Internal Revenue Manual - 7.25.16 Corporations Organized to Finance Crop Operations

IRS Resources

Part 7. Rulings and Agreements
Chapter 25. Exempt Organizations Determinations Manual
Section 16. Corporations Organized to Finance Crop Operations

Guidance is provided for examiners on corporations organized to finance crop operations.

IRC 501(c)(16) provides exemptions from Federal income tax for corporations organized by a farmers’ cooperative marketing or purchasing association exempt under IRC 521, or the members thereof, to finance the ordinary crop operations of such members or other producers. The finance corporation must be operated in conjunction with the farmers’ cooperative association.
The corporation can issue stock if:
1. the stock dividend rate is fixed and does not exceed the larger of either the legal rate of interest in the state of incorporation or 8% per year, and
2. substantially all stock is owned by the farmers’ cooperative association or its members. However, this rule does not apply to non-voting preferred stock. See IRM 7.25.34 for comprehensive stock ownership rules applicable to IRC 501(c)(16).
The exemption may not be denied merely because the corporation accumulates reasonable or necessary reserves for business purposes. See Reg. 1.521–1, which relates to a reserve or surplus and to capital stock applicable to IRC 501(c)(16) corporations.

There is no prescribed form on which organizations can apply for exemption. Any form is acceptable, but must be submitted in duplicate and show—
1. purposes and
2. activities
An organization must submit with its application—
1. articles of incorporation and bylaws, and
2. the latest financial statements showing assets, liabilities, receipts and disbursements.

Part 7. Rulings and Agreements