Week in Insights: GOP Tax Carveout Takes Big Swing at Sports

In the latest proposed GOP tax package, lawmakers are set to limit the amortization of sports franchises under Section 197 to 50% of the owner’s adjusted basis.

Unless Congress can communicate a policy rationale for treating the brand equity of a Wendy’s franchise more generously than that of, say, an NFL team, this minor policy change will be warping the logic of the tax code.

The proposed carveout shatters a baseline of predictability for asset amortization by declaring that some intangibles—say, an MLB team’s brand or media rights—only deserve half the amortization treatment of others. It’s a sharp break from the standard 15-year, 100% amortization available to virtually every other industry.

If Congress genuinely was interested in curbing the abuse of intangible asset amortization, it would be coming for everything from private equity firms to pharmaceutical companies. It likely would crack down anywhere Section 197 is used routinely to write off goodwill, licensing rights, patents, or other intangibles with more tax expenditure consequences than a few pro sports teams.

Instead, this provision feels like it was designed with a specific target in mind and reverse engineered from that point. As drafted, Section 197 gives buyers of intangible-first businesses a predictable and standardized deduction period. Predictability lets a buyer price risk, model revenue, and assess future value.

Once lawmakers start picking winners and losers among intangibles, without a coherent policy framework, they invite legal uncertainty and create a tax code driven more by political grievance than principle.

If Congress wants to hold team sports team owners accountable, there are smart and transparent ways to do so. This proposed policy carveout isn’t one of them.

—Andrew Leahey

Raymond, the mascot of the Tampa Bay Rays, tries to get the crowd going.

Photographer: J. Meric/Getty Images

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined how the threat to Harvard’s tax status reaches all nonprofits, the need for a functional IRS, and more.

The Exchange —It’s where great ideas on tax and accounting intersect.

Insights

A Dysfunctional IRS Is Bad for Red and Blue State Taxpayers Alike

Attorney Andrew Sidamon-Eristoff says the Trump administration and DOGE’s efforts to slash the IRS puts state finances—and taxpayers—at risk.

Trump’s Threat to Harvard’s Tax Status Reaches All Nonprofits

Fox Rothschild partners say nonprofits should prepare to defend their Section 501(c)(3) qualification in response to the Trump administration’s move to revoke Harvard University’s tax-exempt status.

States, Congress Need to Hop Off the ‘No Tax on Tips’ Bandwagon

Tax Foundation’s Abir Mandal explains why Congress shouldn’t create carveouts for tipped workers in the tax code and why states would be wise to abandon similar proposals.

R&D Audit Preparation Is Essential Despite IRS’s Reshuffling

Plante Moran’s Jennifer Keegan and Ginger Powell analyze the IRS’s auditing approach to the R&D tax credit and ways businesses can increase their odds of a favorable outcome if they’re audited.

Colombia’s Foreign Exchange Tax Rules for MNEs Are Difficult

Meta’s Rafael Benevides says some of Colombia’s tax rules for digital and remote service providers are practically impossible for multinationals to comply with.

Tokenized Assets Are Redefining Audits and Compliance in New Ways

Stout’s Fotis Konstantinidis say auditors should invest in training to adapt to a new audit and risk landscape—or risk falling behind.

Firms Looking to Mitigate Tariffs Can Use These Four Strategies

PwC’s Kristin Bohl says businesses looking to alleviate the effects of tariffs should capitalize on their options when looking to reduce or delay related costs.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Shifting IRS criminal investigators’ focus to immigration hurts the agency’s efforts to deter tax evasion on top of reducing its ability to audit returns, Andrew Leahey says in his latest Technically Speaking column.

“If taxpayers come to see enforcement as toothless or arbitrarily redirected, the system probably won’t collapse all at once—it’ll erode, one unfiled return and normalized evasion at a time,” Andrew writes. Read More

Talking Tax

With the massive wave of federal government layoffs, tens of thousands of workers from the IRS and other agencies are likely looking for new jobs, potentially in the private sector for the first time.

Bloomberg Tax Editor at Large Rebecca Baker sat down with Caroline Ciraolo, a partner at Kostelanetz and founder of the firm’s office in Washington, D.C., to discuss shifting out of government work, and how the “love of the practice area” is a key transferable skill.

News Roundup

GOP Plans to Halt Covid Credit Poised to Stir New Challenges

House Republicans’ plan to end an expensive and troubled pandemic-era tax credit program early to help pay for other tax cuts is likely to seed a wave of new due-process issues and court challenges from businesses and nonprofits.

India’s Online Gaming Sector Has Billions in Play at High Court

India’s online gaming industry has billions of dollars on the line as the nation’s Supreme Court considers one of the highest-value cases in the history of the goods and services tax law.

GOP Tax Bill Seen Masking More Than $1 Trillion US Debt Hit

The cost of Republican lawmakers’ draft plan for sweeping tax cutsweighed in at $3.8 trillion over the next 10 years in one official estimate, a lowball projection that independent analysts say masks the true fiscal hit.

Columbia’s $15 Billion Endowment Risks Big Hit on GOP Tax Tweak

Columbia University’s large population of international students has helped the school avoid paying a tax on its roughly $15 billion endowment. Now, that’s poised to change as President Donald Trump and other Republicans ratchet up their attacks on elite colleges.

Tax Management International Journal

Company Deducts Loss on Intercompany Loans, Exchange Rate Changes

Losses on intercompany loans due to exchange rate fluctuations should be deductible if the loan margin between the the lender’s and borrower’s countries are reasonable and based on market evidence of credit ratings, says economist J. Harold McClure.

Career Moves

Jason Schwartz joined Cahill Gordon & Reindel as a partner in its CahillNXT digital assets and emerging technology practice in New York.

April King joined Moss & Barnett in Minneapolis.

Jennifer Karpchuk joined Holland & Knight as a partner in its tax, executive compensation, and benefits practice group in Philadelphia.

Maureen Monaghan joined Cullen and Dykman as a tax partner in its corporate department.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.