The Internal Revenue Service last week overturned a 1997 decision that would have forced many telephone cooperatives out of tax-exempt status. The overturned ruling, which came in the form of a technical advice memorandum, required that the income of wholly owned subsidiaries of telephone co-ops be counted as non-member income. The FCC in many cases requires co-ops that wish to offer new services to do so through subsidiaries. At the same time, the tax code stipulates that these co-ops can derive no more than 15% of their income from non-member sources if they wish to remain tax-exempt. If the TAM had gone into affect, many co-ops would have surpassed the 15% threshold and become taxable entities.
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