26 U.S.C. § 447 — Method of accounting for corporations engaged in farming

(a) General rule -- Unless another law says otherwise, farm income must be computed using an accrual method of accounting for: (1) a corporation in the trade or business of farming, or (2) a partnership in the trade or business of farming, if a corporation is one of its partners. This rule doesn't apply to running a nursery or sod farm, or to raising or harvesting trees -- other than fruit and nut trees. (b) Preproductive period expenses -- For rules requiring certain early-growth expenses to be capitalized, see section 263A. (c) Exception for certain corporations -- For (a), a corporation isn't treated as a "corporation" for a tax year if it's: (1) an S corporation, or (2) a corporation that meets the gross-receipts test of section 448(c) for that year. (d) Coordination with section 481 -- Any accounting method change made because of this section is treated, for section 481 purposes, as started by the taxpayer and made with the Secretary's consent. (e) Certain annual accrual accounting methods (1) In general -- Despite (a) or section 263A, a corporation or "qualified partnership" may keep using an "annual accrual method" for its farming business if: (A) for its 10 tax years ending with its first tax year beginning after December 31, 1975, it used an annual accrual method for its farming business; (B) it raises crops that are harvested at least 12 months after planting; and (C) it kept using that method for every tax year between that first post-1975 tax year and the current one. (2) Annual accrual method of accounting defined -- This means a method where revenue, costs, and expenses are figured on an accrual basis, and early-growth ("preproductive period") expenses incurred during the year are charged to the harvested crops or deducted in figuring that year's taxable income. (3) Certain nonrecognition transfers -- If: (A) a corporation acquired substantially all the assets of a qualified farming business from another corporation, in a transaction where neither side recognized gain or loss, or (B) a qualified partnership acquired substantially all the assets of a qualified farming business from one of its own partners, in a transaction covered by section 721, then the corporation or partnership that received the assets is treated as if it had computed its income on an annual accrual method for the whole period the prior owner used that method. (4) Qualified partnership defined (A) Qualified partnership -- a partnership engaged in a qualified farming business, where every partner is a corporation other than an S corporation or a personal holding company (as section 542(a) defines it). (B) Qualified farming trade or business (i) In general -- this means the trade or business of farming: sugar cane; any plant with a preproductive period of 2 years or less (as section 263A(e)(3) defines it); or any other plant (other than citrus or almond trees) if the corporation has an election in effect for it. For a partnership, and for purposes of paragraph (3)(A), the second and third categories don't apply. (ii) Effect of election -- for purposes of section 263A(e)(1) and (2), this kind of election is treated as if it were an election under section 263A(d)(3). (iii) Election -- Unless the Secretary consents otherwise, this election can be made only for the corporation's first tax year beginning after December 31, 1986, in which the corporation is in a farming business. Once made, it can only be revoked with the Secretary's consent.