Checks Ship out for Tobacco Deal

Source from:  The Associated Press FLORENCE 07/11/2005

Farmers to see money this month. The first checks from the tobacco-quota buyout are headed to S.C. farmers' mailboxes this month. More than $724 million will be paid to growers in the Palmetto State during the next 10 years. But many are opting for lump sum payments from financial institutions. There are benefits to lump sum options and taking the annual payments from the federal government, but farmers need to be careful about which option they choose, said Larry McKenzie, assistant to the president of the S.C. Farm Bureau. "What we're telling everyone is that there are tax implications," McKenzie said. "They really need to consult with their tax advisers before making any decisions because different people will be in different tax situations." The lump sum payment works much like income tax advances. For a fee, a financial institution will pay a tobacco quota holder what they would get in buyout money during a 10-year period all at one time. "The first option, the grower would sign with some financial institution and agrees to a payment of a certain percentage of the total amount. The other way to do it, the annual payment will act as collateral for a 10-year loan." Quota owners and quota growers, those who rent or lease their quota from an owner, will face different tax regulations on payouts. For one thing, a quota is treated by the Internal Revenue Service as an interest in property, so it is subject to capital gains tax. Depending on the size of the quota, a lump sum payment could cost a lot in taxes. Tobacco growers need to beware of scams, too. "Families receiving tobacco-buyout monies should be aware that opportunities such as this often give rise to frauds and scams," said Celvia Stovall, an extension specialist and professor at N.C. State University. Enditem