IRS denies mutual ditch / irrigation company’s eligibility for exemption 

November 20:   The IRS publicly released a determination letter denying a mutual ditch or irrigation company’s application for exemption as a cooperative under section 501(c)(12). LTR 201246038 (released November 16, 2012, and dated August 22, 2012)

Read the determination letter: 201246038 [PDF 481 KB]


The IRS found that the entity:


  • Held one conference / workshop a year, the purpose of which was to “increase awareness of dam and canal safety, construction, and technology”
  • Published a newsletter three to four times a year
  • Intended to conduct focus groups on various topics relating to dam operation
  • Intended to perform some lobbying activities

Based on these findings, the IRS concluded that the entity did not satisfy three requirements—(1) to be organized and operate as a cooperative; (2) to comply with the activities test; and (3) to derive 85% of income from members solely for the purpose of meeting expense and losses—under section 501(c)(12).


Specifically, the IRS looked to Rev. Rul. 81-109 to find that the applicant was not a traditional ditch and irrigation company, but that it acted more as a support organization for a mutual ditch and irrigation company.



For more information, contact KPMG’s National Director of Cooperative Tax Services:


David Antoni, in Philadelphia

(267) 256-1627


Or Associate National Director of KPMG’s Cooperative Tax Services


Brett Huston, in Sacramento


(916) 554-1654



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