In early November 2015, the IRS made publicly available a chief counsel advice memorandum regarding the domestic production activities deduction (DPAD) with respect to sports television broadcasting.
The IRS entertained the question of whether a sports team may claim DPAD on its share of broadcasting revenue under a contract with a television network. The contract was technically between the sports league and the network, with the league acting as an agent for the teams. As applied, DPAD may be claimed on qualified production activities income (QPAI) derived from a qualified film, with the IRS accepting that the television broadcasts were qualified films.
However, when production activity is performed under a contract between two parties, the DPAD regulations only allow the taxpayer with benefits and burdens of ownership of the property during the period that production occurs to claim the deduction. The IRS ruled that the TV network, and not the sports team, had the benefits and burdens of ownership, meaning that the team was therefore ineligible to claim the deduction. In arriving at its conclusion, the IRS looked to the network’s control of the broadcast and its assumption of the risk of loss in its contract with the league.
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