A bill 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 renumeration, and for other purposes.
- Sponsor
- Sen. Warnock, Raphael G. [D-GA]
- Committees
- Finance Committee (primary)
- Last action
- Sep 30, 2026
Bottom line
The bill provides a tax carve-out for professional sports franchises, allowing them to fully deduct the salaries of their highest-paid athletes, which are currently subject to a $1 million deduction cap.
What it actually does
This bill amends Section 162(m)(3)(C) of the Internal Revenue Code of 1986 to exclude individuals who perform services in the field of athletics from the definition of a "covered employee" for the purpose of the $1 million deduction limit on executive compensation. This change would allow professional sports franchises to fully deduct the salaries of their highly compensated athletes, even if those salaries exceed $1 million.
Proponents argue
Supporters argue that this bill creates parity in the taxation of professional sports franchises, treating athletes' compensation as a distinct business expense compared to traditional corporate executive remuneration. They contend that athletes are unique revenue-generating assets for their teams, and the current deduction limit unfairly penalizes sports businesses, hindering their ability to compete for talent and manage their finances efficiently.
Opponents contend
Critics contend that this bill represents a targeted tax break for wealthy sports team owners and highly paid athletes, at the expense of federal tax revenue. They argue that the existing $1 million deduction limit on executive compensation serves a valid policy purpose in curbing excessive pay and that creating an exception for professional athletes undermines this goal and could encourage other industries to seek similar carve-outs.
The bill is very short and easy to read, allowing ample time for comprehensive review.
Section 1(a) of the bill, amending IRC Section 162(m)(3)(C)
Exclusion of Professional Athletes from Executive Compensation Deduction Limit
This provision modifies the Internal Revenue Code to specify that professional athletes are no longer considered 'covered employees' under Section 162(m). This means that professional sports franchises will be able to deduct the full amount of compensation paid to their athletes, even if it exceeds the current $1 million limit per employee, without facing the deduction cap that applies to other highly compensated employees in publicly traded companies.
Supporters argue
Proponents argue that professional athletes are distinct from corporate executives because their compensation is directly tied to their performance and revenue-generating capabilities on the field, which is a core business function. They assert that the current tax code unfairly limits the ability of sports teams to deduct legitimate business expenses, putting them at a disadvantage compared to other industries or even private sports teams not subject to 162(m).
Critics contend
Opponents argue that this provision creates an unwarranted loophole for a specific, highly profitable industry and its wealthiest employees. They contend that the principle of limiting deductions for excessive compensation should apply broadly, and carving out an exception for professional athletes undermines the intent of the law and represents a handout to powerful interests.
Tradeoffs
This provision navigates the tension between treating professional sports franchises as unique businesses with distinct compensation structures and maintaining a consistent tax policy aimed at limiting deductions for high executive pay. It balances the desire for industry-specific 'parity' against concerns about creating special tax breaks and potential impacts on federal revenue.
The bill defines "services in the field of athletics" by referencing an existing Treasury Regulation: "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) of the bill, amending IRC Section 162(m)(3)(C)(ii)
Why it matters:This is standard legislative practice to avoid reprinting lengthy definitions already established in law or regulation, ensuring consistency across different parts of the tax code. It is not intended to be evasive, but rather to streamline the bill text.
Case for: Using an existing regulatory definition provides clarity and consistency with other parts of the tax code, such as the qualified business income deduction (Section 199A), avoiding ambiguity and the need to create a new, potentially conflicting definition for "athletics."
Case against: For a layperson or even a generalist, referencing external regulations makes the bill less self-contained and harder to fully understand without additional research into the cited CFR section. This can obscure the precise scope of who is covered by the exclusion.
Estimated impact: This reference clarifies the specific types of individuals whose compensation will be excluded from the deduction limit. The referenced regulation generally includes "performing artists, athletes, or entertainers," which could extend the exclusion beyond just players to other highly paid personnel (e.g., coaches, general managers) if their services are deemed to be "in the field of athletics."