{"identifier":"/us/usc/t26/s447","title":26,"num":"\u00a7\u202f447.","heading":"Method of accounting for corporations engaged in farming","text":"\u00a7\u202f447.\nMethod of accounting for corporations engaged in farming\n(a)\nGeneral rule\nExcept as otherwise provided by law, the taxable income from farming of\u2014\n(1) a corporation engaged in the trade or business of farming, or\n(2) a partnership engaged in the trade or business of farming, if a corporation is a partner in such partnership,\nshall 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).\n(b)\nPreproductive period expenses\nFor rules requiring capitalization of certain preproductive period expenses, see section 263A.\n(c)\nException for certain corporations\nFor purposes of subsection (a), a corporation shall be treated as not being a corporation for any taxable year if it is\u2014\n(1) an S corporation, or\n(2) a corporation which meets the gross receipts test of section 448(c) for such taxable year.\n(d)\nCoordination with section 481\nAny 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.\n(e)\nCertain annual accrual accounting methods\n(1)\nIn general\nNotwithstanding subsection (a) or section 263A, if\u2014\n(A) for its 10 taxable years ending with its first taxable year beginning after\nDecember 31, 1975\n(B) such corporation or qualified partnership raises crops which are harvested not less than 12 months after planting, and\n(C) such corporation or qualified partnership has used such method of accounting for all taxable years intervening between its first taxable year beginning after\nDecember 31, 1975\nsuch 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.\n(2)\nAnnual accrual method of accounting defined\nFor purposes of paragraph (1), the term \u201cannual accrual method of accounting\u201d 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.\n(3)\nCertain nonrecognition transfers\nFor purposes of this subsection, if\u2014\n(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\n(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,\nthe 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.\n(4)\nQualified partnership defined\nFor purposes of this subsection\u2014\n(A)\nQualified partnership\nThe term \u201cqualified partnership\u201d 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\u2014\n(i) an S corporation, or\n(ii) a personal holding company (within the meaning of section 542(a)).\n(B)\nQualified farming trade or business\n(i)\nIn general\nThe term \u201cqualified farming trade or business\u201d means the trade or business of farming\u2014\n(I) sugar cane,\n(II) any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and\n(III) any other plant (other than any citrus or almond tree) if an election by the corporation under this subparagraph is in effect.\nIn the case of a partnership and for purposes of paragraph (3)(A), subclauses (II) and (III) shall not apply.\n(ii)\nEffect of election\nFor 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.\n(iii)\nElection\nUnless the Secretary otherwise consents, an election under this subparagraph may be made only for the corporation\u2019s 1st taxable year which begins after\nDecember 31, 1986","url":"https://projectusc.org/usc/t26/s447.html","content":[{"t":"sec","id":"/us/usc/t26/s447","children":[{"t":"num","text":"\u00a7\u202f447."},{"t":"heading","text":"Method of accounting for corporations engaged in farming"},{"t":"subsec","id":"/us/usc/t26/s447/a","children":[{"t":"num","text":"(a)"},{"t":"heading","text":"General rule"},{"t":"chapeau","text":"Except as otherwise provided by law, the taxable income from farming of\u2014"},{"t":"para","id":"/us/usc/t26/s447/a/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" a corporation engaged in the trade or business of farming, or","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s447/a/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" a partnership engaged in the trade or business of farming, if a corporation is a partner in such partnership,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"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).","tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s447/b","children":[{"t":"num","text":"(b)"},{"t":"heading","text":"Preproductive period expenses"},{"t":"content","children":[{"t":"p","text":"For rules requiring capitalization of certain preproductive period expenses, see section 263A.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s447/c","children":[{"t":"num","text":"(c)"},{"t":"heading","text":"Exception for certain corporations"},{"t":"chapeau","text":"For purposes of subsection (a), a corporation shall be treated as not being a corporation for any taxable year if it is\u2014"},{"t":"para","id":"/us/usc/t26/s447/c/1","children":[{"t":"num","text":"(1)"},{"t":"content","text":" an S corporation, or","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s447/c/2","children":[{"t":"num","text":"(2)"},{"t":"content","text":" a corporation which meets the gross receipts test of section 448(c) for such taxable year.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s447/d","children":[{"t":"num","text":"(d)"},{"t":"heading","text":"Coordination with section 481"},{"t":"content","children":[{"t":"p","text":"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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subsec","id":"/us/usc/t26/s447/e","children":[{"t":"num","text":"(e)"},{"t":"heading","text":"Certain annual accrual accounting methods"},{"t":"para","id":"/us/usc/t26/s447/e/1","children":[{"t":"num","text":"(1)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"Notwithstanding subsection (a) or section 263A, if\u2014"},{"t":"subpara","id":"/us/usc/t26/s447/e/1/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" for its 10 taxable years ending with its first taxable year beginning after ","children":[{"t":"text","text":"December 31, 1975","tail":", a corporation or qualified partnership used an annual accrual method of accounting with respect to its trade or business of farming,"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s447/e/1/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" such corporation or qualified partnership raises crops which are harvested not less than 12 months after planting, and","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s447/e/1/C","children":[{"t":"num","text":"(C)"},{"t":"content","text":" such corporation or qualified partnership has used such method of accounting for all taxable years intervening between its first taxable year beginning after ","children":[{"t":"text","text":"December 31, 1975","tail":", and the taxable year,"}],"tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"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.","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s447/e/2","children":[{"t":"num","text":"(2)"},{"t":"heading","text":"Annual accrual method of accounting defined"},{"t":"content","children":[{"t":"p","text":"For purposes of paragraph (1), the term \u201cannual accrual method of accounting\u201d 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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s447/e/3","children":[{"t":"num","text":"(3)"},{"t":"heading","text":"Certain nonrecognition transfers"},{"t":"chapeau","text":"For purposes of this subsection, if\u2014"},{"t":"subpara","id":"/us/usc/t26/s447/e/3/A","children":[{"t":"num","text":"(A)"},{"t":"content","text":" 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","tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s447/e/3/B","children":[{"t":"num","text":"(B)"},{"t":"content","text":" 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,","tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"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.","tail":"\n"}],"tail":"\n"},{"t":"para","id":"/us/usc/t26/s447/e/4","children":[{"t":"num","text":"(4)"},{"t":"heading","text":"Qualified partnership defined"},{"t":"chapeau","text":"For purposes of this subsection\u2014"},{"t":"subpara","id":"/us/usc/t26/s447/e/4/A","children":[{"t":"num","text":"(A)"},{"t":"heading","text":"Qualified partnership"},{"t":"chapeau","text":"The term \u201cqualified partnership\u201d 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\u2014"},{"t":"clause","id":"/us/usc/t26/s447/e/4/A/i","children":[{"t":"num","text":"(i)"},{"t":"content","text":" an S corporation, or","tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s447/e/4/A/ii","children":[{"t":"num","text":"(ii)"},{"t":"content","text":" a personal holding company (within the meaning of section 542(a)).","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"subpara","id":"/us/usc/t26/s447/e/4/B","children":[{"t":"num","text":"(B)"},{"t":"heading","text":"Qualified farming trade or business"},{"t":"clause","id":"/us/usc/t26/s447/e/4/B/i","children":[{"t":"num","text":"(i)"},{"t":"heading","text":"In general"},{"t":"chapeau","text":"The term \u201cqualified farming trade or business\u201d means the trade or business of farming\u2014"},{"t":"subclause","id":"/us/usc/t26/s447/e/4/B/i/I","children":[{"t":"num","text":"(I)"},{"t":"content","text":" sugar cane,","tail":"\n"}],"tail":"\n"},{"t":"subclause","id":"/us/usc/t26/s447/e/4/B/i/II","children":[{"t":"num","text":"(II)"},{"t":"content","text":" any plant with a preproductive period (as defined in section 263A(e)(3)) of 2 years or less, and","tail":"\n"}],"tail":"\n"},{"t":"subclause","id":"/us/usc/t26/s447/e/4/B/i/III","children":[{"t":"num","text":"(III)"},{"t":"content","text":" any other plant (other than any citrus or almond tree) if an election by the corporation under this subparagraph is in effect.","tail":"\n"}],"tail":"\n"}],"tail":"\n\n"},{"t":"continuation","text":"\u2001In the case of a partnership and for purposes of paragraph (3)(A), subclauses (II) and (III) shall not apply.","tail":"\n"},{"t":"clause","id":"/us/usc/t26/s447/e/4/B/ii","children":[{"t":"num","text":"(ii)"},{"t":"heading","text":"Effect of election"},{"t":"content","children":[{"t":"p","text":"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.","tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"clause","id":"/us/usc/t26/s447/e/4/B/iii","children":[{"t":"num","text":"(iii)"},{"t":"heading","text":"Election"},{"t":"content","children":[{"t":"p","text":"Unless the Secretary otherwise consents, an election under this subparagraph may be made only for the corporation\u2019s 1st taxable year which begins after ","children":[{"t":"text","text":"December 31, 1986","tail":", 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."}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"}],"tail":"\n"},{"t":"text","text":"\n"},{"t":"text","text":"\n"}]}]}