BASIS LIMITATION FOR AND RECAPTURE OF DEPRECIATION ON PLAYER CONTRACTS.

SEC. 212. BASIS LIMITATION FOR AND RECAPTURE OF DEPRECIATION ON PLAYER CONTRACTS. (a) Basis Limitations.— (1) In general.— Part IV of subchapter 0 of chapter 1 (relating to special rules applicable to gain or loss on disposition of property) is amended by redesignating section 1056 as section 1057, and by inserting after section 1055 the following new section: “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. 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. “(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.” 90 STAT. 1546 (2) Clerical amendment.— The tables of sections for such part VI is amended by striking out the last item and inserting in lieu thereof the following: “Sec. 1056. Basis limitation for player contracts transferred in connection with the sale of a franchise, “Sec. 1057. Cross references.” (3) Effective date.— The amendments made by this subsection apply to sales or exchanges of franchises after December 31, 1975, in taxable years ending after such date. (b) Recapture.— (1) In general.— Section 1245(a) (relating to gain from disposition of certain depreciable property) is amended by adding at the end thereof the following new paragraph: “(4) Special rule for player contracts.— “(A) In general.— For purposes of this section, 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 any player contracts, the recomputed basis of such player contracts in the hands of the transferor shall be the adjusted basis of such contracts increased by the greater of— “(i) the previously unrecaptured depreciation with respect to player contracts acquired by the transferor at the time of acquisition of such franchise, or “(ii) the previously unrecaptured depreciation with respect to the player contracts involved in such transfer. “(B) Previously unrecaptured depreciation with respect to initial contracts.— For purposes of subparagraph (A)(i), the term ‘previously unrecaptured depreciation” means the excess (if any) of— “(i) the sum of the deduction allowed or allowable to the taxpayer transferor for the depreciation of any player contracts acquired by him at the time of acquisition of such franchise, plus the deduction allowed or allowable for losses with respect to such player contracts acquired at the time of such acquisition, over “(ii) the aggregate of the amounts treated as ordinary income by reason of this section with respect to prior dispositions of such player contracts acquired upon acquisition of the franchise. “(C) Previously unrecaptured depreciation with respect to contracts transferred.— For purposes of subparagraph (A)(ii), the term ‘previously unrecaptured depreciation’ means— “(i) the amount of any deduction allowed or allowable, to the taxpayer transferor for the depreciation of any contracts involved in such transfer, over “(ii) the aggregate of the amounts treated as ordinary income by reason of this section with respect to prior dispositions of such player contracts acquired upon acquisition of the franchise. “(D) Player contract.— For purposes of this paragraph, the term ‘player contract’ means any contract for the services of an athlete which, in the hands of the taxpayer, is of a character subject to the allowance for depreciation provided in section 167.” 90 STAT. 1547 (2) Effective date.— The amendment made by this subsection applies to transfers of player contracts in connection with any sale or exchange of a franchise after December 31, 1975.