,
one of 28 such “rooms,” provides
links to 11 major statutes governing
cooperatives, the regulations for
Subchapter T of the Internal Revenue
Service, Federal Register rules open
for comment, recent court decisions
impacting cooperatives, Center
research papers on cooperative law
and a variety of reference resources.
Other reading rooms provide similar
information on topics important to
cooperatives, such as farm credit, food
safety, international ag trade and marketing
orders.
National AgLaw Reporter
The National AgLaw Reporter is a
regularly updated electronic newsletter
covering developments of interest to
cooperatives and others in the agricultural
and food law communities. It
currently has four sections:
- In the News contains summaries and
analysis of recent developments in
agricultural and food law.
- Case Summaries describe recent
judicial opinions in agricultural and
food law.
- Federal Register Digest provides
brief summaries and links to some of
the more significant regulatory
changes affecting agriculture published
in the Federal Register since
Jan. 1, 2002.
- Judicial Officer Decisions links the
user to all major decisions rendered
by the Office of the USDA Judicial
Officer since January of 2002.
Other features
The library contains other sections
that lead to legal research prepared by
both the Center and other scholars
working on agricultural and food law
issues.
- Reference Desk has links to bibliographies,
glossaries, law journals,
trade associations, and other law
school Web sites. It has a General
Ag Resources area with links to additional
federal agency and university
sites, news sites, publications and
sources of statistics.
- Farm Bills provides the text of all
United States Farm Bills since 1933,
legislative history of Farm Bills
since 1973, and other resource links
for the 1996 and 2002 Farm Bills.
- Congressional Links offers direct
access to Web sites for the U.S.
Senate and House of
Representatives, the Congressional
Record and other Congressional
resources, including the
Congressional Research Service and
the General Accountability Office.
Co-op payments to patrons subject
to self-employment tax
Internal Revenue Code section 1401 imposes a selfemployment
(social security) tax on the net earnings of
individuals who are in business for themselves as sole
proprietors, partners or independent contractors. The
U.S. Tax Court has reaffirmed its position that cooperative
member-patrons must pay self-employment taxes
on distributions they receive from their cooperative.
(Eric Fultz v. Comm’r, T.C. Memo 2005-45 (March 10,
2005); Dennis Fultz v. Comm’r, T.C. Memo 2005-46
(March 10, 2005).
In these cases, a cooperative made two payments
to its member-patrons after the end of its fiscal year.
One was categorized as a payment to a patron for the
value added to the patron’s product during its processing
by the cooperative (a “value-added payment”).
The other was called a patronage refund.
Some patrons did not report the value-added payments
for self-employment tax purposes. The Internal
Revenue Service challenged the patrons’ position and
the dispute wound up in court. The patrons argued
that the “value-added payments” were investment
income not subject to self-employment tax.
However, the court determined that the payments
were income derived from business conducted with
the cooperative and subject to self-employment tax.
The court also rejected an argument by the patrons
that since they had assigned the right to the funds
received from themselves to a family corporation, they
were no longer the recipients of the income for selfemployment
tax purposes.
Some tax advisers have suggested that similar payments
from an LLC to a member are not subject to selfemployment
taxes. But the courts have looked at the
nature of the income (business, not investment
income), not the structure of the business, in holding
cooperative distributions to patrons are subject to selfemployment
taxes. So, it seems possible that they
would also hold that payments from an LLC to a member,
related to product delivered for processing and
resale, are subject to self-employment taxes.
