24651-24654

REVENUE AND TAXATION CODE
SECTION 24651-24654




24651.  (a) Income shall be computed under the method of accounting
on the basis of which the taxpayer regularly computes its income in
keeping its books.
   (b) If no method of accounting has been regularly used by the
taxpayer, or if the method used does not clearly reflect income, the
computation of income shall be made under such method as, in the
opinion of the Franchise Tax Board, does clearly reflect income.
   (c) Subject to subdivisions (a) and (b) and Section 24654, a
taxpayer may compute income under any of the following methods of
accounting--
   (1) The cash receipts and disbursements method;
   (2) An accrual method;
   (3) Any other method permitted by this part; or
   (4) Any combination of the foregoing methods permitted under
regulations prescribed by the Franchise Tax Board.
   (d) A taxpayer engaged in more than one trade or business may in
computing income, use a different method of accounting for each trade
or business.
   (e) Except as otherwise expressly provided in this part, a
taxpayer who changes the method of accounting on the basis of which
it regularly computes its income in keeping its books shall, before
computing its income under the new method, secure the consent of the
Franchise Tax Board.
   (f) If the taxpayer does not file with the Franchise Tax Board a
request to change the method of accounting, the absence of the
consent of the Franchise Tax Board to a change in the method of
accounting shall not be taken into account for either of the
following:
   (1) To prevent the imposition of any penalty, or the addition of
any amount to tax, under this part.
   (2) To diminish the amount of that penalty or addition to tax.




24652.  Section 447 of the Internal Revenue Code, relating to method
of accounting for corporations engaged in farming, shall apply,
except as otherwise provided.



24652.5.  (a) (1) Section 447(i)(3) of the Internal Revenue Code,
relating to reduction in account if farming business contracts, shall
not apply.
   (2) Section 447(i)(4) of the Internal Revenue Code, relating to
income inclusions, shall not apply.
   (3) (A) No suspense account may be established under Section 447
(i) of the Internal Revenue Code, relating to suspense account for
family corporations, by any corporation required by Section 447 of
the Internal Revenue Code, relating to method of accounting for
corporations engaged in farming, to change its method of accounting
for any income year ending after June 8, 1997.
   (B) (i) Each suspense account under Section 447(i) of the Internal
Revenue Code shall be reduced (but not below zero) for each income
year beginning after June 8, 1997, by an amount equal to the lesser
of:
   (I) The applicable portion of the account.
   (II) Fifty percent of the net income of the corporation for the
income year, or, if the corporation has no net income for that year,
the amount of any net operating loss (as defined in Section 172 of
the Internal Revenue Code and as modified for purposes of this part)
for that income year.
   For purposes of the preceding sentence, the amount of net income
and net operating loss shall be determined without regard to this
paragraph.
   (ii) The amount of the applicable portion for any income year
shall be reduced (but not below zero) by the amount of any reduction
required for the income year under any other provision of Section 447
(i) of the Internal Revenue Code.
   (iii) Any reduction in a suspense account under this paragraph
shall be included in gross income for the income year of the
reduction.
   (C) For purposes of subparagraph (B), the term "applicable portion"
means, for any income year, the amount which would ratably reduce
the amount in the account (after taking into account prior
reductions) to zero over the period consisting of that income year
and the remaining income years in those first 20 income years.
   (D) Any amount in the account as of the close of that 20th year
referred to in subparagraph (C) shall be treated as the applicable
portion for each succeeding year thereafter to the extent not reduced
under this paragraph for any prior income year after the 20th year.
   (b) This section shall apply to income years ending on or after
December 31, 1997.
   (c) This section shall not apply to income years beginning on or
after January 1, 1998.


24654.  (a) Section 448 of the Internal Revenue Code, relating to
limitation on use of cash method of accounting, shall apply, except
as otherwise provided.
   (b) For purposes of applying Section 448 of the Internal Revenue
Code, Sections 801(d)(2), 801(d)(3), and 801(d)(5) of the Tax Reform
Act of 1986 (Public Law 99-514), as modified by Section 1008(a) of
Public Law 100-647, shall apply to each taxable year beginning on or
after January 1, 1987.