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A. Section 447--Method of Accounting for Corporations
Engaged in Farming
Section 447 provides that taxable income from farming of a
corporation engaged in the trade or business of farming “shall
be computed on an accrual method of accounting”. Sec. 447(a).
Section 447, however, does not apply to the trade or business of
harvesting trees that are not fruit or nut trees. Id. We agree
with petitioner that section 447 does not require petitioner’s
use of the accrual method.
We disagree, however, that section 447 “literally,
explicitly, and intentionally” permits petitioner’s use of the
cash method under the facts and circumstances presented.
Section 447 sets forth conditions that require use of the
accrual method, not authorization to use the cash method.
B. Section 448–Whether Petitioner Is a
“Farming Business”
Section 448 provides that a C corporation shall not compute
its taxable income using the cash method. Sec. 448(a)(1). An
exception exists for C corporations engaged in a “farming
business.” Sec. 448(b)(1). “Farming business” includes “the
raising, harvesting, or growing” of timber. Secs. 448(d)(1)(B),
263A(c)(5). Timber includes “trees raised, harvested, or grown
by the taxpayer” other than trees that bear fruit or nuts, and
other than trees in a nursery. Sec. 263A(c)(5), (e)(4).
Petitioner contends that it should be allowed to use the
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