Amended 1978, 1982, 1986, 1987, 1988, 1990, 1997, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (f) as (d).
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(B), amended subsec. (f) generally. Prior to amendment, subsec. (f) related to coordination with section 481.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(C)(ii), redesignated subsec. (g) as (e).
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(C)(i), struck out subsecs. (h) and (i) which related to exception for certain closely held corporations and suspense account for family corporations, respectively.
- 1997 Pub. L. 105-34 Pub. L. 105–34 redesignated par. (5) as (3) and struck out heading and text of former par. (3). Text read as follows: “If—
“(A) the gross receipts of the corporation from the trade or business of farming for the year of the change or any subsequent taxable year, is less than
“(B) such gross receipts for the taxpayer’s last taxable year beginning before the year of the change (or for the most recent taxable year for which a reduction in the suspense account was made under this paragraph),
the amount in the suspense account (after taking into account prior reductions) shall be reduced by the percentage by which the amount described in subparagraph (A) is less than the amount described in subparagraph (B).”
- 1997 Pub. L. 105-34 Pub. L. 105–34 redesignated par. (6) as (4) and struck out heading and text of former par. (4). Text read as follows: “Any reduction in the suspense account under paragraph (3) shall be included in gross income for the taxable year of the reduction.”
- 1997 Pub. L. 105-34 Pub. L. 105–34 added par. (5) and redesignated former pars. (5) and (6) as (3) and (4), respectively.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11702(b)(2), substituted “trade or business of farming” for “qualified farming trade or business”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11702(b)(1), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “The term ‘qualified farming trade or business’ means the trade or business of farming sugar cane.”
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1008(b)(6), substituted “qualified farming trade or business” for “trade or business of farming” in subpar. (A) and in concluding provisions.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(c)(2)(A), substituted “A corporation is described in this subsection” for “This section shall not apply to any corporation”.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(c)(2)(B), (C), substituted “subsection (e)” for “subsection (d)” and “subsection (e)(1)” for “subsection (d)(1)” wherever appearing.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(b), added subsec. (i).
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 803(b)(7)(C), substituted “Notwithstanding subsection (a) or section 263A, if” for “If”.
- 1982 Pub. L. 97-248 Pub. L. 97–248, § 230(a)(1), inserted “or qualified partnership” after “corporation” wherever appearing.
- 1982 Pub. L. 97-248 Pub. L. 97–248, § 230(a)(2), designated existing provisions from “a corporation acquired” through “transferee corporation”, as subpar. (A), inserted “qualified” before “farming trade”, and added subpar. (B).
- 1982 Pub. L. 97-354 Pub. L. 97–354, § 5(a)(29), substituted in subpar. (A)(i) “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”.
- 1982 Pub. L. 97-248 Pub. L. 97–248, § 230(a)(3), added par. (4).
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 701(l)(1), struck out “(except as otherwise provided in such regulations)” before “be taken” and inserted “(or the remaining taxable years where there is a stated future life of less than 10 taxable years)” after “10 taxable years”.
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 703(d), substituted “preproductive period expenses” for “preproductive expenses”.
- 1978 Pub. L. 95-600 Pub. L. 95–600, § 351(a), added subsec. (h).
Cases: Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181 (1989); Herbert C. Haynes, Inc. v. Commissioner, T.C. Memo. 2004-185
(a) General rule Except as otherwise provided by law, the taxable income from farming of—
Amended 1978, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 803(b)(7)(B), which directed that subsec. (a) be amended by striking out “and with the capitalization of preproductive period of expenses described in subsection (b)”, was executed by striking out “and with the capitalization of preproductive period expenses described in subsection (b)” after “accrual method of accounting”, as the probable intent of Congress.
- 1978 Pub. L. 95-600 Pub. L. 95–600, §§ 353(a), 703(d), substituted in provisions following par. (2) “preproductive period expenses” for “preproductive expenses” and “nursery or sod farm” for “nursery”.
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(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.
Amended 1986, 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1008(b)(5), substituted “period expenses” for “period of expenses” in heading and in text.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 803(b)(7)(A), in amending subsec. (b) generally, substituted in heading “period of expenses” for “period expenses” and in text the cross reference to section 263A for former par. (1) defining “preproductive period expenses”, par. (2) relating to exceptions, and par. (3) defining “preproductive period”.
(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
Amended 1982
- 1982 Pub. L. 97-354 Pub. L. 97–354, § 5(a)(28), substituted “an S corporation” for “an electing small business corporation (within the meaning of section 1371(b))”.
(2) a corporation which meets the gross receipts test of section 448(c) for such taxable year.
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(A)(ii), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “a corporation the gross receipts of which meet the requirements of subsection (d).”
Amended 1987, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(A)(i), in introductory provisions, inserted “for any taxable year” after “not being a corporation”.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(a), added subsec. (c), substituting “certain corporations” for “small business and family corporations” in heading and striking out former text which read as follows: “For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is—
“(1) an S corporation,
“(2) a corporation of which at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of the total number of shares of all other classes of stock of the corporation, are owned by members of the same family, or
“(3) a corporation the gross receipts of which meet the requirements of subsection (e).”
(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.
Amended 1987, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (f) as (d) and struck out former subsec. (d) which related to gross receipts requirements.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(a), added subsec. (d). Former subsec. (d) redesignated (e).
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(e) Certain annual accrual accounting methods
Amended 1987, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13102(a)(5)(C), redesignated subsec. (g) as (e) and struck out former subsec. (e) which related to members of the same family.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(c)(1), substituted “subsection (d)” for “subsection (c)(2)”.
- 1987 Pub. L. 100-203 Pub. L. 100–203, § 10205(a), redesignated former subsec. (d) as (e) and struck out former subsec. (e), “Corporation having gross receipts of $1,000,000 or less”, which read as follows: “A corporation meets the requirements of this subsection if, for each prior taxable year beginning after December 31, 1975, such corporation (and any predecessor corporation) did not have gross receipts exceeding $1,000,000. For purposes of the preceding sentence, all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a)) shall be treated as one corporation.”
(1) In general Notwithstanding subsection (a) or section 263A, if—
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(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
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(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.