
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1253]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1253. Transfers of franchises, trademarks, and trade names


(a) General rule

    A transfer of a franchise, trademark, or trade name shall not be 
treated as a sale or exchange of a capital asset if the transferor 
retains any significant power, right, or continuing interest with 
respect to the subject matter of the franchise, trademark, or trade 
name.

(b) Definitions

    For purposes of this section--

                            (1) Franchise

        The term ``franchise'' includes an agreement which gives one of 
    the parties to the agreement the right to distribute, sell, or 
    provide goods, services, or facilities, within a specified area.

        (2) Significant power, right, or continuing interest

        The term ``significant power, right, or continuing interest'' 
    includes, but is not limited to, the following rights with respect 
    to the interest transferred:
            (A) A right to disapprove any assignment of such interest, 
        or any part thereof.
            (B) A right to terminate at will.
            (C) A right to prescribe the standards of quality of 
        products used or sold, or of services furnished, and of the 
        equipment and facilities used to promote such products or 
        services.
            (D) A right to require that the transferee sell or advertise 
        only products or services of the transferor.
            (E) A right to require that the transferee purchase 
        substantially all of his supplies and equipment from the 
        transferor.
            (F) A right to payments contingent on the productivity, use, 
        or disposition of the subject matter of the interest 
        transferred, if such payments constitute a substantial element 
        under the transfer agreement.

                            (3) Transfer

        The term ``transfer'' includes the renewal of a franchise, 
    trademark, or trade name.

(c) Treatment of contingent payments by transferor

    Amounts received or accrued on account of a transfer, sale, or other 
disposition of a franchise, trademark, or trade name which are 
contingent on the productivity, use, or disposition of the franchise, 
trademark, or trade name transferred shall be treated as amounts 
received or accrued from the sale or other disposition of property which 
is not a capital asset.

(d) Treatment of payments by transferee

                   (1) Contingent serial payments

        (A) In general

            Any amount described in subparagraph (B) which is paid or 
        incurred during the taxable year on account of a transfer, sale, 
        or other disposition of a franchise, trademark, or trade name 
        shall be allowed as a deduction under section 162(a) (relating 
        to trade or business expenses).

        (B) Amounts to which paragraph applies

            An amount is described in this subparagraph if it--
                (i) is contingent on the productivity, use, or 
            disposition of the franchise, trademark, or trade name, and
                (ii) is paid as part of a series of payments--
                    (I) which are payable not less frequently than 
                annually throughout the entire term of the transfer 
                agreement, and
                    (II) which are substantially equal in amount (or 
                payable under a fixed formula).

                         (2) Other payments

        Any amount paid or incurred on account of a transfer, sale, or 
    other disposition of a franchise, trademark, or trade name to which 
    paragraph (1) does not apply shall be treated as an amount 
    chargeable to capital account.

                         (3) Renewals, etc.

        For purposes of determining the term of a transfer agreement 
    under this section, there shall be taken into account all renewal 
    options (and any other period for which the parties reasonably 
    expect the agreement to be renewed).

(e) Exception

    This section shall not apply to the transfer of a franchise to 
engage in professional football, basketball, baseball, or other 
professional sport.

(Added Pub. L. 91-172, title V, Sec. 516(c)(1), Dec. 30, 1969, 83 Stat. 
647; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 
1976, 90 Stat. 1834; Pub. L. 101-239, title VII, Sec. 7622(a)-(c), Dec. 
19, 1989, 103 Stat. 2377; Pub. L. 101-508, title XI, Sec. 11701(i), Nov. 
5, 1990, 104 Stat. 1388-508; Pub. L. 103-66, title XIII, Sec. 13261(c), 
Aug. 10, 1993, 107 Stat. 539; Pub. L. 104-188, title I, 
Sec. 1704(t)(47), Aug. 20, 1996, 110 Stat. 1889.)


                               Amendments

    1996--Subsec. (d)(4). Pub. L. 104-188 provided that section 11701(i) 
of Pub. L. 101-508 shall be applied as if ``subsection'' appeared 
instead of ``section'' in the material proposed to be stricken. See 1990 
Amendment note below.
    1993--Subsec. (d)(2) to (5). Pub. L. 103-66 added pars. (2) and (3) 
and struck out former pars. (2) relating to deduction of certain 
payments for transfer of a franchise, trademark, or trade name not 
treated as sale or exchange of capital asset, (3) relating to treatment 
of amounts paid or incurred on account of transfer, sale, or other 
disposition of a franchise, trademark, or trade name to which pars. (1) 
and (2) did not apply, (4) relating to renewals for purposes of 
determining term of transfer agreement under this section or period of 
amortization under this subtitle, and (5) relating to rules applicable 
to this subsection.
    1990--Subsec. (d)(4). Pub. L. 101-508, Sec. 11701(i), which directed 
the substitution of ``under this section or any period of amortization 
under this subtitle for any payment described in this section'' for ``or 
any period of amortization under this section'', was executed by making 
the substitution for ``or any period of amortization under this 
subsection''. See 1996 Amendment note above.
    1989--Subsec. (d)(1). Pub. L. 101-239, Sec. 7622(a), substituted 
``serial payments'' for ``payments'' in heading and amended text 
generally. Prior to amendment, text read as follows: ``Amounts paid or 
incurred during the taxable year on account of a transfer, sale, or 
other disposition of a franchise, trademark, or trade name which are 
contingent on the productivity, use, or disposition of the franchise, 
trademark, or trade name transferred shall be allowed as a deduction 
under section 162(a) (relating to trade or business expenses).''
    Subsec. (d)(2). Pub. L. 101-239, Sec. 7622(b), designated existing 
provisions as subpar. (A), inserted subpar. heading, redesignated former 
subpars. (A) to (C) as cls. (i) to (iii), respectively, and former cls. 
(i) and (ii) of former subpar. (B) as subcls. (I) and (II), 
respectively, of cl. (ii), and added subpar. (B).
    Subsec. (d)(3) to (5). Pub. L. 101-239, Sec. 7622(c), added pars. 
(3) to (5).
    1976--Subsec. (d)(2)(C). Pub. L. 94-455 struck out ``or his 
delegate'' after ``Secretary''.


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-66 applicable, except as otherwise 
provided, with respect to property acquired after Aug. 10, 1993, see 
section 13261(g) of Pub. L. 103-66, set out as an Effective Date note 
under section 197 of this title.


                    Effective Date of 1990 Amendment

    Amendment by Pub. L. 101-508 effective, except as otherwise 
provided, as if included in the provision of the Revenue Reconciliation 
Act of 1989, Pub. L. 101-239, title VII, to which such amendment 
relates, see section 11701(n) of Pub. L. 101-508, set out as a note 
under section 42 of this title.


                    Effective Date of 1989 Amendment

    Amendment by Pub. L. 101-239 applicable to transfers after Oct. 2, 
1989, but not applicable to any transfer pursuant to a written binding 
contract in effect on Oct. 2, 1989, and at all times thereafter before 
the transfer, see section 7622(c)[(e)] of Pub. L. 101-239, set out as a 
note under section 167 of this title.


                             Effective Date

    Section applicable to transfers after Dec. 31, 1969, except that 
subsec. (d)(1) shall, at the election of the taxpayer (made at such time 
and in such manner as the Secretary or his delegate may by regulations 
prescribe), apply to transfers before Jan. 1, 1970, but only with 
respect to payments made in taxable years ending after Dec. 31, 1969, 
and beginning before Jan. 1, 1980, see section 516(d)(3) of Pub. L. 91-
172, set out as a note under section 1001 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 144, 162, 197, 751 of this 
title.
