26 U.S.C. § 521

Exemption of farmers’ cooperatives from tax

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(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.

(b) Applicable rules(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.

(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.

(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.

(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.

(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.

(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).

(7) Cross reference

For treatment of value-added processing involving animals, see section 1388(k).

(Aug. 16, 1954, ch. 736, 68A Stat. 176; Pub. L. 87–834, § 17(b)(1), Oct. 16, 1962, 76 Stat. 1051; Pub. L. 99–272, title XIII, § 13210(b), Apr. 7, 1986, 100 Stat. 324; Pub. L. 108–357, title III, § 316(b), Oct. 22, 2004, 118 Stat. 1469.)Editorial NotesAmendments

2004—Subsec. (b)(7). Pub. L. 108–357 added par. (7).

1986—Subsec. (b)(6). Pub. L. 99–272 added par. (6).

1962—Subsec. (a). Pub. L. 87–834 substituted “part I of subchapter T (sec. 1381 and following)” for “section 522” in two places.

Statutory Notes and Related SubsidiariesEffective Date of 2004 Amendment

Pub. L. 108–357, title III, § 316(c), Oct. 22, 2004, 118 Stat. 1469, provided that: “The amendments made by this section [amending this section and section 1388 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Oct. 22, 2004].”

Effective Date of 1986 Amendment

Amendment by Pub. L. 99–272 applicable to taxable years beginning after Dec. 31, 1962, see section 13210(c) of Pub. L. 99–272, set out as a note under section 1388 of this title.

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 applicable, except as otherwise provided, to taxable years of organizations described in section 1381(a) of this title beginning after Dec. 31, 1962, see section 17(c) of Pub. L. 87–834, set out as an Effective Date note under section 1381 of this title.

Notes of Decisions

Cited in 17 cases, 1961–2006 · leading case: West Cent. Coop. v. United States, 758 F.2d 1269 (8th Cir. 1985).

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West Cent. Coop. v. United States, 758 F.2d 1269 (8th Cir. 1985). · cites it 7× “West Central Cooperative (taxpayer) appeals from a final judgment entered in the District Court 1 for the Northern District of Iowa denying taxpayer’s petition seeking a refund of additional taxes assessed because of the withdrawal of taxpayer’s exemption as a farmers’…”

Lindsey v. United States, 448 F. Supp. 2d 37 (D.D.C. 2006). “§ 4942 (j)(3), or a cooperative under 26 U.S.C. § 521 (b). 26 U.S.C. § 7428 (a)(1).”

Land O'lakes, Inc., Formerly Land O'Lakes Creameries, Inc., a Minnesota Corp. v. United States, 514 F.2d 134 (8th Cir. 1975). · cites it 7× “This deficiency arose because the Government revoked Land O’Lakes’ status as an exempt farmers’ cooperative under § 521 of the Internal Revenue Code, 26 U.S.C. § 521 (1970), for its operations during calendar year 1963.”

Conway Cnty. Farmers Ass'n v. United States, 588 F.2d 592 (8th Cir. 1978). · cites it 2× “) § 521 ( 26 U.S.C. § 521 ). 2 CCFA had been exempt *594 before November 30, 1969 (the end of its fiscal year), but it voluntarily surrendered that status and now operates as a “nonexempt” cooperative.”

Smith v. United States, 475 F. Supp. 2d 1 (D.D.C. 2006). “§ 4942 (j)(3), or a cooperative under 26 U.S.C. § 521 (b). See 26 U.S.C. § 7428 (a)(1).”

Hiatt Grain & Feed, Inc. v. Bergland, 446 F. Supp. 457 (D. Kan. 1978). “§ 77c(5) (farmer co-ops exempted from Securities Act of 1933); and 26 U.S.C. § 521 (special tax treatment for co-ops).”

A. Duda & Sons Coop. Ass'n v. United States, 504 F.2d 970 (5th Cir. 1974). · cites it 2× “In early 1948, taxpayer applied for a ruling recognizing its exemption from income tax under § 101(12) of the Internal Revenue Code of 1939, the predecessor of § 521 of the Internal Revenue Code of 1954, 26 U.S.C. § 521 . This application was rejected by the Commissioner on the…”

United States v. Jack E. White, United States of Am. v. Gene Kuykendall, 671 F.2d 1126 (8th Cir. 1982). “The Co-op had previously qualified for tax-exempt status under 26 U.S.C. § 521 . 3 . Financing the construction of new Co-op facilities in this manner enabled White to receive purportedly tax-exempt interest payments from the Co-op on the bonds he held.”

A. Duda & Sons Coop. Ass'n v. United States, 495 F.2d 193 (5th Cir. 1974). · cites it 3× “MORGAN, Circuit Judge: Plaintiff-appellee operated as a tax-exempt cooperative organization under 26 U.S.C. § 521 1 until 1965, when the Internal Revenue Service revoked its tax-exempt status.”

Land O'lakes, Inc., Formerly Land O'Lakes Creameries, Inc., a Minnesota Corp. v. United States, 675 F.2d 988 (8th Cir. 1982). “The district court’s decision in 1973 holding plaintiff exempt under 26 U.S.C. § 521 was reversed by this court in 1975 and remanded for resolution of the issues resulting from plaintiff’s nonexempt status.”

Farmers Grain Mktg. Terminal (AAL) v. United States, 434 F. Supp. 368 (N.D. Miss. 1977). · cites it 2× “On September 5, 1969, plaintiff requested to be exempt under 26 U.S.C. § 521 , which provides exemption from taxation for farmers’ cooperative organizations except as otherwise provided in Part I of Subchapter T ( 26 U.”

Farmers Coop. Co. (Successor-In-Name to Farmers Co-Op Oil Co.) v. Comm'r of Internal Revenue, 822 F.2d 774 (8th Cir. 1987). · cites it 4× “§ 521 (hereinafter section 521), during the 1977 and 1978 tax years because substantially all of its capital stock was not owned by producers who market their products or purchase their supplies through Farmers. We affirm in part, reverse in part, and remand to the tax court.”

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