What is a Farmers’ Cooperative? | IRS Definition of a Farmers’ Cooperative
Agricultural cooperatives are as old as agriculture itself. Due to many farmers having potentially tumultuous (and unpredictable) seasons, many farmers band together to share resources. It’s not always possible to tell whether a single farm could be stricken with bad weather, blight, or other unpredictable issues, so this provides a type of insurance against difficulties.
Cooperatives are not generally considered to be non-profits, as they are run by for-profit businesses (farms) with the idea of securing profit from their ventures. However, the tax code around farmers cooperatives are fairly flexible, as there are many forms a cooperative can take.
Most farmers cooperatives will require the formation of a separate entity and an EIN, as the cooperative itself may collect resources and pay out dividends on behalf of the farmers. This necessitates separating the cooperative from those within it. Since farmers cooperatives are fairly complex, a lawyer and a tax professional will usually be involved in their formation.