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218.264 Cooperatives; farmers; patronage dividends retained. The retention by farmers’ cooperatives of each patronage dividend less than one dollar and similar retentions of the cents payable in excess of whole dollar amounts do not constitute inequitable treatment of all patrons to an extent which would jeopardize the exempt status of the cooperative. The mailing of checks or stock representing patronage dividends by a farmers’ cooperative is payment, and deduction is allowed even though the postal authorities are unable to make delivery and the cooperative holds the instrument subject to the claim of the rightful wner. §39.101(12)–1. (Sec. 101, ’39 Code; Sec. 501, ’86 Code.) Rev. Rul. 55-141, 1955-1 C.B. 337. 218.265 Cooperatives; farmers; patron’s status as producer. Farm owners operating their farms through tenants are producers, and where the number of those operating their own farms and those operating through tenants constitutes substantially all of the membership of a cooperative association operating a creamery, such association is entitled to exemption. (Sec. 231(11), Revenue Act of 1924; Sec. 231(12), Revenue Act of 1926; Sec. 521, ’86 Code.) Farmers Co-operative Creamery, 21 B.T.A. 265, Acq., 1957-2 C.B. 4. 218.266 Cooperatives; farmers; patron’s statusas producer. In general, a person who markets his products or purchases supplies through a cooperative organization may be considered a producer for purposes of section 521 if he bears the risks of production, cultivates, operates, or manages a farm for gain or profit as owner or tenant. Circumstances under which a person may be considered a producer are set forth. Amplified by Rev. Rul. 72-589. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 67-422, 1967-2 C.B. 217. 218.267 Cooperatives; farmers; patron’s status as producer; stockholder of corporation. A stockholder does not qualify as a producer exempt from tax solely because the corporation engaged in farming so qualifies; however, he may qualify if independent of his stock ownership he meets the requirements of a producer. Rev. Rul. 67-422 amplified. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 72-589, 1972-2 C.B. 282. 218.268 Cooperatives; farmers; processing semen for artificial breeding. A cooperative association that owns sire cattle for the purpose of producing and processing semen for use in the artificial breeding of its members’ livestock may qualify for exemption. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 68-76, 1968-1 C.B. 285. 218.269 Cooperatives; farmers; purchasing subsidiary. A corporation formed to purchase farm equipment for members of an exempt farmers’ cooperative that holds all issued capital stock of the corporation satisfies the requirement that substantially all of its stock must be owned by producers. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 75-388, 1975-2 C.B. 227. 218.270 Cooperatives; farmers; records and allocation requirements. A farmers’ cooperative marketing and purchasing association does not maintain records of the amount of business done with its marketing patrons separate from those pertaining to the amounts of business done with the purchasing patrons. The association apportions its expenses between the marketing and purchasing departments solely on the basis of gross sales of each department, and it allocates patronage dividends only to patrons of its purchasing department. This association is not exempt from tax. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 67-253, 1967-2 C.B. 214. 218.271 Cooperatives; farmers; share agreement. Where feed dealers contract with growers who agree to properly feed and care for poultry which is turned over to the dealers for marketing through a farmers’ cooperative association, both the feed dealer and the grower qualify as producers with respect to the interest of each in the poultry marketed. Under such circumstances, the exempt status of a farmers’ cooperative association will not be adversely affected. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 58-483, 1958-2 C.B. 277. 218.272 Cooperatives; farmers; stock ownership; “substantially all” test. The “substantially all” test is satisfied if at least 85 percent of the total shares of capital stock of a farmers’ cooperative (other than non-voting preferred stock for which the owners’ participation in profits is limited to no more than the fixed dividends) is held by producers. §1.521–1. (Sec. 521, ’86 Code.) Rev. Rul. 73-248, 1973-1 C.B. 295. 218.273 Cooperatives; farmers; subsidiary corporations; nonmember patrons. Farmers’ cooperative associations will lose their exempt status where subsidiary corporations established to handle nonmember-nonproducer business, fails to pay patronage dividends to nonmembers patrons, or violates the 15 percent limitation on purchases. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 69-575, 1969-2 C.B. 134. 218.274 Cooperatives; farmers; subsidiary DISC. A tax exempt farmers’ cooperative association may own a DISC for purposes of marketing its members’ produce abroad without affecting its exempt status; ownership of the DISC by the cooperative, as the sole shareholder, will not prevent qualification as a DISC. §1.521–1. (Secs. 521, 992; ’86 Code.) Rev. Rul. 73-247, 1973-1 C.B. 294. 218.275 Cooperatives; farmers; supplemental distributions. A supplemental distribution of earnings by an exempt farmers’ cooperative to its patrons as the result of a 1973 audit disallowing depreciation deductions claimed on the 1970 and 1971 returns of the cooperative, whose bylaws obligate it to pay its patrons all net margins over and above operating expenses, will not qualify as a patronage dividend deduction in any year. The cooperative must pay tax on the amount of depreciation disallowed for each year and the tax payment should be reflected on its books as a deduction from net earnings of the respective year’ spool. The remaining amount may be distributed as a nonqualifying patronage dividend. §§1.521-1, 1.1382-1, 1.1382-2, 1.1388-1. (Secs. 521, 1382, 1388; ’86 Code.) Rev. Rul. 74-327, 1974-2 C.B. 173. 218.276 Cooperatives; farmers; time extended for filing returns. For taxable years beginning in 1952 and 1953, the time for filing exempt cooperative association income tax returns and the payment of tax due thereon has been extended until the fifteenth day of the ninth month following the close of such taxable year. §§29.53-2, 39.53-2, 29.56-2, 39.562, 29.101(12)-1, 39.101(12)-1. (Secs. 53, 56, 101, ’39 Code; Secs. 521, 6081, 6151, ’86 Code.) Rev. Rul. 27, 1953-1 C.B. 85; Rev. Rul. 102, 1953-1 C.B. 86; Rev. Rul. 54-81, 1954-1 C.B. 78. 218.277 Cooperatives; farmers; unrelated expenditures. An exempt cotton farmers’ cooperative association’s expenditures incurred under a corporate development plan to acquire control of a wool processing company are neither cotton marketing expenses nor connected with incidental investment activities properly deducted from a reserve account, and the association will no longer qualify for exemption. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 76-233, 1976-1 C.B. 173. Exempt organizations 218.278 Cooperatives; farmers; voting status of shareholder-producers. The requirements for qualification as voting members of a farmers’ cooperative are discussed as they apply to shareholder-producers who fallow their land every other year, have a farm with production in the market areas of two different cooperatives, have two farms located in different areas served by different cooperatives, or have their own storage facilities and shop among competing marketing facilities for the best price for their crops. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 77-440, 1977–2 C.B. 199. 218.279 Cooperatives; farmers; voting stock held in trust by membership committee. A farmers’ cooperative will not be denied exemption merely because a substantial part of its voting stock is held by its membership committee as trustees for the members. (Sec. 521, ’86 Code.) Rev. Rul. 56-21, 1956-1 C.B. 208. 218.280 Cooperatives; federated; marketing forest products. A federated cooperative marketing newsprint, and its member cooperatives growing pulpwood, are. not engaged in the business of farming and do not qualify for the exemption from federal income tax as farmers’ cooperatives. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 84-81, 1984-1 C.B. 135. 218.281 Cooperatives; hospital; laundry service for members. Answers to questions relating to the exempt status of (1) hospitals that form a cooperative laundry service organization which services member hospitals and (2) a hospital that establishes its own laundry service facility and sells laundry service to other hospitals. §§1.501(c)(3)-1, 1.513-1. (Secs. 501, 513; ’86 Code.) Rev. Rul. 69-633, 1969-2 C.B. 121. 218.282 Cooperatives; “like organization”; accounting method. An exempt section 501(c)(12) organization on the accrual method of accounting must use that method in determining compliance with the 85 percent requirement imposed by that section. §1.501(c)(12)–1. (Sec. 501, ’86 Code.) Rev. Rul. 68-18, 1968-1 C.B. 271. 218.283 Cooperatives; “like organization”; fish marketing association. An association organized and operated on a cooperative basis for the purpose of marketing “farm-raised fish” is considered an organization composed of producers of farm products. Accordingly, the organization is entitled to exemption as a farmers’, fruit growers’, or like association. Rev. Rul. 55-611 distinguished. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 64-246, 1964-2 C.B. 154. 218.284 Cooperatives; “like organization”; fishermen’s purchasing association. An association which purchases supplies and equipment for its members who are fishermen or oyster growers is not a farmers’, fruit growers’ or like association and is not exempt from tax. Distinguished by Rev. Rul. 64-246. (Sec. 521, ’86 Code.) Rev. Rul. 55-611, 1955-2 C.B. 270. 218.285 Cooperatives; “like organization”; government agency as member. A government agency admitted to membership in an electric cooperative is a member for purposes of the 85 percent limitation. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 68–75, 1968-1 C.B. 271. 218.286 Cooperatives; “like organization”; installment sales. An exempt cooperative sold its office building under a valid installment sales transaction from which it realized a long-term gain of 100x dollars. In determining whether the organization meets the 85 percent of income from members requirement, the amount of the gain that the organization is required to include in gross
Exempt organizations income for the annual accounting period involved, is the income portion of the installment payment actually received during that period. §§1.453–1, 1.501(c)(12)-1. (Secs. 453, 501; ’86 Code.) Rev. Rul. 65-99, 1965-1 C.B. 242. 218.287 Cooperatives; “like organization”; light and water cooperative. An organization which furnishes light and water to its members on a cooperative basis may be exempt as a like organization provided 85 percent or more of its income consists of amounts collected from members for the sole purpose of meeting losses and expenses. I.T. 1671 superseded. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 67–265, 1967–2 C.B. 205. 218.288 Cooperatives; “like organization”; lumber marketing association. An incorporated organization that markets lumber for the independent lumber producing companies controlling such organization, whose members share in its surplus or deficit on the basis of their stock interests, does not qualify for exemption as a “farmers, fruit growers, or like association, and operated on a cooperative basis.” I.T. 1312 superseded. §1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 73-570, 1973-2 C.B. 194. 218.289 Cooperatives; “like organization”; mutual water company. A mutual water company whose articles of incorporation provide that in the event of integration with a local government water system the assets of the company are to be distributed to its members who will transfer them to the local government without charge is not precluded from qualifying for exemption. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 73-453, 1973–2 C.B. 185. 218.290 Cooperatives; “like organization”; preventing erosion of river banks. A mutual company, whose members are the owners of river front property, formed to contract with the Federal Government to prevent erosion of river banks may qualify for exemption as a “like organization”. I.T. 3286 superseded. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 68-564, 1968-2 C.B. 221. 218.291 Cooperatives; “like organization”; rental income. An electric generation and transmission cooperative entered into a lease-operating agreement with a commercial electrical power company whereby the latter leases, operates, and maintains the cooperative’s electric generator unit and provides electric energy to the cooperative’s members all of which are nonprofit membership distribution cooperatives. The commercial company pays the cooperative for the use of the unit and the cooperative, in turn, pays the commercial company for electric energy furnished to co-op’s members. The amounts which are received by the cooperative from the commercial company under the circumstances constitute income which must be considered in determining whether the cooperative meets the 85 percent of member income requirement. §1.501(c)(12)–1. (Sec. 501, ’86 Code.) Rev. Rul. 65–174, 1965-2 C.B. 169. 218.292 Cooperatives; mutual ditch company. A mutual ditch company that operates in a traditional manner consistent with the provisions of a particular state statute may qualify for exemption under section 501(c)(12), even though it does not satisfy all of the requirements of Rev. Rul. 72-36. Rev. Rul. 72-36 modified. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 81–109, 1981–1 C.B. 347. 218.293 Cooperatives; net operating loss; effect on patronage dividends. The net operating loss deduction allowed under section 172(a) does not reduce the earnings of a cooperative that are available for payment of patronage dividends. §§1.172-4, 1.522-2, 1.1382-2. (Secs. 172, 522, 1382; ’86 Code.) Rev. Rul. 65-106, 1965-1 C.B. 126. 218.294 Cooperatives; organization distributing electric power to members. The Service will not follow the Peninsula Light Co., Inc. decision that an organization formed for the purpose of distributing electric power to its members, not operated on a patronage basis, whose charter provides, instead, that each member has an equal share in the organization’s assets, with its net assets upon dissolution to be divided equally among its then-cument members, and whose former members’ rights and interests are forfeited upon termination of membership, qualifies for exemption as a mutual or cooperative organization. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 78–238, 1978–1 C.B. 161. 218.295 Cooperatives; requirements for exemption. In order to retain their exempt status under section 501(c)(12), cooperative companies must: (1) determine the interests of members in proportion to members’ business with the organization; (2) use funds to meet losses and expenses but may retain excess funds for certain purposes; (3) keep such records as are necessary to determine members’ interest; (4) not provide for or cause a forfeiture of a member’s equity interest; and (5) distribute certain funds. upon dissolution, in a ‘prescribed manner. Modified by Rev. Rul. 81-109. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 72–36, 1972-1 C.B. 151. 218.296 Cooperatives; stock ownership. Rev. Proc. 73–39, 1973–2 C.B. 502, is revoked because the patronage requirement under the stock ownership test of section 521(b)(2) is a qualitative, not quantitative, test. §1.521-1. (Sec. 601.105, S.P.R.; Sec. 521, ’86 Code.) Rev. Proc. 90-29, 1990-1 C.B. 533. 218.297 Cooperatives; stock ownership. Rev. Rul. 77-440, 1977–2 C.B. 199, is revoked because it applies the 50-percent patronage test of Rev. Proc. 73–39, 1973–2 C.B. 502, that was revoked by Rev. Proc. 90-29. 1.521-1. (Sec. 521, ’86 Code.) Rev. Rul. 90-42, 1990-1 C.B. 117. 218.298 Cooperatives; telephone; higher service rates charged nonmembers. A cooperative telephone company deriving more than 85 percent of its income from members is exempt from tax notwithstanding that nonmembers are charged a higher rate for service than the members. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 70-130, 1970-1 C.B. 133. 218.299 Cooperatives; telephone; nonmember income. For taxable years of a mutual or cooperative telephone company beginning after 1974, the 85 percent member-income test for exemption is applied without taking into account income received or accrued from another telephone company for the performance of communication services involving the completion of long distance calls to, from, or between members of the mutual or cooperative telephone company. Rev. Rul. 74-362 obsoleted. §1.501(c)(12)-1. (Sec. 501, ’86 Code.) Rev. Rul. 81–291, 1981-2 C.B. 131. 218.300 Counseling widows. A nonprofit organization formed to provide individual and group counseling to widows to assist them in legal, financial, and emotional problems caused by the death of their husbands and that provides the widows with information on available benefits and services is considered to be operated excessively for educational purposes and qualifies for exemption. §1.501(c)(3)–1. (Sec. 501, ’86 Code.) Rev. Rul. 78-99, 1978-1 C.B. 152. 218.301 Creative arts awards. A nonprofit organization providing awards and grants, including scholarships and fellowship grants, to needy individuals to continue their education or their work in the creative arts. with no monetary benefit to the donor, is exempt from tax. §1.501(c)(3)-1. (Sec. 501, ’86 Code.) Rev. Rul. 66-103, 1966-1 C.B. 134. 218.302 Credit counseling service. A nonprofit organization formed to help reduce personal bankruptcy by providing information to the public on budgeting, buying practices, and the sound use of consumer credit, and assisting low-income individuals and families who have financial problems by providing, without charge, counseling, and, if necessary, budget plans for liquidation of indebtedness, qualifies for exemption. §1.501(c)(3)-1. (Sec. 501, ’86 Code.) Rev. Rul. 69-441, 1969-2 C.B. 115. 218.303 Credit union; state-chartered insurer. An organization created after August 31, 1957, for the purpose of insuring individuals’ deposits in state-chartered credit unions does not qualify for exemption under either section 501(c)(6) or section 501(c)(14)(B). §§1.501(c)(6)-1; 1.501(c)(14)-1, 301.7805-1. (Secs. 501, 7805; ’86 Code.) Rev. Rul. 83-166, 1983-2 C.B. 96. 218.304 Credit unions; state law requirement. An organization must be formed and operated under the state law governing the formation of credit unions to qualify as a “credit union” subject to the tax exemption provided by section 501(c)(14)(A). Clarified to provide that such “credit union” must also operate without profit and for the mutual benefit of its members. §1.501(c)(14)-1. (Sec. 501. ’86 Code.) Rev. Rul. 69–282, 1969-1 C.B. 155; Rev. Rul. 72-37, 1972-1 C.B. 152. 218.305 Credit unions; U.S. military base in foreign country. An organization formed by a group of individuals at a U.S. military base in a foreign country, which meets all but the territorial requirements of the Federal Credit Union Act, is exempt as a credit union. §1.501(c)(14)–1. (Sec. 501, ’86 Code.) Rev. Rul. 69-283, 1969–1 C.B. 156. 218.306 Crop financing corporation; ownership of stock in business corporation. A corporation organized to finance crop operations and exempt under section 501(c)(16) is not disqualified from exemption by the corporation’s ownership of all the stock of a business corporation. §1.501(c)(16)-1. (Sec. 501, ’86 Code.) Rev. Rul. 78-434, 1978-2 C.B. 179. 218.307 Crop seed certification. A nonprofit organization that has been delegated the responsibility of certification of crop seed by a state university in accordance with state and federal law, and conducts research and educational programs qualifies under section 501(c)(3). (Sec. 501, ’86 Code.) Indiana Crop Improvement Association, Inc. 76 T.C. 394, Acq., 1981-2 C.B. 1. 218.308 Cultural foundation; aiding in establishing repertory theatre. A foundation formed to create interest in the development of the American theatre by aiding local communities to establish their own charitable and educational repertory theatres qualifies for exemption. §1.501(c)(3)-1. (Sec. 501, ’86 Code.) Rev. Rul. 64-174, 1964-1 (Part 1) C.B. 183. 218.309 Cultural foundation; operating repertory theatre. A nonprofit corporation which is organized exclusively for charitable, scientific, literary, or educational purposes and, more specifically, to stimulate, promote and develop the interest of the American public in the dramatic arts and which operates a permanent repertory theatre in
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