---
kind: "section"
citation: "26 U.S.C. § 521"
title: "26"
title_heading: "Internal Revenue Code"
number: "521"
heading: "Exemption of farmers’ cooperatives from tax"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/521"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter F — Exempt Organizations"
  - "Part IV — Farmers’ Cooperatives"
---

# §521. Exemption of farmers’ cooperatives from tax

- (a) **Exemption from tax—** A farmers’ cooperative [organization](/usc/26/414.md?p=m-6-A) described in [subsection (b)(1)](#b-1) shall be exempt from taxation under this subtitle except as otherwise provided in part I of subchapter T ([sec. 1381](/usc/26/1381.md) and following). Notwithstanding part I of subchapter T ([sec. 1381](/usc/26/1381.md) and following), such an [organization](/usc/26/414.md?p=m-6-A) shall be considered an [organization](/usc/26/414.md?p=m-6-A) exempt from income taxes for purposes of any law which refers to [organizations](/usc/26/414.md?p=m-6-A) exempt from income taxes.
- (b) **Applicable rules—**
  - (1) **Exempt farmers’ cooperatives—** The farmers’ cooperatives exempt from taxation to the extent provided in [subsection (a)](#a) are farmers’, fruit growers’, or like associations organized and operated on a cooperative basis (A) for the purpose 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](/usc/26/851.md?p=c-4) of the products furnished by them, or (B) for the purpose of purchasing supplies and equipment for the use of members or other persons, and turning over such supplies and equipment to them at actual cost, plus necessary expenses.
  - (2) **Organizations having capital stock—** Exemption shall not be denied any such association because it has capital [stock](/usc/26/1504.md?p=a-4), if the [dividend](/usc/26/316.md?p=a) rate of such [stock](/usc/26/1504.md?p=a-4) is fixed at not to exceed the legal rate of [interest](/usc/26/856.md?p=f-1) in the State of incorporation or 8 percent per annum, whichever is greater, on the [value](/usc/26/851.md?p=c-4) of the consideration for which the [stock](/usc/26/1504.md?p=a-4) was issued, and if substantially all such [stock](/usc/26/1504.md?p=a-4) (other than nonvoting preferred [stock](/usc/26/1504.md?p=a-4), the owners of which are not entitled or permitted to participate, directly or [indirectly](/usc/26/101.md?p=a-3-B), in the profits of the association, upon dissolution or otherwise, beyond the fixed [dividends](/usc/26/316.md?p=a)) is owned by producers who market their products or [purchase](/usc/26/1361.md?p=e-1-C) their supplies and equipment through the association.
  - (3) **Organizations maintaining reserve—** Exemption shall not be denied any such association 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 association which markets the products of nonmembers in an amount the [value](/usc/26/851.md?p=c-4) of which does not exceed the [value](/usc/26/851.md?p=c-4) of the products marketed for members, or which [purchases](/usc/26/1361.md?p=e-1-C) supplies and equipment for nonmembers in an amount the [value](/usc/26/851.md?p=c-4) of which does not exceed the [value](/usc/26/851.md?p=c-4) of the supplies and equipment purchased for members, provided the [value](/usc/26/851.md?p=c-4) of the [purchases](/usc/26/1361.md?p=e-1-C) made for persons who are neither members nor producers does not exceed 15 percent of the [value](/usc/26/851.md?p=c-4) of all its [purchases](/usc/26/1361.md?p=e-1-C).
  - (5) **Business for the United States—** Business done for the [United States](/usc/26/993.md?p=g) or any of its agencies shall be disregarded in determining the right to exemption under this section.
  - (6) **Netting of losses—** Exemption shall not be denied any such association because such association computes its net earnings for purposes of determining any amount available for distribution to patrons in the manner described in [paragraph (1)](/usc/26/1388.md?p=j-1) of section 1388(j).
  - (7) **Cross reference—** For treatment of [value](/usc/26/851.md?p=c-4)-added processing involving animals, see [section 1388(k)](/usc/26/1388.md?p=k).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 176; Pub. L. 87–834, § 17(b)(1), Oct. 16, 1962, 76 Stat. 1051; Pub. L. 99–272, title XIII, § 13210(b), Apr. 7, 1986, 100 Stat. 324; Pub. L. 108–357, title III, § 316(b), Oct. 22, 2004, 118 Stat. 1469.)

## Notes

### Editorial Notes

### Amendments

2004—Subsec. (b)(7). Pub. L. 108–357 added par. (7).

1986—Subsec. (b)(6). Pub. L. 99–272 added par. (6).

1962—Subsec. (a). Pub. L. 87–834 substituted “part I of subchapter T (sec. 1381 and following)” for “section 522” in two places.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2004 Amendment

Pub. L. 108–357, title III, § 316(c), Oct. 22, 2004, 118 Stat. 1469, provided that: “The amendments made by this section [amending this section and section 1388 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [Oct. 22, 2004].”

### Effective Date of 1986 Amendment

Amendment by Pub. L. 99–272 applicable to taxable years beginning after Dec. 31, 1962, see section 13210(c) of Pub. L. 99–272, set out as a note under section 1388 of this title.

### Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 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.