Safe Harbor for Trades of Player and Staff-member Contracts and Draft Picks

The Internal Revenue Service 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 a draft pick.

Historically it has 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, and market conditions.  This guidance allows professional sports teams to avoid having to value their 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.

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