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The legislative history emphasizes that section 1056 was
enacted to prevent inconsistent valuations of player contracts by
purchasers and sellers of professional sports franchises. H.
Rept. 94-658, at 115-117 (1975), 1976-3 C.B. (Vol. 2) 695, 807-
809; S. Rept. 94-938 at 87-88 (1976), 1976-3 C.B. (Vol. 3) 49,
125-126.11 Section 1056 was intended to cause the tax
consequences on the sale of sports franchises to be subject to an
arm's-length and balanced posture. That is accomplished by using
the seller's basis plus any gain recognized by the seller as the
standard for the buyer's basis in player contracts. H. Rept. 94-
658, at 117; 1976-3 C.B. (Vol. 2) at 809; S. Rept. 94-938 at 87-
88, 1976-3 C.B. (Vol. 3) at 125-126.
We disagree with respondent's contention that inconsistent
valuations of player contracts would automatically occur in
transactions involving a sports franchise held within a
partnership. Provisions within subchapter K protect against
inconsistent valuations of partnership property by buying and
11 The purchaser of a sports franchise would be motivated to
allocate a larger portion of the purchase price to player
contracts because the costs of player contracts are amortizable.
Likewise, there would be less motivation to allocate cost to the
franchise rights and goodwill which are not amortizable.
Conversely, sellers would be motivated to allocate little of the
purchase price to player contracts because gain recognized on the
sale of player contracts may be subject to sec. 1245 depreciation
recapture and treated as ordinary income. Sellers would also be
motivated to allocate a larger portion of the purchase price to
unamortizable assets, such as franchise rights, any gains on
which may be taxable at capital gain rates and are not subject to
recapture provisions.
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