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Sports Team Didn't Produce Game Broadcasts, Wasn't Entitled to DPGR Deductions.

(Parker Tax Publishing December 1, 2015)

The IRS advised that a sports team's share of gross receipts from a contract with a television network did not qualify as domestic production gross receipts (DPGR), and thus the team was not entitled to deductions under Code Sec. 199. The IRS determined that the network had the benefits and burdens of ownership of the game broadcasts, which meant that the network, and not the team, was the producer of the broadcast. CCA 201545018.


A taxpayer is one of multiple teams in a sports league, which acts as an agent on behalf of all the teams. The taxpayer and the other teams each own rights to broadcast their games and the teams choose to pool their individual broadcast rights in order to assign and license the collective rights for national television broadcasting.

In the years at issue, the league licensed certain television broadcasting rights to multiple networks, and the networks generated revenues from the purchased rights by selling advertising aired during live broadcasts. The league serves as the teams' agent in negotiating contracts with the networks.

Under the facts of CCA 201545018, the league entered into a contract with a television network, granting the network the right to produce a specific package of league game broadcasts (game package), and deliver the broadcasts live. The contract required the network to "produce" a specified number of game broadcasts per week, including a live broadcast, and the network was obligated to deliver the live broadcast within a defined geographic location solely as provided in the contract.

The network was responsible for selecting the live camera shots, replays, slow motion, and all other features of the broadcast. The broadcast crew, including the sportscasters, commentators, announcers, was exclusively responsible for all descriptions and accounts of the game during the live broadcast.

Under the contract, the taxpayer received a proportional share of amounts paid to the league by the network for the broadcasting rights (minus certain fees allocated to the league as agent).

An agent with the Passthrough and Special Industries division requested assistance from the IRS Office of Chief Counsel on determining whether the taxpayer's share of gross receipts from the league's contract with the network qualifies as domestic production gross receipts (DPGR) under Code Sec. 199(c)(4)(A)(i)(II) from the disposition of a qualified film produced by the taxpayer.


Taxpayers can take a deduction for a percentage of their income attributable to certain production activities that take place within the United States (i.e., domestic production activities). For 2010 and later years, the domestic production activities deduction is equal to 9 percent of the lesser of the taxpayer's qualified production activities income (QPAI) or its taxable income.

Under Reg. Sec. 1.199-1(c), the QPAI of a taxpayer is equal to its domestic production gross receipts (DPGR) less certain expenses, losses, or deductions allocable to that DPGR. Relatedly, under Code Sec. 199(c)(4)(A)(i), DPGR means the gross receipts of the taxpayer that are derived from the disposition of, among other things, any qualified film produced by the taxpayer.

Reg. Sec. 1.199-3(f)(1), in relevant part, provides that only one taxpayer may claim the domestic production activities deduction with respect to any qualifying activity performed in connection with the production of a qualified film. If one taxpayer performs a qualifying activity pursuant to a contract with another party, then only the taxpayer that has the benefits and burdens of ownership of the qualified film is treated as engaging in the qualifying activity.

The IRS Office of Chief Counsel (IRS) noted that to qualify as DPGR, the taxpayer's gross receipts from the contract with the network must be directly derived from the disposition of a qualified film, and that qualified film must be treated as produced by the taxpayer.

The IRS determined that the game broadcasts in which the taxpayer participated were live or delayed television programming, and were qualified films for purposes of Code Sec. 199. Thus, the IRS stated, by granting the network its broadcast rights, the taxpayer had disposed of a qualified film.

The IRS then turned to whether the taxpayer was the producer of the qualified films in order to receive the Code Sec. 199 deduction. The IRS noted that the potential producers of the game broadcasts were the network, the taxpayer, and the taxpayer's opponents in each of the broadcasts at issue. Because there were multiple potential producers, the IRS determined that, under Reg. Sec. 1.199-3(f)(1), it was necessary for the taxpayer to show the broadcasts were produced pursuant to a contract with the taxpayer and that the taxpayer had the benefits and burdens of ownership for purposes of the Code Sec. 199 deduction.

To the extent the taxpayer maintains an interest in the game broadcasts at issue, the IRS said, it favors treating network's activities as done pursuant to the contract with taxpayer. However, based on examples in Reg. Sec. 1.199-3(f)(4) and analyzing factors described in ADVO, Inc. & Sub v. Comm'r, 141 T.C. No. 9 (2013), the IRS determined that the network had the benefits and burdens of ownership of the game broadcasts, which meant that the network, and not the taxpayer, was the producer of the broadcast.

In its view, the IRS said, the most reasonable characterization of the arrangement was that the network was paying for the rights to broadcast, and agreeing to produce the game broadcasts at no charge as part of that agreement. The network received the opportunity to profit from the sales of advertising with respect to the live broadcasts, and the taxpayer retained the remaining rights to the broadcast in order to be able to profit in alternative ways if possible.

Ultimately, the IRS stated, its determination that taxpayer was not the producer of the game broadcasts meant that none of taxpayer's gross receipts from the contract in the years at issue qualify as DPGR.

For a discussion of the domestic production activities deduction, see Parker Tax ¶96,100. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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