IRS denies agricultural exemption to a farmers' market operator

Plain-English summary

An organization operated a community farmers' market for local farms, small
businesses, and nonprofits. Vendors paid a fee for promotion and a place to
sell agricultural goods as well as books, clothing, crafts, leather products,
and other nonagricultural items. The IRS found that the organization was not
itself engaged in cultivating land, harvesting crops or aquatic resources, or
raising livestock. It also found that operating a sales outlet was a direct
business service for vendors, not an activity improving agricultural products,
working conditions, or occupational efficiency. The IRS therefore denied
exemption under section 501(c)(5).

Ruling snapshot

• Question: Does an organization operating a fee-based farmers' market for agricultural and nonagricultural vendors qualify under section 501(c)(5)?
• Outcome: Denied
• Key authorities: IRC §§ 501(c)(5) and 501(g); Treas. Reg. § 1.501(c)(5)-1(a); Rev. Rul. 66-105; Rev. Rul. 74-195; Rev. Rul. 75-287

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

Date:
04/29/2026

Employer ID number:
[redacted]

Form you must file:
[redacted]

Tax years:
[redacted]

Person to contact:
[redacted]

Release Number: 202630012
Release Date: 7/24/26
UIL Code: 501.05-01

Dear [redacted]:

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(5). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service

Date:
03/09/2026

Employer ID number:
[redacted]

Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]
Fax: [redacted]

Legend:
B = Date
C = State
D = City
g dollars = Amount

UIL:
501.05-01

Dear [redacted]:

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(5).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues

Do you qualify for exemption under IRC Section 501(c)(5)? No, for the reasons stated below.

Facts

You were incorporated on B, in the state of C. Your Articles of Incorporation state that you exist to organize,
grow, promote, and ensure your success and longevity. You provide opportunities to small local businesses and
farmers, and you provide options for produce and products to consumers that are of a higher quality, more
sustainable, homemade, and/or homegrown. Your Bylaws state that your sole purpose is to organize and ensure
the longevity of the D farmers’ market. Your bylaws also state that your specific purpose to is engage in
charitable, educational, and other nonprofit lawful activities which include relationships of trust and teaching
teamwork techniques, sharing ideas to bring innovation, furthering the interest in and educational development
of agriculture and small business, arts, crafts, and history. You want to keep local commerce thriving within the
D community by managing the D farmers’ market.

Your only activity, which is put on by your membership under the leadership of your coordinator, is to organize
a farmers’ market for the D community. You support local agricultural and small businesses by connecting
them to customers and you support the community by giving consumers an opportunity to purchase affordable
farm fresh food. You provide a place where small businesses can grow, people can make environmentally
conscious decisions, and a community is built. You advertise to promote the market try to get a lot of people to
show up for the vendors. You have live music from local musicians and kids’ activities in partnership with the

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

2

library. You have [redacted] markets a season and your last market of the year is a fall fest with pumpkin painting for
kids, carnival games, and a scavenger hunt for prizes. Many of the activities are made possible by donations
from local businesses.

Your vendors include local farms, independently owned small businesses, and other nonprofits that that fit into
the categories of sustainability, community, or farm fresh. Vendors pay a fee of g dollars for each market to sell
their products. Vendors sell a variety of fruits and vegetables, beef, honey, eggs, soaps, canned items, baked
goods and candles. Vendors also sell used books, clothing, and children’s items in addition to crafts, leather
goods, coffee and food. Nonprofit vendors provide information on their services and are not charged a vendor
fee.

Your revenue comes from vendor fees for the markets you organize. Your expenses include event insurance,
advertising, live bands, and other seasonal events and activities to encourage participation from the community.

Law

Internal Revenue Code Section 501(c)(5) provides for the exemption from federal income tax of labor,
agricultural, or horticultural organizations.

IRC Section 501(g) provides for purpose of subsection (c)(5) the term “agricultural” includes the art or science
of cultivating land, harvesting crops or aquatic resources, or raising livestock.

Treasury Regulation Section 1.501(c)(5)-1(a) provides that the organizations covered under IRC Section
501(c)(5) as entitled to exemption are those which (1) have no net earnings inuring to the benefit of any
member, and (2) have as their objectives the betterment of the conditions of those engaged in such pursuits, the
improvement of the grade of their products, and the development of a higher degree of efficiency in their
respective occupations.

Revenue Ruling 66-105, 1966-1 C.B. 145 held that an organization composed of agricultural producers whose
principal activity is marketing livestock as an agent for its members does not qualify for exemption. The
principal purpose of the organization is to act as a sales agent for its members. Therefore, the organization does
not meet the requirements of Treas. Reg. Section 1.501(c)(5)-1 and is not exempt under IRC Section 501(c)(5).

Rev. Rul. 74-195, 1974-1 C.B. 135, held that a nonprofit organization formed to manage, graze and sell its
members’ cattle did not of itself better the conditions of those engaged in agricultural pursuits, improve the
grade of their products, or develop a higher degree of efficiency in their operations within the meaning of IRC
Section 501(c)(5). The principal purpose of the organization was to provide a direct business service for its
members’ economic benefit.

Rev. Rul. 75-287, 1975-2 C.B. 211, establishes that if the activities of an organization are directed toward the
betterment of the conditions of those engaged in some pursuit outside the scope of the term agricultural, it does
not qualify for exemption from federal income tax as an agricultural organization described under IRC Section
501(c)(5).

Application of law

You do not meet the qualifications under IRC Section 501(c)(5) or Treas. Reg. Section 1.501(c)(5)-1(a) as your
activities are not aimed at the overall betterment of conditions within the agricultural industry and you are not

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

3

an agricultural organization as describe in IRC Section 501(g). You are not involved in cultivating land,
harvesting crops or aquatic resources, or raising livestock. You operate to aid your vendors to sell their goods.
You are providing, in return for a fee, promotion and a location for vendors to generate sales of their goods,
whereas members would otherwise have to promote and sell their goods themselves. You are relieving them of
this responsibility by providing the service of operating the farmers' market. Additionally, the earnings from the
sale of products inures to benefit of your vendors.

You are similar to the organization in Rev. Rul. 66-105 in that you provide the marketplace for vendors to sell
their goods where they in turn receive revenue from sales. You are providing a location and promotion for the
sale of products and relieving vendors of work they would either have to perform themselves or have performed
for them.

Like the organization in Rev. Rul. 74-195, you are providing an outlet for sales of vendor products, not
bettering the conditions of those engaged in agricultural pursuits, improving the grade of their products, or
developing a higher degree of efficiency in their operations. Your main activity is operating a farmers’ market
and providing a location for the sale of products.

Additionally, like the organization in Rev. Rul. 75-287, your activities are directed toward the betterment of the
conditions of those engaged in some pursuit outside the scope of the term agricultural. Your markets include the
sale of books, clothing, crafts, leather products, and other non-agricultural products.

Conclusion

Based on the information submitted, you are not operated exclusively for exempt purposes under IRC Section
501(c)(5). Your activities are not directed to the betterment of the conditions of those engaged in agricultural
pursuits, the improvement of the grade of their products, or the development of a higher degree of efficiency.
Rather, you provide an economic outlet to enable vendors to sell their products directly to consumers.
Accordingly, you do not qualify for exemption under IRC Section 501(c)(5).

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from
you within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree

You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference
• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative
• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

4

or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest

Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:

Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you’ve tried but haven’t
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

5

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K