6
pursuant to section 263A(b)(2)(A) and section 1.263A-3(a)(1),
Income Tax Regs. Section 1.263A-4T(c)(4)(ii)(B), Temporary
Income Tax Regs., supra, describes the preproductive period as
follows: "The preproductive period of a plant begins when the
plant or seed is first planted or acquired by the taxpayer. The
preproductive period ends when the plant becomes productive in
marketable quantities or when the plant is reasonably expected to
be sold or otherwise disposed of." Petitioners planted the
seedlings in 1986 and reasonably expected to sell them after 3
years. Because the productive period of the trees was more than
2 years, preproductive expenses attributable thereto are subject
to the UCR, and, accordingly, petitioners are required to
capitalize such expenses unless an exception applies.
Under section 263A(d)(3), a farmer may elect out of the UCR,
and, instead, deduct his expenses in accordance with the
provisions of section 162, with the requirement that the property
produced is then treated as section 1245 property, and any gain
resulting from the disposition thereof is recaptured to the
extent of the deductions which, but for the election under
section 263A(d)(3), would have been capitalized. The election
must be made for the first taxable year beginning after December
31, 1986, during which the taxpayer engages in the farming
business. Sec. 1.263A-4T(c)(6)(iii), Temporary Income Tax Regs.,
supra. "A taxpayer * * * shall be treated as having made the
election if such taxpayer does not capitalize the costs of
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