# 26 U.S.C. § 521: Exemption of farmers’ cooperatives from tax Source: OLRC release point 119-134 . Cite pinpoints as 26 U.S.C. § 521(a)(1). ## § 521(a) Exemption from tax A farmers’ cooperative organization described in subsection (b)(1) shall be exempt from taxation under this subtitle except as otherwise provided in part I of subchapter T (sec. 1381 and following). Notwithstanding part I of subchapter T (sec. 1381 and following), such an organization shall be considered an organization exempt from income taxes for purposes of any law which refers to organizations exempt from income taxes. ## § 521(b) Applicable rules **§ 521(b)(1) Exempt farmers’ cooperatives.** The farmers’ cooperatives exempt from taxation to the extent provided in subsection (a) are farmers’, fruit growers’, or like associations organized and operated on a cooperative basis (A) for the purpose of marketing the products of members or other producers, and turning back to them the proceeds of sales, less the necessary marketing expenses, on the basis of either the quantity or the value of the products furnished by them, or (B) for the purpose of purchasing supplies and equipment for the use of members or other persons, and turning over such supplies and equipment to them at actual cost, plus necessary expenses. **§ 521(b)(2) Organizations having capital stock.** Exemption shall not be denied any such association because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 percent per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the association, upon dissolution or otherwise, beyond the fixed dividends) is owned by producers who market their products or purchase their supplies and equipment through the association. **§ 521(b)(3) Organizations maintaining reserve.** Exemption shall not be denied any such association because there is accumulated and maintained by it a reserve required by State law or a reasonable reserve for any necessary purpose. **§ 521(b)(4) Transactions with nonmembers.** Exemption shall not be denied any such association which markets the products of nonmembers in an amount the value of which does not exceed the value of the products marketed for members, or which purchases supplies and equipment for nonmembers in an amount the value of which does not exceed the value of the supplies and equipment purchased for members, provided the value of the purchases made for persons who are neither members nor producers does not exceed 15 percent of the value of all its purchases. **§ 521(b)(5) Business for the United States.** Business done for the United States or any of its agencies shall be disregarded in determining the right to exemption under this section. **§ 521(b)(6) Netting of losses.** Exemption shall not be denied any such association because such association computes its net earnings for purposes of determining any amount available for distribution to patrons in the manner described in paragraph (1) of section 1388(j). **§ 521(b)(7) Cross reference.** For treatment of value-added processing involving animals, see section 1388(k). ## Regulations - [Treas. Reg. § 1.521-1](/26/reg/1.521-1.md): Farmers' cooperative marketing and purchasing associations; requirements for exemption under section 521. (interprets § 521) ## Forms named in the regulations - [Form 1028](https://www.irs.gov/pub/irs-pdf/f1028.pdf) ## Leading cases - [Co-Operative Grain & Supply Co. v. Commissioner, 407 F.2d 1158 (8th Cir. 1969)](https://www.courtlistener.com/opinion/283790/co-operative-grain-supply-co-v-commissioner-of-internal-revenue/) - [Land O'Lakes v. United States, 514 F.2d 134 (8th Cir. 1975)](https://www.courtlistener.com/opinion/326871/land-olakes-inc-formerly-land-olakes-creameries-inc-a-minnesota/) - [Farm Service Cooperative v. Commissioner, 619 F.2d 718 (8th Cir. 1980)](https://www.courtlistener.com/opinion/377076/farm-service-cooperative-v-commissioner-of-internal-revenue-national/) ## Connections Cites: § 1388 Definitions; special rules Cited by: § 50 Other special rules; § 52 Special rules; § 168 Accelerated cost recovery system; § 246 Rules applying to deductions for dividends received; § 337 Nonrecognition for property distributed to parent in complete liquidation of subsidiary; § 854 Limitations applicable to dividends received from regulated investment company; § 860E Treatment of income in excess of daily accruals on residual interests; § 1245 Gain from dispositions of certain depreciable property; § 1250 Gain from dispositions of certain depreciable realty; § 1381 Organizations to which part applies; § 1388 Definitions; special rules; § 3121 Definitions; § 3306 Definitions; § 4960 Tax on excess tax-exempt organization executive compensation; § 6044 Returns regarding payments of patronage dividends; § 7428 Declaratory judgments relating to status and classification of organizations under section 501(c)(3), etc. Derived from: 1939 § 101(12) ## Amendments - 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 176 - 1962-10-16: [Pub. L. 87-834](/26/act/87-834.md), 76 Stat. 1051 - 1986-04-07: [Pub. L. 99-272](/26/act/99-272.md), 100 Stat. 324 - 2004-10-22: [Pub. L. 108-357](/26/act/108-357.md), 118 Stat. 1469