Saturday, December 27, 2008
Andrew D. Appleby (J.D. 2008, Wake Forest; Associate, Alston & Bird, Atlanta) has published Ball Busters: How the IRS Should Tax Record-Setting Baseballs and Other Found Property Under the Treasure Trove Regulation, 33 Vt. L. Rev. 43 (2008). Here is the abstract:
Currently, a vital debate has the country split in two-a debate that tears at the very fabric of America's tradition and culture: how should the IRS tax the catcher of a record-setting baseball? This question has raised the ire of Congress, confounded the IRS, and riled up tax geeks across the country. There are two prevalent conflicting views on the proper tax treatment when someone catches a record-setting baseball and does not immediately return it. The view that comports with the tax code requires the taxpayer to recognize gain on the record-setting ball, for its fair market value, in the year the taxpayer acquires undisputed possession. The taxpayer-friendly view is to allow the taxpayer to defer tax on the record-setting ball until (and only if) the taxpayer sells it.
Aside from the fact that this issue involves taxing America's pastime, taxing record-setting baseballs is important for two reasons. First, the principles behind taxing record-setting baseballs apply to all found property. Second, taxing record-setting baseballs is highly publicized, perhaps more than any other taxation issue. This issue reaches mainstream America and is largely on a level that the average taxpayer can comprehend. Thus, taxing record-setting baseballs is incredibly important for the IRS to maintain and manage taxpayer morale.
This Article begins in Part I with an overview of relevant income taxation fundamentals, focusing primarily on accession to wealth and realization of income. Part II discusses the potential tax consequences of catching a record-setting baseball. The discussion begins with the comparatively straightforward scenario whereby the person who catches the record-setting ball (the "catcher") returns it to the club or batter. The discussion then turns to the two primary taxation theories implicated when the catcher does not immediately return the ball: ignore the treasure trove regulation and tax only upon sale, or tax immediately because the ball is an accession to wealth and thus realized income. Additionally, this part will conclude by looking at several variations that could have significantly different tax consequences. Part III discusses the tax implications of destroying a record-setting ball. Part IV concludes with a proposed solution: tax the catcher of the record-setting ball immediately on the retail price of the baseball, then treat the increase in value as unrealized gain, and tax the catcher on that gain if the catcher sells the ball.
The article won second prize in the 2008 Tannenwald Writing Competition.