1996 US Code
Title 26 - INTERNAL REVENUE CODE
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter O - Gain or Loss on Disposition of Property
PART IV - SPECIAL RULES
Sec. 1056 - Basis limitation for player contracts transferred in connection with the sale of a franchise

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§1056. Basis limitation for player contracts transferred in connection with the sale of a franchise (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.

(b) Exceptions

Subsection (a) shall not apply—

(1) to an exchange described in section 1031 (relating to exchange of property held for productive use or investment), and

(2) to property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent (within the meaning of section 1014(a)).

(c) Transferor required to furnish certain information

Under regulations prescribed by the Secretary, the transfer shall, at the times and in the manner provided in such regulations, furnish to the Secretary and to the transferee the following information:

(1) the amount which the transferor believes to be the adjusted basis referred to in paragraph (1) of subsection (a),

(2) the amount which the transferor believes to be the gain referred to in paragraph (2) of subsection (a), and

(3) any subsequent modification of either such amount.

To the extent provided in such regulations, the amounts furnished pursuant to the preceding sentence shall be binding on the transferor and on the transferee.

(d) Presumption as to amount allocable to player contracts

In the case of any sale or exchange described in subsection (a), it shall be presumed that not more than 50 percent of the consideration is allocable to contracts for the services of athletes unless it is established to the satisfaction of the Secretary that a specified amount in excess of 50 percent is properly allocable to such contracts. Nothing in the preceding sentence shall give rise to a presumption that an allocation of less than 50 percent of the consideration to contracts for the services of athletes is a proper allocation.

(Added Pub. L. 94–455, title II, §212(a)(1), Oct. 4, 1976, 90 Stat. 1545; amended Pub. L. 99–514, title VI, §631(e)(13), Oct. 22, 1986, 100 Stat. 2275.)

Prior Provisions

A prior section 1056 was renumbered section 1061 of this title.

Amendments

1986—Subsec. (a). Pub. L. 99–514 struck out “For purposes of this section, gain realized by the transferor on the transfer of such contract, but not recognized by reason of section 337(a), shall be treated as recognized to the extent recognized by the transferor's shareholders.”

Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99–514, set out as an Effective Date note under section 336 of this title.

Effective Date

Section 212(a)(3) of Pub. L. 94–455 provided that: “The amendments made by this subsection [enacting this section and renumbering former section 1056 as 1057] apply to sales or exchanges of franchises after December 31, 1975, in taxable years ending after such date.”