Philadelphia of counsel David Shechtman is quoted by Tax Notes in “IRS Might Tweak Sports Valuation Safe Harbor.” The Internal Revenue Service is considering modifying the restrictions on amortizable intangibles and accounting treatment set out in its April 11, 2019, guidance, which created a safe harbor allowing professional sport teams to treat trades of players and draft picks as having zero value for federal income tax purposes. David says the safe harbor “just clears up what would have been a nuisance issue.”

As an example of how a team might rely on the safe harbor to produce a better tax result, David cites the Philadelphia Phillies’ 2019 signing of free-agent Bryce Harper to a 13-year, $330 million contract including a $20 million signing bonus. “Absent a trade, the team would have to amortize that bonus over 13 years,” David says. “If the Phillies found a trading partner willing to depart with a number of prospects and other players for Harper—and Harper was willing to waive his no-trade clause—they could write off the $20 million in the year of the trade” using the safe harbor. “Of course, the team would need to balance any tax savings realized against the loss of ticket sales, local TV and radio rights, and merchandise sales that likely would follow from losing a player of Harper’s stature,” David adds.

On balance, David thinks most teams will want to use the safe harbor. “It’s hard to imagine you could value a player contract at less than zero,” he says. “Maybe if a team had expiring [net operating losses], it might want to opt out of the safe harbor, recognize some gain in the year of the trade, and then have higher amortization deductions in future years.”

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Source: Tax Notes