For an organization that was exempt from the tax but subsequently became taxable, it was necessary, in computing the gain or loss from the sale or exchange of property, to reduce the basis by the amount of depreciation sustained with respect to the property for the period it was held while the taxpayer was exempt, as well as subsequently.92 Under the established practice of the Internal Revenue Service, exemption comes to an end on the day a cooperative ceases operations. Accordingly, even prior to December 31, 1951, if gains were realized on the sale of assets after the association had ceased to operate, the cooperative was required to file an income tax return and pay a tax if one was due. General If an association is not organized so as to meet the requirements for 521 status, it is ineligible therefor. "It is elementary," said the Board of Tax Appeals,93 "that if the petitioner may successfully claim that it is exempt from income tax under the *** law it must be because it fills all of the requirements of the statute * The Board went on to say: The undisputed proof in this case shows that at least 30 ***The petitioner's case is not strengthened by the fact that up to the end of the year 1928 it had not paid any patronage dividends with the exception of certain patronage dividends in the form of shares of stock upon the business of 1918. The simple fact is that the petitioner was not in 1928 organized to come within the exempting provisions of the statute. 92G.C.M. 27491, 1952-2 Cum. Bull. 221. Since this ruling revoked G.C.M. 10857, XI-2 Cum. Bull. 105 (1932), which held to the contrary, it applies only to sales occurring in taxable years beginning after December 31, 1950. 93 Farmers Union Cooperative Co., 33 B.T.A. 225, at 228 (1935), affirmed, 90 F.2d 488 (8th Cir. 1937). See also Council Bluffs Grape Growers Association, 44 B.T.A. 152 (1941). Farmers', Fruit Growers', or Like Associations The eight requirements for section 521 status previously summarized are discussed in more detail in the following paragraphs. Section 521 status is available only to organizations of "farmers', fruit growers', or like associations." They must be organized and operated on a cooperative basis.94 Both marketing associations and purchasing associations may qualify. If a marketing organization," it must be 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. If a purchasing organization, it must be 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. An association engaged in both marketing farm products and in purchasing supplies and equipment may qualify under section 521 if, as to each of its functions, it meets the requirements of the Code 97 The courts have held that the term "like associations" in section 521(b)(1), by reason of its association with the words "farmers' " and "fruit growers'," is limited by them and refers only to associations of farmers or others engaged in like occupations.98 The Internal Revenue Service takes the position that for a cooperative to qualify, it must be an association which markets agricultural products or purchases supplies and equipment for persons engaged in producing agricultural products.99 Associations composed of other than agricultural producers would not qualify. The inclusion of a substantial number of nonproducers in an otherwise qualified cooperative would also destroy the 521 status 94 Int. Rev. Code of 1954, § 521(b)(1). 97 Treas. Reg. § 1.521-1(c). Rev. Rul. 67-253, 1967-2 Cum. Bull. 214, holds that a marketing and purchasing association did not qualify where it had not established net savings of either of its departments, had not kept records of business done with its marketing patrons, and had not allocated any patronage refunds to its marketing patrons. 98 Sunset Scavenger Company, Inc. v. Commissioner, 84 F. 2d 453 (9th Cir. 1936); Garden Homes Co., 26 B.T.A. 441, 462 (1932), reversed on other grounds, 64 F. 2d 593 (7th Cir. 1933). 99G.C.M. 8619, X-1 Cum. Bull. 150 (1931). of the cooperative on the ground that it ceases to be a farmers' association, 100 Producers of grain, fruit, nuts, vegetables, tobacco, poultry and eggs, as well as dairymen and livestock ranchers, have formed cooperatives eligible under section 521.101 On the other hand, harbor boat pilots, garbage collectors, advertising agents, apartment owners, or persons buying for resale to the general public have not been able to form associations that qualify, 102 Identifying those organizations that are "like" associations of farmers is not always easy. 103 The Internal Revenue Service, applying the principle of ejusdem generis, declared that a purchasing cooperative of fishermen and oyster growers would not qualify under section 521, even though State laws include fish and seafood within the term "agricultural products."104 A later ruling, however, holds that a cooperative to market fish raised by its members in privately owned waters can qualify because the fish are "farm-raised" crops and hence farm products. 105 A cooperative that owned bulls and provided artificial breeding service to the cattle of its members has been held qualified.106 The cooperative's activities constituted the furnishing of farm supplies to its members since the product furnished enabled them to produce livestock. But a cooperative whose only activities con 100 Co-operative Central Exchange, 27 B.T.A. 17 (1932). See also discussion under "Capital Stock" in this section, p. 400. 101 Treas. Reg. § 1.521-1(a)(1). See also Producers' Produce Co. v. Crooks, 2 F. Supp. 969 (W.D. Mo. 1932) (poultry and eggs); Eugene Fruit Growers Association, 37 B.T.A. 933 (1938) (fruits, vegetables, and nuts); Sumner Rhubarb Growers' Association, 10 CCH Tax Ct. Memo. 465 (1951) (vegetables); Long Poultry Farms, Inc. v. Commissioner, 249 F. 2d 726 (4th Cir. 1957) (poultry). Cf. Rev. Rul. 57-358, 1957-1 Cum. Bull. 42 (tobacco). 102 Mobile Bar Pilots Association, 35 B.T.A. 12 (1936), rev'd on other grounds, 97 F. 2d 695 (5th Cir. 1938) (harbor boat pilots); Sunset Scavenger Company, Inc. v. Commissioner, 84 F. 2d 453 (9th Cir. 1936)(garbage collectors); National Outdoor Advertising Bureau, Inc. v. Helvering, 89 F. 2d 878 (2d Cir. 1937) (advertising); Garden Homes Co. v. Commissioner, 64 F. 2d 593 (7th Cir. 1933) (cooperative apartment); Northwestern Drug Co., 14 B.T.A. 222 (1928) (sale of drugs); G.C.M. 8619, X-1 Cum. Bull. 150 (1931) (marketing building materials). See also Etter Grain Co. v. United States, 462 F. 2d 259 (5th Cir. 1972), affirming 331 F. Supp. 283 (N.D. Tex. 1971). 103 See Logan, Federal Income Taxation of Farmers' and Other Cooperatives, 44 Texas L. Rev. 250 at 252-257 (1965). 104 Rev. Rul. 55-611, 1955-2 Cum. Bull. 270. sisted of caring for and maintaining its patrons' citrus groves and harvesting their crops did not qualify. 107 This ruling recognizes that grove caretaking and harvesting are farming activities, but states that they do not involve the sale or the processing for sale of agricultural products. These activities, according to the ruling, do not constitute "marketing" within the meaning of the statute nor the purchase of supplies and equipment which the regulations 108 define to include "groceries and all other goods and merchandise used by farmers in the operation and maintenance of a farm or farmers' household." A cooperative which acquires the beneficial use of land and apportions it among its members for grazing their livestock qualifies under section 521.109 The scope of permissible activity by a section 521 cooperative is quite broad. Associations have been allowed to manufacture their products, to change the form of raw materials, and in some instances to operate subsidiaries, so long as the operations are not on an ordinary profitmaking basis.110 A dairy cooperative can make butter, cheese, and other dairy products. A livestock marketing association may slaughter animals and process the meat. 112 A marketplace may be operated by a cooperative,113 and it may collect, store, sort, grade, and pro 107 Rev. Rul. 66-108, 1966-1 Cum. Bull. 154. See Dr. P. Phillips Cooperative, 17 T.C. 1002 at 1009-1010 (1951). 108 Treas. Reg. § 1.521-1(b). 109 Rev. Rul. 67-429, 1967-1 Cum. Bull. 218. 110S. Rep. No. 52, 69th Cong., 1st sess. 24 (1926); H.R. Rep. No. 356, 69th Cong., 1st sess. 36-37 (1926). With respect to subsidiaries, Rev. Rul. 69-575, 19692 Cum. Bull. 134, holds that a 521 cooperative will lose its status if a subsidiary of the cooperative handling nonmember-nonproducer business fails to make patronage refunds to nonmembers or violates the 15 percent limitation on nonmember-nonproducer business. In other words, a 521 cooperative may not, through a subsidiary, carry on functions or methods of operation not permitted in its own operations. Accord, Rev. Rul, 73-148, 1973 Cum. Bull. 294. Treas. Reg. § 1.521-1(a)(1); Anamosa Farmers Creamery Co, 13 B.T.A. 907 (1928), acq., VIII-1 Cum. Bull. 2 (1929). 1121.T. 1914, III-1 Cum. Bull. 287 (1924). 113 Rev. Rul. 67-430, 1967-2 Cum. Bull. 220, restates existing law under the current law and regulations and the position set forth in I.T. 2720, XII-2 Cum. Bull. 71 (1933). The cooperative furnishes market facilities where its farmer members assemble, display, advertise, and sell their fruits, vegetables, and other farm products. The ruling holds that the term "marketing" as used in section 521 not only includes the sale of farm products by a cooperative but other activities necessary to the sale of products. "Marketing" is broad enough to include “all cess fruits and vegetables, cottonseed, and soybeans. 114 And it may own and operate canneries. 115 In operating a cannery, a cooperative would seem to be providing "supplies and equipment" for its members and others whom it is organized to serve. In some cases, a cooperative may perform both a marketing and a supply function and, as long as it meets the tests of the statute as to each activity, it would qualify under section 521.116 Many cooperatives so operate for the benefit of their members. Purchasing or supply activities frequently pose questions of meeting a condition of section 521 qualification found in the regulations that a cooperative shall not engage in "occupations dissimilar from those of farmers, fruitgrowers, and the like."117 A fruitgrowers' exchange organized a corporation to buy the basic ingredients for fertilizer and manufacture the finished product in plants it owned. This corporation then acquired large tracts of timber together with mills to fabricate crates which it sold to the members of the parent organization. All of this was held to be a permissible activity. The ruling concludes that the corporation was merely fulfilling the responsibility of a purchasing or supply cooperative in providing supplies and equipment at the lowest possible cost to the fruitgrowers. 118 A petroleum refinery has been owned and operated by a subsidiary of a qualified section 521 cooperative. 119 The refinery pro activities which are an integral part of the marketing function." In Rev. Rul. 71100, 1971-1 Cum. Bull. 159, a grain cooperative leased certain of its marketing facilities to an elevator operator as a means of obtaining better prices for its members' grain and did in fact allocate the net proceeds from the rental income on a patronage basis to its members. The lease arrangement was said to result in the cooperative relinquishing its authority to negotiate the prices paid to its members for their products. The cooperative was held to be engaged in a rental operation and not in the marketing of the products of its members or other producers as contemplated by section 521. 114See, e.g., William A. Joplin, Jr., 17 T.C. 1526 (1952), acq., 1954-2 Cum, Bull. 4; Everett G. Maley, 17 T.C. 260 (1951), nonacq., 1952-1 Cum. Bull. 6. 115 Eugene Fruit Growers Association, 37 B.T.A. 993 (1938). 116 South Carolina Produce Association v. Commissioner, 50 F. 2d 742 (4th Cir. 1931). See also footnote 97 in this section. 117Treas. Reg. § 1.521-1(d). 118S. M. 2288, III-2 Cum. Bull. 233 (1924), declared obsolete but not revoked or superseded by Rev. Rul. 70-319, 1970-1 Cum. Bull. 284. See discussion at footnotes 134 and 135, this section. 119 Rev. Rul. 54-12, 1954-1 Cum. Bull. 93, but this ruling has been reversed in part by Rev. Rul. 69-417, 1969-2 Cum. Bull. 132, discussed in text at footnote 164 in this section. See also Rev. Rul. 67-346, 1967-2 Cum. Bull. 216, holding that |