Practice Areas
Co-Op Deposits Tax Refunds As Part Of Lawsuit, But Payouts Undetermined
By Scott Sloan - ssloan@herald-leader.com
Lexington Herald Leader
Wednesday, September 22, 2010
More than $20 million was deposited earlier this month into a trust fund that pays out money to tobacco farmers in five states as part of a long-running lawsuit between the growers and the Lexington-based Burley Tobacco Growers Cooperative Association.
Although the money has been deposited by the cooperative, there's no date set for when it might be disbursed to the more than 198,000 past and current burley tobacco growers in Kentucky, Indiana, Missouri, Ohio and West Virginia.
It would be the second such payment to the group of farmers. The first came in 2008, when about $57 million was distributed. The money came from the 2005 sale of burley tobacco, the ownership of which is central in the case.
The sale came after the decades-old federal price support program for tobacco ended in 2004. The co-op historically had paid farmers an advance on their tobacco and stored it for future sale, said Robert Maclin, an attorney for the farmers. A 2007 court order in the case ruled that the tobacco belonged to the farmers and that proceeds from the sale by the co-op should go to them.
The newest round of money relates to tax refunds. The co-op had paid taxes on the burley when it was sold in 2005 and 2006, but the plaintiffs' lawyers argued that the co-op should seek a refund of the taxes and turn it over to the farmers.
The co-op's payments to the trust fund have led it to restate its income taxes and report losses. As a result, it received tax refunds that have been paid into the trust. But it's a long process, co-op President Roger Quarles said, because each time the co-op makes a payment, it results in another tax refund, although they get smaller and smaller.
"We're still going to get more because we wrote the check — $22 million — to the trust fund," he said. "That's going to cause us to have a $22 million loss, so we're going to get 35 percent of that again next year."
Lacking a court order mandating it, Maclin and the farmers' lawyers, including Lambert Farmer, have asked the co-op for permission to distribute most of the $30 million or so in the trust as of now.
But Quarles is opposed to that because if the Internal Revenue Service were to rule that the refunds were improper, then "someone would have to repay the money."
"We're waiting on somebody to hold their hand up and say they'd take care of that if the refund's taken back," he said.
Maclin and Farmer disputed Quarles' claim, saying that because the IRS has completed its audit, it's unlikely it would be reopened.
Quarles also said, though, that it's expensive to make the payments to farmers, costing about $400,000 each time a series of checks is written, and that it might be best to wait longer.
"We're going to have to start looking at how much it costs to disburse versus how much is coming in," he said.
