§521 Exemption of farmers’ cooperatives from tax

Summary

Exempts farmers’ cooperatives from federal income tax when they are set up to sell members’ products or to buy supplies for members. These co-ops must return sales money to members after necessary marketing costs, based on how much or how valuable each member’s products are, or sell supplies at actual cost plus expenses. The exemption is subject to the rules in part I of subchapter T (sec. 1381 and following), but the co-op is still treated as tax‑exempt for other laws that refer to tax‑exempt organizations. A co-op may have capital stock if dividends are fixed and do not exceed the greater of the State’s legal interest rate or 8 percent per year on the stock’s issue value, and most stock is owned by producers who use the co-op. Keeping a state‑required or reasonable reserve is allowed. The co-op may handle nonmember business so long as the value of nonmember sales or purchases does not exceed the value for members; purchases for people who are neither members nor producers may not be more than 15 percent of all purchases. Sales to the U.S. government are ignored when checking these limits. The co-op may compute earnings for patron distributions as described in section 1388(j)(1). For rules about processing animals, see section 1388(k).