§521 Exemption of Farmers’ Cooperatives From Tax

Summary

Exempts certain farmers’ cooperatives from federal income tax under this part of the tax code, unless other tax rules say otherwise. To qualify, the group must be a cooperative that either markets members’ farm products and returns the sales money (after marketing costs) to members based on how much or how valuable their products were, or buys supplies and equipment for members and gives them those items at actual cost plus necessary charges. Having stock won’t stop the exemption if dividends are limited to the state’s legal interest rate or 8% per year (whichever is higher) and almost all stock is owned by producer-members (except some nonvoting preferred shares with only fixed dividends). Reserves required by state law or reasonable reserves are allowed. Selling to or buying for nonmembers is OK so long as the value for nonmembers does not exceed the value for members, and purchases for people who are neither members nor producers are no more than 15% of total purchases. Work done for the U.S. government does not count against the exemption. The co-op may also use the allowed method for figuring patron distributions and follow the special rules for certain animal processing without losing the exemption.