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TITLE 26-INTERNAL REVENUE CODE (2) Other payments If a transfer of a franchise, trademark, or trade name is not (by reason of the applica- tion of subsection (a)) treated as a sale 'or ex- change of a capital asset, any payment not described in paragraph (1) which is made in discharge of a principal sum agreed upon in the transfer agreement shall be allowed as a deduction- '(A) in the case of a single payment made in discharge of such principal sum, ratably over the taxable years in the period begin- ning with the taxable year in which the payment is made and ending with the ninth succeeding taxable year or ending with the last taxable year beginning in the period of the transfer agreement, whichever period is shorter; (B) in the case of a payment which is one of a series of approximately equal payments made in discharge of such principal sum, which are payable over- (I) the period of the transfer agreement, or (i) a period of more than 10 taxable years, whether ending before or after the end of the period of the transfer agree- ment, in the taxable year in which the payment is made; and (C) in the case of any other payment, in the taxable year or years specified in regu- lations prescribed by the Secretary, consis- tently with the preceding provisions of this paragraph. (e) Exception This section shall not apply to the transfer of a franchise to engage in professional football, basketball, baseball, or other professional sport. (Added Pub. L. 91-172, title V, § 516(c)(1), Dec. 30, 1969, 83 Stat. 647, and amended Pub. L. 94- 455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) AMENDMENTS 1976-Subsec. (d)(2)(C). Pub. L. 94-455 struck out "or his delegate" following "Secretary". ErF'cTivE DATE Section applicable to transfers after Dec. 31, 1969, 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 pre- scribe), apply to transfers before Jan. 1, 1970, but only with respect to payments made in taxable years ending after Dec. 31, 1969, and beginning before Jan. 1, 1980, Fee section 516(d)(3) of Pub. L. 91-172, set out as an Effective Date note under section 1001 of this title. SECTION REFEMD TO IN OTHER SECTIONS This section is referred to in sections 751, 1016 of this title. 1254. Gain from disposition of interest in oil or gas property (a) General rule (1) Ordinary income -If oil or gas property is disposed of after De- cember 31, 1975, the lower of- (A) the aggregate amount of expenditures after December 31, 1975, which are alloca- ble to such property and which have been deducted as intangible drilling and develop- ment costs under section 263(c) by the tax- payer or any other person and which (but for being so deducted) would be reflected in the adjusted basis of such property, adjust- ed as provided in paragraph (4), or (B) the excess of- (I) the amount realized (in the case of a sale, exchange, or involuntary conver- sion), or the fair market value of the in- terest (in the case of any other disposi- tion), over (ii) the adjusted basis of such interest, shall be treated as gain which is ordinary income. Such gain shall be recognized not- withstanding any other provision of this sub- title. (2) Disposition of portion of property For purposes of paragraph (1)- (A) In the case of the disposition of a por- tion of an oil or gas property (other than an undivided interest), the entire amount of the aggregate expenditures described in paragraph (1)(A) with respect to such prop- erty shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies. (B) In the case of the disposition of an un- divided interest in an oil or gas property (or a portion thereof), a proportionate part of, the expenditures described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided in- terest to the extent of the amount of the gain to which paragraph (1) applies. This paragraph shall not apply to any expen- ditures to the extent the tax'p~yer establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or interest therein) disposed of. (3) Oil or gas property The term "oil or gas property" means any property (within the meaning of section 614) with respect to which any expenditures de- scribed in paragraph (1)(A) are properly chargeable. (4) Special rule for paragraph (1)(A) In applying paragraph (1)(A), the amount deducted for intangible drilling and develop- ment costs and allocable to the interest dis- posed of shall be reduced by the amount (if any) by which the deduction for depletion under section 611 with respect to such inter- est would have been increased if such costs in- curred (after December 31, 1975) had been charged to capital account rather than de- ducted. (b) Special rules under regulations Under regulations prescribed by the Secre- tary- (1) rules similar to the rules of subsection (g) of section 617 and to the rules of subsec- tions (b) and (c) of section 1245 shall be ap- plied for purposes of this section; and (2) in the case of the sale or exchange of stock in an electing small business corpora- tion (as defined in section 1371(b)), rules simi- lar to the rules of section 751 shall be applied to that portion of the excess of the amount Page 717 § 1254