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Tax Considerations for the Tobacco Buyout

Farm Business Management Update, February/March 2005

By Daniel Osborne (, Extension Agent, Farm Business Management, Smyth County

With the passage of "The Fair and Equitable Tobacco Reform Act of 2004," also known as the "Tobacco Buyout," comes the payment to quota holders of $7 per pound and the payment to producers of quota tobacco of up to $3 per pound. Almost inevitably when farmers receive a payment, tax consequences follow. For Tobacco Buyout payments, the tax treatment and considerations vary depending on whether the payments are received as a quota holder or as a producer. Below is a brief overview of the tax considerations that must be made. If you find these considerations difficult to decipher, you may prefer to share and discuss them with your tax preparer. Keep in mind, the IRS may issue rulings after the writing of this article that may alter the considerations listed herein.

Tax Considerations for Quota Holders

Tax Considerations for Producers of Quota Tobacco

Not only will these consideration help with tax compliance, but hopefully they will also help address the questions of whether to take a lump sum or installments and how to minimize the tax liability resulting from buyout payments. Feel free to direct questions regarding this article to the author at or (276) 783-5175.

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