§ 447. Method of accounting for corporations engaged in farming

3,849 words·~17 min read·/usc/title-26/section-447

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

(a)General rule Except as otherwise provided by law, the taxable income from farming of—

(1)a corporation engaged in the trade or business of farming, or

(2)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).

(b)Preproductive period expenses For rules requiring capitalization of certain preproductive period expenses, see section 263A.

(c)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—

(1)an S corporation, or

(2)a corporation which meets the gross receipts test of section 448(c) for such taxable year.

(d)Coordination with section 481 Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary.

(e)Certain annual accrual accounting methods

(1)In general Notwithstanding subsection

(a)or section 263A, if—

(A)for its 10 taxable years ending with its first taxable year beginning after December 31, 1975, a corporation or qualified partnership used an annual accrual method of accounting with respect to its trade or business of farming,

(B)such corporation or qualified partnership raises crops which are harvested not less than 12 months after planting, and

(C)such corporation or qualified partnership has used such method of accounting for all taxable years intervening between its first taxable year beginning after December 31, 1975, and the taxable year,

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.

(2)Annual accrual method of accounting defined For purposes of paragraph (1), the term “annual accrual method of accounting” means a method under which revenues, costs, and expenses are computed on an accrual method of accounting and the preproductive period expenses incurred during the taxable year are charged to harvested crops or deducted in determining the taxable income for such years.

(3)Certain nonrecognition transfers For purposes of this subsection, if—

(A)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

(B)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.

(4)Qualified partnership defined For purposes of this subsection—

(A)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—

(i)an S corporation, or

(ii)a personal holding company (within the meaning of section 542(a)).

(B)Qualified farming trade or business

(i)In general The term “qualified farming trade or business” means the trade or business of farming—

(I)sugar cane,

(II)any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and

(III)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.

(ii)Effect of election For purposes of paragraphs

(1)and

(2)of section 263A(e), any election under this subparagraph shall be treated as if it were an election under subsection (d)(3) of section 263A.

(iii)Election Unless the Secretary otherwise consents, an election under this subparagraph may be made only for the corporation’s 1st taxable year which begins after December 31, 1986, and during which the corporation engages in a farming business. Any such election, once made, may be revoked only with the consent of the Secretary.

(Added Pub. L. 94–455, title II, § 207(c)(1)(A), Oct. 4, 1976, 90 Stat. 1538; amended Pub. L. 95–600, title III, §§ 351(a), 353(a), title VII, §§ 701(l)(1), 703(d), Nov. 6, 1978, 92 Stat. 2846, 2847, 2906, 2939; Pub. L. 97–248, title II, § 230(a), Sept. 3, 1982, 96 Stat. 495; Pub. L. 97–354, § 5(a)(28), (29), Oct. 19, 1982, 96 Stat. 1695; Pub. L. 99–514, title VIII, § 803(b)(7), Oct. 22, 1986, 100 Stat. 2356; Pub. L. 100–203, title X, § 10205(a)–(c), Dec. 22, 1987, 101 Stat. 1330–395 to 1330–397;

Pub. L. 100–647, title I, § 1008(b)(5), (6), Nov. 10, 1988, 102 Stat. 3438; Pub. L. 101–508, title XI, § 11702(b), Nov. 5, 1990, 104 Stat. 1388–514; Pub. L. 105–34, title X, § 1081(a), Aug. 5, 1997, 111 Stat. 949; Pub. L. 115–97, title I, § 13102(a)(5), Dec. 22, 2017, 131 Stat. 2102.)

Connections28 cite this · traces to 8

Cited by 28 sections · top 11

public-private-law