Tampa Bay Devil Rays, Ltd v. Commissioner T.C. Memo.

2002-248 (2002)

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Nature of the Case

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Facts

P was formed as a limited partnership on August 10, 1994, under the laws of the State of Florida. P was formed to acquire, own, manage, and operate a major league baseball team in St. Petersburg, Florida was conditionally awarded one of major league baseball's expansion franchises. P would become a full, participating member of major league baseball no later than November 30, 1997, when the conditions specified in a resolution and agreement were satisfied. P was not yet permitted to sign players to major league contracts, nor to field a major league baseball team. P had to establish everything specified by November 30, 1997, but it was still subject to final approval by the members of major league baseball. If approved, the partnership would then be permitted to sign major league baseball players and to field a major league baseball team for participation in major league baseball beginning with the 1998 major league baseball season. The partnership established minor league baseball teams based in Florida, North Carolina, and elsewhere. By fall 1997, P obtained a major league baseball membership certificate entitling the partnership to field a major league baseball team and to play in the American League at the beginning of the 1998 season. During 1995 and 1996, P received funds from customers as deposits on advance season tickets (representing 25 percent of the total stated season ticket price), as deposits on reservations for private suites, and one sponsor fee in anticipation of major league baseball games to be played by the Devil Rays in St. Petersburg, Florida, during the 1998 major league baseball season. P would have been required to refund the deposits received from customers in 1995 and 1996 on advance season tickets and on private suite reservations relating to the 1998 major league baseball season if it did not get approval from the MLB. Funds that P received during 1995 and 1996 relating to advance season tickets, private suite reservations, and the sponsor fee were used by P during 1995 and 1996 for general operating purposes. P maintains its books and records on the accrual method of accounting. P treated the deposits it received in 1995 and 1996 on advance season tickets and private suite reservations as deferred revenue i.e., as liabilities, not as income. This upset D. D treated the deposits on advance season tickets and private suite reservations as income to the partnership for 1995 and 1996. P petitioned the Tax Court.