Tax Deduction for My Personal Seat License

Situation

You just bought a personal seat license for your local professional sporting team.

You plan on using the tickets purchased with the rights from the personal seat license to entertain clients and develop business.

You’re excited about taking your clients to games, but you want to know whether you can get a tax break on the deal. And what exactly is a personal seat license?

What Is a Personal Seat License?

A personal seat license (PSL) is a paid license that gives you the right to purchase season tickets for a certain seat in a stadium. Some PSLs will let you sell your license to another party if you decide you no longer want to buy season tickets.

But if you decide not to sell the PSL and you don’t renew the season tickets, you forfeit the PSL back to the team.

The Tax Question

Assuming you use the resulting season tickets purchased by exercising the PSL for business purposes, how are those costs treated for tax purposes? Should they be amortized as a capital asset? Can the expenses be deducted at all?

How Is the Personal Seat License Treated for Tax Purposes?

Unfortunately, this is a question that has not been answered by the IRS. To make matters even more troublesome, there hasn’t been anything written about it either.

What the IRS Has Said About PSLs

The IRS has discussed PSLs in only a few instances, and none were about the tax treatment of the licenses themselves.

In a Legal Advice Issued to Field Attorneys,1 the IRS addressed the issue of whether it could seize and sell a taxpayer’s season ticket renewal and personal seat license.

The IRS acknowledged the lack of guidance in this area. It relied on the opinions in bankruptcy court cases to determine whether the PSL was a property right subject to seizure. It looked at both the PSL and the ticket renewals, and it decided that if a team follows a policy restricting transfers of the season ticket renewals by the holder, the holder does not have a right to property. But where the team readily allows holders to transfer ticket renewals, either by policy or in practice, a property right may exist.

The IRS concluded that it couldn’t seize and sell a nontransferable right to renew season tickets because it wasn’t property or a right to property under state law. But the IRS could reach any deposit paid for the PSL.

The only other tax court opinions or IRS rulings related to personal seat licenses are the case of Kerns v. Commissioner, which is a constructive dividend case, and a Chief Counsel Advice in a gross income case, neither of which is on point for this issue.2

Well, That’s Interesting, But What Do Tax Pros Say About PSLs?

Practitioners and well-known tax authorities have not written about PSLs. In one of the rare articles on the topic of personal seat licenses and season tickets, the question of whether a PSL was property or a license (and thus had the corresponding rights to go along with it) was addressed.3 However, the author did not talk about the tax treatment.

Amortization of Intangible Property under the Tax Code

It’s possible that a PSL could be treated as intangible property under the tax code.

The IRS treats the renewal of a license as a cost that you can amortize over a 15-year period beginning with the month of renewal.4

To determine whether you can amortize your PSL, you must determine both its cost and its useful life. If you can’t determine useful life, then you should use the IRS’s safe harbor 15-year period.5

It’s unlikely that you can determine a useful life for your PSL with reasonable accuracy when you examine the terms of your PSL.

Many PSLs run for the period of time that the team plays in a specific stadium or other venue. How long will this be?6 Most likely, you are not going to have a clue at the time you buy the PSL.

In the Absence of Guidance, What Should I Do?

Practitioners are not unanimous on how to properly treat the PSLs for tax purposes either. Some argue that the PSL should be treated as an intangible property right and amortized over 15 years.7

Others argue that you should capitalize the PSL and do nothing until the point of sale. Then you should use purchase price as the basis and calculate gain or loss. Once you have gain or loss, multiply the gain or loss by the business use percentage to get the business gain or loss.

Which direction should you go? Consult with your tax attorney, CPA, enrolled agent, or other tax pro. Have them review your PSL and give you a written opinion with rationale on how you should deduct your seat license.

Should you ever have to discuss the PSL with the IRS, the written opinion will make your life easier.