As a Farm Credit of Southern Colorado borrower, you become a member of a cooperative — a business that is owned and controlled by those who use its services. As a cooperative, we can return the profits of our successful operation to our members, the owners, in the form of a patronage refund.
One of the most important financial benefits of being a Farm Credit member-borrower is having the opportunity to share in the Association’s profits. Most businesses return their profits to their owners, not their customers. When you borrow from Farm Credit of Southern Colorado, you become an owner of the business and are therefore entitled to share in the profits of your Association.
At the end of each year, the Association determines its net income (total income minus expenses). According to the Association’s bylaws, the remaining net income can be distributed, in whole or in part, to our member-borrowers in the form of a patronage refund.
A patronage refund is a way of distributing the Association’s net income to its member-borrowers. It may be paid in the form of cash, allocated surplus, stock or any combination of these.
Along with your patronage check, Farm Credit of Southern Colorado will send you an IRS Form 1099-PATR. Generally, patronage refunds are taxable. However, each individual’s situation is different and we recommend that you consult your tax advisor for guidance.
The 1987 Farm Credit Act requires Farm Credit institutions to charge “market” interest rates on loans. This means that our interest rates have to be within the range of our competitors and not lower.
Farm Credit of Southern Colorado is allowed a tax deduction for the amount of net income that is distributed to members in the form of patronage refund. Therefore, to effectively manage the Association’s tax expense and maintain a strong capital position, the board of directors may elect to distribute taxable earnings to members as a qualified patronage refund in which at least 20 percent is paid in cash.