The IRS concluded that for purposes of Section 199, a television broadcaster (the network) that produced and broadcast a professional sports team's games under a license granted by the team was the producer of the game broadcasts on its own behalf and not pursuant to a contract with the team. Accordingly, a benefits and burdens test was not required.
Revenues attributable to the broadcast could be domestic production gross receipts (DPGR) under Section 199 to the network, but not to the team that had granted the license. This is consistent with the IRS' attempt to move away from the application of the benefits and burdens test embodied in proposed regulations.
In a recent chief counsel advice memorandum (CCA 201630015), the IRS clarified prior advice in CCA 201545018 that discussed whether a professional sports team's share of gross receipts from a contract with the network qualifies as DPGR.
Both memoranda dealt with a professional sports team that is a member of a league whose members include other sports teams, sold rights to broadcast games to the network pursuant to a contract with the league. The network was required to produce a specified number of game broadcasts per week. The team needed to prove that the broadcasts were produced pursuant to a contract for which the team had the benefits and burdens of ownership in order to be considered the producer of the qualified film for purposes of Section 199.
In the earlier CCA, the IRS position was that the contract could be interpreted as the network's producing the game broadcasts on its own behalf, but also applied the benefits and burdens factors in determining the Section 199 deduction belonged to the network and not to the team. The IRS determined that the network controlled most aspects of the creative production of the game broadcasts, and provided and controlled all of the equipment essential to broadcasting and the game day employees and contractors responsible for production.
In the recent CCA 201630015, the IRS clarified its position that the network produced the games on its own and that the benefits and burdens of ownership analysis to determine whether the network or the sports team was the producer of the qualified film for purposes of Section 199 was not necessary, although it confirmed that the network held the benefits and burdens of ownership.
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