Cal. Code Regs. tit. 18, § 24273.5 – Patronage Dividends.

(a) Election to Consider as Income. A taxpayer which receives noncash patronage allocations (as defined in paragraph (f)) may elect to include such allocations in gross income for the income year received. If a taxpayer elects to include such noncash patronage allocations in gross income as received, their face amount shall be reported as gross income. If, upon redemption of noncash patronage allocations, the taxpayer does not and cannot recover the full amount of the allocations previously reported, any loss sustained may be deducted from gross income in the income year during which the allocations are redeemed.
(b) Election to Exclude from Gross Income. In lieu of reporting noncash patronage allocations, (as provided in paragraph (a)), a taxpayer may elect to exclude noncash patronage allocations (as defined in paragraph (f)), from gross income until redeemed or realized upon. In case noncash patronage allocations are excluded from gross income, only the amount realized when redeemed is required to be included in gross income. If such allocations bear interest, the interest is not includible in gross income until the allocations are redeemed or realized upon, unless prior to redemption interest thereon is paid in cash. For the method of electing to exclude noncash patronage allocations, see paragraph (c).
(c) Elections. If a taxpayer includes in its gross income, for its first income year beginning after December 31, 1956, any amount attributable to noncash patronage allocations, it shall be deemed to have elected to include the face amount of such allocations in gross income for such year and all subsequent income years. Furthermore, a taxpayer shall be deemed to have elected to include all noncash allocations in gross income, if less than the face amount of such allocations are reported, or if noncash allocations have been received from more than one cooperative organization and allocations attributable to one or more cooperatives were included in gross income.
A taxpayer shall be deemed to have elected to exclude noncash patronage allocations from gross income if it omits the amount of such allocations from gross income for the first income year beginning after December 31, 1956, during which any noncash patronage allocations are received. The amount of patronage allocations which are excluded must be disclosed in the return or by a written statement filed with the returns. If such written statement has not previously been filed, it must be filed before a taxpayer will be permitted to exclude noncash patronage allocations from gross income.
The elections provided for by this paragraph may be made, regardless of the taxpayer's method of accounting. Once an election has been made, it may be changed only with the consent of the Franchise Tax Board. Application for permission to change an election shall be filed within 90 days after the beginning of the income year to be covered by the return.
(d) Statute of Limitations. Whenever a taxpayer has elected to exclude noncash patronage allocations from gross income until such allocations are redeemed or realized upon, the statutory period prescribed in Section 25663 for the assessment of any deficiency attributable to amounts excluded will not expire prior to the expiration of four years from the date the Franchise Tax Board is notified by the taxpayer that such deferred allocations have been redeemed or realized upon. Such deficiency may be assessed prior to the expiration of such four-year period notwithstanding the provisions of any other law or rule of law which might bar such assessment.
A taxpayer shall notify the Franchise Tax Board that deferred noncash patronage allocations have been realized or redeemed by including the amount of such allocations in gross income for the income year that such amounts are redeemed or realized upon.
(e) Records. A taxpayer electing to exclude noncash patronage allocations from gross income for the year that such allocations are made must maintain such records as are necessary to clearly reflect income in accordance with this regulation, Section 17561, and Reg. 17561(a).
(f) Noncash Patronage Allocations Defined. For purposes of this regulation the term “noncash patronage allocations” means amounts allocated on the basis of the business done with or for a patron by any cooperative organization, other than cash or merchandise, evidenced by any document which discloses the dollar amount of such allocations, such as capital stock, revolving fund certificates, certificates of indebtedness, retain certificates, or letters of advice.