Cash Method Exception for Farming Corporations

§ 447. Method of accounting for corporations engaged in farming(a) General ruleExcept 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 expensesFor rules requiring capitalization of certain preproductive period expenses, see section 263A. (c) Exception for certain corporationsFor 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 481Any 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 generalNotwithstanding 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 definedFor 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 transfersFor 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,