Installment Sale or Cap Gain?

[Possi]

One more big tax return at the last minute. They're driving me to drink..

I have an email that is supposed to explain to ME how to treat a 1099S with the description "tobacco transition payment program."
I was going straight to the Sch D for L/T gain when I read the email. Can anyone make this plain to me? It comes from one tobacco owner to the other, my client.

"On your taxes this year, make sure that your accountant uses form 6252 to report this money. The government is paying us $7 per pound over a period of 10 yrs. Tobacco never sold for more than $3/lb, so the way the income should be reported is as capital gains at $4/lb over a period of 10 yrs. I hope this makes sense because it should save you some money on your taxes."

This is accompanied by a 1099S for $9464.

Further, there is a schedule of interest over 10 yrs that will be reported on 1099INTs.

um... help?

Thanks!
~possi

[Black Bart]

Who issued the 1099-S?

I don't understand why (If it's the USDA) that they're not sending out 1099-G forms. Also, it seems strange that a crop price shortfall would be listed on a real estate form since this (I think) would be income that would go on a Schedule F or 4835 as "Agricultural program payments."

[Black Bart]

Go back a couple of pages.

There's a thread "1099S Tobacco Transition" by John3cpa on 4-8-06 where they're kicking it around a bit.

[rosieea]

This is commonly treated as an installment sale. I don't know about the $3 per pound being used as basis. A colleage in Kentucky, where these payments are common, says most practitioners use $2 per pound.

[Unregistered]

Possi, this is how it is done

If $9464 is the amt shown on the 1099s then that is the total amt that will be paid to
taxpayer over a 10 yr period. He gets a $964 payment for 10 yrs. This is an istallment
sale. First subtract the total of the interest shown on bottom of 1099s from the total
$9464. The interest is imputed interest. The amt left is the actual sales price to use on
the installment sale 6252 form. The taxpayer was paid $7/lb of his quota $9464/7=1352lbs
His basis on the installment would be whatever his cost basis in those 1352lbs was. If
he had a long time then is probably no more than 1-2$/lb. From the 6252 form the taxable
amt of the payment would would go to sch d if investment income, or 4797 if this person
was actually in the farm business. Also, go to sch d and report the whole amt $9464 and
subtract $9464 to zero out for irs 1099 matching purposes. Hope this helps.

Dixie, in NC

[Possi]

Thanks Dixie

If anyone would know, I would think it is Dixie in North Carolina where tobacco is grown! I'm originally from SC have driven the country roads lined with tobacco fields.
Thanks for your help. Pray I can get through this one........
~poss