United States: Tax Reform: Focus On The Sports Industry

Over the last several days, there have been significant developments relating to the Tax Cuts and Jobs Act, the pending tax reform legislation in Congress.1  On Thursday, a detailed summary of the Senate Finance Committee's proposal was released (the "Senate Markup"),2 and the House Ways and Means Committee voted (in a 24-16, party-line vote) to advance their bill for consideration by the full House of Representatives (the "House Bill").3  This alert describes provisions of the Senate Markup and House Bill that would have the most significant impact on the sports industry, including important differences between the two proposals.  Unless otherwise noted, all proposals described below would be effective for taxable years beginning after December 31, 2017.

Repeal of tax-exempt status for professional sports leagues

The Senate Markup proposes to eliminate the tax exemption for professional sports leagues, regardless of size.4  Since 1966, U.S. tax law has exempted professional football leagues from tax, and the Internal Revenue Service has historically interpreted this exemption to apply to all professional sports leagues. The House Bill does not include a corresponding proposal.

No deduction by employers for entertainment activities

Both the Senate Markup and the House Bill would eliminate the deduction for activities generally considered to be entertainment, amusement or recreation, or a facility or portion thereof used in connection with any of such items.  The proposals repeal the present-law exception to the deduction disallowance for entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer's trade or business (and the related rule applying a 50% limit to such deductions).  These proposals could significantly impact sales of suites, premium seats and season tickets purchased by businesses.

Name and logo licensing income for tax-exempts proposed to be taxable UBTI

The Senate Markup proposes to treat royalty income derived from the licensing of a tax-exempt organization's name or logo as unrelated business taxable income ("UBTI") and thus would subject that income to tax at regular corporate income tax rates.5  Under current law, royalty income generally is excluded from UBTI.  This proposal would apply to professional leagues and circuits that are organized as tax-exempt entities, as well as collegiate conferences, universities and national sports federations.  The House Bill does not include a proposal on this point.

The Senate Markup also includes a provision requiring the computation of UBTI separately for each separate unrelated trade or business, which (depending on the particular facts) could limit the use of certain unrelated trade or business losses to offset income from name or logo licensing.

No tax-exempt bonds for professional stadiums

The House Bill proposes the imposition of tax on interest on bonds issued to finance the construction of, or capital expenditures for, a professional sports stadium (defined as any facility that is used as a stadium or arena for professional sports exhibitions, games or training for at least five days in any calendar year).  The provision would be effective for bonds issued after November 2, 2017.  The Senate Markup does not include such a proposal.

Expansion of excise tax on tax-exempt organizations and certain highly-compensated employees (e.g.,  athletic coaches)

The Senate Markup and House Bill both expand the existing provisions governing excess benefit transactions ("intermediate sanctions") for tax-exempt organizations, which result from having certain highly-paid employees.  Both proposals would impose a 20% excise tax on compensation of more than $1 million paid by any tax-exempt organization to any of its top-five highest compensated employees (including all wages and most benefits).6  This new rule effectively parallels the existing $1 million deductibility limitation for executive compensation paid by publicly traded companies.  Notably, athletic coaches at educational institutions, as well as commissioners and other senior executives of other tax-exempt sports entities, would potentially be included among the affected employees.

In addition, the Senate Markup would explicitly classify athletic coaches at most institutions of higher education as disqualified persons who are personally subject to draconian penalties on excess benefit payments (an initial tax of 25%, which increases to 200% if not corrected during the taxable period) where the tax-exempt organization makes payments that are deemed to exceed the value of the services provided by the disqualified person.  This proposal would also impose a new 10% excise tax on the tax-exempt organization itself in respect of such transactions.  The House Bill does not include this reclassification proposal or the 10% excise tax.

No deduction for amounts paid in exchange for college athletic seating rights

The Senate Markup and the House Bill both propose that no charitable deduction be allowed for any payment made to an institution of higher education in exchange for the right to purchase tickets or seating for athletic events. These proposals effectively repeal the existing special rule that allows the purchaser to take a charitable deduction of 80% of the amount paid for the right to purchase the tickets.

Excise tax on net investment income of private colleges and universities

The Senate Markup and House Bill both propose a 1.4% excise tax on the annual net investment income of private institutions of higher education that have assets with an aggregate fair market value of at least $250,000 per student (other than those assets which are used directly in carrying out the institution's exempt purpose) and at least 500 tuition-paying students.  This new rule would effectively parallel the existing excise tax on the net investment income of private foundations.

*          *          *

The ultimate enactment of U.S. tax reform will require the adoption of identical bills by both the House and Senate, and the signature of the President.  Any reconciliation of the two bills will require significant negotiation between the two chambers, unless the House were to adopt the bill passed by the Senate.  As a result, the precise form that tax reform legislation will take, if and when it is ultimately enacted, remains highly uncertain.  However, Republican leadership has consistently maintained that they will present legislation to the President for his signature by year's end.  Therefore, taxpayers should consider the effects of the proposals in the House Bill and the Senate Markup, and plan accordingly.  Please contact your usual Proskauer contact, or any member of the Proskauer Tax Department, to discuss any of these issues.

Footnotes

1 Tax Cuts and Jobs Act, H.R. 1, as reported by the House Committee on Ways & Means to the House Rules Committee, Nov. 10, 2017.

2 Joint Committee on Taxation, Description of the Chairman's Mark of the "Tax Cuts and Jobs Act" as reported by the Senate Finance Committee, Nov. 9, 2017.

3 Amendment to the Amendment in the Nature of a Substitute to H.R. 1, the "Tax Cuts and Jobs Act," Nov. 9, 2017.

4 Previously, the Properly Reducing Overexemptions for Sports Act (the "PRO Sports Act"), which was sponsored by Representatives Matt Gaetz (R-FL) and Blake Farenthold (R-TX) but never enacted, proposed repealing this exemption only for professional sports leagues, organizations or associations with annual gross receipts in excess of $10 million.

5 Both the House Bill and Senate Markup propose reducing the corporate income tax rate from 35% to 20%, although the Senate Markup would delay rate reduction until 2019.

6 Payments to a tax-qualified retirement plan and amounts that are excluded from gross income would not be included for this purpose under the proposals.

Tax Reform: Focus on the Sports Industry

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Sheppard Mullin Richter & Hampton
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Sheppard Mullin Richter & Hampton
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions