Transfer of production company stock to cable company.

• Author: Dell, F. Michael

The IRS National Office has ruled in Letter Ruling (TAM) 9737001 that a television production company may not treat the transfer of stock and options as a transfer for services for purposes of Sec. 83.

The production company issued a number of different securities to various cable companies in connection with new affiliation agreements. The affiliation agreements were automatically renewable for one-year terms unless terminated by either party on at least 90 days' notice. The production company claimed that the issuance of the securities was to procure future services from the cable companies, and that the securities were necessary incentives to the cable companies to procure more viewers for its programs. It applied Sec. 83 to determine its amortization deduction.

The Service disagreed, concluding that the stock and options were issued "for the predominant purpose of gaining access to channel space" and not for...