To amend the Internal Revenue Code of 1986 to provide parity in the taxation of professional sports franchises under the limitation on the deduction for certain employee remuneration, and for other purposes.
- Sponsor
- Rep. Malliotakis, Nicole [R-NY-11]
- Committees
- Ways and Means Committee (primary)
- Last action
- Oct 1, 2026
Bottom line
The bill creates a tax exemption for professional sports franchises, allowing them to fully deduct the salaries of highly compensated athletes, which would otherwise be subject to a $1 million deduction cap.
What it actually does
This bill amends Section 162(m) of the Internal Revenue Code of 1986, which limits the deductibility of executive compensation for publicly held corporations to $1 million per year for certain 'covered employees.' The amendment specifically excludes individuals who perform services in the field of athletics from being considered 'covered employees' for the purpose of this deduction limitation. This means professional sports franchises would be able to fully deduct the salaries of their highest-paid athletes, even if those salaries exceed $1 million, without triggering the executive compensation deduction limit.
Proponents argue
Supporters argue that this bill provides necessary parity in the taxation of professional sports franchises, recognizing that professional athletes' compensation structures are unique and distinct from traditional corporate executives. They contend that applying the executive compensation limit to athletes is an unintended consequence that hinders the competitiveness of U.S. sports teams in attracting and retaining top talent, and that this change would support the financial health of these franchises and their contributions to local economies.
Opponents contend
Opponents contend that this bill creates a special interest tax loophole primarily benefiting wealthy sports team owners and highly-paid athletes, at the expense of federal tax revenue. They argue that there is no justifiable reason to treat professional athletes differently from other highly compensated individuals in other industries, and that this exemption undermines the principle of tax fairness and equity.
The bill text is very short and can be read quickly, but understanding its implications requires some familiarity with the Internal Revenue Code and the referenced regulations.
Section 1(a), amending Section 162(m)(3)(C) of the Internal Revenue Code of 1986
Exclusion of Professional Athletes from Executive Compensation Deduction Limit
This provision modifies the definition of 'covered employee' under Section 162(m) of the Internal Revenue Code. Currently, this section limits the tax deduction for executive compensation to $1 million for the CEO, CFO, and the three next highest-compensated officers of publicly held corporations. The amendment specifies that any individual who performs services in the field of athletics will not be counted among these five highest-compensated employees for the purpose of this deduction limit. This effectively allows professional sports teams to deduct the full salaries of their athletes, regardless of how high they are, without being subject to the $1 million cap.
Supporters argue
Proponents argue that this exclusion corrects an anomaly in the tax code, as athletes are not traditional executives and their compensation is driven by unique market forces. They assert that this change levels the playing field for sports franchises, allowing them to compete more effectively for talent and reducing an unfair tax burden that does not apply to other forms of entertainment or unique talent.
Critics contend
Opponents argue that this provision creates a special carve-out for a specific industry and a highly paid group of individuals, which is unfair to other businesses and taxpayers. They contend that it represents a tax break for the wealthy and will lead to a loss of federal revenue that could be used for other public services, without clear justification for such preferential treatment.
Tradeoffs
The provision balances the desire to provide tax relief and competitive advantage to professional sports franchises against concerns about tax equity and potential revenue loss. It highlights the tension between applying general tax rules broadly and accommodating the unique economic realities of specific industries.
The bill defines 'services in the field of athletics' by referencing 'section 1.199A-5(b)(2)(viii) of title 26, Code of Federal Regulations (as in effect on the date of the enactment of this subparagraph)'.
Section 1(a), amending Section 162(m)(3)(C)(ii)
Why it matters:This is standard legislative practice for brevity and to leverage existing, well-defined terms in tax law. It avoids repeating lengthy definitions within the bill itself.
Case for: Supporters would argue that using an existing regulatory definition ensures consistency with established tax law and avoids ambiguity or the need to create a new, potentially conflicting definition. It streamlines the legislative text.
Case against: Critics might argue that requiring external lookup makes the bill less transparent to a casual reader, obscuring the full scope of who is covered by the 'athletics' exemption. It places an additional burden on the public to understand the full implications.
Estimated impact: This reference ensures that the exclusion applies specifically to athletes and those directly involved in athletic performance or training, as defined by existing tax regulations, rather than a broader category of sports-related employees.