CHS Equity Redemption Program

By Dennis Gardiner

In late April, our cooperative clients received a letter from the Board Chairman of CHS, Inc. regarding the company’s annual equity redemption program.  We have fielded a number of calls on what the letter is telling the member cooperatives regarding their non-qualified equity.  We would tell you “nothing new” (particularly from a tax standpoint).

In our opinion, the board has simply clarified the “role and handling of non-qualified owner equity” within CHS’s members’ equity structure.  The policy seems to address the non-qualified equity issued to individual producer members of CHS that earn equity through business done with CHS Country Operations facilities.  The letter states in bullet point #3 that “CHS will identify the amount of non-qualified equity redeemed annually to eligible individual producer members (priority) and periodically, at the discretion of the CHS Board, pay a proportionate amount to eligible member cooperatives on a pro-rata basis” (secondary).  From a cooperative standpoint, this may be a slight improvement from the initial position CHS expressed in earlier communications that “because CHS paid the tax on the non-qualified equity, there is a lower expectation that non-qualified equity will be redeemed in the foreseeable future.”

Now, you may read this differently, which would warrant further discussion with us as it relates to the accounting treatment.  A position on this could be swayed by whether you are bullish or bearish on CHS, meaning, you either expect them to redeem or to not redeem this out.  That drives a number of other questions, like:

  1. Should you record the non-qualified equity upon notification (reporting book income, not taxable)?
  2. Should you allocate it to members (as a non-qualified equity allocation)?
  3. What do you do with it, if and when it, is redeemed in cash to your cooperative?

It is not for us to dictate how you handle this, or what you do with it.  However, it may be worth additional discussions with your GT auditor, probably well in advance of your year-end audit.  CHS’s future allocation method(s) may drive you to change, or at least address, the accounting treatment for the non-qualified equity allocated to your cooperative.  We are available to discuss this if you have further questions or concerns.