IRS Answers Questions about
Tax Treatment of Peanut Quota Payments

WASHINGTON - The Internal Revenue Service issued Notice 2002-67 today addressing the federal tax treatment of payments from the Department of Agriculture to peanut quota holders. Recent agricultural legislation repealed the marketing quota program for peanuts and directs the Department of Agriculture to make payments to peanut quota holders for the lost value of the quota resulting from the repeal.

Notice 2002-67 states that peanut quota holders who held a quota for investment purposes generally should treat any gain as a capital gain and any loss as a capital loss. Peanut quota holders who used a quota in the trade or business of farming and held the quota for more than one year generally may be able to treat any gain as a capital gain and any loss as an ordinary loss. For most taxpayers, capital gain tax rates are lower than ordinary income tax rates.

Under certain circumstances all or part of the gain should be treated as ordinary income. For instance those who previously deducted amounts for amortization, depletion or depreciation would be required to report all or part of the gain as ordinary income.

The Notice provides more detailed information on the taxation of gain or loss and other tax issues related to the payments. A copy of Notice 2002-67 will be available at www.irs.gov.

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