Paul L. Caron

Friday, April 10, 2009

The Tax Consequences of Catching Home Run Baseballs

Michael Halper (J.D. 2009, Case Western) has published Note, The Tax Ramifications of Catching Home Run Baseballs, 59 Case W. Res. L. Rev. 191 (2008).  Here is the Conclusion:

[T]he combination of current tax law and IR-98-56 is either suspect, unjustifiable, or unfair to the lucky fan that catches the ball, and is definitely unpopular. IR-98-56 creates controversies where none should exist, such as whether to tax the lucky fan that keeps the ball or to tax the player to whom the lucky fan returned the ball.

Congress has not resolved the issue. The Service has remained silent. This has led to rampant speculation as to how the Service would deal with these situations if they occurred and has forced fans to act without the benefit of certainty in the law. If the Service adopts a rule establishing that the ball does not become the official home run ball until the official score report's dispute window has closed, every situation will be adequately and fairly covered for all parties involved. The lucky fan could then make his choice as to what to do with the ball without the fear of being caught underneath staggering tax liability.

The proposed rule's adoption would create stability and definitively answer all questions concerning the tax liabilities of the parties involved. The firm establishment of when the value and liability accrue allows all parties to go into any transaction with full knowledge of how the Service would treat any of the four situations, and can easily be applied into any other situation that may occur. It would make the rules clear and easily enforceable with a minimum of confusion—the ultimate goal of the law.

(Hat Tip: Rick Bales.)

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Any real fan would adopt the view that there's no substantial taxable income until sale.

If baseball can be governed by different antitrust laws, it can surely be governed by a different tax rule in such a case.

I support Andrew Appleby's approach in the Vermont Law Review (available on SSRN at tax the ball on its retail value ($15 or so) and treat the rest as an unrealized gain, deferring the tax until sale.

Posted by: DCLawyer | Apr 16, 2009 10:10:03 AM