IRS Form 1028 – In the complex world of tax regulations, farmers’ cooperatives play a vital role in supporting agricultural communities. If you’re part of such an organization, securing tax-exempt status can provide significant financial benefits. IRS Form 1028, officially titled the “Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code,” is the key document for achieving this. This comprehensive guide explores everything you need to know about Form 1028, from eligibility to filing, using the latest information from official IRS sources as of 2026. Whether you’re a farmer, fruit grower, or involved in similar associations, understanding this form can help your cooperative thrive tax-free.
What Is IRS Form 1028 and Section 521 Exemption?
IRS Form 1028 is specifically designed for farmers’ cooperatives seeking recognition of their exempt status under Internal Revenue Code (IRC) Section 521. This section allows certain agricultural organizations to operate without paying federal income tax on earnings distributed as patronage dividends, provided they meet strict cooperative principles.
Section 521 defines a farmers’ cooperative as an association of farmers, fruit growers, or individuals with similar occupations organized and operated on a cooperative basis. The primary goals include marketing members’ products or purchasing supplies and equipment for them. Exemption under this section ensures that profits are returned to members based on their participation, promoting fair and equitable operations in the agricultural sector.
Key benefits of Section 521 exemption include:
- Tax-free treatment of patronage refunds.
- Ability to deduct allocations to reserves.
- Enhanced financial stability for member-focused operations.
However, not all cooperatives qualify—only those adhering to cooperative principles, such as democratic control and patronage-based distributions.
Who Should Use Form 1028?
Form 1028 is for farmers’ cooperatives, including associations of dairy farmers, livestock producers, or horticultural groups. To be eligible, your organization must:
- Be organized as a corporation or association under state law.
- Operate on a cooperative basis, with at least 85% of voting stock owned by active producers.
- Distribute earnings primarily as patronage dividends.
- Limit business with non-members and ensure non-producer ownership doesn’t exceed certain thresholds.
Federated cooperatives (those with member cooperatives) can also apply, but all members must generally be exempt under Section 521 or align on accounting periods. If your group has already filed federal income tax returns, you’ll need to disclose that information on the form.
Note: If your cooperative doesn’t fit this description, you might need to explore other exemption forms like Form 1023 for Section 501(c) status.
Step-by-Step Guide to Completing Form 1028
Filling out Form 1028 requires detailed information about your organization’s structure, operations, and finances. The form is divided into four parts, and it’s crucial to provide accurate data for the current year (within 60 days of filing) and the three preceding years. Download the latest version (Rev. September 2006) from the IRS website: https://www.irs.gov/pub/irs-pdf/f1028.pdf.
Part I: Identification
- Enter your organization’s full name, Employer Identification Number (EIN), address, and contact details.
- Specify the date of incorporation or formation and your accounting period end month.
- Indicate if you’ve filed previous tax returns, including form numbers and IRS offices.
If you don’t have an EIN, apply via Form SS-4 or online at IRS.gov.
Part II: Type of Entity and Organizational Documents
- Check if you’re a corporation or other entity.
- Attach conformed copies of your Articles of Incorporation (or equivalent) and bylaws. These must be signed and certified as accurate.
Part III: Activities and Operational Information
This is the core section, requiring in-depth details on your cooperative’s operations:
- Capital stock breakdown: Shares by class (voting, nonvoting), value, and ownership by producers vs. nonproducers.
- Voting rights: Explain one-member-one-vote rules or any variations.
- Reserves: Detail state-required or additional reserves, their purposes, and amounts.
- Patronage dividends: Confirm if paid to all patrons equally and based on pre-existing obligations.
- Business volumes: Provide values of products marketed and supplies purchased for members, nonmembers, and nonproducers over four years.
- Federated specifics: Verify member exemptions and accounting alignments.
- Earnings distribution: Ensure all net earnings are distributed or apportioned on a patronage basis.
Describe all current and planned activities, membership requirements, and any government business.
Part IV: Financial Data
- Statement of Receipts and Expenditures: Itemize gross receipts from dues, activities, sales, investments, and more. Deduct costs and list expenditures like salaries, rent, and patronage dividends.
- Balance Sheets: Detail assets (cash, receivables, investments) and liabilities (payables, capital stock, retained earnings) at the beginning and end of each period.
Use your organization’s accounting method and break down lump sums into specifics.
Required Attachments and Documentation
Beyond the form, submit:
- Conformed copies of organizing documents and bylaws.
- Detailed schedules for financial breakdowns (e.g., cost of goods sold, other expenditures).
- Form 8718 (User Fee for Exempt Organization Determination Letter Request) with the applicable fee—check current rates on IRS.gov, as they may vary (nonrefundable).
- Power of attorney (Form 2848) if an agent is representing you.
All attachments should be 8.5″ x 11″ paper, labeled with your organization’s name, EIN, and reference to the relevant form part. Keep originals—only copies are needed.
How to File Form 1028: Process and Fees?
Mail your completed application to: Internal Revenue Service, TE/GE Stop 31A Team 105, P.O. Box 12192, Covington, KY 41012-0192 (or for deliveries: 7940 Kentucky Drive, Florence, KY 41042).
Include the user fee via Form 8718. Processing can take time, so file early. Once approved, your cooperative must file Form 1120-C annually (U.S. Income Tax Return for Cooperative Associations), even if exempt.
Tips for success:
- Double-check for completeness—incomplete forms may be returned.
- Retain records for at least three years, as they may be material for audits.
- If changes occur post-filing, notify the IRS promptly.
Common Mistakes to Avoid When Filing Form 1028
- Omitting detailed financial breakdowns or using lump sums.
- Failing to attach certified organizational documents.
- Not disclosing prior tax filings or operational changes.
- Ignoring federated cooperative requirements if applicable.
- Submitting without the user fee or to the wrong address.
By avoiding these, you increase your chances of swift approval.
Final Thoughts on Section 521 Tax Exemption
Applying for exemption via IRS Form 1028 can unlock tax advantages that bolster your farmers’ cooperative’s mission. With careful preparation and adherence to IRS guidelines, your organization can focus on supporting members rather than tax burdens. For personalized advice, consult a tax professional or visit IRS.gov for the most current resources. Remember, exemption isn’t automatic—filing this form is essential for official recognition.