Checks on Way to S.C. Tobacco Growers

Source from:  THE ASSOCIATED PRESS FLORENCE, S.C. 07/11/2005

Quota holders told to be wary of scams The first checks from the tobacco-quota buyout are headed to South Carolina farmers' mailboxes this month. More than $724 million will be paid to South Carolina growers during the next 10 years. But many are choosing "lump sum" payments from financial institutions. There are benefits to lump-sum options or taking the annual payments from the federal government, but farmers need to be careful about which one they choose, said Larry McKenzie, the assistant to the president of the South Carolina 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 advance payments. For a fee, a financial institution will make a one-time payment to a tobacco-quota holder for a percentage of what the quota holder would get in buyout money over 10 years. "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," McKenzie said. 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, one lump-sum payment could end up costing a lot in taxes. Tobacco growers need to beware of scams, too. The N.C. Attorney General's Office has already warned quota owners to be careful. "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