By RAY WYCHE

People who held tobacco quotas, as well as those who actually grew the crop, are upset with the IRS Forms 1099 they have received showing that the full 10 years of payments in the quota buyout are now taxable, despite the fact that many have received only one year’s payment.

The local Farm Service Agency (FSA) has received numerous calls about the apparent error, County Executive Coke Gray said. Gray explained that the entire 10 years of buyout payments were listed on this year’s IRS Form 1099 even though only one year’s payment has been received by the quota holder or grower.

Gray advises quota holders and growers to “contact their tax preparer to help them.

“It’s up to the owner of the quota or the grower to make that decision (about paying the 10 years of taxes),” he added.

If the farmer received his entire 10 years of payments in a lump sum by selling his contract to a financial institution, then he owes taxes on the entire amount. But if he chose to accept the buyout payments in 10 yearly installments, he may pay his capital gains tax each year, Gray said.

“He (owner or grower) can look at his cost basis and could pay part or all of (of his capital gains tax) at one time,” he added.

Gray said the quota owner may have lost money on the buyout if he recently bought a farm and has more invested than the buyout will pay.

“It’s been going on for two weeks,” Gray said of calls to his office concerning the apparent error in the 1099 tax notices received. One farmer who called the local FSA office was told that more than 500 people had contacted the office after receiving their 1099s from the National Tobacco Trust Processing Center in Oklahoma City.

Many quota owners were under the impression that if they assigned their remaining nine payments to a financial institution and received a lump sum payment from the institution, which they were allowed to do, they would be liable for the entire 10 years of tax payments in the year they received the lump sum payment. But most believed that by taking their buyout payments over a 10-year period, they would liable for taxes only for the payment received that year.

Owners received $7 per pound of quota and growers received $3 per pound. Buyout payments to growers are considered as regular income, while buyout payments to quota owners are classified as capital gains.

Gene Smith of Lake Waccamaw, who owned a tobacco quota on land near Hallsboro, said the local FSA gave him a toll-free telephone number to call with questions about the 1099 notice of taxes due. Smith said he called the number–1 (800) 673-2331–and was told that the Forms 1099 were prepared exactly as the Internal Revenue Service had instructed the processing center to prepare them.

“It was supposed to be spread over a 10-year period,” Smith said of his buyout payments, adding that he has received only one payment, in September 2005.

His 1099 listed the income as a capital gain from sale of real estate, even though he has sold no land, Smith said. For income tax purposes, the buyout was considered to be a real estate transaction but most quota holders assumed that taxes would be due only after the payments were received each year, for those who chose to spread the buyout payments over a 10-year period.

Smith said the 1099 he received last week had the total 10 years of payments as being taxable this year.

When the federally operated quota system was in effect, Columbus County had about 5,580 tobacco quota owners and growers who were projected to receive about $144 million over 10 years.