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In particular, it was thought that purchasers of sports
franchises were over allocating basis to player contracts and
inflating amortization. Congress, by enacting section 1056,
sought to employ an approach that would require the seller and
buyer to use the same arm's-length or fair market value amount to
report income or claim deductions resulting from a sports
franchise transaction. Section 1056(a) provides:
(a) General Rule.--If a franchise to conduct any
sports enterprise is sold or exchanged, and if, in
connection with such sale or exchange, there is a
transfer of a contract for the services of an athlete,
the basis of such contract in the hands of the
transferee shall not exceed the sum of--
(1) the adjusted basis of such contract in
the hands of the transferor immediately before the
transfer, plus
(2) the gain (if any) recognized by the transferor
on the transfer of such contract.
In addition to equating the buyer's basis with the seller's
reporting position, the basis of acquired player contracts may
also be affected by the section 1056(d) rebuttable presumption
that no more than 50 percent of the purchase price of a sports
team is to be allocated to player contracts. To rebut the
presumption a taxpayer must "[establish] to the * * *
[Commissioner's satisfaction] that a specified amount in excess
of 50 percent is properly allocable". Sec. 1056(d).
The question considered here is whether the purchase of an
interest in a partnership entity that holds and operates a sports
franchise is a sale or exchange of "a franchise to conduct any
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Last modified: May 25, 2011