PLR: Income attributable to securing cellular service for telephone cooperative’s patrons is patronage-sourced income

Concerning a ruling that responds to a request from a rural telephone cooperative

Concerning a ruling that responds to a request from a rural telephone cooperative

The IRS today publicly released a private letter ruling* that responds to a request from a rural telephone cooperative. The IRS concluded that to the extent the cooperative’s income from entities organized for the purpose of providing cellular service to its patrons is attributable to securing cellular service for the patrons, such income constitutes patronage-sourced income.

Read PLR 202224003 [PDF 121 KB] (release date June 17, 2022, and dated March 21, 2022)

* Private letter rulings are taxpayer-specific rulings furnished by the IRS Office of Chief Counsel in response to requests made by taxpayers and can only be relied upon by the taxpayer to whom issued. Pursuant to section 6110(k)(3), written determinations such as private letter rulings are not intended to be relied upon by third parties and may not be cited as precedent. These written determinations may, however, offer an indication of the IRS’s position on the issues addressed.


The taxpayer (a rural telephone cooperative) at some point in the past was no longer able to report receiving 85% or more of its income from its members and, as a result, now operates as a taxable cooperative corporation.

The taxpayer provides telecommunications and information services on a cooperative basis to its members located in various counties of two states. As a taxable rural telephone cooperative, each year, the taxpayer allocates its net income among its members and provides notice of such allocation to each member.

The taxpayer holds interests in certain cellular entities associated with rural service areas (RSAs) and metropolitan statistical areas (MSAs). The taxpayer acquired interests in the RSA/MSA entities over the years through initial investment and several transactions. The initial acquisition and subsequent transactions were entered into to provide and maintain cellular service to the taxpayer’s customers.

When telephone companies began to provide cellular service, the taxpayer recognized that if a competitor offered cellular services in its service areas, that could take away the taxpayer’s existing customers and potentially leave the taxpayer stranded with its investment in the wireline infrastructure. To safeguard its core wireline business and to offer new cellular technology to its members, the taxpayer decided to invest in new cellular technologies as the opportunities arose. Accordingly, the taxpayer entered into various business arrangements (including those with the RSA/MSA entities) regarding cellular service.

Previously, the taxpayer characterized the income from the RSA/MSA entities as non-patronage-sourced income. However, the taxpayer consulted with its legal and accounting advisors, and determined that the transactions are more appropriately characterized as patronage-sourced income—hence, the letter ruling request.

The IRS examined the legislative, judicial, and administrative history and concluded that to the extent that the taxpayer’s income from the RSA/MSA entities is attributable to securing cellular service for its patrons, such income is classified as patronage-sourced income.

For more information, contact KPMG’s National Director of Cooperative Tax Services:

David Antoni |

Associate National Director of KPMG’s Cooperative Tax Services:

Brett Huston |


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