
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1056]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  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
        

(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, Sec. 212(a)(1), Oct. 4, 1976, 90 Stat. 
1545; amended Pub. L. 99-514, title VI, Sec. 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.''
