July 25, 2007
WSJ: Tax Consequences of Catching Barry Bonds' 756th Home Run
Interesting article in today's Wall Street Journal: The Big Catch Could Have A Big Catch, by Tom Herman:
As San Francisco Giants slugger Barry Bonds closes in on Hank Aaron's career home-run record, a thorny question looms: If you're the lucky fan who catches the record-breaking home run ball, what are the tax consequences?
The short answer: Find a very smart accountant -- and if you don't like the answer, try someone else. "Everyone's sure they know the right answer, but there's very little agreement" on what it is, says Phillip Mann, a tax lawyer at Miller & Chevalier in Washington and a former head of the American Bar Association tax section.
Common sense might suggest the answer is simple: The lucky fan who catches the historic ball shouldn't owe tax until he or she sells it. But relying on common sense to interpret tax laws can often lead to trouble. Asked whether any fan who has ever caught a valuable home-run ball has had to pay tax on it before selling it, an IRS official declines comment. Some professors, such as Alice Abreu of Temple Law School, feel strongly the answer is clear. "It's taxable income" to the fan the instant that person catches the ball, Prof. Abreu replies. How come? "It's accession to wealth," and nothing in the tax code specifically exempts from taxation a Barry Bonds-propelled baseball. Lawyers say this view logically stems from cases saying that someone who finds a "treasure trove" owes tax on it right away.
But other lawyers disagree. They also say it's highly unlikely that the IRS would be willing to risk the wrath of a baseball-loving nation by taxing the fan right away. Yale Law School Prof. Michael Graetz, a former Treasury Department official and co-author of a leading course book on federal income taxation, says that the Bonds issue "would make a great law-school exam question." Actually, there's way more than one question. Will the Internal Revenue Service require the fan to pay tax immediately, based upon the ball's estimated fair-market value? Or only after the fan sells the ball? Will the fan have to pay tax based on regular federal income-tax rates, which range up to 35%? Or, if the fan waits to sell the ball for more than a year after catching it, would any profit qualify as a long-term capital gain taxed at the maximum rate of 28% on collectibles?
For more, see:
- Joseph M. Dodge, Accessions to Wealth, Realization of Gross Income, and Dominion and Control: Applying the "Claim of Right Doctrine" to Found Objects, Including Record-Setting Baseballs, 4 Fla. Tax Rev. 685 (2000)
- Lawrence M. Zelenak & Martin J. McMahon, Jr., Taxing Baseballs and Other Found Property, 84 Tax Notes 1299 (1999)
Update: Wall Street Journal Law Blog: Tax Law Final Exam Question: Barry Bonds’s Ball.
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If I recall correctly, in a similar situation a few years ago regarding Mark McGwire and the record for the most home runs in a season, the Commissioner of Internal Revenue announced that the IRS would not tax the fan on the ball unless he sold it. He could also return the ball to McGwire free of the gift tax.
Posted by: ATS | Jul 25, 2007 5:18:00 PM
Before you start looking at the tax consequences of this (or any other baseball), you must first clear up how this could be considered "income". I for one would never pay a dime to the IRS if I caught this ball, because there would be NO tax owed. For more info, please visit www.losthorizons.com.
Posted by: IRS is a joke | Jul 28, 2007 7:14:02 PM
A Rawlings official AAU3 baseball costs $27.95. Thats expensive for a baseball. I,m no fan nor a tax lawyer, but unless someone forks over a half a million dollars for it, the item you were "gifted" by that home run still only has a value of $27.95, does'nt it?!
Posted by: Phil Ernst | Aug 22, 2007 11:30:50 AM
As Mark McGwire chased the mark for most home runs in a season in 1998, IRS officials initially said the ball that broke Roger Maris' long-standing record could be subject to taxes even if it were returned to McGwire. The statements were ridiculed by politicians and quickly disavowed by the agency's top brass.
"All I know is that the fan who gives back the home run ball deserves a round of applause, not a big tax bill," then-IRS Commissioner Charles Rossotti said at the time.
Posted by: Michael D | Aug 22, 2007 10:25:26 PM