Homeruns and Taxes

Neil M. Mazer (J.D. 2009, Michigan State) has published Homeruns and Taxes: The IRS and Its Treasure Trove Regulation, 16 Sports Law. J. 139 (2009).   Here is part of the Introduction:

The recent events in baseball surrounding several coveted homerun records have given rise to another question of federal regulation not yet addressed: will the person fortunate enough to catch one of these inherently valuable baseballs be responsible for taxes based on the value of the object in the year they catch it? Technically, the value of a ball caught in 2007 (for example, Barry Bonds' 756th homerun) would be assessed as part of the individual's 2007 income. This result is due to the inclusion of “treasure trove” in the Treasury Department's definition of what constitutes gross income.  But a lack of clarity concerning the enforcement of this provision leads to a fear of taxation that forces individuals to sell the baseball immediately, potentially sacrificing a greater realized value, in order to avoid the potential issues that would arise from an unexpected enforcement of the treasure trove regulation.

However, through close study of the Sixteenth Amendment, the definition of both “income” and “treasure trove,” and the history of enforcement of the treasure trove regulation itself, a baseball, among many other items of property, should never have been made subject to income tax. The Sixteenth Amendment and the regulations promulgated under it were intended to tax individuals on economic, or “cash,” income. Furthermore, it can be contested that other tax schemes can apply to a “valuable” homerun baseball, be it deferral of tax liability until the ball is actually reduced to cash or bartered for more easily valued services, or treating the ball as lottery winnings.

Part II of this Article begins with a discussion of the history of “taxes on income” and the Sixteenth Amendment, including the definition of the term “income” by the Treasury Department. Part III addresses the treasure trove regulation itself, with a discussion of what “treasure trove” actually encompasses and the minimal enforcement of the regulation. Part IV explains how a court, if approached with a challenge to taxation of noncash treasure trove, should approach the issue; this includes a discussion of the applicability of judicial deference as established in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. and of the historical interpretive approach to the meaning of “income.” Finally, the Article suggests alternative tax schemes that could apply to the baseball, reassuring the IRS that the individual will not accede to wealth without the item ever being taxed.

(Hat Tip: Ann Murphy.)