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with regard to certain income of cooperative telephone companies exempt under section 501(c)(12). Notice 92-33, 1992-2 C.B. 363. 218.223 Cooperatives; electric; sale of excess fuel. An electric cooperative’s sale of excess fuel at cost in the year of purchase is not income for purposes of determining compliance with the 85 percent member-income requirement. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 80-86, 1980-1 C.B. 118. 218.224 Cooperatives; electrical supplies or housing. A nonprofit cooperative organization that sells electrical equipment to its members and performs incidental installation and repair service in connection with the sales and a cooperative housing organization operated for the personal benefit of its tenant-owner members, are not “like organizations” under section 501(c)(12), therefore, neither qualify for exemption. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 65-201, 1965-2 C.B. 170. 218.225 Cooperatives; farmers; alcohol produced for making gasohol. A cooperative association that, in connection with its marketing function, processes its members’ agricultural products into alcohol for making gasohol qualifies as an exempt farmers’ cooperative. §§1.521–1, 1.1381-1. (Secs. 521, 1381; ’86 Code.) Rev. Rul. 81-96, 1981-1 C.B. 359. 218.226 Cooperatives; farmers; allocation of nonpatronage income. The allocation of income of a farmers’ cooperative from the handling and storage of grain of the Commodity Credit Corp. during the fiscal year ended May 31, 1954, which is distributed on a patronage basis to persons who have done business with the association during any or all of the fiscal years 1949–1954, will not affect its exempt status. Amounts so allocated may be deducted by the association for the year ended May 31, 1954, provided the patronage distribution is timely made. §39.101(12)–1. (Sec. 101, ’39 Code; Sec. 501, ’86 Code.) Rev. Rul. 55-591, 1955-2 C.B. 553. 218.227 Cooperatives; farmers; allocation of nonpatronage income and losses. A farmers’ cooperative association may, without jeopardizing its exempt status, allocate nonpatronage income and losses to the department to which the income and losses relate, provided that the allocation is not discriminatory among patrons similarly situated. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 67-128, 1967-1 C.B. 147. 218.228 Cooperatives; farmers; broad business powers. A farmers cooperative association may be exempt even though its articles of incorporation include broad business powers. I.T. 1914 superseded. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 68-496, 1968-2 C.B. 251. 218.229 Cooperatives; farmers; by-products sold nonproducers. A farmers’ cooperative engaged in the production and distribution of petroleum products may disregard sales on the open market of by-products not usable by its patrons and the value of petroleum products exchanged with other refineries, in order to utilize its output and save unnecessary transportation costs, in determining whether its purchases for persons who are neither members nor producers exceed 15 percent of the value of all purchases. (Rev. Rul. 54-12). Distinguished by Rev. Rul. 67–346 dealing with exchanges for an unlike product. Modified to provide that the sale of byproducts to nonproducers may not, after August 4, 1969, be disregarded in computing the 15 percent limitation. (Rev. Rul. 69-417). §§39.101(12)-1, 1.521-1, 301.7805-1. (Sec. 101. ’39 Code; Secs. 521,7805, ’86 Code.) Rev. Rul. 54-12, 1954-1 C.B. 93; Rev. Rul. 69-417, 1969-2 C.B. 132. 218.230 Cooperatives; farmers; care and harvesting of patrons’ crops. A farmers’ cooperative association whose only activities consist of caring for and maintaining its patrons’ orchards and harvesting their crops, does not qualify for exemption as an association described in section 521. (Sec. 521, ’86 Code.) Rev. Rul. 66-108, 1966-1 C.B. 154. 218.231 Cooperatives; farmers; Commodity Credit Corporation income. Grain stored in a nonexempt cooperative was pledged as security for loans to a farmer-producer under the price support program. The Commodity Credit Corporation paid storage charges which under section 522 (replaced in effect by 1382) constitute income allocable to members as patronage dividends excludable from the cooperative’s income before the default but constitute income not derived from patronage after the default. §1.61–5. (Secs. 61, 1382; ’86 Code.) Rev. Rul. 59-107, 1959-1 C.B. 20. 218.232 Cooperatives; farmers; distribution requirements. A farmers’ cooperative may, without jeopardizing its exempt status, make cash payments in full where the patronage dividends or nonpatronage distribution is $10 or less, and may pay $10 or 20 percent of the total dividend, whichever is greater, on all dividends in excess of $10. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 66-152, 1966-1 C.B. 155. 218.233 Cooperatives; farmers; distributions beyond fixed dividends. A farmers’ cooperative association does not qualify for exemption where its stockholders are permitted to participate in the profits of the association beyond the fixed dividends upon dissolution or redemption of their stock. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 69-431, 1969-2 C.B. 133. 218.234 Cooperatives; farmers; emergency purchases from nonproducers. The exempt status of a farmers’ cooperative marketing association will not be adversely affected by emergency purchases of farm products from nonproducers to fulfill outstanding orders based on normal crop expectations. However, such purchases must be caused by unforeseen circumstances to qualify as emergency purchases. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 69-222, 1969-1 C.B. 161. 218.235 Cooperatives; farmers; equitable allocation. An exempt farmers’ cooperative that operates a grain elevator branch, a soybean processing branch, and establishes a feed yard branch financed by selling preferred debentures to its members, that allocates the feed yard earnings be tween the debenture holders and the other branches according to the feed source and allocates the grain and soybean branchs’ earnings according to the branchs’ individual patronage, thus resulting in debenture and nondebenture holders receiving different dividends for identical marketing, is using a method of operation that does not affect its exempt status. §§1.521-1, 1.1388-1. (Secs. 521, 1388; ’86 Code.) Rev. Rul. 74-567, 1974-2 C.B. 174. 218.236 Cooperatives; farmers; exchange of products with nonmember producers. A product processed by an exempt farmers purchasing cooperative and exchanged for an unlike product processed by a nonmember nonproducer will be considered to have been purchased by the cooperative for the nonmember nonproducer in determining whether the value of purchases made for persons who are neither members nor producers exceeds 15 percent of the value of all purchases. Exempt organizations The nonmember nonproducer will be considered a patron of the cooperative, and the amount of the product delivered to the other patrons of the cooperative by the nonmember nonproducer will be considered a sale to them by the cooperative. Rev. Rul. 54-12 distinguished. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 67-346, 1967-2 C.B. 216. 218.237 Cooperatives; farmers; federated; “look through” principle. The effect on the exempt status of federated farmers’ cooperatives in applying the “look through” principle is illustrated in the following situations: (1) A supply cooperative purchases supplies from commercial sources and sells them at a profit to nonmembers; (2) A supply cooperative purchases supplies for a nonexempt member; and (3) a nonexempt member handles fungible products and markets through both the farmers’ cooperative and commercial sources. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 72–50, 1972–1 C.B. 163; Rev. Rul. 72-51,1972-1 C.B. 164; Rev. Rul. 72-52, 1972-1 C.B. 165. 218.238 Cooperatives; farmers; federated; “look through” principle. Four situations illustrate the principle of “looking through” to ultimate patrons of member associations in determining whether a federated farmer’s cooperative meets the requirements for exemption. Situation two through four involving federated cooperatives dealing with nonexempt cooperatives will not be applied to taxable years beginning before July 1, 1970, with respect to federated cooperative associations that have been relying on rulings or determination letters of exemption issued under section 521 of the Code. Rev. Rul. 69-651 is modified by Rev. Rul. 71-493 to postpone to July 1, 1971, the effective date of situations two through four, and suspended by Rev. Rul. 73–138, pending reconsideration of Rev. Proc. 72–17. Rev. Rul. 73–138 is revoked by Rev. Rul. 73–568. The provisions of Rev. Rul. 69–651 as set forth in situations two through four will not be applied to taxable years beginning before December 17, 1973. §§1.521-1, 301.7805-1. (Secs. 521, 7805; ’86 Code.) Rev. Rul. 69-651, 1969–2 C.B. 135; Rev. Rul. 71-493, 1971-2 C.B. 240; Rev. Rul. 73-138, 1973-1 C.B. 293; Rev. Rul. 73-568, 1973-2 C.B. 194. 218.239 Cooperatives; farmers; federated; “lookthrough” principle. Methods are provided that may be used by a federated farmers’ cooperative whose taxable year differs from some of its member cooperatives, in establishing and maintaining its exemption under section 521 for the purpose of the “look through” principle. Supplemented to provide an additional method. (Sec. 601.105, S.P.R.) Rev. Proc. 72–17, 1972–1 C.B. 739; Rev. Proc. 73-38, 1973-2 C.B. 501. 218.240 Cooperatives; farmers; federated; “look through” principle; information and returns for exemption. Information from a member that a federated farmers’ cooperative may rely on in establishing and maintaining exemption and information that should be submitted by the cooperative with its application for exemption and annual return; effective for years beginning after June 30, 1971. §1.521-1. (Sec. 601.201, S.P.R.; Sec. 521, ’86 Code.) Rev. Proc. 72-16, 1972-1 C.B. 738. 218.241 Cooperatives; farmers; fruit cannery and cotton textile mill. A farmers’ cooperative operating a cannery and facilities for drying fruit and a farmers’ cooperative operating a textile mill, both of which market the processed or unprocessed products of their member growers and distribute the proceeds to them on the basis of the quantity of product furnished, less a charge to cover the cost of processing, qualify as exempt
Exempt organizations farmers’ cooperatives. §§1.521–1, 1.1381–1. (Secs. 521, 1381; ’86 Code.) Rev. Rul. 77-384, 1977-2 C.B. 198. 218.242 Cooperatives; farmers; grazing land provided. A cooperative association which acquires the beneficial use of land and apportions it among its members for grazing their livestock may be exempt from tax. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 67-429, 1967-2 C.B. 218. 218.243 Cooperatives; farmers; hedging transactions for patrons. An exempt farmers’ cooperative may in certain circumstances establish a commodity trading division to serve as a commodity broker to facilitate hedging transactions for its marketing patrons without affecting its exemption. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 76-298, 1976-2 C.B. 179. 218.244 Cooperatives; farmers; ingredient purchases from nonproducers. The purchase of cream from nonproducers by a dairy farmers’ cooperative marketing association, that markets ice cream produced from the excess cream resulting from the processing of its members’ raw milk, is not an ingredient purchase but is a product and will adversely affect the association’s exempt status. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 75-4, 1975-1 C.B. 165. 218.245 Cooperatives; farmers; integrated business unit; marketing and storage. The marketing activity of a nonexempt farmers’ cooperative may be combined with its storage activity so that the two aspects of the business are treated as a unit. However, where a cooperative distributes profits only to member patrons, the exclusion under section 522 (replaced in effect by 1382) will be limited to that portion of the dividend attributable to member business. (Sec. 1382, ’86 Code.) Rev. Rul. 63-58, 1963-1 C.B. 109. 218.246 Cooperatives; farmers; leasing facilities. A farmers’ cooperative association is not exempt where it leases its marketing facilities and relinquishes its authority to negotiate the price paid to its members for their products. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 71-100, 1971–1 C.B. 159. 218.247 Cooperatives; farmers; life insurance purchased for members. A farmers’ cooperative marketing association which purchases life insurance policies on the lives of its members does not qualify for exemption, since it would not be turning back to its members and other producers the proceeds of the sales of their products less the necessary marketing expenses. §§39.23(a)-1, 39.24(a)-3, 39.101(12)-1. (Secs. 23(a), 24(a), 101, ’39 Code; Secs. 162, 264, 521, ’86 Code.) Rev. Rul. 55-558, 1955-2 C.B. 270. 218.248 Cooperatives; farmers; market facilities furnished. A cooperative association formed to furnish its members facilities to assemble, grade, display, advertise, and sell their own fruits, vegetables, and other farm products may be exempt as a marketing association even though it does not actually sell or distribute a product. I.T. 2720 superseded. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 67-430, 1967–2 C.B. 220. 218.249 Cooperatives; farmers; marketing and purchasing association; vote by proxy. The exempt status of a farmers’ cooperative will not be jeopardized if it permits proxy voting by shareholders. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 75–97, 1975–1 C.B. 167. 218.250 Cooperatives; farmers; marketing nonmembers’ products. An exempt cooperative marketing association will not lose its exempt status if it markets for members products of nonmembers where the member provides evidence that the proceeds from the sale of the nonmembers’ products, less marketing expenses, have been turned over to the nonmembers, and the value of the nonmembers’ products marketed does not exceed that of the members. §39.101(12)–1. (Sec. 101, ’39 Code; Sec. 521, ’86 Code.) Rev. Rul. 55-496, 1955-2 C.B. 268. 218.251 Cooperatives; farmers; marketing or purchasing for or with U.S. An exempt farmers’ cooperative will not jeopardize its status if it does business of a marketing or purchasing nature for or with the U.S. or an agency thereof so long as it otherwise continues to engage in marketing or purchasing activities for its patrons. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 65-5, 1965–1 C.B. 244. 218.252 Cooperatives; farmers; marketing products purchased by members. Where a cooperative association which markets products purchased by members which exceed in value those grown or otherwise produced by members for whose accounts such products are marketed, it violates the limitation placed on business done with nonmembers. Furthermore, by marketing products of nonmembers as those of its members, the association does not meet the statutory requirement that proceeds of the sale of products, less necessary operating expenses, be returned to producerson the basis of the quantity or value of products furnished by them. I.T. 3853 superseded. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 67-152, 1967-1 C.B. 147. 218.253 Cooperatives; farmers; marketing range grasses. A nonprofit agricultural cooperative formed to produce and market range grasses, on land owned or leased by its members, by grazing its own herd of breeder cattle and by grazing the cattle of others during the peak growing season qualifies for exemption as a farmers’, fruit growers’, or like association. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 75-5, 1975-1 C.B. 166. 218.254 Cooperatives; farmers; membership fee withheld from patronage dividends. A farmers’ cooperative will continue to qualify for exemption where an amount up to the annual membership fee is withheld from nonmembers’ patronage dividends to meet the cost operations of the cooperative. G.C.M. 11068 superseded. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 69–52, 1969-1 C.B. 161. 218.255 Cooperatives; farmers; milk quality bonus program. A milk quality bonus program, adopted by a dairy farmers’ cooperative association marketing milk only for its members, that is financed under contracts with milk handlers who in addition to the base price pay a premium that is shared by all the member-producers on the basis of points awarded according to each member’s milk quality is a permissible method of allocating income and does not adversely affect the association’s exempt status. §1.521–1. (Sec. 521. ’86 Code.) Rev. Rul. 75-110, 1975-1 C.B. 167. 218.256 Cooperatives; farmers; name of cooperative. Farmers’ cooperative marketing and purchasing associations, whose bylaws set forth a definite pre-existing obligation of the association to make distribution to patrons of a portion of the net profits as patronage dividends, may exclude such dividends from income regardless of whether the corporate name contains the word “cooperative.’’ §39.101(12)-4. (Sec. 101, ’39 Code; Sec. 521, ’86 Code.) Rev. Rul. 55-26, 1955–1 C.B. 338. 218.257 Cooperatives; farmers; non-exempt supply association for nonmembers. A non-exempt supply association formed by the officers and directors of an exempt farmers’ cooperative is, under the circumstances, considered a subsidiary of the cooperative, and the cooperative will lose its exempt status if the association’s purchases for nonmember-nonproducers exceed fifteen percent of the combined purchases of both organizations. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 73-148, 1973-1 C.B. 294. 218.258 Cooperatives; farmers; noncash allocation; deceased member’s estate. A written notice of allocation made by an exempt farmers’ cooperative to the estate of a deceased member, who during his lifetime had filed a consent pursuant to section 1388 of the Code, for business conducted with the cooperative prior to his death is deductible by the cooperative as a patronage dividend. The estate is required to include the noncash allocation in gross income. For any additional cooperative written notices of allocation with respect to the decedent, the estate would be required to follow the normal membership procedure. §§1.521-1, 1.1385-1, 1.1388-1. (Secs. 521, 1385, 1388; ’86 Code.) Rev. Rul. 73-93, 1973-1 C.B. 292. 218.259 Cooperatives; farmers; nonfarm use of supplies purchased for members. For purposes of the 15 percent test provided in section 521(b)(4), supplies purchased by a member of a farmers’ cooperative for use in his nonfarming business will be treated as purchases made for persons who are neither members nor producers. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 67-223, 1967–2 C.B. 214. 218.260 Cooperatives; farmers; nonmember dividends deposited in suspense reserve. A livestock marketing cooperative prohibited under the Packers and Stockyards Act of 1921 from distributing patronage dividends to nonmembers does not qualify for exemption by depositing those dividends in a patronage refund suspense reserve. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 73–59, 1973-1 C.B. 292. 218.261 Cooperatives; farmers; nonpatrons’ products marketed; dividends. An exempt farmers’ cooperative making emergency purchases and purchases of sideline products for fixed prices from a nonmember nonproducer is not required to pay patronage dividends to the nonmember to maintain its exempt status. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 76-388, 1976-2 C.B. 180. 218.262 Cooperatives; farmers; nonproducer patrons requested to return capital stock. A farmers’ cooperative purchasing association issues shares of voting common stock to patrons without regard to the status of such patrons as producers or nonproducers, requesting that patrons who are not producers of agricultural products return their shares for redemption. As a result of this practice and the failure of many nonproducers to comply with the association’s request, numerous nonproducers have become shareholders so that the association is not complying with the requirements that ownership of capital stock be restricted to actual producers as far as possible. Accordingly, the association is not exempt, §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 67-204, 1967-1 C.B. 149. 218.263 Cooperatives; farmers; nontaxable stock dividend. The issuance by a farmers cooperative association of a nontaxable dividend to its shareholders does not increase the “value of the consideration for which the stock was issued” for the purpose of the dividend limitation. Therefore, the maximum annual dividend rate of the cooperative may not exceed the specified percentage of the consideration paid for the original stock. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 68-169, 1968-1 C.B. 286.
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