IRS Instruction 1028 – IRS Form, Instructions, Pubs 2026

IRS Instruction 1028 – Farmers’ cooperatives seeking federal tax-exempt status under Internal Revenue Code (IRC) Section 521 must file Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code. The IRS still uses the September 2006 revision of the instructions and form as of February 2026, with no recent changes or updates.

This comprehensive guide explains who qualifies, what the form requires, step-by-step filing instructions, required attachments, user fees, and post-approval obligations. Whether you operate a marketing, purchasing, or service cooperative for farmers, fruit growers, or similar producers, understanding IRS Instructions for Form 1028 helps secure exemption from federal income tax on patronage-sourced earnings.

What Is IRC Section 521 and Why Does It Matter?

Section 521 exempts farmers’ cooperatives from tax on income derived from business with members (patronage dividends, per-unit retain allocations, and certain non-patronage income under specific limits). The cooperative must operate on a cooperative basis and primarily serve “producers” (farmers, fruit growers, or persons with similar occupations engaged in farming as a business).

Without IRS recognition via Form 1028 (or a prior ruling), the organization is not considered exempt—even if it meets the operational tests in Sections 521 and 1381–1388. Recognition provides certainty, allows issuance of qualified written notices of allocation, and ensures proper tax treatment.

Key benefits include:

  • Exemption on patronage dividends and per-unit retains paid to patrons.
  • Special rules for non-patronage income (taxable but limited).
  • Filing Form 1120-C instead of regular corporate returns.

Who Must File Form 1028? Eligibility Requirements?

Any farmers’ cooperative as defined in Section 521 may use Form 1028. The cooperative must:

  • Be an association of producers (farmers, fruit growers, or similar).
  • Be organized and operated on a cooperative basis.
  • Have at least 50% of marketing/purchasing activity with “current and active” producers (patrons who market >50% of products or purchase >50% of supplies through the cooperative in the tax year).

Producer definition: Individuals or corporations receiving income based on farm production (not fixed compensation). Example: A landowner leasing land for crop-share rent qualifies as a producer.

New or existing cooperatives without prior recognition must file. Organizations previously ruled exempt do not need to refile unless requested by the IRS.

Step-by-Step Guide to Completing Form 1028 (Per Official IRS Instructions)

Follow the September 2006 instructions exactly. Keep a copy for your records.

Part I – Identification

  • Line 1a: Legal name from organizing documents (add DBA in parentheses if different).
  • Line 1b: Employer Identification Number (EIN). Apply online, by phone (1-800-829-4933), or Form SS-4 if needed.
  • Line 3: Contact person’s name and phone number during business hours.

Part II – Type of Entity and Organizational Documents

Submit conformed copies (exact matches) of:

  • Articles of incorporation (signed by incorporators and state official), or
  • Constitution/articles of association (signed).

Include bylaws. If unsigned copies, attach officer declaration certifying accuracy.

Part III – Activities and Operational Information

Provide details for the current year (period ending within 60 days of filing date) and the prior 3 years (or shorter existence). Cover:

  • Marketing, purchasing, or service activities.
  • Percentage of business with producers vs. non-producers.
  • Patronage vs. non-patronage sources.

Part IV – Financial Data

Complete statements of receipts/expenditures and balance sheets for the current partial year (within 60 days of filing) + prior 3 years.

Critical schedules (attach detailed breakdowns):

  • Line 3b (Cost of Goods Sold): Include per-unit retain allocations and redemptions (Sections 1382/1388).
  • Line 15 (Other Expenditures): Non-patronage distributions and “income from sources other than patronage” (e.g., rents, investments, capital gains).
  • Line 16 (Patronage Dividends): Amounts paid in cash, qualified notices, or property (plus non-qualified redemptions and unreported per-unit retains).

Use consistent accounting method. Reproduce page 4 of Form 1028 for each year.

Checklist before signing:

  • Complete all parts.
  • Attach Form 8718 + user fee.
  • Include EIN, conformed organizing documents + bylaws.
  • Detailed (no lump-sum) financials.
  • Signed by officer, director, or authorized representative.

Where to File and User Fees?

Mail the completed Form 1028, all attachments, Form 8718 (User Fee for Exempt Organization Determination Letter Request), and the correct user fee to the address in Form 8718 instructions.

User fees are nonrefundable and subject to change—always verify current amounts on IRS.gov (search “User Fee”) or call 1-877-829-5500.

Include Form 2848 (Power of Attorney) or Form 8821 (Tax Information Authorization) if a representative will handle correspondence.

After Filing: Processing and Annual Requirements

The IRS will notify you of its determination. Processing times vary; submit complete applications to avoid delays.

Once approved:

  • File Form 1120-C (U.S. Income Tax Return for Cooperative Associations) annually.
  • Issue patronage dividends and per-unit retains properly to maintain exempt status.
  • Retain records indefinitely (per Paperwork Reduction Act estimates: ~50 hours total preparation time).

Common Mistakes to Avoid

  • Missing detailed financial schedules or using lump sums.
  • Failing to submit conformed (not original) organizing documents.
  • Incorrect EIN or missing contact information.
  • Submitting without Form 8718 and fee (application returned).
  • Not covering the full 4-year financial period (or allowable partial current year).

Pro tip: Cite relevant court cases, revenue rulings, or regulations in attachments to strengthen your application.

Download Official Documents (Direct IRS Links – Always Current)

Frequently Asked Questions (FAQs)

Q: Do all farmers’ cooperatives need to file Form 1028?
A: Yes, to obtain formal IRS recognition of exempt status under Section 521. Operating under the rules alone is insufficient.

Q: Is the 2006 form still valid in 2026?
A: Yes—the IRS continues to accept the September 2006 revision with no updates issued.

Q: What is “income from sources other than patronage”?
A: Incidental income unrelated to core cooperative activities (e.g., rental income, investment interest, capital gains).

Q: Can non-farmers join?
A: Limited; more than 50% of business must involve current and active producers.

Final Advice

Filing Form 1028 correctly establishes your farmers’ cooperative’s tax-exempt status under Section 521 and provides long-term compliance peace of mind. Because tax rules for cooperatives are highly technical (especially patronage vs. non-patronage allocations), consult a tax professional or attorney experienced in agricultural cooperatives before submitting.

Always download the latest forms and instructions directly from IRS.gov, as user fees and mailing addresses can change. For personalized guidance, contact the IRS Exempt Organizations Customer Account Services at 1-877-829-5500.

This article is for informational purposes only and is not tax or legal advice. Refer to official IRS publications and consult a qualified advisor.

Keywords: IRS Form 1028 instructions, Section 521 exemption, farmers cooperative tax exemption, Form 1028 application, IRC 521 farmers cooperative, how to file Form 1028, cooperative tax return 1120-C.