SECTION 2. BACKGROUND

.01 Certain taxpayers issue credit cards that allow cardholders to access a revolving line of credit to purchase goods and services (“credit card purchase transactions”) and to obtain cash advances (“cash advance transactions”). The credit card agreement between the credit card issuer and the cardholder sets forth the terms and conditions that govern the cardholder’s use of the credit card, including identification of which credit card transactions are treated as cash advance transactions.

.02 Under many credit card agreements, the credit card issuer imposes a fee (a “credit card cash advance fee”) on the cardholder when the cardholder uses the credit card to conduct a cash advance transaction. Although the terms of credit card agreements may vary, a credit card

assistance in determining the portion of an Owner Payment that is treated as interest and the taxable year in which the interest is includible in income.

Q–8. Does an individual Owner’s gain or loss from Owner Payments qualify for farm income averaging?

A–8. No. A tobacco quota is considered an interest in land, and farm income averaging is not available for gain or loss arising from the sale or other disposition of land.

Q–9. Are Owner Payments subject to information reporting?

A–9. Yes. Because a tobacco quota is considered an interest in land, the total amount received under a contract by an owner in a taxable year generally will be reported by USDA on Form 1099–S, Proceeds From Real Estate Transactions, if the amount is $600 or more. In addition, any portion of an Owner Payment treated as interest for federal tax purposes generally will be reported by USDA on Form 1099–INT, Interest Income, if the total amount of interest received in a taxable year is $600 or more.

Q–10. Is the termination of a tobacco quota under the Act an involuntary conver- sion of the quota?

A–10. No. Q–11. May an Owner enter into a like- kind exchange of a quota?

A–11. Yes. An Owner may postpone reporting the gain or loss from the termination of a quota by entering into a like-kind exchange pursuant to § 1031 and the regulations thereunder. The date on which an Owner and USDA enter into a contract for Owner Payments with respect to a quota is treated as the date on which the quota is transferred for purposes of § 1031. An intermediary is treated as satisfying the requirements of § 1.1031(k)–1(g)(4)(iii)(B) (relating to the exchange agreement required to be entered into by a qualified intermediary) if the intermediary enters into a written agreement with the Owner (the exchange agreement) before the date on which the quota is transferred and under the exchange agreement the intermediary—

(a) is assigned the right to receive all Owner Payments under the contract made after the date of the exchange agreement;

(b) acquires the replacement property; and

(c) transfers the replacement property to the Owner.

Q–12. Is transitional relief available for purposes of § 1031 for an Owner who could not make timely arrangements for a like-kind exchange under Notice 2005–51?

A–12. Yes, transitional relief is available to an Owner who applied by June 17, 2005, to enter into a contract with USDA for Owner Payments. In determining whether such Owner has entered into a like-kind exchange pursuant to § 1031 and the regulations thereunder, the date on which the Owner transfers a quota is deemed to be September 16, 2005. To qualify for this transitional relief, an Owner who receives an Owner Payment must remit the amount of the Owner Payment to the qualified intermediary within 5 business days of the later of the date the exchange agreement is entered into or the date the Owner Payment is received by the Owner; in such case the Owner Payment is treated as being received by the qualified intermediary.

SUBSEQUENT GUIDANCE

Section 623 of the Act provides that USDA will offer to enter into a contract with an eligible tobacco producer (Grower) under which the Grower may receive total payments of up to $3 per pound of quota in 10 equal annual payments in fiscal years 2005 through 2014 (Grower Payments) in exchange for the termination of the tobacco marketing quotas and related price support. Grower Payments are determined by reference to the amount of quota under which the Grower produced (or planted) tobacco during the 2002, 2003, and 2004 tobacco marketing years and are prorated based on the number of years that the Grower produced (or planted) quota tobacco during those years. The federal tax treatment of Grower Payments is expected to be addressed in subsequent guidance.

EFFECT ON OTHER DOCUMENTS

Notice 2005–51 is modified and, as modified, is superseded.

DRAFTING INFORMATION

The principal author of this notice is Marnette M. Myers of the Office of Associate Chief Counsel (Income Tax &

2005–32 I.R.B. 269 August 8, 2005