                     109 T.C. No. 20



                UNITED STATES TAX COURT



      P.D.B. SPORTS, LTD., BOWLEN SPORTS, INC.,
          TAX MATTERS PARTNER, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 730-96.               Filed December 22, 1997.

     An individual purchased more than a 50-percent
interest in a partnership, that owned and operated a
professional sports franchise. Partnership's presale
basis in player contracts was 6X. Because more than 50
percent of Partnership's ownership had changed, P
contends that sec. 708, I.R.C., causes a termination
and triggers the partnership basis provisions causing a
stepped-up basis (to fair market value) in the player
contracts to 36X. Partnership claimed amortization
deductions using the 36X basis. R contends that sec.
1056, I.R.C., applies and would limit the amortizable
basis in the player contracts, even though the
contracts were acquired through purchase of an interest
in a partnership. Alternatively, R contends that if
sec. 1056, I.R.C., does not apply to partnership
transactions involving sports franchises, the
partnership's basis would be less than claimed under
subch. K partnership provisions.
     Held: Sec. 1056, I.R.C., does not apply to this
partnership transaction involving a sports franchise.
                               - 2 -

     Held, further: Partnership correctly computed the basis in
     the player contracts under the subch. K basis adjustment
     sections and regulations thereunder.



     Richard P. Slivka and Charles D. Henson, for petitioner.

     Randall L. Preheim, for respondent.



     GERBER, Judge:   Respondent issued notices of final

partnership administrative adjustments to P.D.B. Sports, Ltd.,

for the taxable years 1989 and 1990.   Among other adjustments,

respondent disallowed amortization in the amounts of $1,878,056

and $259,255 for 1989 and 1990, respectively, claimed with

respect to professional football player contracts.   After

concessions, the sole issue remaining for our consideration is

whether the partnership, for purposes of determining the

amortizable basis in player contracts, is subject to section

10561 in addition to, in conjunction with, or instead of the

subchapter K partnership provisions.   Petitioner contends that

the partnership provisions apply exclusively and would, in this

case, permit the amortization of the fair market value of the

player contracts.   Conversely, respondent contends that section

1056 applies to limit amortization to an amount equal to the

seller's basis, plus any gain recognized by the seller.    In

     1
       All section and subchapter references are to the Internal
Revenue Code in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
                               - 3 -

particular, the controversy centers on whether section 1056 was

intended to apply where the buyer acquires a partnership interest

in a partnership holding player contracts.

                         FINDINGS OF FACT2

     Patrick Bowlen (Bowlen), after graduating from the

University of Oklahoma law school, practiced law for 2 years in

Calgary, Canada.   Thereafter, he began a real estate development

business which he operated into the late 1980's.   During 1984-85,

Bowlen acquired an interest as a general partner in a partnership

that was the franchised owner and operator of the Denver Broncos

(Broncos) professional football team, a member of the National

Football League (NFL).   That partnership, P.D.B. Sports, Ltd.

(Bowlen I), was a Colorado limited partnership with its principal

place of business in Colorado at the time the petition was filed.

     Prior to Bowlen's involvement in the Broncos, Bowlen I was

99.75-percent owned by Edgar F. Kaiser, Jr. (Kaiser), a Canadian

national.3   The remaining .25 percent of Bowlen I was also

indirectly owned by Kaiser, through a corporation E.F.K. Sports

Holdings, Ltd. (Kaiser I).   Due to Bowlen's prior interest in




     2
       The parties' stipulation of facts and the attached
exhibits are incorporated herein by this reference.
     3
       Bowlen I, prior to the transactions in question and when
controlled by Kaiser, had been named E.F.K. Sports, Ltd. When
Bowlen acquired a partnership interest, he changed the
partnership name from E.F.K. Sports to P.D.B. Sports, Ltd.
(referred to as Bowlen I for purposes of this opinion).
                                  - 4 -

purchasing the Broncos, in late 1983, Kaiser approached Bowlen

about acquiring an interest in the partnership.

     In 1984, Kaiser disposed of his entire interest in Bowlen I,

including his interest held through Kaiser I (the corporate

entity), in two separate transactions.    First, during March 1984,

Kaiser sold about 39 percent of the Bowlen I partnership to John

R. Adams, through Adams' Colorado limited partnership, J.R.A.

Sports, Ltd. (Adams), for $10 million.    Second, during March

1984, Kaiser entered into an agreement with Bowlen for the sale

of about 61 percent of the Bowlen I partnership.    Bowlen's

purchase of Kaiser's Bowlen I partnership interest occurred on

June 1, 1984.    Bowlen purchased about 59 percent of Kaiser's

partnership interest for $25,793,100 plus assumption of

$34,689,717 in Kaiser’s partnership liabilities.    At the same

time, Bowlen also purchased the .25-percent partnership interest

held by Kaiser I for $106,900.     Subsequently, Bowlen transferred

his aggregated partnership interest (about 61 percent) in Bowlen

I to his corporation, Texas Northern Productions, Inc., also

known as Bowlen Sports, Inc., (Bowlen II).

     On June 1, 1984, Bowlen I was owned as follows:

     Partner          Percentage Ownership      Type of Interest

     Bowlen II             60.8                 General partner
     Adams                 39.2                 Limited partner

Bowlen II's and Adams' aggregate basis in their partnership

interests in Bowlen I was approximately $72,242,770.    At the time
                               - 5 -

of Bowlen's purchase, Bowlen I owned the following assets:    the

NFL franchise for the Broncos, professional football player

contracts, a stadium lease, and television rights.   Bowlen I's

adjusted basis in the player contracts on May 31, 1984, before

the sale of the partnership interests to Bowlen II, was

$6,510,555.4

     Bowlen I treated the sale of the partnership interest to

Bowlen as causing a section 708(b)(1)(B) termination of the

partnership for Federal tax purposes.   Adams consented to the

transfer of Kaiser's partnership interests to Bowlen and entered

into a new partnership agreement with Bowlen II in order to

prevent dissolution of the partnership under State law.   The

Broncos franchise, held by Bowlen I, was not separately for sale.

The parties' transactions were in form and substance the sale of

partnership interests as opposed to a sale of the underlying

partnership assets.

     A list of players, whose contracts existed at the time that

Bowlen acquired his interest, was used to determine the value of

the player contracts.   During June 1984, the Broncos' general

manager contacted four individuals, including general managers

and/or individuals responsible for negotiating player contracts

     4
       The parties stipulated that the partnership had an
adjusted basis in the player contracts on May 31, 1984, in the
amount of $6,328,656; however, an exhibit reflects an adjusted
basis of $6,510,555. Respondent relied on the amount shown in
the exhibit on brief without objection by petitioner. We use the
$6,510,555 amount for purposes of this opinion.
                                 - 6 -

at four NFL teams, to wit, Chicago Bears, Cleveland Browns, New

York Giants, and Houston Oilers.    These four individuals assigned

estimated values to the existing Bronco player contracts, which

when aggregated totaled $44,325,000, $43,450,000, $59,215,000,

and $35,790,000, respectively.    The average of these assigned or

estimated total values is $45,695,000.    Bowlen I's accountant

evaluated the assets of the partnership and the values assigned

to them by the partnership personnel.    The accountant analyzed

and adjusted the values of the partnership assets and determined

that the fair market value of the player contracts was

$36,121,385 as of June 1, 1984, the date of the transfer of the

partnership interest to Bowlen.    The accountant's analysis was

conducted under the approach contained in the subchapter K

partnership provisions where the appreciation in the value of the

assets over the partnership's presale basis in the assets is

allocated to the assets to account for the difference.      The

difference between the partnership presale basis (approximately

$26 million) and Bowlen’s and Adams’ purchase price for the

partnership interests including assumptions of liability

(approximately $72 million) was about $46 million.5   The

accountant's asset valuations and conclusions regarding the

partnership's basis in the assets, including the player

     5
       The $72 million basis reflects adjustments made by the
partnership that are not germane to this case to account for
Bowlen’s acquisition costs and Adams’ share of partnership income
prior to the sec. 708 termination.
                                   - 7 -

contracts, were premised on the assumption that the mandatory

basis adjustment rules of section 732(d) applied.

     Bowlen I began amortizing the player contracts on June 1,

1984, using a 5-year useful life.      After assigning values to the

partnership's assets other than the NFL Broncos franchise, the

partnership assigned the residual amount of Bowlen and Adams'

basis in their partnership interests to the franchise.        Bowlen I

did not make a section 754 election in 1984.      During 1984 through

1988, Bowlen I reported amortization expenses and writeoffs of

the player contracts in issue in excess of $34 million.

      In September 1985, P.D.B. Enterprises, Inc. (Bowlen III),

purchased Adams' 39.2-percent partnership interest in Bowlen I

for $20 million.   Bowlen III was wholly owned by Bowlen II.

During the years in issue, Bowlen I was owned as follows:

      Partner        Percentage Ownership         Type of Interest

     Bowlen II              60.8                   General partner
     Bowlen III             39.2                   Limited partner

     When the 60.80-percent partnership interest in Bowlen I was

originally purchased, Kaiser did not provide Bowlen with

information about whether Kaiser recognized any gain attributable

to the player contracts.   Nor did Bowlen ask Kaiser for such

information.    No evidence was presented at trial by either party

about the amount of gain recognized by Kaiser from the sale of

his partnership interest to Bowlen or the portion of that gain

attributable to player contracts.      Evidence of the gain
                               - 8 -

recognized by Kaiser may have been contained in Kaiser's 1984

Federal income tax return.   The Internal Revenue Service

destroyed Kaiser's return as part of its normal practices and

procedures for destruction of old tax returns.   Kaiser, a

Canadian national, did not testify at trial.

                              OPINION

I. Background

     As part of the Tax Reform Act of 1976, Pub. L. 94-455, 90

Stat. 1520, legislation was enacted to address certain tax

aspects of transactions involving professional sports franchises.

One major aspect concerned the amortization of the costs of

player contracts.   Laird v. United States, 556 F.2d 1224 (5th

Cir. 1977); First Northwest Indus. v. Commissioner, 70 T.C. 817

(1978), revd. and remanded on other grounds 649 F.2d 707 (9th

Cir. 1981).   Section 1245(a)(4) was enacted to require

depreciation recapture regarding player contracts when a sports

team is sold irrespective of whether the contracts are actually

resold.6   Concerning the issues in this case, legislation was

enacted to prevent a sports team purchaser from allocating more

than a fair market value portion of the purchase price to player

contracts.



     6
       Player contracts are sec. 1231 property. Generally, the
sale or exchange of player contracts results in capital gain
treatment for the seller's income, subject to the aggregation
requirements of sec. 1231.
                                - 9 -

     In particular, it was thought that purchasers of sports

franchises were over allocating basis to player contracts and

inflating amortization.    Congress, by enacting section 1056,

sought to employ an approach that would require the seller and

buyer to use the same arm's-length or fair market value amount to

report income or claim deductions resulting from a sports

franchise transaction.    Section 1056(a) provides:

          (a) General Rule.--If a franchise to conduct any
     sports enterprise is sold or exchanged, and if, in
     connection with such sale or exchange, there is a
     transfer of a contract for the services of an athlete,
     the basis of such contract in the hands of the
     transferee shall not exceed the sum of--

              (1) the adjusted basis of such contract in
         the hands of the transferor immediately before the
         transfer, plus

              (2) the gain (if any) recognized by the transferor
         on the transfer of such contract.

In addition to equating the buyer's basis with the seller's

reporting position, the basis of acquired player contracts may

also be affected by the section 1056(d) rebuttable presumption

that no more than 50 percent of the purchase price of a sports

team is to be allocated to player contracts.    To rebut the

presumption a taxpayer must "[establish] to the * * *

[Commissioner's satisfaction] that a specified amount in excess

of 50 percent is properly allocable".    Sec. 1056(d).

     The question considered here is whether the purchase of an

interest in a partnership entity that holds and operates a sports

franchise is a sale or exchange of "a franchise to conduct any
                              - 10 -

sports enterprise" within the meaning of section 1056(a).    There

was little dispute by the parties about the transactional facts.

Upon the transfer of the partnership interest from Kaiser to

Bowlen, Bowlen I adjusted its basis in the player contracts to a

value of approximately $36 million in accordance with the

mandatory basis adjustment rules of section 732(d), accompanying

regulations, and related statutes.7    Bowlen I adjusted its basis

in the player contracts without regard to whether Kaiser

recognized gain from the player contracts.

     Respondent determined that the partnership's basis in the

player contracts acquired with the Broncos franchise is limited

by section 1056(a), i.e., that the basis of the player contracts

is limited to the presale partnership basis in the player

contracts ($6,510,555) plus any gain that Kaiser recognized on

the sale of his partnership interests allocable to the player

contracts.   Respondent's determination must be based on the

inferential premise that section 1056(a) applies to the indirect

purchase and sale of a sports franchise held in partnership form.

As there is no evidence that Kaiser recognized gain from the

player contracts, respondent also maintains that the basis in the

     7
       It is noted that the $36 million basis for the player
contracts would have fallen within the sec. 1056(d) presumption
provision that no more than 50 percent of the total purchase
price of a sports team is to be allocable to player contracts.
If sec. 1056 applied here, the partnership would not have been
statutorily required to establish to respondent’s satisfaction
the portion of the basis allocation in excess of 50 percent to
respondent's satisfaction.
                                - 11 -

partnership's player contracts is limited to the presale basis in

the contracts.

      Respondent argues that section 1056 would limit the

amortizable basis of the partnership's player contracts in this

case.     Respondent, however, does not discuss or explain how or if

the section 1056 limitation would otherwise affect partnership

provisions, including sections 732(d), 743(b) and/or 754 which

may have been considered or have been in play in the transaction

under consideration.     Respondent does not explain whether section

1056 would preempt the application of other basis requirements

and/or elections under subchapter K or whether it would be

integrated in some manner.     These unanswered questions are

problematic and complicate our proper analysis of respondent's

determination.     Additionally, no regulations have been issued

under section 1056, although, in the 1976 legislation, respondent

was statutorily mandated to issue regulations.

      In the alternative, if we decide that the partnership

provisions of subchapter K apply to the exclusion of section

1056, respondent argues that the partnership incorrectly computed

its basis in the player contracts, and, as a result, no player

contract bases remain to be amortized.

II.   Section 1056--Does It Apply to Partnership Transactions?

        Section 1056 applies to a "sale or exchange" of a sports

franchise.     In this case, the sports franchise was held in

partnership form so that any sale or exchange of a sports
                              - 12 -

franchise could have only occurred indirectly.     In order for the

section 1056 language to literally apply here, respondent must,

in some manner, ignore the partnership as an entity.     Respondent

makes two separate arguments in support of the section 1056

determination.   First, respondent argues that the sale of the

partnership interest constituted a sale of the partnership's

underlying assets if the aggregate theory of partnerships is

employed.   Respondent's second argument poses a theoretical sale

or exchange to address that section 1056 requirement.     Respondent

contends that the sale of a partnership interest causes a

constructive partnership termination resulting in a deemed

distribution of partnership property and a deemed contribution of

the property to a new partnership.     Under respondent's second

argument, the deemed distribution and contribution are

hypothesized to be the section 1056 "sale or exchange" of the

partnership's property.8

     We note that respondent does not contend that the Bowlen I

partnership is a sham or should be disregarded because it had

been created to avoid the application of section 1056.     In

addition, respondent does not argue that Bowlen acquired the

assets of Bowlen I in a two-step transaction over the 1984-85

period.   We agree with petitioner and hold that there was no

     8
       Respondent, in the second argument, alternatively attempts
to address how a "sale or exchange" could occur even if we were
to hold that sec. 1056 should be applied to subch. K transactions
under the entity theory.
                                - 13 -

"sale or exchange" of a sports franchise or player contracts

within the meaning of section 1056.

     In general, the sale of a partnership interest does not

affect the basis of partnership property, and the issue of

whether section 1056 should apply to the sale of a partnership

interest would be irrelevant.    A partnership may be able to

increase the basis of certain assets upon a sale of a partnership

interest where the sale causes a constructive termination of the

partnership.   See sec. 708(b)(1)(B).    Section 708(b)(1)(B)

provides for a partnership's termination on a sale or exchange of

50 percent or more of the total interest in the partnership’s

capital and profits within a 12-month period.     The termination

results in a deemed distribution of partnership property to the

new and continuing partners (Bowlen and Adams) and a deemed

recontribution of the property to a newly formed partnership.

Sec. 1.708-1(b)(1)(iv), Income Tax Regs.

     Section 1.708-1(b)(1)(iv), Income Tax Regs., states, in

pertinent part:

          (iv) If a partnership is terminated by a sale or
     exchange of an interest, the following is deemed to
     occur: The partnership distributes its properties to
     the purchaser and the other remaining partners in
     proportion to their respective interests in the
     partnership properties; and, immediately thereafter,
     the purchaser and the other remaining partners
     contribute the properties to a new partnership * * *
     For election of basis adjustments by the purchaser and
     other remaining partners, see sections 732(d) and
     743(b) and paragraph (d) of section 1.732-1 and
                               - 14 -

     paragraph (b) of section 1.743-1.[9]    [Citations
     omitted.]

     Upon a distribution of partnership property, each partner’s

basis in his partnership interest is allocated among the

distributed assets in proportion to the assets' respective bases

to the partnership.   Sec. 732(b) and (c).    The partnership's

bases in its assets may be adjusted under section 743(b) before

the partnership distribution to reflect changes in the fair

market value of partnership property in relation to the

partnership's adjusted bases in the assets.     The partnership’s

basis, after being adjusted in accord with section 743(b), is

then used to allocate basis among the distributed assets.     Upon

recontribution of the property to the new partnership, the

partnership takes the partner's basis in the property at the time

of contribution.   Sec. 723.

     In this case, a section 708(b) constructive termination

would have occurred due to the sale of more than a 50-percent

partnership interest.   The assets of Bowlen I, including the

Broncos franchise and professional football player contracts,

would be deemed to have been distributed to Bowlen and Adams and

recontributed to a new partnership.     Sec. 1.708-1(b)(1)(iv),

     9
       Sec. 1.708-1(b)(iv), Income Tax Regs., was amended by T.D.
8717, 1997-24 I.R.B. 5 (May 8, 1997), to apply to sec. 708
terminations occurring after May 8, 1996. The amended regulation
would not apply in this case. The changes may cause a result
different than the one dictated by the regulations in existence
for the 1984 taxable year, the year in which a sale of a 50-
percent interest in Bowlen I occurred.
                              - 15 -

Income Tax Regs.   Prior to the deemed distribution, the bases of

Bowlen I's assets would be adjusted to reflect their fair market

values under section 743(b) based on the assumption that the

mandatory basis adjustment of section 732(d) applied.10   Upon the

deemed distribution, Bowlen I would use the fair market values of

the assets to allocate Bowlen’s and Adams' bases in their

partnership interests among the partnership assets pursuant to

section 732(c) basis allocation rules.   Bowlen I followed the

above-outlined statutory process and did not consider the amount

of gain that the selling partner (Kaiser or his wholly owned

corporation) may have recognized on the player contracts or the

terminated partnership's presale basis in the contracts in

determining the contracts' basis.   Therefore, Bowlen I's basis in

the player contracts was determined without reference to the

section 1056(a) basis limitation requirements.

     A. Respondent's First Argument--Section 1056 If Applied to a
Subchapter K Transaction Using the Aggregate Approach to
Partnerships Would Result in a "sale or exchange" of a Sports
Franchise and Player Contracts Within the Meaning of That Section

     Section 1056(a) specifically applies to a "sale or exchange"

of a sports franchise.   There is no reference to indirect

transfers of sports franchises through intermediate entities,

     10
        Respondent challenges whether Bowlen I was entitled to
adjust the assets to their fair market values and use the fair
market values to allocate bases among the assets under the
partnership provisions. Respondent argues that Bowlen I should
have allocated bases among its assets in proportion to the
terminated partnership's presale adjusted basis in the assets.
This matter is addressed later in the opinion.
                              - 16 -

such as a partnership.   Section 1056 has not previously been

considered by any court.   Significantly, although regulations are

mandated in the statute, since its enactment 20 years ago, none

have been issued.   The absence of regulations (interpretative or

legislative), however, does not limit our ability to interpret

the statute and decide the issues presented in this case.

     In construing a statute, we generally give effect to the

plain and ordinary meaning of its language.     United States v.

Locke, 471 U.S. 84, 93, 95-96 (1985); United States v. American

Trucking Associations, Inc., 310 U.S. 534, 543 (1940).     Words

with a fixed legal or judicially settled meaning, on the other

hand, generally must be presumed to have been used in that sense

unless such an interpretation would lead to absurd results.     See

United States v. Merriam, 263 U.S. 179, 187 (1923); Lenz v.

Commissioner, 101 T.C. 260, 265 (1993).   Our principal objective

in interpreting any statute is to determine Congress' intent in

using the statutory language being construed.     United States v.

American Trucking Associations, Inc., supra at 542; General

Signal Corp. & Subs. v. Commissioner, 103 T.C. 216, 240 (1994),

supplemented by 104 T.C. 248 (1995).   When a statute is

ambiguous, we may look to its legislative history and the

purposes for its enactment.   United States v. Ron Pair Enters.,

Inc., 489 U.S. 235, 241 (1989); Peterson Marital Trust v.

Commissioner, 102 T.C. 790, 799 (1994), affd. 78 F.3d 795 (2d
                              - 17 -

Cir. 1996).   In addition, we may seek out any reliable evidence

as to the legislative purpose even where the statute is clear.

United States v. American Trucking Associations, Inc., supra at

543-544; Centel Communications Co. v. Commissioner, 92 T.C. 612,

628 (1989), affd. 920 F.2d 1335 (7th Cir. 1990).    We use these

general principles of statutory interpretation to determine the

scope of section 1056 and/or the application of the subchapter K

basis adjustment rules.

     The parties couch the question of whether section 1056

applies to the sale of an interest in a partnership holding a

sports franchise in terms of the threshold inquiry of whether a

partnership should be treated as an entity or aggregate.    As

explained above, respondent seeks to employ the aggregate

approach to cause a more direct relationship to the partnership's

assets when an interest in the partnership changes hands.

Conversely, petitioner contends that the partnership should be

treated as an entity for purposes of our consideration of section

1056.   In determining whether section 1056 should apply to the

sale of a partnership interest, our analysis considers both the

legislative intent in enacting section 1056 and the structure and

scope of the subchapter K basis adjustment rules.

1. Legislative Intent With Regard to the Application of Section
1056 to Partnership Transactions

     "The theory concerning partnerships as entities is not

easily defined.   It is well established that the partnership form
                              - 18 -

is a hybrid--part separate entity, part aggregate."     Schneer v.

Commissioner, 97 T.C. 643, 660 (1991).   For purposes of

interpreting Code provisions outside of subchapter K, a

partnership may be treated as either an entity, separate from its

partners, or an aggregate of its partners depending on which

characterization is more appropriate to carry out the intent

and/or purpose of the particular Internal Revenue Code section

under consideration.   Brown Group, Inc. & Subs.   v. Commissioner,

104 T.C. 105, 116 (1995), vacated and remanded on other grounds

77 F.3d 217 (8th Cir. 1996); Casel v. Commissioner, 79 T.C. 424,

432-433 (1982).

     Respondent argues that Congress intended section 1056 to

apply broadly, to include the sale of an interest in a

partnership that operates a sports franchise.   Respondent

contends that the section 1056 legislative history contains

indications that Congress sought to prevent inconsistent player

contract valuations by sellers and buyers of sports teams.

Finally, respondent contends that if section 1056 is not applied

to the sale of a partnership interest, inconsistent valuations of

player contracts could occur, contrary to congressional intent.

Relying on those points, respondent maintains that it is

appropriate to apply the aggregate theory of partnerships for

purposes of section 1056's application to partnership

transactions to prevent this perceived abuse.
                               - 19 -

     Petitioner contends that section 1056 is unambiguous, makes

no reference to partnership transactions, and applies only to

transactions directly involving sports franchises not including

the sale of a partnership interest.     Finally, petitioner argues

that legislative history is inconclusive and, in any event,

irrelevant because the statute is unambiguous.    Because

partnerships can be and have been treated as an aggregate or

entity, we must disagree with petitioner's contention that

section 1056 is unambiguous.   Petitioner is of the view that the

entity approach is to be applied to Internal Revenue Code

provisions that are outside of subchapter K unless Congress

provides otherwise.   No such presumption favoring the entity

approach exists.

     Congress used the pervasive tax terminology "sale or

exchange" to categorize the transactions subject to section

1056(a) basis provisions and limitations.    Two types of transfers

of sports franchises were expressly exempted from the section

1056(a) basis limitation, section 1031 like-kind exchanges and

transfers from a decedent.   Sec. 1056(b).   Neither exception

references partnership interests or provides guidance, one way or

the other, on the congressional intent.    Section 1056 does not

mention the transfer of an interest in a partnership holding a

sports franchise.   Moreover, the legislative history does not

contain any reference to the imposition of the basis limitation

rules of section 1056 on the transfer of partnership interests.
                               - 20 -

     The legislative history emphasizes that section 1056 was

enacted to prevent inconsistent valuations of player contracts by

purchasers and sellers of professional sports franchises.     H.

Rept. 94-658, at 115-117 (1975), 1976-3 C.B. (Vol. 2) 695, 807-

809; S. Rept. 94-938 at 87-88 (1976), 1976-3 C.B. (Vol. 3) 49,

125-126.11   Section 1056 was intended to cause the tax

consequences on the sale of sports franchises to be subject to an

arm's-length and balanced posture.      That is accomplished by using

the seller's basis plus any gain recognized by the seller as the

standard for the buyer's basis in player contracts.     H. Rept. 94-

658, at 117; 1976-3 C.B. (Vol. 2) at 809; S. Rept. 94-938 at 87-

88, 1976-3 C.B. (Vol. 3) at 125-126.

     We disagree with respondent's contention that inconsistent

valuations of player contracts would automatically occur in

transactions involving a sports franchise held within a

partnership.   Provisions within subchapter K protect against

inconsistent valuations of partnership property by buying and


     11
       The purchaser of a sports franchise would be motivated to
allocate a larger portion of the purchase price to player
contracts because the costs of player contracts are amortizable.
Likewise, there would be less motivation to allocate cost to the
franchise rights and goodwill which are not amortizable.
Conversely, sellers would be motivated to allocate little of the
purchase price to player contracts because gain recognized on the
sale of player contracts may be subject to sec. 1245 depreciation
recapture and treated as ordinary income. Sellers would also be
motivated to allocate a larger portion of the purchase price to
unamortizable assets, such as franchise rights, any gains on
which may be taxable at capital gain rates and are not subject to
recapture provisions.
                                 - 21 -

selling partners.     Under section 751, the selling partner

(Kaiser) would be required to recognize any gain attributable to

the amortization deductions on the player contracts as ordinary

income.     Sec. 751(a), (c).   Section 751 would prevent the selling

partner from converting section 1245 depreciation recapture

income from the player contracts into capital gain.     Accordingly,

without considering section 1056, the seller's reporting

requirements are congressionally mandated under subchapter K and

section 1245.     The selling and buying partners are bound to

allocate the purchase price of the partnership interest to

particular section 751 partnership assets as provided in the

terms of their sales agreement.     Sec. 1.751-1(a)(2), Income Tax

Regs.     There is no subchapter K provision similar to section

1056;12 however, under subchapter K, the focus is not on

inconsistent asset valuations by individuals buying and selling

partnership interests.

     Respondent also relies on the Staff of the Joint Committee

on Taxation, General Explanation of the Tax Reform Act of 1976

(J. Comm. Print 1976) (hereinafter General Explanation) as

support for the position that the term "sale or exchange" as used

in section 1056 includes a sale of a partnership interest in a

sports team.     The General Explanation states at 86 that section


     12
       Under sec. 1056, to prevent a buyer from inflating the
basis of player contracts, the buyer is limited to the seller's
basis and any recognized gain on the contracts.
                                - 22 -

1056 applies to "the sale, exchange, or other disposition of a

sports franchise."    The General Explanation is prepared by the

staff of the Joint Committee on Taxation and is generally not

considered to be legislative history.    Courts, however, have

referenced the General Explanation in opinions involving the

interpretation of statutes.    See, e.g., FPC   v. Memphis Light,

Gas & Water Div., 411 U.S. 458, 471-472 (1973); Todd v.

Commissioner, 89 T.C. 912, 917-918 (1987), affd. 862 F.2d 540

(5th Cir. 1988).     In any event, the General Explanation does not

contain elucidation or clear guidance on the application of

section 1056 to transfers of partnership interests, as respondent

argues.   The General Explanation contains the amorphous phrase

"other disposition of a sports franchise" which we find

inconclusive on the question of whether partnership transactions

are covered by section 1056.    To accept the "other disposition"

language as including the transfer of a partnership interest

would, of necessity, require us to ignore and/or circumvent

certain of the subchapter K special basis adjustments available

to a buying partner and other basis provisions governing

partnership transactions.

     In that connection, the integration into subchapter K of a

basis limitation like that contained in section 1056 would be a

complex and arduous task.    Subchapter K already contains a

complex and comprehensive set of basis provisions designed to

address the unique aspects of a pass-through entity.    Such an
                               - 23 -

integration would present numerous choices and policy decisions

that the statute, legislative history, and respondent have failed

to address.

     Section 1060 provides an example of the integration of basis

rules into subchapter K.    Section 1060 was enacted in 1986

subsequent to the transaction in question and is inapplicable in

this case.13   Nevertheless, the enactment of section 1060

provides an example of the complexity and difficulties involved

in a section 1056 integration into partnership transactions.

     Sections 1056 and 1060 each control the allocation of

purchase price to individual assets, albeit by different means.

Section 1060 requires the seller and buyer in certain prescribed

asset sales to allocate the purchase price among acquired assets

using the residual allocation method.    Under that method, a

taxpayer generally allocates the purchase price among acquired

assets to the extent of their fair market values in descending

order of priority starting with cash and tangible and intangible

assets other than goodwill and going concern value.    Sec.

1060(a); sec. 1.1060-1T(a)(1), (d), Temporary Income Tax Regs.,

53 Fed. Reg. 27039, 27040 (July 18, 1988).    The residual of the

purchase price is then allocated to goodwill and going concern

value.    Sec. 1.1060-1T(d), Temporary Income Tax Regs., 53 Fed.

     13
        Sec. 1060, enacted by sec. 641(a) of the Tax Reform Act
of 1986, Pub. L. 99-514, 100 Stat. 2282, applies to asset
acquisitions after May 6, 1986, unless entered under a binding
contract in effect on that date and at all times thereafter.
                              - 24 -

Reg. 27040 (July 18, 1988).   Allocation of the purchase price to

the individual assets determines the seller's gain or loss on the

sale of the assets and the buyer's bases in the acquired assets.

     As initially enacted, section 1060 did not address the

transfer and allocation involving partnership interests.    In

1988, section 1060(d) was added specifically to require the use

of the residual method for distributions of partnership property

to partners and for transfers of partnership interests for

purposes of determining the value of goodwill or going concern

value in applying section 755.    The 1988 amendment included

detailed provisions to enable section 1060 principles to be

integrated into the generally self-contained provisions of

subchapter K.   The absence of express provisions in section 1056

to address partnership transactions more likely indicates that it

does not apply to basis adjustments available to partners who

purchase partnership interests.    Any ambiguity or omission in

section 1056 logically could have been cured by amendment.

          2. Interplay Between Section 1056 and the Subchapter K
Partnership Provisions

     In deciding that section 1056 does not apply to the sale of

a partnership interest, we have considered the effect that

section 1056 would have on the integrity and continuity of

subchapter K.   In that regard, petitioner contends that we should

not apply section 1056 on an ad hoc basis to subchapter K because

to do so would undermine the partnership basis provisions.
                                - 25 -

Subchapter K contains several detailed provisions governing basis

adjustments and allocations in partnership transactions.       See

secs. 732, 743, 754, and 755.    Generally, subchapter K employs

the entity approach in treating transfers of partnership

interests.   The sale of a partnership interest is treated as the

sale of a single capital asset rather than as a transfer of the

individual assets of the partnership.       See secs. 741 and 742.

     Aggregate concepts, however, are also employed upon the

transfer of partnership interests.       For example, the basis of

partnership property may be adjusted under the partnership

provisions upon the sale of a partnership interest in accordance

with section 743(b).   The basis adjustment under section 743(b)

places a buying partner in the same position as if that partner

had purchased an undivided proportionate share of the partnership

property.    Section 743(b) enables the purchaser of a partnership

interest to increase the depreciable basis of appreciated

partnership property to parallel the acquisition costs.        Section

743(b) also protects a new partner by increasing basis to avoid

taxation on any inflated gains that could occur if the

partnership interest is later sold.

     These basis adjustments were statutorily provided to

individuals who purchase partnership interests, and we are

reluctant to vary from this approach without a clear legislative

mandate for partnerships owning sports franchises.       The

partnership here applied the section 743(b) special basis
                              - 26 -

adjustments believing that the mandatory basis adjustment of

section 732(d) applied.   The mandatory basis adjustment prevents

a buying partner from shifting basis allocation from

nondepreciable or unamortizable property to depreciable or

amortizable property under the section 732(c) basis allocation.

Similarly, section 1056 is intended to prevent overvaluation of

amortizable player contracts and undervaluation of the

unamortizable sports franchise by buyers of sports teams.    The

only difference, however, is that the partnership provisions do

not restrict the basis adjustment of a particular partnership

asset to the partnership's presale basis plus any gain recognized

by the selling partner.

     We are satisfied that subchapter K provisions are sufficient

to determine the basis of partnership property and include

sufficient safeguards (such as section 732(d) and accompanying

regulations) to prevent inflation of the depreciable or

amortizable basis of property.14   We are also satisfied that

Bowlen I did not overvalue the player contracts in issue.    In

some respects, the partnership's player contract valuation

complies with the section 1056(d) provision involving the

     14
       We recognize, however, that subch. K may permit a
purchaser of a partnership interest to obtain increased
amortizable basis in the player contracts even though the selling
partner may not have recognized depreciation recapture income on
those contracts. This could occur when a buying partner and
selling partner have not allocated the total purchase price of
the partnership interest among the individual partnership assets
in a sales contract.
                               - 27 -

presumption and requirements for allocating more than 50 percent

to player contracts.   Bowlen I obtained four estimates of the

value of the Broncos' player contracts on the date of the sale of

the partnership interest from general managers and personnel

specialists of other NFL teams.    The estimates ranged from

$35,790,000 to $59,215,000, with an average amount approximating

$45,700,000.   Bowlen I assigned approximately $36 million as the

fair market value of player contracts, which amount equates with

50 percent of the approximate $72 million aggregate cost for

Bowlen and Adams' partnership interests.    It should be emphasized

that a conservative valuation was used, and (as explained later

in this opinion) we find this assigned value was the fair market

value at the time of acquisition.

     Petitioner's argument focuses on the factor that Kaiser's

gain attributable to the player contracts should have been

derived from the $36 million amount used by the partnership for

amortization purposes.   Respondent, however, focuses on

petitioner's inability to prove the actual amount of gain that

Kaiser recognized from the contracts, under the basis limitation

rules of section 1056(a).    Neither party offered direct evidence

showing the gain, if any, that the seller (Kaiser) may have

recognized on the sale of the partnership interests attributable

to the player contracts.    Without such evidence, as required

under section 1056(a), respondent argues that the basis in the

player contracts is limited to the partnership's presale basis.
                               - 28 -

Further exacerbating the dilemma here, respondent, in accord with

established practices, destroyed the seller's income tax return

that might have shed light on this question.

     The $36,121,385 basis for the player contracts used by the

partnership does not exceed the value of the contracts or provide

any tax benefit not otherwise available to the partners.

Amortization of the fair market value in accord with the

partners' acquisition costs for partnership property is an

appropriate deduction under subchapter K.   Any tax advantage that

may have occurred in the circumstances of this case would have

been due to the seller's (Kaiser's) failure to report sufficient

gain or his mischaracterization of gain as capital upon the sale

of his partnership interest.   Respondent argues, but is unable to

show, that Kaiser was able to have the benefit of capital gain on

the sale of his partnership interest without recapture in the

form of ordinary income of any amortization that may have been

taken on the player contracts.

     B. Respondent's Alternative Argument--A Deemed Distribution
and Recontribution of Partnership Property Under Section 731
Constitutes a "sale or exchange" Within the Meaning of Section
1056

     Respondent alternatively argues that if we hold that a

partnership is to be treated as an entity for purposes of

applying section 1056, a sale or exchange of the partnership

assets nevertheless occurred under the entity theory.

Responent’s alternative argument is premised on the contention
                                 - 29 -

that a sale or exchange of a sports franchise and player

contracts within the meaning of section 1056(a) occurred on the

deemed distribution and recontribution of partnership property

attributable to the partnership's constructive section 708

termination.    Respondent relies on section 731 as support for the

position that an exchange occurs when a partnership makes a

liquidating distribution of partnership property to its

partners.15

     Section 731(a) defines the circumstances under which a

partner recognizes gain or loss from partnership distributions

and provides that "Any gain or loss recognized under this

subsection shall be considered as gain or loss from the sale or

exchange of the partnership interest of the distributee

partner."16    Sec. 731(a).   Respondent maintains that there is

tacit recognition in section 731 that a deemed partnership

distribution constitutes a sale or exchange regardless of whether

the partner recognizes gain or loss on the distribution.

Respondent, relying on section 721, continues with the additional

premise that the deemed recontribution of the partnership


     15
       It is noted that any distribution of property in this
case would have been theoretically deemed to have occurred under
the statutes and regulations and that no actual distribution in
kind occurred.
     16
        Generally, a partner recognizes gain upon the
distribution of partnership property only to the extent that
money distributed exceeds the partner's basis in his partnership
interest. Sec. 731(a)(1).
                                - 30 -

property to the new partnership is an exchange.    Section 721

provides that "No gain or loss shall be recognized to a

partnership or to any of its partners in the case of a

contribution of property to the partnership in exchange for an

interest in the partnership."

      Respondent's reliance on section 731 is misplaced.    The

purpose of the above-quoted portion of section 731 is to

characterize the gain or loss recognized on partnership

distributions as capital or ordinary in nature.    See sec. 1.731-

1(a)(3), Income Tax Regs.    Section 741 provides for the

characterization of income or loss from the sale or exchange of a

partnership interest as capital, except as provided in section

751 (relating to unrealized receivables and inventory items that

have substantially appreciated in value).    Section 731(a), in

turn, subjects the tax consequences of partnership distributions

to the gain or loss characterization rule of section 741.

Moreover, section 731(a) provisions apply to nonliquidating and

liquidating distributions.    It would be inappropriate to treat

partners who receive current distributions from a partnership as

selling their partnership interests, which respondent's argument

would seem to require.   Rather, a partner who receives a

nonliquidating distribution is treated as selling his partnership

interest only for purposes of characterizing the gain recognized

by the partner.
                                - 31 -

     The phrase "sale or exchange" appears in several tax

statutes and has been the subject of numerous opinions.     The

customary meaning of "sale or exchange" implies a reciprocal

transfer.   Helvering v. William Flaccus Oak Leather Co., 313 U.S.

247, 249 (1941).   The phrase "sale or exchange" has been

interpreted in some circumstances to include a distribution of

partnership property in liquidation of a partnership interest.

However, a partnership distribution does not necessarily qualify

as a sale or exchange.   For example, a liquidating distribution

of a 50-percent or more partnership interest is not treated as a

sale or exchange of the partnership interest for purposes of a

section 708(b)(1)(B) constructive termination.    Sec. 1.708-

1(b)(1)(ii), Income Tax Regs.    Whether a partnership distribution

is a sale or exchange of the distributed partnership property

depends on the statutory mandate of the section sought to be

applied to the particular subchapter K transaction.

     Respondent's second or alternative argument to apply section

1056 to subchapter K transactions would raise difficult and yet

unanswered questions, such as whether the partnership or selling

partner should be considered to be the transferor of the assets

for purposes of section 1056.    Under respondent's view, the

buying partner's basis would be limited to the terminated

partnership's presale basis plus gain recognized by the selling

partner (Kaiser) on the player contracts.    Section 1056(a) limits

the buyer's basis in player contracts to the transferor's basis
                                - 32 -

plus gain recognized by the transferor on the contracts.

Accordingly, respondent's position requires both the selling

partner (Kaiser) and the terminated partnership to be treated as

the transferor for purposes of section 1056 on the deemed

distribution.

     The section 708 regulations provide that the deemed

distribution is from the terminated partnership.    Sec. 1.708-

1(b)(1)(iv), Income Tax Regs.    The normal rule is that a

partnership does not recognize gain on a liquidating distribution

to a partner.   See sec. 732(a).   Consequently, if only the

terminated partnership was treated as the transferor for purposes

of section 1056(a), a buying partner would be limited to the

partnership's presale basis in the contracts even if the selling

partner recognized gain from the player contracts.    Respondent

does not seek that result.

     For Kaiser to be the transferor (seller) on the deemed

distribution, however, the aggregate partnership theory would

need to be employed.   Consistent with our prior discussion, the

aggregate theory of partnership would not be appropriate for

purposes of section 1056.    Respondent's argument that a section

1056 "sale or exchange" occurs on a deemed distribution and

recontribution requires treating the partnership as an aggregate

of its partners.   Accordingly, we conclude that a partnership

distribution does not constitute a sale or exchange of the
                              - 33 -

distributed partnership assets under section 1056, and Bowlen I's

basis in the player contracts is not subject to section 1056.

III. Has Bowlen I Correctly Computed the Basis of Partnership
Assets Under the Partnership Provisions?

     A. Burden of Proof as to Fair Market Value of Player
Contracts

     As a threshold and procedural matter, petitioner argues that

any question concerning the partnership's basis computation under

the partnership provisions is a new matter for which respondent

should bear the burden of proof.   Rule 142(a).   Petitioner

contends that respondent raised the question concerning the

subchapter K basis computation for the first time at trial and

that issue constitutes a new matter.   Respondent argues that,

although this issue was not addressed in the notices of final

partnership administrative adjustment, petitioner raised the

issue by alleging in the pleading that the player contracts’

bases were correctly determined under subchapter K.

     Respondent, under section 1056, determined that the

partnership was not entitled to amortization of certain player

contracts for the years under consideration.   Petitioner alleged

that respondent erred in applying section 1056 and not accepting

the approach utilized by the partnership.   Petitioner's

allegations in the petition address the question of whether the

section 1056 limitations would affect the amount of basis

available for amortization.   In the notice of final partnership

administrative adjustments, respondent did not determine that the
                              - 34 -

basis amount used by the partnership for the player contracts was

incorrect, except insofar as it was limited by the requirement of

section 1056(a).

          Generally, * * * [taxpayers] [bear] the burden of
     proof. Rule 142(a); Welch v. Helvering, 290 U.S. 111
     (1933). Respondent, however, bears the burden of proof
     as to "any new matter, increases in deficiency, and
     affirmative defenses, pleaded in the answer". Rule
     142(a). A new position taken by * * * [the
     Commissioner] is not necessarily a "new matter" if it
     merely clarifies or develops * * * [the Commissioner’s]
     original determination without requiring the
     presentation of different evidence, being inconsistent
     with * * * [the Commissioner’s] original determination,
     or increasing the amount of the deficiency. Achiro v.
     Commissioner, 77 T.C. 881, 889-891 (1981) * * * .
     [Citations omitted.]

Seagate Tech., Inc., & Consol. Subs. v. Commissioner, 102 T.C.

149, 169 (1994).

     Respondent raised, for the first time at trial, the question

of whether the partnership correctly valued partnership assets

and hence was required to use section 732(d) to allocate partner

acquisition costs to basis.   That question or issue was raised by

respondent as an alternative argument if we should find that

section 1056 did not apply.   Petitioner, up until the trial,

simply argued that section 1056 did not apply as determined and

that the partnership's reporting position was, therefore,

correct.

     Going into the trial, the sole issue confronting petitioner

was whether the limitations of section 1056 applied to the

partnership's basis in player contracts.   Petitioner had
                               - 35 -

stipulated the estimates made by the four NFL teams and the

adjustment made by the partnership's accountant to arrive at a

$36,121,385 fair market value and basis for the player contracts.

That evidence was stipulated to provide background for the

factual scenario needed to address the section 1056 question.

Petitioner did not plan to offer expert testimony on value

because respondent's determination did not question the value of

the player contracts.    Petitioner would have been required to

present additional evidence to address respondent's alternative

argument, raised for the first time at trial.    Accordingly,

respondent bears the burden of proof with respect to the question

of whether partnership's valuation of the player contracts was

correct.

     B.    Respondent's Alternative Argument

     Having decided that section 1056 does not apply to the sale

of a partnership interest, we address respondent's alternative

argument that the basis of the player contracts was incorrectly

computed under subchapter K.    In this case, a distribution was

deemed to have occurred to Bowlen and the remaining partner

because of the section 708 constructive termination of the

partnership when Bowlen purchased over a 50-percent partnership

interest.    Sec. 708(b)(1)(B); sec. 1.708-1(b)(1)(iv), Income Tax

Regs.

     Section 732(d) and the regulations thereunder, with respect

to a liquidating distribution, require a basis adjustment in
                              - 36 -

accord with section 743(b) prior to a distribution to a partner

who acquired his interest in the absence of a section 754

election, if three conditions exist:   (1) The fair market value

of the partnership's property (other than money) exceeds 110

percent of its adjusted basis to the partnership at the time the

partnership interest was acquired, (2) upon liquidation of the

partner's interest in the partnership immediately after

acquisition, an allocation of basis under section 732(c) would

have shifted basis to depreciable, depletable, or amortizable

property from property not subject to these allowances, and (3) a

special basis adjustment under section 743(b) would have changed

the basis to the transferee partner of property actually

distributed.   Sec. 1.732-1(d)(4), Income Tax Regs.; see Rudd v.

Commissioner, 79 T.C. 225, 240-246 (1982).

     The partnership did not have a section 754 election in

effect for 1984.   Up to this point, the parties remain in accord.

Their disagreement goes to the amount of the fair market value of

the player contracts and whether the section 732(d) provisions

applied.

     The partnership's accountant determined that the section

732(d) mandatory basis adjustment rules applied, and the player

contract bases were adjusted in accord with section 743(b) prior

to the deemed distribution.   The partnership used the section

743(b) adjusted basis, i.e., their purported fair market values,
                               - 37 -

to allocate basis among the distributed assets and assigned a

basis of $36,121,385 to the player contracts.

     Respondent argues that the value of the player contracts at

the time of Bowlen's acquisition of a partnership interest was

$45,695,000, which was the average of the estimates by other NFL

teams.    Due to respondent’s premise that the partnership used an

incorrect basis of $36,121,385, respondent argues that section

732(d) did not apply and that the partnership's basis in the

player contracts is $21,288,373 in the absence of the section

743(b) adjustment.   Because the partnership had amortized more

than $21,288,373 prior to the years before this Court, no

deduction would be allowable if respondent's argument is

sustained.   If, however, we find that the fair market value of

the player contracts ($36,121,385) used by the partnership was

correct, then respondent's argument must fail.   As decided above,

respondent bears the burden of proving that the fair market value

of the player contracts was $45,695,000, instead of the

$36,121,385 amount used by the partnership.17

     To meet that burden, respondent relies on the $45,695,000

average of the four estimates obtained by Bowlen I as the true


     17
       Petitioner agrees that a $45,695,000 fair market value
for the player contracts would mean that secs. 732(d) and 743(b)
would not apply resulting in a $21,288,373 basis in player
contracts. Similarly, respondent agrees that a $36,121,385 value
would result in the application of sec. 732(d) and related
sections and that the basis of the contracts would have been
$36,121,385.
                               - 38 -

fair market value so that the $45,695,000 value would not have

triggered section 732(d).18    Respondent argues that the

partnership's basis would have been $21,288,373 and that prior

year's claimed amortization had already exceed that amount prior

to the years under consideration.   Accordingly, under

respondent's argument, the partnership would not be entitled to

any further amortization.

     The partnership, in accord with its accountant's analysis,

used the $36,121,385 fair market value for purpose of determining

whether the mandatory basis adjustment rules of section 732(d)

apply.    Respondent did not present expert testimony regarding the

value of the player contracts and relies on the simple expediency

of averaging the four estimates used by the partnership in an

attempt to reach a fair market value.   The estimates were not

offered to establish the fair market value of the player

contracts.   Instead they are a predicate for discussion of the

section 1056 issue and whether it applies to a partnership

transaction.




     18
       Respondent's argument that sec. 732(d) would not apply is
based on a $45,695,000 value for the player contracts, which in
turn, would, according to respondent, result in a larger basis
being allocated to depreciable and amortizable assets under sec.
732(d) than if a sec. 743(b) basis adjustment was not in effect.
The parties did not debate whether each other's analysis was
correct. In essence they agreed, that if we find the value they
propose to be correct, then the result they propose ensues. We
accept these concessions for purposes of this case.
                               - 39 -

     Our analysis of the four estimates19 shows them to be

cursory and terse.   No explanation is provided for the estimate

listed for each player.    The four estimates contain huge

differences and inconsistencies when comparing particular

players.   For example, John Elway's contract is estimated as high

as $6,350,000 by the Chicago Bears and as low as $4 million by

the Cleveland Browns.   With respect to Steve Busick, the Chicago

Bears estimated $225,000 and the Houston Oilers $1,250,000.

Conversely, the Chicago Bears estimated $100,000 for Britt

Freeman and the Houston Oilers $10,000.    We cannot tell whether

these differences reflect the needs of those teams for a

particular player's skills or result from some other

consideration or factor.

     The accountant for the partnership, after considering the

estimates respondent relies on, reached a fair market value of

$36,121,385.   The value used by the partnership is within the

range of estimates of value by the four NFL teams.    We also note

that the $36 million figure is a conservative amount.    Under

these circumstances, respondent has not carried the burden of

showing that the fair market value of the player contracts was

more than the $36,121,385 used by the partnership or that the

correct fair market value is the $45,695,000 relied on by

respondent to show that section 732(d) would not apply.

     19
       A summary of the four estimates was received in evidence
and is attached to this opinion as the appendix.
                             - 40 -

     Accordingly, we find that the mandatory basis adjustment of

section 732(d) applies within the context of subchapter K and

that Bowlen I properly computed the basis of the player contracts

in accordance with the partnership provisions and is entitled to

the amortization deduction in controversy.

     To reflect the foregoing and due to concessions by the

parties,

                                   Decision will be entered

                              under Rule 155.
                                        - 41 -
                                         APPENDIX
                                         APPRAISER
                       (Chicago    (Cleveland    (New York       (Houston
                         Bears      Browns)       Giants)        Oilers)
        NAME            VANISI       BAILEY        YOUNG          HERZEG      TOTAL       AVERAGE

Aguilar, Joe            $100,000     $150,000         $100,000     $10,000     $360,000     $90,000
Alexander, Ray           100,000      200,000                0     200,000      500,000     125,000
Banaszak, Chris          100,000      225,000          125,000      10,000      460,000     115,000
Banks, Larry             100,000      200,000          120,000      10,000      430,000     107,500
Barnett, Dean            125,000      200,000          150,000      10,000      485,000     121,250
Barnett, Larry           100,000      200,000          125,000      10,000      435,000     108,750
Bishop, Keith            525,000      225,000          900,000   1,250,000    2,900,000     725,000
Blinka, Stan             275,000      250,000          300,000      10,000      835,000     208,750
Bowyer, Walt             150,000      175,000          400,000     100,000      825,000     206,250
Boyd, Michael            100,000      175,000          125,000      10,000      410,000     102,500
Brewer, Chris            150,000      225,000          400,000     200,000      975,000     243,750
Brunner, Scott           625,000      750,000          900,000   1,000,000    3,275,000     818,750
Brunot, Rick             100,000      200,000          100,000      10,000      410,000     102,500
Bryan, Billy           1,125,000      225,000        1,500,000     800,000    3,650,000     912,500
Buchannan, Mike          100,000      175,000          125,000      10,000      410,000     102,500
Busick, Steve            225,000      250,000          900,000   1,250,000    2,625,000     656,250
Carmody, Steve           100,000      250,000          100,000      10,000      460,000     115,000
Carswell, Ernest         100,000      175,000          100,000      10,000      385,000      96,250
Carter, Rubin            750,000      750,000        1,000,000     300,000    2,800,000     700,000
Chavous, Barney        1,150,000      400,000        1,200,000     500,000    3,250,000     812,500
Coleman, Duane           100,000      150,000          125,000      10,000      385,000      96,250
Collins, Trent           100,000      175,000          100,000      10,000      385,000      96,250
Comeaux, Darren          125,000      175,000          300,000     100,000      700,000     175,000
Cooper, Mark             450,000      750,000          900,000     600,000    2,700,000     675,000
Costello, Rocky          100,000      125,000          125,000      10,000      360,000      90,000
Davis, Billy             100,000      225,000          125,000      10,000      460,000     115,000
Davis, Jeff              100,000      175,000          125,000      10,000      410,000     102,500
Davis, Ricky             100,000      175,000          125,000      10,000      410,000     102,500
De Bourge, Dale          100,000      175,000          100,000      10,000      385,000      96,250
De Rose, Dan             100,000      200,000          100,000      10,000      410,000     102,500
Dennison, Rick           150,000      225,000          500,000     600,000    1,475,000     368,750
Diorio, Jerry            100,000      200,000          100,000      10,000      410,000     102,500
Dixon, Kevin             100,000      200,000          125,000      10,000      435,000     108,750
Dodson, Lance            100,000      200,000          100,000      10,000      410,000     102,500
Dupree, Myron            125,000      250,000          225,000      50,000      650,000     162,500
Egloff, Ron              300,000      275,000          250,000      50,000      875,000     218,750
Elway, John            6,350,000    4,000,000        5,000,000   6,000,000   21,350,000   5,337,500
Felknor, Bret            125,000      175,000          125,000      10,000      435,000     108,750
Fernandez, Jacinto       100,000      175,000          125,000      10,000      410,000     102,500
Fisher, Mike             100,000      150,000          125,000      10,000      385,000      96,250
Foley, Steve             825,000      300,000        1,200,000   1,000,000    3,325,000     831,250
Freeman, Britt           100,000      150,000          125,000      10,000      385,000      96,250
Freeman, Mike            100,000      200,000          150,000     200,000      650,000     162,500
Gaines, Charlie          100,000      200,000          100,000      10,000      410,000     102,500
Garnett, Scott           150,000      250,000          400,000     500,000    1,300,000     325,000
Gearring, Vernon         100,000      150,000          100,000     200,000      550,000     137,500
Gilbert, Freddie               0            0                0           0            0           0
Gradishar, Randy               0            0                0           0            0           0
Graves, Marsharne        100,000      150,000          200,000      10,000      460,000     115,000
Greggs, Mark             100,000      200,000          100,000      10,000      410,000     102,500
Harden, Mike             775,000      250,000          900,000     700,000    2,625,000     656,250
Harris, Weedy            150,000      250,000          250,000      10,000      660,000     165,000
Hawkins, Reco            100,000      125,000          100,000      10,000      335,000      83,750
Hedderly, Russ           100,000      125,000          100,000      10,000      335,000      83,750
Higginbotham, John       100,000      175,000          100,000      10,000      385,000      96,250
Hollingsworth, Shawn     100,000      175,000          150,000      10,000      435,000     108,750
Hood, Winford            150,000      200,000          400,000     500,000    1,250,000     312,500
Howard, Paul             925,000      250,000          900,000     100,000    2,175,000     543,750
Hunley, Ricky                  0            0                0           0            0           0
Jackson, Roger           300,000      250,000          300,000     100,000      950,000     237,500
Jackson, Tom             625,000      300,000        1,200,000     200,000    2,325,000     581,250
Jarman, Murray           150,000      200,000          200,000      10,000      560,000     140,000
Jenkins, Bob             100,000      125,000          100,000      10,000      335,000      83,750
Jones, Demetrius         100,000      125,000          120,000      10,000      355,000      88,750
Jones, Rulon           1,475,000      750,000        1,200,000   2,500,000    5,925,000   1,481,250
Joyce, Jim               100,000      125,000          125,000      10,000      360,000      90,000
                                     - 42 -
                    (Chicago    (Cleveland    (New York    (Houston
                      Bears      Browns)       Giants)     Oilers)
        NAME         VANISI       BAILEY        YOUNG       HERZEG     TOTAL       AVERAGE

Karlis, Rich          700,000      400,000       900,000     600,000   2,600,000     650,000
Kay, Clarence         150,000      250,000       600,000   1,250,000   2,250,000     562,500
Kelley, Greg          100,000      125,000       100,000      10,000     335,000      83,750
Kenneybrew, Carl      100,000      200,000       125,000      10,000     435,000     108,750
Kragen, Greg          100,000      200,000       125,000     200,000     625,000     156,250
Kubiak, Gary          225,000      500,000       600,000   1,000,000   2,325,000     581,250
Lang, Gene            150,000      250,000       200,000     200,000     800,000     200,000
Lanier, Ken           550,000      400,000       900,000   1,000,000   2,850,000     712,500
Lasack, Duane         100,000      125,000       100,000      10,000     335,000      83,750
Leary, Bill           125,000      125,000       100,000      10,000     360,000      90,000
Lilly, Tony           650,000      250,000       700,000     600,000   2,200,000     550,000
Logan, Dave           375,000      200,000     1,200,000      10,000   1,785,000     446,250
Lomeli, Dan           100,000      125,000       100,000      10,000     335,000      83,750
Luck, Mike            100,000      125,000       175,000      10,000     410,000     102,500
Lytle, Rob                  0      200,000       300,000      10,000     510,000     127,500
Manor, Brison         275,000      300,000       300,000     100,000     975,000     243,750
Massie, Rick                0            0             0           0           0           0
Mecklenburg, Karl     250,000      200,000       600,000           0   1,050,000     262,500
Micho, Bobby          150,000      200,000       300,000     200,000     850,000     212,500
Moen, Kevin           100,000      175,000       100,000      10,000     385,000      96,250
Morgan, John          100,000      175,000       100,000      10,000     385,000      96,250
Mullahey, Nick        100,000      175,000       100,000      10,000     385,000      96,250
Muriaty, Gene         100,000      200,000       125,000      10,000     435,000     108,750
Myers, Wilbur         175,000      200,000       250,000      10,000     635,000     158,750
Myles, Jesse          175,000      250,000       250,000     200,000     875,000     218,750
Naylor, Rick          100,000      125,000       100,000      10,000     335,000      83,750
Neal, Alan            100,000      200,000       100,000      10,000     410,000     102,500
Niko, Maomao          125,000      200,000       150,000      10,000     485,000     121,250
Norman, Chris         100,000      200,000       175,000     600,000   1,075,000     268,750
O’Brien, Eddie        100,000      200,000       100,000      10,000     410,000     102,500
Osborn, Kelly         100,000      200,000       100,000      10,000     410,000     102,500
Parros, Rick          425,000      300,000       900,000      50,000   1,675,000     418,750
Patterson, Jeff       100,000      200,000       100,000      10,000     410,000     102,500
Poole, Jon            100,000      200,000       100,000      10,000     410,000     102,500
Poole, Nathan         150,000      225,000       200,000      50,000     625,000     156,250
Prestridge, Luke      525,000      400,000       500,000     200,000   1,625,000     406,250
Price, Steve          100,000      175,000       100,000     200,000     575,000     143,750
Raikes, Jeff          125,000      200,000       125,000      10,000     460,000     115,000
Ramson, Eason         225,000      300,000       600,000      10,000   1,135,000     283,750
Reiner, Mike          100,000      175,000       100,000      10,000     385,000      96,250
Robbins, Randy        200,000      300,000       600,000     600,000   1,700,000     425,000
Robinson, Capus       100,000      200,000       100,000      10,000     410,000     102,500
Rogers, Shawn         100,000      200,000       100,000      10,000     410,000     102,500
[illegible]           100,000      200,000       100,000      10,000     410,000     102,500
Russell, Marlin       100,000      200,000       125,000      10,000     435,000     108,750
Ryan, Jim             275,000      200,000       900,000     600,000   1,975,000     493,750
Salazar, Robert       100,000      200,000       125,000      10,000     435,000     108,750
Sampson, Clint        350,000      500,000       600,000     600,000   2,050,000     512,500
Sawyer, John          275,000      300,000       400,000      10,000     985,000     246,250
Scandrett, David      100,000      200,000       100,000      10,000     410,000     102,500
Schafer, Steve        100,000      200,000       125,000      10,000     435,000     108,750
Simmons, Melvin       100,000      200,000       100,000      10,000     410,000     102,500
Simpson, Adrian       100,000      200,000       100,000      10,000     410,000     102,500
Skudneski, David      100,000      200,000       125,000      10,000     435,000     108,750
Small, George         200,000      300,000       175,000      10,000     685,000     171,250
Smith, Aaron          100,000      250,000       300,000     200,000     850,000     212,500
Smith, Alonzo         100,000      200,000       100,000      10,000     410,000     102,500
Smith, Charlie        100,000      200,000       100,000      10,000     410,000     102,500
Smith, Darryl         100,000      125,000       100,000      10,000     335,000      83,750
Smith, Dennis       2,275,000    1,000,000     2,000,000   2,500,000   7,775,000   1,943,750
Smith, John           100,000      200,000       100,000      10,000     410,000     102,500
Smith, Reggie               0            0             0           0           0           0
Stachowski, Rich      100,000      200,000       175,000      10,000     485,000     121,250
Staff, Mike           100,000      200,000       125,000      10,000     435,000     108,750
Stankavage, Scott     100,000      250,000       250,000      10,000     610,000     152,500
Studdard, Dave        550,000      300,000     1,000,000     300,000   2,150,000     537,500
Summers, Don          100,000      125,000       175,000     200,000     600,000     150,000
Sutton, Phil          100,000      200,000       100,000      10,000     410,000     102,500
Swanke, Rob           100,000      250,000       200,000      10,000     560,000     140,000
                                       - 43 -
                     (Chicago     (Cleveland     (New York    (Houston
                       Bears       Browns)        Giants)     Oilers)
        NAME          VANISI        BAILEY         YOUNG       HERZEG        TOTAL        AVERAGE

                        100,000       200,000       100,000       10,000       410,000       102,500
Taylor, Joe             150,000       300,000       400,000       10,000       860,000       215,000
Thomas, Zack            100,000       200,000       125,000       10,000       435,000       108,750
Thompson, Dale          100,000       200,000       125,000       10,000       435,000       108,750
Thurson, Tommy          100,000       200,000       125,000       10,000       435,000       108,750
Thurston, Guy           900,000       750,000     1,300,000      700,000     3,650,000       912,500
Townsend, Andre         100,000       200,000             0       10,000       310,000        77,500
Uebel, Ralf             175,000       250,000       300,000      150,000       875,000       218,750
Uecker, Keith                 0       100,000       500,000            0       600,000       150,000
Upchurch, Rick          100,000       175,000       100,000       10,000       385,000        96,250
Veals, Dennis           100,000       175,000       125,000       10,000       410,000       102,500
Wade, Michael           100,000       175,000       100,000       10,000       385,000        96,250
Walker, Chuck           100,000       175,000       125,000       10,000       410,000       102,500
Walker, Eddie Ray       100,000       200,000       100,000       10,000       410,000       102,500
Walsh, Eddie          2,050,000     1,000,000     2,000,000    1,500,000     6,550,000     1,637,500
Watson, Steve           100,000       200,000       100,000       10,000       410,000       102,500
Whetstone, Mike         525,000     1,000,000     1,200,000      400,000     3,125,000       781,250
Willhite, Gerald        750,000       250,000       700,000      300,000     2,000,000       500,000
Wilson, Steve           375,000       750,000     1,200,000      400,000     2,725,000       681,250
Winder, Sammy           100,000       150,000       100,000       10,000       360,000        90,000
Wise, Ben               325,000       225,000       600,000      150,000     1,300,000       325,000
Woodard, Kenneth        300,000       175,000       600,000       50,000     1,125,000       281,250
Wright, James         1,425,000     1,000,000     1,500,000      600,000     4,525,000     1,131,250
Wright, Louis           100,000       275,000       100,000       10,000       485,000       121,250
Wristen, John           100,000       150,000       100,000       10,000       360,000        90,000
Young, Barry        ___________   ___________   ___________   __________   ___________   ___________


     TOTAL           44,325,000    43,450,000    59,215,000   35,790,000   182,780,000    45,695,000
