US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 1253

Transfers of franchises, trademarks, and trade names

(a)

General rule

A transfer of a franchise, trademark, or trade name shall not be treated as a sale or exchange of a capital asset if the transferor retains any significant power, right, or continuing interest with respect to the subject matter of the franchise, trademark, or trade name.

(b)

Definitions

For purposes of this section—
(1)

Franchise

The term “franchise” includes an agreement which gives one of the parties to the agreement the right to distribute, sell, or provide goods, services, or facilities, within a specified area.

(2)

Significant power, right, or continuing interest

The term “significant power, right, or continuing interest” includes, but is not limited to, the following rights with respect to the interest transferred:
(A)
A right to disapprove any assignment of such interest, or any part thereof.
(B)
A right to terminate at will.
(C)
A right to prescribe the standards of quality of products used or sold, or of services furnished, and of the equipment and facilities used to promote such products or services.
(D)
A right to require that the transferee sell or advertise only products or services of the transferor.
(E)
A right to require that the transferee purchase substantially all of his supplies and equipment from the transferor.
(F)
A right to payments contingent on the productivity, use, or disposition of the subject matter of the interest transferred, if such payments constitute a substantial element under the transfer agreement.
(3)

Transfer

The term “transfer” includes the renewal of a franchise, trademark, or trade name.

(c)

Treatment of contingent payments by transferor

Amounts received or accrued on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name which are contingent on the productivity, use, or disposition of the franchise, trademark, or trade name transferred shall be treated as amounts received or accrued from the sale or other disposition of property which is not a capital asset.

(d)

Treatment of payments by transferee

(1)

Contingent serial payments

(A)

In general

Any amount described in subparagraph (B) which is paid or incurred during the taxable year on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name shall be allowed as a deduction under section 162(a) (relating to trade or business expenses).

(B)

Amounts to which paragraph applies

An amount is described in this subparagraph if it—
(i)
is contingent on the productivity, use, or disposition of the franchise, trademark, or trade name, and
(ii)
is paid as part of a series of payments—
(I)
which are payable not less frequently than annually throughout the entire term of the transfer agreement, and
(II)
which are substantially equal in amount (or payable under a fixed formula).
(2)

Other payments

Any amount paid or incurred on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name to which paragraph (1) does not apply shall be treated as an amount chargeable to capital account.

(3)

Renewals, etc.

For purposes of determining the term of a transfer agreement under this section, there shall be taken into account all renewal options (and any other period for which the parties reasonably expect the agreement to be renewed).

Pub. L. 91–172, title V, § 516(c)(1)83 Stat. 647Pub. L. 94–455, title XIX, § 1906(b)(13)(A)90 Stat. 1834Pub. L. 101–239, title VII, § 7622(a)103 Stat. 2377Pub. L. 101–508, title XI, § 11701(i)104 Stat. 1388–508Pub. L. 103–66, title XIII, § 13261(c)107 Stat. 539Pub. L. 104–188, title I, § 1704(t)(47)110 Stat. 1889Pub. L. 108–357, title VIII, § 886(b)(3)118 Stat. 1641(Added , , ; amended , , ; –(c), , ; , , ; , , ; , , ; , , .)

Editorial Notes

Amendments

Pub. L. 108–3572004—Subsec. (e). struck out heading and text of subsec. (e). Text read as follows: “This section shall not apply to the transfer of a franchise to engage in professional football, basketball, baseball, or other professional sport.”

Pub. L. 104–188section 11701(i) of Pub. L. 101–5081996—Subsec. (d)(4). provided that shall be applied as if “subsection” appeared instead of “section” in the material proposed to be stricken. See 1990 Amendment note below.

Pub. L. 103–661993—Subsec. (d)(2) to (5). added pars. (2) and (3) and struck out former pars. (2) relating to deduction of certain payments for transfer of a franchise, trademark, or trade name not treated as sale or exchange of capital asset, (3) relating to treatment of amounts paid or incurred on account of transfer, sale, or other disposition of a franchise, trademark, or trade name to which pars. (1) and (2) did not apply, (4) relating to renewals for purposes of determining term of transfer agreement under this section or period of amortization under this subtitle, and (5) relating to rules applicable to this subsection.

Pub. L. 101–508, § 11701(i)1990—Subsec. (d)(4). , which directed the substitution of “under this section or any period of amortization under this subtitle for any payment described in this section” for “or any period of amortization under this section”, was executed by making the substitution for “or any period of amortization under this subsection”. See 1996 Amendment note above.

Pub. L. 101–239, § 7622(a)1989—Subsec. (d)(1). , substituted “serial payments” for “payments” in heading and amended text generally. Prior to amendment, text read as follows: “Amounts paid or incurred during the taxable year on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name which are contingent on the productivity, use, or disposition of the franchise, trademark, or trade name transferred shall be allowed as a deduction under section 162(a) (relating to trade or business expenses).”

Pub. L. 101–239, § 7622(b)Subsec. (d)(2). , designated existing provisions as subpar. (A), inserted subpar. heading, redesignated former subpars. (A) to (C) as cls. (i) to (iii), respectively, and former cls. (i) and (ii) of former subpar. (B) as subcls. (I) and (II), respectively, of cl. (ii), and added subpar. (B).

Pub. L. 101–239, § 7622(c)Subsec. (d)(3) to (5). , added pars. (3) to (5).

Pub. L. 94–4551976—Subsec. (d)(2)(C). struck out “or his delegate” after “Secretary”.

Statutory Notes and Related Subsidiaries

Effective Date of 2004 Amendment

Pub. L. 108–357section 886(c)(1) of Pub. L. 108–357section 197 of this titleAmendment by applicable to property acquired after , see , set out as a note under .

Effective Date of 1993 Amendment

Pub. L. 103–66section 13261(g) of Pub. L. 103–66section 197 of this titleAmendment by applicable, except as otherwise provided, with respect to property acquired after , see , set out as an Effective Date note under .

Effective Date of 1990 Amendment

Pub. L. 101–508Pub. L. 101–239, title VIIsection 11701(n) of Pub. L. 101–508section 42 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Revenue Reconciliation Act of 1989, , to which such amendment relates, see , set out as a note under .

Effective Date of 1989 Amendment

Pub. L. 101–239Pub. L. 101–239section 167 of this titleAmendment by applicable to transfers after , but not applicable to any transfer pursuant to a written binding contract in effect on , and at all times thereafter before the transfer, see section 7622(c)[(e)] of , set out as a note under .

Effective Date

section 516(d)(3) of Pub. L. 91–172section 1001 of this titleSection applicable to transfers after , except that subsec. (d)(1) shall, at the election of the taxpayer (made at such time and in such manner as the Secretary or his delegate may by regulations prescribe), apply to transfers before , but only with respect to payments made in taxable years ending after , and beginning before , see , set out as a note under .