Rev. Rul. 64-246

Advice has been requested whether an association organized to cooperatively market fish produced by its members in privately-owned waters is entitled to exemption from taxation under section 521 of the Internal Revenue Code of 1954 as a farmers' cooperative marketing association.

The instant organization was incorporated under State law as an agricultural cooperative association to engage in the business of harvesting, processing, buying, selling, storing, and otherwise handling fish and fish products for its members and other patrons. Its membership is restricted to persons engaged in the production of agricultural commodities, including fish of commercial value produced in privately-owned waters.

Section 521(b) of the Code provides that farmers' cooperatives exempt from taxation to the extent provided in subsection (a) thereof are farmers', fruit growers', or like associations organized and operated on a cooperative basis 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 of the products furnished by them, or 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.

Section 1.521-1(a) of the Income Tax Regulations states that cooperative associations engaged in the marketing of farm products for farmers, fruit growers, livestock growers, dairymen, etc., and turning back to the producers the proceeds of the sales of their products, less the necessary operating expenses, on the basis of either the quantity or the value of the products furnished by them, are exempt from income tax except as otherwise provided in section 522, or Part 1, subchapter T, chapter 1 of the Code. Section 1.521-1(d) of the regulations provides that cooperative organizations engaged in occupations dissimilar from those of farmers, fruit growers, and the like, are not exempt.

Thus, it is apparent that the exemption provided for in section 521 of the Code is available only to organizations composed of producers of farm products. Inasmuch as the evidence presented in the instant case indicates that the association is engaged in cooperatively marketing fish produced by its members and other patrons in privately-owned waters, it is considered to be an organization composed of producers of `farm-raised fish' which are, in other words, farm products.

In Revenue Ruling 55-611, C.B. 1955-2, 270, it is held that an association purchasing supplies and equipment for its members who are fishermen or oyster growers is not a farmers', fruit growers' or like association within the meaning of section 521 of the Code and, therefore, is not exempt from tax under such section. The instant case is distinguishable in that the members of the association are engaged in producing fish on a farm, while in Revenue Ruling 55-611, neither the fish nor the oysters marketed by the association were produced on a farm by its members.

Accordingly, the organization is held to be entitled to exemption from Federal income tax as a farmers', fruit growers' or like association within the ambit of section 521 of the Code.

An organization which considers itself within the scope of this Revenue Ruling must, in order to establish exemption under section 521 of the Code, file an application on Form 1028, Application Exemption, with the District Director of Internal Revenue for the internal revenue district in which is located the principal place of business or principal office of the organization. See section 1.521-1 of the regulations.