In many cities, season tickets to sports franchises are unavailable for immediate purchase for newcomers. Instead, potential buyers are placed on waiting lists – sometimes for many years – until an existing season ticket holder fails to renew. As many will attest, for the diehard fan season ticket rights can be a precious asset.
Therefore, the question whether the IRS can seize and sell a taxpayer’s rights of renewal for unpaid taxes is a question of interest for many taxpayers. In a recent Legal Memorandum, the IRS analyzed that issue.
In the case at issue, the renewal rights were not transferable by the season ticket owner. Instead, if the season ticket owner does not renew his tickets, the renewal rights lapse and the next person on the waiting list can take over the seats.
Having noticed a dearth of authority of tax cases addressing the issue, and thus basing its analysis on cases in the bankruptcy arena, the IRS acknowledged that it had power to seize and sell only “property or rights to property” and that the renewal rights are not property or rights to property but only a revocable license issued by the team. Therefore, it could not seize and resell the renewal rights.
The IRS indicated that renewal rights might give rise to a property right that can be seized and sold in other circumstances, such as if the taxpayer had the right, by contract or by nonenforcement of restrictions on transfer by the team, to transfer the renewal rights to others.
So this far into the analysis, it looks like the taxpayer will be able to keep his tickets. However, the IRS continued on to find that while the IRS could not reach the taxpayer’s renewal rights, the taxpayer’s deposit for the tickets and current seat license was something that the IRS could levy against. The IRS analysis intimated that it could seize the current license and deposit, and thus effectively cause a forfeiture of the seat license. Due to such a failure to renew in the current season, the taxpayer’s seats would not be eligible for renewal in following years. Thus, while the IRS cannot directly seize and sell the renewal rights, it can indirectly cause a forfeiture of such rights for the season ticket holder. Indeed, this result is probably worse for the taxpayer than a seizure and sale of renewal rights, since if the IRS could seize and sell, any amounts realized would be applied to pay down the taxpayer’s tax liability. With the result from the IRS’ analysis, the renewal rights simply disappear and no such sale proceeds would arise (although the deposit amount would be credited towards the outstanding tax liability).