IRS ruling - Rural electric cooperative may accelerate retirement of members’ capital credit accounts as payment for electric services 

October 18: Among the first set of letter rulings publicly posted by the IRS following the end of the government shutdown is a ruling in which the IRS concluded that a revised method to be used by a rural electric cooperative to retire former members’ capital credit accounts on an accelerated basis will not affect the cooperative’s tax-exempt status. 2013400017 (release date October 4, 2013, and dated May 30, 2013).

The IRS ruling [PDF 295 KB] explains that:


  • The cooperative had a large number of former members with outstanding balances for electric services.
  • The cooperative currently offsets any outstanding balance with amounts from former members’ capital credit accounts scheduled to be retired in that year.
  • A former member’s capital credit account is fully retired by offset against any outstanding balance due for non-payment for electronic services or by payout (or both) afater the member has been a former member for seven years.
  • The cooperative wants to change its policy, and not wait for seven years to fully retire a former member’s account if that former member has an outstanding balance from the non-payment of electric services, but would instead use the outstanding balance in the former member’s capital credit account to offset any outstanding account balance for non-payment at the end of the year.
  • After the offset, the cooperative would retire the former member’s capital credit account pursuant to its normal retirement schedule if there was a residual balance remaining. The cooperative would then cease all collection activities. If the former member were to repay the amounts in excess of the debt, that amount would be returned to the former member.

The IRS effectively approved the cooperative’s revised method for retiring former members’ capital credit accounts by offsetting the amounts of their capital credit accounts against outstanding debt that they owed for the provision of electric services on an accelerated basis.



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


David Antoni, in Philadelphia

(267) 256-1627


Or Associate National Director of KPMG’s Cooperative Tax Services


Brett Huston, in Sacramento


(916) 554-1654




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