Section 521 Farmer Cooperatives

Section 521 of the Internal Revenue Code allows certain cooperatives that meet specific requirements of the Code and that have received written authority to utilize the Code section additional deductions from taxable income from those discussed in reference to Subchapter T. Section 521 should not be confused with Section 501, which applies to non‐profits, including some utilities and credit unions.

The major additional deductions from taxable income available to Section 521 cooperatives, also called exempt cooperatives, include:

  • Non‐patronage sourced income (e.g., rent and interest earned on bank deposits)
  • Income from non‐member business distributed to members on a patronage basis
  • Dividends paid on capital stock

Currently, most cooperatives are Subchapter T cooperatives rather than Section 521 cooperatives because the rules are very strict for qualifying as an “exempt” cooperative.

There are several qualifications to receive approval as a Section 521 cooperative, but three are fundamental. The cooperative:

  • Must be an agricultural marketing or supply cooperative as defined by the Code,
  • Must treat non-members the same as members, including in the allocation of  patronage refunds
  • Follow the 50‐50‐15 rule. At least 50% of marketing or supply cooperatives’ business must be done with members. Additionally, supply cooperatives must do no more than 15% of business with nonmembers who are also non-farmers.


Frederick, D. & Ingalsbe, G. (1993). “What are Patronage Refunds?”, U.S. Department of Agriculture Agricultural Cooperative Service Cooperative Information Report 9. Washington, D.C.: U.S. Government Printing Office.

Hahn, D. (n.d.). “Taxes- Cooperatives and the Internal Revenue Service.” Columbus, OH. The Ohio State University.

Williamson, L. (1987). “The Farmer’s Cooperative Yardstick: Should Your Cooperative be “Exempt” or “Non-Exempt.” University of Kentucky College of Agriculture Cooperative Extension Service Publication No. AEC-53. Retrieved from