Taxation of Patronage Dividends: Are They Subject to Employment Tax? 

This workshop will discuss the general taxation of patronage dividends paid by worker cooperatives and, in particular, whether the dividends are subject to employment tax – either paid by the cooperative or the worker/member. Should cooperatives treat the dividends as wages subject to employment tax? If not, are the wages subject to self-employment taxes? The legal issue of whether patronage dividends paid to workers are subject to self-employment tax is not settled. The IRS has recently raised this issue with at least 20 workers/members. With regard to this issue we will discuss the existing legal authority, what the IRS is saying, the status of these cases and options for cooperatives.

Gregory R. Wilson is a tax lawyer in San Francisco who has represented over a dozen cooperative workers/members in audit/tax litigation with the IRS over the issue of the application of self-employment taxation to patronage dividends. He is currently pursuing published guidance on this unsettled issue with the IRS in order to provide clarity and avoid future litigation over the issue.