## Facts

- Tampa Bay Devil Rays, Ltd., a Florida limited partnership, was formed in 1994 to acquire and operate a Major League Baseball franchise in St. Petersburg, Florida.
- In 1995, Major League Baseball conditionally awarded the partnership an expansion franchise subject to financing and other conditions to be satisfied by late 1997.
- The team’s first regular-season Major League games were scheduled for—and occurred in—1998.
- During 1995 and 1996, the partnership marketed future rights to attend 1998 home games and received amounts labeled as deposits/advance payments for 1998 season tickets and private suite reservations.
- The arrangements included refund rights and were contingent on the franchise becoming fully effective and the partnership actually providing games and seats in 1998.
- The partnership used the accrual method and did not include these receipts in 1995 or 1996 income, intending to recognize them in 1998.
- The IRS issued partnership-level adjustments for 1995 and 1996, increasing income by including the 1995–1996 receipts in those years; the partnership petitioned the Tax Court.

## Issues

1. Whether the partnership had to include in income, in 1995 and 1996, amounts received in those years for 1998 season tickets and suite reservations, or could defer inclusion until 1998.
2. Whether the receipts were true refundable deposits (not includible upon receipt) or taxable advance payments under accrual-accounting rules.
3. Whether the all-events test fixed the partnership’s right to the amounts in 1995–1996 despite contingencies and refund rights.
4. Whether authorities requiring inclusion of advance payments upon receipt (including the Schlude line of cases) applied, or whether a deposit exception controlled.

## Decision

- The Tax Court held that the amounts received in 1995 and 1996 for 1998 season tickets and suite reservations were not includible in income in the years received.
- The court concluded the receipts functioned as deposits because material contingencies and refund obligations meant the partnership’s right to retain the funds was not fixed in 1995–1996.
- The court rejected the IRS’s partnership-level adjustments that would have required current inclusion in 1995 and 1996, permitting recognition when the games were played and the related obligations were performed (1998).

## Legal Principles

- Under the accrual method, income is includible when the all-events test is satisfied: the right to the income is fixed and the amount is determinable with reasonable accuracy.
- Amounts received subject to substantial contingencies and meaningful refund obligations may be treated as deposits rather than earned advance payments; a taxpayer’s right to retain such amounts is not fixed until contingencies lapse and performance occurs.
- The rule requiring inclusion of advance payments upon receipt does not compel current inclusion where the receipts retain a deposit character and the taxpayer remains obligated to refund them if specified conditions are not met.
- Where payments relate to future services and the taxpayer’s right to keep the payments depends on future events, inclusion may be deferred until the year the services are performed and the right to retain the funds becomes fixed.

## Conclusion

Refundable, contingent amounts collected years before the first scheduled games for season tickets and suite reservations were treated as deposits, so an accrual-method partnership did not have to include them in income until the year it actually provided the games and the right to keep the funds became fixed.


Tampa Bay Devil Rays, Ltd. v. Commissioner, T.C. Memo. 2002-248 (2002)