EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. § 1383. Computation of tax where cooperative redeems nonqualified written notices of allocation. (a) General rule. If, under section 1382 (b) (2) or (c) (2) (B), a deduction is allowable to an organization for the taxable year for amounts paid in redemption of nonqualified written notices of allocation, then the tax imposed by this chapter on such organization for the taxable year shall be the lesser of the following: (1) the tax for the taxable year computed with such deduction; or (2) an amount equal to (A) the tax for the taxable year computed without such deduction, minus (B) the decrease in tax under this chapter for any prior taxable year (or years) which would result solely from treating such nonqualified written notices of allocation as qualified written notices of allocation. (b) Special rules. (1) If the decrease in tax ascertained under subsection (a) (2) (B) exceeds the tax for the taxable year (computed without the deduction described in subsection (a)) such excess shall be considered to be a payment of tax on the last day prescribed by law for the payment of tax for the taxable year, and shall be refunded or credited in the same manner as if it were an overpayment for such taxable year. (2) For purposes of determining the decrease in tax under subsection (a) (2) (B), the stated dollar amount of any nonqualified written notice of allocation which is to be treated under such subsection as a qualified written notice of allocation shall be the amount paid in redemption of such written notice of allocation which is allowable as a deduction under section 1382 (b) (2) or (c) (2) (B) for the taxable year. (3) If the tax imposed by this chapter for the taxable year is the amount determined under subsection (a) (2), then the deduction described in subsection (a) shall not be taken into account for any purpose of this subtitle other than for purposes of this section. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1047.) EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. PART II.-TAX TREATMENT BY PATRONS OF Sec. AMENDMENTS 1962-Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1048, added the heading of Part II and item 1385. § 1385. Amounts includible in patron's gross income. (a) General rule. Except as otherwise provided in subsection (b), each person shall include in gross income (1) the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a), and (2) any amount, described in section 1382 (c) (2) (A) (relating to certain nonpatronage distributions by tax-exempt farmers' cooperatives), which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a)(1). (b) Exclusion from gross income. Under regulations prescribed by the Secretary or his delegate, the amount of any patronage dividend, and any amount received on the redemption, sale, or other disposition of a nonqualified written notice of allocation which was paid as a patronage dividend, shall not be included in gross income to the extent that such amount (1) is property taken into account as an adjustment to basis of property, or (2) is attributable to personal, living, or family items. (c) Treatment of certain nonqualified written notices of allocation. (1) Application of subsection. This subsection shall apply to any nonqualified written notice of allocation which (A) was paid as a patronage dividend, or (B) was paid by an organization described in section 1381(a) (1) on a patronage basis with respect to earnings derived from business or sources described in section 1382(c) (2) (A). (2) Basis; amount of gain. In the case of any nonqualified written notice of allocation to which this subsection applies, for purposes of this chapter (A) the basis of such written notice of allocation in the hands of the patron to whom such written notice of allocation was paid shall be zero, (B) the basis of such written notice of allocation which was acquired from a decedent shall be its basis in the hands of the decedent, and (C) gain on the redemption, sale, or other disposition of such written notice of allocation by any person shall, to the extent that the stated dollar amount of such written notice of allocation exceeds its basis, be considered as gain from the sale or exchange of property which is not a capital asset. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1048.) EFFECTIVE DATE Except as otherwise provided, section applicable to taxable years of organizations described in section 1381 (a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87-834, set out as a note under section 1381 of this title. PART III.-DEFINITIONS; SPECIAL RULES Sec. 1388. Definitions; special rules. AMENDMENTS 1962-Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1049, added the heading of Part III and item 1388. § 1388. Definitions; special rules. (a) Patronage dividend. For purposes of this subchapter, the term "patronage dividend" means an amount paid to a patron by an organization to which part I of this subchapter applies (1) on the basis of quantity or value of business done with or for such patron, (2) under an obligation of such organization to pay such amount, which obligation existed before the organization received the amount so paid, and (3) which is determined by reference to the net earnings of the organization from business done with or for its patrons. Such term does not include any amount paid to a patron to the extent that (A) such amount is out of earnings other than from business done with or for patrons, or (B) such amount is out of earnings from business done with or for other patrons to whom no amounts are paid, or to whom smaller amounts are paid, with respect to substantially identical transactions. (b) Written notice of allocation. For purposes of this subchapter, the term "written notice of allocation" means any capital stock, revolving fund certificate, retain certificate, certificate of indebtedness, letter of advice, or other written notice, which discloses to the recipient the stated dollar amount allocated to him by the organization and the portion thereof, if any, which constitutes a patronage dividend. (c) Qualified written notice of allocation. (1) Defined. For purposes of this subchapter, the term “qualified written notice of allocation" means (A) a written notice of allocation which may be redeemed in cash at its stated dollar amount at any time within a period beginning on the date such written notice of allocation is paid and ending not earlier than 90 days from such date, but only if the distributee receives written notice of the right of redemption at the time he receives such written notice of allocation; and (B) a written notice of allocation which the distributee has consented, in the manner provided in paragraph (2), to take into account at its stated dollar amount as provided in section 1385(a). Such term does not include any written notice of allocation which is paid as part of a patronage dividend or as part of a payment described in section 1382 (c) (2) (A), unless 20 percent or more of the amount of such patronage dividend, or such payment, is paid in money or by qualified check. (2) Manner of obtaining consent. A distributee shall consent to take a written notice of allocation into account as provided in paragraph (1) (B) only by (A) making such consent in writing, (B) obtaining or retaining membership in the organization after (i) such organization has adopted (after the date of the enactment of the Revenue Act of 1962) a bylaw providing that membership in the organization constitutes such consent, and (ii) he has received a written notification and copy of such bylaw, or (C) if neither subparagraph (A) nor (B) applies, endorsing and cashing a qualified check, paid as a part of the patronage dividend or payment of which such written notice of allocation is also a part, on or before the 90th day after the close of the payment period for the taxable year of the organization for which such patronage dividend or payment is paid. (3) Period for which consent is effective. (A) General rule. Except as provided in subparagraph (B)— (ii) a consent described in paragraph (2) (B) shall be a consent with respect to all patronage of the distributee with the organization occurring (determined without the application of section 1382(e)) after he received the notification and copy described in paragraph (2) (B) (ii). (B) Revocation, etc. (i) Any consent described in paragraph (2) (A) may be revoked (in writing) by the distributee at any time. Any such revocation shall be effective with respect to patronage occurring on or after the first day of the first taxable year of the organization beginning after the revocation is filed with such organization; except that in the case of a pooling arrangement described in section 1382(e), a revocation made by a distributee shall not be effective as to any pool with respect to which the distributee has been a patron before such revocation. (ii) Any consent described in paragraph (2) (B) shall not be effective with respect to any patronage occurring (determined without the application of section 1382(e)) after the distributee ceases to be a member of the organization or after the bylaws of the organization cease to contain the provisions described in paragraph (2) (B) (i). (4) Qualified check. For purposes of this subchapter, the term "qualified check" means only a check (or other instrument which is redeemable in money) which is paid as a part of a patronage dividend, or as a part of a payment described in section 1382(c) (2) (A), to a distributee who has not given consent as provided in paragraph (2) (A) or (B) with respect to such patronage dividend or payment, and on which there is clearly imprinted a statement that the endorsement and cashing of the check (or other instrument) constitutes the consent of the payee to include in his gross income, as provided in the Federal income tax laws, the stated dollar amount of the written notice of allocation which is a part of the patronage dividend or payment of which such qualified check is also a part. Such term does not include any check (or other instrument) which is paid as part of a patronage dividend or payment which does not include a written notice of allocation (other than a written notice of allocation described in paragraph (1)(A)). (d) Nonqualified written notice of allocation. For purposes of this subchapter, the term "nonqualified written notice of allocation" means a written notice of allocation which is not described in subsection (c) or a qualified check which is not cashed on or before the 90th day after the close of the payment period for the taxable year for which the distribution of which it is a part is paid. (e) Determination of amount paid or received. For purposes of this subchapter, in determining amounts paid or received (1) property (other than a written notice of allocation) shall be taken into account at its fair market value, and (2) a qualified written notice of allocation shall be taken into account at its stated dollar amount. (Added Pub. L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1049.) In addition to other taxes, there shall be imposed for each taxable year, on the self-employment income of every individual, a tax as follows: (1) in the case of any taxable year beginning after December 31, 1961, and before January 1, 1963, the tax shall be equal to 4.7 percent of the amount of the self-employment income for such taxable year; (2) in the case of any taxable year beginning after December 31, 1962, and before January 1, 1966, the tax shall be equal to 5.4 percent of the amount of the self-employment income for such taxable year; (3) in the case of any taxable year beginning after December 31, 1965, and before January 1, 36-500 0-65-vol. 6- 40 1968, the tax shall be equal to 6.2 percent of the amount of the self-employment income for such taxable year; and (4) in the case of any taxable year beginning after December 31, 1967, the tax shall be equal to 6.9 percent of the amount of the self-employment income for such taxable year. (Aug. 16, 1954, ch. 736, 68A Stat. 353; Sept. 1, 1954, ch. 1206, title II, § 208 (a), 68 Stat. 1093; Aug. 1, 1956, ch. 836, title II, § 202(a), 70 Stat. 845; Aug. 28, 1958, Pub. L. 85-840, title IV, § 401(a), 72 Stat. 1041; June 30, 1961, Pub. L. 87-64, title II, § 201(a), 75 Stat. 140.) AMENDMENTS 1961-Pub. L. 87-64 increased the rate of tax for taxable years beginning after Dec. 31, 1961, and before Jan. 1, 1963, from 41⁄2 to 4.7 percent, taxable years beginning after Dec. 31, 1962, and before Jan. 1, 1966, from 5 to 5.4 percent, taxable years beginning after Dec. 31, 1965, and before Jan. 1, 1968, from 6 to 6.2 percent, taxable year beginning after Dec. 31, 1967, and before Jan. 1, 1969, from 6 to 6.9 percent, and taxable years beginning after Dec. 31, 1968, from 6 to 6.9 percent. 1958-Pub. L. 85-840 increased the rate of tax by substituting provisions imposing a tax of 34 percent for taxable years beginning after Dec. 31, 1958, 42 percent for years beginning after Dec. 31, 1959, 54 percent for years beginning after Dec. 31, 1962, 6 percent for years beginning after Dec. 31, 1965, and 6 percent for years beginning after Dec. 31, 1968, for provisions which imposed a tax of 3% percent for taxable years beginning after Dec. 31, 1956, 4% percent for years beginning after Dec. 31, 1959, 4% percent for years beginning after Dec. 31, 1964, 5% percent for years beginning after Dec. 31, 1969, and 6% percent for years beginning after Dec. 31, 1974. 1956-Act Aug. 1, 1956, increased the rate of tax for all taxable years beginning after Dec. 31, 1956, by threeeighths percent. 1954-Act Sept. 1, 1954, increased the 4% percent rate of tax on self-employment income for taxable years beginning after Dec. 31, 1969, to 54 percent for taxable years beginning after Dec. 31, 1969, and before Jan. 1, 1975, and 6 percent for taxable years beginning after Dec. 31, 1974. EFFECTIVE DATE OF 1961 AMENDMENT Section 201(d) of Pub. L. 87-64 provided that: "The amendment made by subsection (a) [to this section] shall apply with respect to taxable years beginning after December 31, 1961. The amendments made by subsections (b) and (c) [to sections 3101 and 3111 of this title] shall apply with respect to remuneration paid after December 31, 1961." EFFECTIVE DATE OF 1958 AMENDMENT Section 401 (d) of Pub. L. 85-840 provided that: "The amendment made by subsection (a) [to this section] shall apply with respect to taxable years beginning after December 31, 1958. The amendments made by subsections (b) and (c) [to section 3101 and 3111 of this title] shall apply with respect to remuneration paid after December 31, 1958." EFFECTIVE DATE OF 1956 AMENDMENT Section 202 (d) of act Aug. 1, 1956, provided that: "The amendment made by subsection (a) [to this section] shall apply with respect to taxable years beginning after December 31, 1956. The amendments made by subsections (b) and (c) [to sections 3101 and 3111 of this title] shall apply with respect to remuneration paid after December 31, 1956." § 1402. Definitions. (a) Net earnings from self-employment. The term "net earnings from self-employment" means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business. plus his distributive share (whether or not distributed) of income or loss described in section 702 (a) (9) from any trade or business carried on by a partnership of which he is a member; except that in computing such gross income and deductions and such distributive share of partnership ordinary income or loss (1) there shall be excluded rentals from real estate and from personal property leased with the real estate (including such rentals paid in crop shares) together with the deductions attributable thereto, unless such rentals are received in the course of a trade or business as a real estate dealer; except that the preceding provisions of this paragraph shall not apply to any income derived by the owner or tenant of land if (A) such income is derived under an arrangement, between the owner or tenant and another individual, which provides that such other individual shall produce agricultural or horticultural commodities (including livestock, bees, poultry, and fur-bearing animals and wildlife) on such land, and that there shall be material participation by the owner or tenant in the production or the management of the production of such agricultural or horticultural commodities, and (B) there is material participation by the owner or tenant with respect to any such agricultural or horticultural commodity; (2) there shall be excluded dividends on any share of stock, and interest on any bond, debenture, note, or certificate, or other evidence of indebtedness, issued with interest coupons or in registered form by any corporation (including one issued by a government or political subdivision thereof), unless such dividends and interest (other than interest described in section 35) are received in the course of a trade or business as a dealer in stocks or securities; (3) there shall be excluded any gain or loss(A) which is considered as gain or loss from the sale or exchange of a capital asset, (B) from the cutting of timber, or the disposal of timber, coal, or iron ore, if section 631 applies to such gain or loss, or (C) from the sale, exchange, involuntary conversion, or other disposition of property if such property is neither (1) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year, nor (ii) property held primarily for sale to customers in the ordinary course of the trade or business; (4) the deduction for net operating losses provided in section 172 shall not be allowed; (5) If (A) any of the income derived from a trade or business (other than a trade or business carried on by a partnership) is community income under community property laws applicable to such income, all of the gross income and deductions attributable to such trade or business shall be treated as the gross income and deductions of the husband unless the wife exercises substantially all of the management and control of such trade or business, in which case all of such gross income and deductions shall be treated as the gross income and deductions of the wife; and (B) any portion of a partner's distributive share of the ordinary income or loss from a trade or business carried on by a partnership is community income or loss under the community property laws applicable to such share, all of such distributive share shall be included in computing the net earnings from self-employment of such partner, and no part of such share shall be taken into account in computing the net earnings from self-employment of the spouse of such partner; (6) a resident of Puerto Rico shall compute his net earnings from self-employment in the same manner as a citizen of the United States but without regard to section 933; (7) the deduction for personal exemptions provided in section 151 shall not be allowed; (8) an individual who is a duly ordained, commissioned, or licensed minister of a church or a member of a religious order shall compute his net earnings from self-employment derived from the performance of service described in subsection (c) (4) without regard to section 107 (relating to rental value of parsonages) and section 119 (relating to meals and lodging furnished for the convenience of the employer) and, in addition, if he is a citizen of the United States performing such service as an employee of an American employer (as defined in section 3121 (h)) or as a minister in a foreign country who has a congregation which is composed predominantly of citizens of the United States, without regard to section 911 (relating to earned income from sources without the United States) and section 931 (relating to income from sources within possessions of the United States); and (9) the term "possession of the United States" as used in sections 931 (relating to income from sources within possessions of the United States) and 932 (relating to citizens of possessions of the United States) shall be deemed not to include the Virgin Islands, Guam, or American Samoa. If the taxable year of a partner is different from that of the partnership, the distributive share which he is required to include in computing his net earnings from self-employment shall be based on the ordinary income or loss of the partnership for any taxable year of the partnership ending within or with his taxable year. In the case of any trade or business which is carried on by an individual or by a partnership and in which, if such trade or business were carried on exclusively by employees, the major portion of the services would constitute agricultural labor as defined in section 3121 (g)— (i) in the case of an individual, if the gross income derived by him from such trade or business is not more than $1,800, the net earnings from self-employment derived by him from such trade or business may, at his option, be deemed to be 66 percent of such gross income; or (ii) in the case of an individual, if the gross income derived by him from such trade or business is more than $1,800 and the net earnings from self-employment derived by him from such trade or business (computed under this subsection without regard to this sentence) are less than $1,200, the net earnings from self-employment derived by him from such trade or business may, at his option, be deemed to be $1,200; and (iii) in the case of a member of a partnership, if his distributive share of the gross income of the partnership derived from such trade or business (after such gross income has been reduced by the sum of all payments to which section 707 (c) applies) is not more than $1,800, his distributive share of income described in section 702 (a) (9) derived from such trade or business may, at his option, be deemed to be an amount equal to 663 percent of his distributive share of such gross income (after such gross income has been so reduced); or (iv) in the case of a member of a partnership, if his distributive share of the gross income of the partnership derived from such trade or business (after such gross income has been reduced by the sum of all payments to which section 707 (c) applies) is more than $1,800 and his distributive share (whether or not distributed) of income described in section 702 (a) (9) derived from such trade or business (computed under this subsection without regard to this sentence) is less than $1,200, his distributive share of income described in section 702 (a) (9) derived from such trade or business may, at his option, be deemed to be $1,200. For purposes of the preceding sentence, gross in come means (v) in the case of any such trade or business in which the income is computed under a cash receipts and disbursements method, the gross receipts from such trade or business reduced by the cost or other basis of property which was purchased and sold in carrying on such trade or business, adjusted (after such reduction) in accordance with the provisions of paragraphs (1) through (7) and paragraph (9) of this subsection; and (vi) in the case of any such trade or business in which the income is computed under an accrual method, the gross income from such trade or business, adjusted in accordance with the provisions of paragraphs (1) through (7) and paragraph (9) of this subsection; and, for purposes of such sentence, if an individual (including a member of a partnership) derives gross income from more than one such trade or business, such gross income (including his distributive share of the gross income of any partnership derived from any such trade or business) shall be deemed to have been derived from one trade or business. (b) Self-employment income. The term "self-employment income" means the net earnings from self-employment derived by an individual (other than a nonresident alien individual) during any taxable year; except that such term shall not include (1) that part of the net earnings from self-employment which is in excess of― (A) for any taxable year ending prior to 1955, (i) $3,600, minus (ii) the amount of the wages paid to such individual during the taxable year; and (B) for any taxable year ending after 1954 and before 1959, (i) $4,200, minus (ii) the amount of the wages paid to such individual during the taxable year; and (C) for any taxable year ending after 1958, (i) $4,800, minus (ii) the amount of the wages paid to such individual during the taxable year; or (2) the net earnings from self-employment, if such net earnings for the taxable year are less than $400. For purposes of clause (1), the term "wages" includes such remuneration paid to an employee for services included under an agreement entered into pursuant to the provisions of section 218 of the Social Security Act (relating to coverage of State employees), or under an agreement entered into pursuant to the provisions of section 3121 (1) (relating to coverage of citizens of the United States who are employees of foreign subsidiaries of domestic corporations), as would be wages under section 3121 (a) if such services constituted employment under section 3121 (b). An individual who is not a citizen of the United States but who is a resident of the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa shall not, for purposes of this chapter be considered to be a nonresident alien individual. (c) Trade or business. The term "trade or business," when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 (relating to trade or business expenses), except that such term shall not include (1) the performance of the functions of a public office; (2) the performance of service by an individual as an employee, other than (A) service described in section 3121(b) (14) (B) performed by an individual who has attained the age of 18, (B) service described in section 3121(b) (16), (C) service described in section 3121(b) (11), (12), or (15) performed in the United States (as defined in section 3121(e)(2)) by a citizen of the United States, and (D) service described in paragraph (4) of this subsection; (3) the performance of service by an individual as an employee or employee representative as defined in section 3231; (4) the performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; or (5) the performance of service by an individual in the exercise of his profession as a doctor of |