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Federal Register / Vol. 86, No. 2 / Tuesday, January 5, 2021 / Rules and Regulations + $16 million + $30 million/3 = $22
million. A may use the cash method for its trade or business for the 2020 taxable year because its average annual gross receipts for the preceding three taxable years is not more than the gross receipts test amount of paragraph c2vi of this section, which is $26 million for 2020.
d Exception for farming businesses1 In general. Except in the case of a tax shelter, this section does not apply to any farming business. A
taxpayer engaged in a farming business and a separate non-farming business is not prohibited by this section from using the cash method with respect to the farming business, even though the taxpayer may be prohibited by this section from using the cash method with respect to the non-farming business.
2 Farming businessi In general.
For purposes of paragraph d of this section, the term farming business means A The trade or business of farming as defined in section 263Ae4
including the operation of a nursery or sod farm, or the raising or harvesting of trees bearing fruit, nuts or other crops, or ornamental trees, B The raising, harvesting, or growing of trees described in section 263Ac5
relating to trees raised, harvested, or grown by the taxpayer other than trees described in paragraph d2iA of this section, C The raising of timber, or D Processing activities which are normally incident to the growing, raising, or harvesting of agricultural products.
ii Example. Assume a taxpayer is in the business of growing fruits and vegetables. When the fruits and vegetables are ready to be harvested, the taxpayer picks, washes, inspects, and packages the fruits and vegetables for sale. Such activities are normally incident to the raising of these crops by farmers. The taxpayer will be considered to be in the business of farming with respect to the growing of fruits and vegetables, and the processing activities incident to the harvest.
iii Processing activities excluded from farming businessesA In general. For purposes of this section, a farming business does not include the processing of commodities or products beyond those activities normally incident to the growing, raising, or harvesting of such products.
B Examples. 1 Example 1. Assume that a C corporation taxpayer is in the business of growing and harvesting wheat and other grains. The taxpayer processes the harvested grains to
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produce breads, cereals, and similar food products which it sells to customers in the course of its business.
Although the taxpayer is in the farming business with respect to the growing and harvesting of grain, the taxpayer is not in the farming business with respect to the processing of such grains to produce breads, cereals, and similar food products which the taxpayer sells to customers.
2 Example 2. Assume that a taxpayer is in the business of raising livestock.
The taxpayer uses the livestock in a meat processing operation in which the livestock are slaughtered, processed, and packaged or canned for sale to customers. Although the taxpayer is in the farming business with respect to the raising of livestock, the taxpayer is not in the farming business with respect to the meat processing operation.
e Exception for qualified personal service corporation. The rules in 1.4481Te relating to the exception for qualified personal service corporations apply for taxable years beginning after December 31, 2017.
f Effect of section 448 on other provisions. Except as provided in paragraph b2iiiB of this section, nothing in section 448 shall have any effect on the application of any other provision of law that would otherwise limit the use of the cash method, and no inference shall be drawn from section 448 with respect to the application of any such provision. For example, nothing in section 448 affects the requirement of section 447 that certain corporations must use an accrual method of accounting in computing taxable income from farming, or the requirement of 1.4461c2 that, in general, an accrual method be used with regard to purchases and sales of inventory. Similarly, nothing in section 448 affects the authority of the Commissioner under section 446b to require the use of an accounting method that clearly reflects income, or the requirement under section 446e that a taxpayer secure the consent of the Commissioner before changing its method of accounting. For example, a taxpayer using the cash method may be required to change to an accrual method of accounting under section 446b because such method clearly reflects the taxpayers income, even though the taxpayer is not prohibited by section 448 from using the cash method.
Similarly, a taxpayer using an accrual method of accounting that is not prohibited by section 448 from using the cash method may not change to the cash method unless the taxpayer secures the consent of the Commissioner under section 446e.

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g Treatment of accounting method change and rules for section 481a adjustment1 In general. Any taxpayer to whom section 448 applies must change its method of accounting in accordance with the provisions of this paragraph g. In the case of any taxpayer required by this section to change its method of accounting, the change shall be treated as a change initiated by the taxpayer to compute the adjustment required under section 481.
A taxpayer must change to an overall accrual method of accounting for the first taxable year the taxpayer is subject to this section or a subsequent taxable year in which the taxpayer is newly subject to this section after previously making a change in method of accounting that complies with section 448 mandatory section 448 year. A
taxpayer may have more than one mandatory section 448 year. For example, a taxpayer may exceed the gross receipts test of section 448c in non-consecutive taxable years. If the taxpayer complies with the provisions of paragraph g3 of this section for its mandatory section 448 year, the change shall be treated as made with the consent of the Commissioner. The change shall be implemented pursuant to the applicable administrative procedures to obtain the automatic consent of the Commissioner to change a method of accounting under section 446e as published in the Internal Revenue Bulletin see Revenue Procedure 201513 20155 IRB 419 or successor see also 601.601d2 of this chapter. This paragraph g applies only to a taxpayer who changes from the cash method as required by this section.
This paragraph g does not apply to a change in method of accounting required by any Code section or applicable regulation other than this section.
2 Section 481a adjustment. The amount of the net section 481a adjustment and the adjustment period necessary to implement a change in method of accounting required under this section are determined under 1.4461e and the applicable administrative procedures to obtain the Commissioners consent to change a method of accounting as published in the Internal Revenue Bulletin see Revenue Procedure 201513 20155
IRB 419 or successor see also 601.601d2 of this chapter.
h Applicability dates. The rules of this section apply for taxable years beginning on or after January 5, 2021.
However, for a taxable year beginning after December 31, 2017, and before January 5, 2021, a taxpayer may apply the rules provided in this section
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