IRS Issues Guidance Providing Safe Harbor for Professional Sports Teams’ Trades

April 11, 2019

The IRS recently issued guidance that provides a safe harbor allowing professional sports teams to treat certain player and staff member contracts and draft picks as having a zero value for determining gain or loss to be recognized on the trade of a player or staff member contract or draft pick.

The IRS noted it has historically been difficult for professional sports teams to assign a monetary value to contracts or draft picks due to the fluctuating nature of the performance of players and staff members, as well as market conditions. This guidance allows teams to avoid having to value player contracts, staff member contracts and draft picks to determine the amount of any gain or loss to be recognized. A team using the safe harbor recognizes gain only if cash is received in the trade.

The guidance was announced in Revenue Procedure 2019-18.