Country / Language

Network Produced Game Broadcasts for Itself, Not for Sports League


Synopsis
 
The IRS clarified prior advice it issued in ILM 201545018 and it determined that a sports league’s share of gross receipts from a contract with a broadcasting network were not domestic gross receipts (DPGR) for purposes of the section 199 deduction. The IRS concluded that the broadcast network produced game broadcasts for its own benefit and not pursuant to a contract with the sports league. 
 
Issue
 
A sports league entered into a contract with a broadcasting network. The contract granted the network the right to produce a specific package of game broadcasts and deliver the broadcasts live within a defined geographic territory. The sports league requested clarification of Chief Counsel Advice Memorandum 201545018, in particular, the league asked whether the network produced a qualified film for the league for purposes of section 199.
 
Analysis
 
Pursuant to Treas. Reg. § 1.199-3, only one taxpayer may claim a deduction under this section with respect to any activity related to the production of a qualified film. If one taxpayer performs a production 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 production activity. 
 
The only issue the IRS considered was whether the broadcast network produced the game broadcasts for the sports league pursuant to a contract or if the broadcast network produced the game broadcast on its own behalf.  Based on the facts and circumstances, the IRS concluded the broadcast network produced the game broadcasts on its own behalf.
 
In making its decision whether the sport league “produced” the broadcasts and could take the section 199 deduction, the IRS considered which party (the sport league or the broadcast network) had “benefits and burdens of ownership” over the production. The IRS focused on the following facts, the network had:  (1) editorial control over how to film the games, for example the network provided commentators and decided which players to focus on and when to pan to live audiences; (2) the network provided and controlled all equipment essential to the game broadcast; and (3) the network brought in support staff, graphics staff, and audio staff.  The IRS found that the network did much more than just record a game broadcast for the sports league, it created a unique game broadcast.  The IRS notes that the network is in the business to produce and obtain content to fill time slots for its broadcasts.  Therefore, the broadcast network had benefits and burdens of ownership. Therefore, the IRS concluded that the gross receipts derived from the contract were non-DPGR to the sport league and cannot be considered derived from a disposition of qualified film produced by the sports league. 
 
The IRS stated that because it determined that the network did not produce the game broadcasts pursuant to a contract with the sports league for purposes of section 199 a benefits and burdens of ownership analysis was not necessary.
 
Contact
 
For more information, please contact your CohnReznick tax professional.
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