CERTAIN FARM CORPORATIONS REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

SEC. 10205. CERTAIN FARM CORPORATIONS REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING. (a) General Rule.— Section 447 (relating to method of accounting for corporations engaged in farming) is amended by striking out subsections (c) and (e), by redesignating subsection (d) as subsection (e), and by inserting after subsection (b) the following new subsections: “(c) Exception for Certain Corporations.— For purposes of subsection (a), a corporation shall be treated as not being a corporation if it is— “(1) an S corporation, or “(2) a corporation the gross receipts of which meet the requirements of subsection (d). “(d) Gross Receipts Requirements.— “(1) In general.— 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 the same controlled group of corporations (within the meaning of section 1563(a)) shall be treated as 1 corporation. “(2) Special rules for family corporations.— “(A) In general.— In the case of a family corporation, paragraph (1) shall be applied— “(i) by substituting ‘December 31, 1985,’ for ‘December 31, 1975,’; and “(ii) by substituting ‘$25,000,000’ for ‘$1,000,000’. “(B) Gross receipts test.— “(i) Controlled groups.— Notwithstanding the last sentence of paragraph (1), in the case of a family corporation— “(I) except as provided by the Secretary, only the applicable percentage of gross receipts of any other member of any controlled group of corporations of which such corporation is a member shall be taken into account, and “(II) under regulations, gross receipts of such corporation or of another member of such group shall not be taken into account by such corporation more than once. “(ii) Pass-thru entities.— For purposes of paragraph (1), if a family corporation holds directly or indirectly any interest in a partnership, estate, trust or other pass-thru entity, such corporation shall take into account its proportionate share of the gross receipts of such entity. “(iii) Applicable percentage.— For purposes of clause (i), the term ‘applicable percentage’ means the percentage equal to a fraction— “(I) the numerator of which is the fair market value of the stock of another corporation held directly or indirectly as of the close of the taxable year by the family corporation, and “(II) the denominator of which is the fair market value of all stock of such corporation as of such time. 101 STAT. 1330–396 For purposes of this clause, the term ‘stock’ does not include stock described in section 1563(c)(1).108108 Copy read “1563(c)(1).” “(C) Family corporation.— For purposes of this section,108a108a Copy read “section.”. the term ‘family corporation’ means— “(i) any corporation if at least 50 percent of the total combined voting power of all classes of stock entitled to vote, and at least 50 percent of all other classes of stock of the corporation, are owned by members of the same family, and “(ii) any corporation described in subsection (h).” (b) Suspense Account in Lieu of 481 Adjustments.— Section 447 is amended by adding at the end thereof the following new subsection: “(i) Suspense Account for Family Corporations.— “(1) In general.— If any family corporation is required by this section to change its method of accounting for any taxable year (hereinafter in this subsection referred to as the ‘year of the change’), notwithstanding subsection (f), such corporation shall establish a suspense account under this subsection in lieu of taking into account adjustments under section 481(a) with respect to amounts included in the suspense account. “(2) Initial opening balance.— The initial opening balance of the account described in paragraph (1) shall be the lesser of— “(A) the net adjustments which would have been required to be taken into account under section 481 but for this subsection, or “(B) the amount of such net adjustments determined as of the beginning of the taxable year preceding the year of change. If the amount referred to in subparagraph (A) exceeds the amount referred to in subparagraph (B), notwithstanding paragraph (1), such excess shall be included in gross income in the year of the change. “(3) Reduction in account if farming business contracts.— 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). “(4) Income inclusion.— Any reduction in the suspense account under paragraph (3) shall be included in gross income for the taxable year of the reduction. “(5) Inclusion where corporation ceases to be a family corporation.— “(A) In general.— If the corporation ceases to be a family corporation during any taxable year, the amount in the suspense account (after taking into account prior reduc-101 STAT. 1330–397tions) shall be included in gross income for such taxable year. “(B) Special rule for certain transfers.— For purposes of subparagraph (A), any transfer in a corporation after December 15, 1987, shall be treated as a transfer to a person whose ownership could not qualify such corporation as a family corporation unless it is a transfer— “(i) to a member of the family of the transferor, or “(ii) in the case of a corporation described in subsection (h), to a member of a family which on December 15, 1987, held stock in such corporation which qualified the corporation under subsection (h). “(6) Subchapter c transactions.— The application of this subsection with respect to a taxpayer which is a party to any transaction with respect to which there is nonrecognition of gain or loss to any party by reason of subchapter C shall be determined under regulations prescribed by the Secretary.” (c) Technical Amendments.— (1) Subsection (e) of section 447 (as redesignated by subsection (a)) is amended by striking out “subsection (c)(2)” and inserting in lieu thereof “subsection (d)”. (2) Paragraph (1) of section 447(h) is amended— (A) by striking out “This section shall not apply to any corporation” and inserting in lieu thereof “A corporation is described in this subsection”, (B) by striking out “subsection (d)” each place it appears and inserting in lieu thereof “subsection (e)”, and (C) by striking out “subsection (d)(1)” each place it appears and inserting in lieu thereof “subsection (e)(1)”. (d) Effective Date.— The amendments made by this section shall apply to taxable years beginning after December 31, 1987.