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Rev. Rul. 79-102, 1979-1 CB 184

REV-RUL, Inventories and change in accounting methods; farmers, nurserymen, and florists., Rev. Rul. 79-102, 1979-1 CB184, (Jan. 01, 1979)

Section 471.--General Rule for Inventories

26 CFR 1.471-6: Inventories of livestock raisers and other farmers.
(Also Sections 61, 162, 7805; 1.61-4, 1.162-12, 301.7805-1.)

Inventories and change in accounting methods; farmers, nurserymen, and florists.

Section 352 of the Revenue Act of 1978 exempts accrual method farmers, nurserymen, and florists, not required to capitalize preproduction period expenses, from the requirement that they inventory the value of growing crops, trees, and plants and from the requirement that they obtain the Commissioner's approval prior to switching to the cash method of accounting. Rev. Ruls. 76-242 and 77-64 revoked.

ISSUE

Does section 352 of the Revenue Act of 1978 (the Act), Pub. L. No. 95-600, 95th Cong., 2d Sess., (November 6, 1978), negate the effect of Rev. Rul. 76-242, 1976-1 C.B. 132, as modified by Rev. Rul. 77-64, 1977-1 C.B. 136?

FACTS

Rev. Rul. 76-242 revoked the position of the Internal Revenue Service set forth in I.T. 1368, I-1 C.B. 72 (1922) and O.D. 995, 5 C.B. 63 (1921), by requiring farmers, nurserymen, and florists using an accrual method of accounting to inventory growing crops, growing trees, or growing plants unless such taxpayers use the crop method because the Service determined that growing crops, trees, or plants are now capable of being inventoried.

I.T. 1368 held that (1) farmers would not be permitted to inventory growing crops in determining gross income, and (2) nurserymen may inventory their young trees only when they had reached a marketable size and stage of development and when the market value is definitely known.

O.D. 995 held that florists are not required to inventory growing plants for the purpose of calculating their net income for income tax purposes.

Rev. Rul. 76-242 applied to taxable years beginning after June 28, 1976, the date it was published in the Internal Revenue Bulletin. Rev. Rul. 77-64 modified the effective date of Rev. Rul. 76-242 by changing it so that the provisions set forth therein would not be applied to taxable years beginning before January 1, 1978.

LAW

Section 352 of the Act provides as follows:

(a) APPLICATION OF SECTION.--This section shall apply to a taxpayer who--

(1) is a farmer, nurseryman, or florist,

(2) is on an accrual method of accounting, and

(3) is not required by section 447 of the Internal Revenue Code of 1954 to capitalize preproductive period expenses.

(b) TAXPAYER MAY NOT BE REQUIRED TO INVENTORY GROWING CROPS.--A taxpayer to whom this section applies may not be required to inventory growing crops for any taxable year beginning after December 31, 1977.

(c) TAXPAYER MAY ELECT TO CHANGE TO CASH METHOD.--A taxpayer to whom this section applies may, for any taxable year beginning after December 31, 1977 and before January 1, 1981, change to the cash receipts and disbursements method of accounting with respect to any trade or business in which the principal activity is growing crops.

(d) SECTION 481 OF CODE TO APPLY.--Any change in the way in which a taxpayer accounts for the costs of growing crops resulting from the application of subsection (b) or (c)--

(1) shall not require the consent of the Secretary of the Treasury or his delegate, and

(2) shall be treated, for purposes of section 481 of the Internal Revenue Code of 1954, as a change in the method of accounting initiated by the taxpayer.

(e) GROWING CROPS.--For purposes of this section, the term "growing crops" does not include trees grown for lumber, pulp, or other nonlife purposes.

ANALYSIS AND HOLDING

Section 352 of the Act negates the effect of Rev. Rul. 76-242 as modified. Thus, farmers, nurserymen, and florists referred to in Rev. Rul. 76-242 that utilize the accrual method of accounting without inventorying the value of growing crops, trees, or plants may continue to do so.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 76-242 and Rev. Rul. 77-64 are revoked.

Rev. Proc. 78-22, 1978-2 C.B. 499, which had allowed taxpayers affected by Rev. Rul. 76-242 and Rev. Rul. 77-64 to change to the cash receipts and disbursements method is revoked by Rev. Proc. 79-16, page 516, this bulletin.

I.T. 1368 and O.D. 995 remain revoked.