Method of accounting for corporations engaged in farming
General rule
Except as otherwise provided by law, the taxable income from farming of—
a corporation engaged in the trade or business of farming, or
a partnership engaged in the trade or business of farming, if a corporation is a partner in such partnership,
shall be computed on an accrual method of accounting. This section shall not apply to the trade or business of operating a nursery or sod farm or to the raising or harvesting of trees (other than fruit and nut trees).
Preproductive period expenses
Exception for certain corporations
For purposes of subsection (a), a corporation shall be treated as not being a corporation for any taxable year if it is—
an S corporation, or
a corporation which meets the gross receipts test of section 448(c) for such taxable year.
Coordination with section 481
Certain annual accrual accounting methods
In general
Notwithstanding subsection (a) or section 263A, if—
for its 10 taxable years ending with its first taxable year beginning after
such corporation or qualified partnership raises crops which are harvested not less than 12 months after planting, and
such corporation or qualified partnership has used such method of accounting for all taxable years intervening between its first taxable year beginning after
such corporation or qualified partnership may continue to employ such method of accounting for the taxable year with respect to its qualified farming trade or business.
Annual accrual method of accounting defined
Certain nonrecognition transfers
For purposes of this subsection, if—
a corporation acquired substantially all the assets of a qualified farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, or
a qualified partnership acquired substantially all the assets of a qualified farming trade or business from one of its partners in a transaction to which section 721 applies,
the transferee corporation or qualified partnership shall be deemed to have computed its taxable income on an annual accrual method of accounting during the period for which the transferor corporation or partnership computed its taxable income from such trade or business on an annual accrual method.
Qualified partnership defined
For purposes of this subsection—
Qualified partnership
The term “qualified partnership” means a partnership which is engaged in a qualified farming trade or business and each of the partners of which is a corporation other than—
an S corporation, or
a personal holding company (within the meaning of section 542(a)).
Qualified farming trade or business
In general
The term “qualified farming trade or business” means the trade or business of farming—
sugar cane,
any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and
any other plant (other than any citrus or almond tree) if an election by the corporation under this subparagraph is in effect.
In the case of a partnership and for purposes of paragraph (3)(A), subclauses (II) and (III) shall not apply.
Effect of election
Election
Source
(Added Pub. L. 94–455, title II, § 207(c)(1)(A),Notes
Amendments
Effective Date of 2017 Amendment
Effective Date of 1997 Amendment
Effective Date of 1990 Amendment
Effective Date of 1988 Amendment
Effective Date of 1987 Amendment
Effective Date of 1986 Amendment
Effective Date of 1982 Amendment
Effective Date of 1978 Amendment
Effective Date
In general.—
Except as provided in subparagraph (B), the amendments made by paragraph (1) [enacting this section] shall apply to taxable years beginning after
Special rule for certain corporations.—
In the case of a corporation engaged in the trade or business of farming and with respect to which—
members of two families (within the meaning of paragraph (1) of [former] section 447(d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], as added by paragraph (1)) owned, on
members of three families (within the meaning of paragraph (1) of such [former] section 447(d)) owned, on
by employees of the corporation or members of the families (within the meaning of section 267(c)(4) of such Code) of such employees, or
by a trust for the benefit of the employees of such corporation which is described in section 401(a) of such Code and which is exempt from taxation under section 501(a) of such Code,
the amendments made by paragraph (1) shall apply to taxable years beginning after
Accounting for Growing Crops
Application of Section.—
This section shall apply to a taxpayer who—
is a farmer, nurseryman, or florist,
is on an accrual method of accounting, and
is not required by section 447 of the Internal Revenue Code of 1954 to capitalize preproductive period expenses.
Taxpayer May Not Be Required To Inventory Growing Crops.—
A taxpayer to whom this section applies may not be required to inventory growing crops for any taxable year beginning after
Taxpayer May Elect To Change To Cash Method.—
A taxpayer to whom this section applies may, for any taxable year beginning after
Section 481 Of Code To Apply.—
Any change in the way in which a taxpayer accounts for the costs of growing crops resulting from the application of subsection (b) or (c)—
shall not require the consent of the Secretary of the Treasury or his delegate, and
shall be treated, for purposes of section 481 of the Internal Revenue Code of 1954 as a change in the method of accounting initiated by the taxpayer.
Growing Crops.—
For purposes of this section, the term ‘Growing crops’ does not include trees grown for lumber, pulp, or other nonlife purposes.”
Automatic Ten-Year Adjustment for Farming Syndicates Changing to Accrual Accounting
“If—
a farming syndicate (within the meaning of [former] section 464(c) of the Internal Revenue Code of 1954 [now 26 U.S.C. 461(k)]) was in existence on
such syndicate elects an accrual method of accounting (including the capitalization of preproductive period expenses described in section 447(b) of such Code) for a taxable year beginning before
then such election shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate and, under regulations prescribed by the Secretary of the Treasury or his delegate, the net amount of the adjustments required by section 481(a) of such Code to be taken into account by the taxpayer in computing taxable income shall be taken into account in each of the 10 taxable years (or the remaining taxable years where there is a stated future life of less than 10 taxable years) beginning with the year of change.”
Election To Change From Static Value Method to Accrual Method of Accounting
In general.—
If—
a corporation has computed its taxable income on an annual accrual method of accounting together with a static value method of accounting for deferred costs of growing crops for the 10 taxable years ending with its first taxable year beginning after
such corporation raises crops which are harvested not less than 12 months after planting, and
such corporation elects, within one year after the date of the enactment of this Act [
such change shall be treated as having been made with the consent of the Secretary of the Treasury, and, under regulations prescribed by the Secretary of the Treasury or his delegate, the net amount of the adjustments required by section 481(a) of the Internal Revenue Code of 1986 to be taken into account by the taxpayer in computing taxable income shall (except as otherwise provided in such regulations) be taken into account in each of the 10 taxable years beginning with the year of change.
Coordination with section 447 of the code.—
A corporation which elects under subparagraph (A) to change to the annual accrual method of accounting shall, for purposes of section 447(g) [now section 447(e)] of the Internal Revenue Code of 1986, be deemed to be a corporation which has computed its taxable income on an annual accrual method of accounting for its 10 taxable years ending with its first taxable year beginning after
Certain corporate reorganizations.—
For purposes of this paragraph, if a corporation acquired substantially all the assets of a farming trade or business from another corporation in a transaction in which no gain or loss was recognized to the transferor or transferee corporation, the transferee corporation shall be deemed to have computed its taxable income on an annual accrual method of accounting together with a static value method of accounting for deferred costs of growing crops during the period for which the transferor corporation computed its taxable income from such trade or business on such accrual and static value method.”