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22 



Taxation of Farmer Organiza- 

 tions Under Internal Revenne 

 Code 



By Donald Kirkpatrick 



THE first of the several classifications 

 under Section 101 of the Internal 

 Revenue Code exempting certain cor- 

 porations from the obligation of paying 

 a federal income tax covers certain agri- 

 cultural, horticultural and labor mem- 

 bership organizations. 



Such corporations are generally or- 

 ganized as membership corporations and 

 without capital stock. Whether such a 

 corporation has capital stock, however, is 

 not a determining factor. The function, 

 the operation and the non-profit charac- 

 ter determine whether a corporation is 

 within this classification. 



These organizations, if incorporated, 

 are incorporated generally under the 

 Membership Corporation Act and in 

 which no member is entitled to any pe- 

 cuniary returns or distribution of income 

 except on dissolution and liquidation of 

 such corporation. 



In Illinois our corporation act provid- 

 ing for the organization of such associ- 

 ations is entitled, "An Act for the In- 

 corporation of Associations Not for Pe- 

 cuniary Profit." The Illinois Agricul- 

 tural Association is organized under this 

 Illinois act. The American Farm Bu- 

 reau Federation is organized under this 

 Illinois act. All of the County Farm Bu- 

 reaus in Illinois are incorporated under 

 this act. 



Some years ago prior to the enactment 

 of the Illinois Agricultural Cooperative 

 Act of 1923, this Membership Act Not 

 for Profit was used for the incorporation 

 of cooperative marketing associations. 

 Practically all of our local livestock ship- 

 ping associations were incorporated un- 

 der this Membership Act. 



The fact, however, that an organiza- 

 tion is incorporated under the Corpora- 

 tion Act "Not for Pecuniary Profit" does 

 not mean that it is entitled to exemption 

 under the first classification of the ex- 

 emption section. The County Farm Bu- 

 reaus in Illinois, the Illinois Agricultural 

 Association, and the American Farm Bu- 

 reau Federation have letters of exemp- 

 tion under Section 101 (1) of the In- 

 ternal Revenue Code. 



Under the regulations of the Bureau of 

 Internal Revenue a farm organization, 

 whether it be local, state or national, to 

 be entitled to exemption under this first 

 classification must satisfy the following 

 conditions : 



(1) The association must have no net 

 income inuring to the benefit of 

 any member. 



(2) The association must be educa- 



tional or instructive in character. 

 (3) The association must have as its 

 object the betterment of the con- 

 ditions of those engaged in such 

 pursuits, the improvement of the 

 grade of their products and the 

 development of a higher grade of 

 efficiency in their respective oc- 

 cupations. 

 Particular consideration should be 

 given to the first condition, that the as- 

 sociation shall have no income inuring 

 to the benefit of any member. This con- 

 dition would prevent the Farm Bureau 

 from engaging in extensive commercial 

 and trading operations. It is suggested 

 that such activities be carried on by co- 

 operatives as subsidiaries or affiliates. 



It has been the opinion of the legal 

 department of the Illinois Agricultural 

 Association that a County Farm Bureau 

 organized under the "Not for Profit Act" 

 and holding a letter of exemption from 

 the Internal Revenue Department does 

 not violate its right to hold such letter of 

 exemption by acting as an agent for its 

 members in performing certain services. 

 For example, a County Farm Bureau 

 acts as an agent for its members in re- 

 ceiving from the Illinois Farm Bureau 

 Serum Association certain biologic sup- 

 plies and distributing them to Farm Bu- 

 reau members and in receiving patronage 

 dividends from the State Company, pass- 

 ing on such earnings and savings to the 

 producer member. The Department of 

 Internal Revenue has not taken excep- 

 tion to this operation by a County Farm 

 Bureau exemption under Par. 1 of Sec- 

 tion 101. 



Organizations desirous of maintaining 

 their tax exemption status under the In- 

 ternal Revenue Code shoulcf remember 

 at all times that exemption sections are 

 strictly construed by the courts and that 

 therefore an organization desiring to 

 maintain its exempt status should live 

 within the limitations of the law. 



State Has Good Seed Corn 

 Crop, University Reports 



Three million bushels of hybrid seed 

 corn, sufficient to plant 21 million acres 

 next year, or more than twice the acreage 

 planted in the state this year, is the esti- 

 mate for the 1944 Illinois seed corn crop, 

 according to Oren Bolin, assistant pro- 

 fessor of plant genetics, U. of I. College 

 of Agriculture. 



"Illinois is one of the very few states 

 that has not experienced a damaging 

 effect on the seed corn fields this year," 

 Bolin reported. 



"Some Illinois seed fields have suffered 

 from drouth and chinch bugs, but most 

 of the damage was done in areas where 

 only a small percentage of our seed is 

 grown." 



L A. A. RECORD 



