Page 400

TITLE 26-INTERNAL REVENUE CODE § 521. Exemption of farmers' cooperatives from tax (a) Exemption from tax A farmers' cooperative organization described in subsection (b)(1) shall be exempt from tax- ation under this subtitle except as otherwise provided in part I of subchapter T (sec. 1381 and following). Notwithstanding part I of sub- chapter T (sec. 1381 and following), such an or- ganization 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 tax- ation to the extent provided in subsection (a) are farmers', fruit growers', or like associ- ations organized and operated on a cooperat- ive basis (A) for the porpose 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 equip- ment for the use of members or other per- sons, and turning over such supplies and equipment to them at actual cost, plus neces- sary expenses. (2) Organizations having capital stock Exemption shall not be denied any such as- sociation 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, which- ever is greater, on the value of the consider- ation for which the stock was issued, and if substantially all such stock (other than non- voting preferred stock, the owners of which are not entitled or permltted to participate, directly or indirectly, in the profits of the asso- ciation, upon dissolution or otherwise, beyond the fixed dividends) is owned by producers who market their products or purchase their supplies and equipment through the associ- ation. (3) Organizations maintaining reserve Exemption shall not be denied any such as- sociation 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 as- sociation which markets the products of non- members 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 equip- ment 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 pur- chases. (5) Business for the United States Business done for the United States or any of its agencies shall be disregarded in deter- mining the right to exemption under this sec- tion. (Aug. 16, 1954, ch. 736, 68A Stat. 176; Oct. 16, 1962, Pub. L. 87-834, § 17(b)(1), 76 Stat. 1051.) AMENDMENTS 1962-Subsec. (a). Pub. L. 87-834 substituted "part I of subchapter T (see. 1381 and following)" for "section 522" in two instances. ErFEcrvE DATE OF 1962 AMENDMENT Amendment of subsec. (a) of this section applicable, except as otherwise provided, to taxable years of orga- nizations described in section 1381(a) of this title be- ginning 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. CROSS REFERENcEs Corporate deductions for dividends received inappli- cable to dividends from corporation exempt from tax under this section, see section 246 of this title. Corporations organized for purpose of financing or- dinary crop operations of members of associations sub- ject to this part, exemption of, see section 501 of this title. Employment under Federal Insurance Contributions Act and Federal Unemployment Tax Act as excluding services performed in employ of organization exempt from tax under this section, see sections 3121, 3306 of this title. Lottery under wagering taxes as excluding drawings conducted by organization exempt from tax under this section, see section 4421 of this title. Partial exclusion of dividends received by individuals inapplicable to dividends from corporation exempt from tax under this section, see section 116 of this title. SECTION REFERRED TO IN OTRM SECTIONS This section is referred to in sections 48, 116, 246, 1245, 1250, 1251, 1381, 3121, 3306, 4421, 6044 of this title; title 15 section 77c. SECTION REFERRED TO in D.C. CODE This section is referred to in section 46-301 of the District of Columbia Code. [§ 522. Repealed. Pub. L. 87-834, § 17(b)(2), Oct. 16, 1962, 76 Stat. 10511 Section, act Aug. 16, 1954, ch. 736, 68A Stat. 177, re- lated to tax on farmers' cooperatives. EFFECTIVE DATE OF REPEAL Repeal of section 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. PART V-SHIPOWNERS' PROTECTION AND INDEMNITY ASSOCIATIONS Sec. 526. Shipowners' protection and indemnity associ- ations. AMENDMENTS 1969-Pub. L. 91-172, title I, § 101(a), Dec. 30, 1969, 83 Stat. 492, substituted "Part V" for "Part IV" as the Part designation. §521 Page 400