Discussion:Tax Consequences of Catching Bonds Record Home Run?

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Discussion Forum Index --> Tax Questions --> Tax Consequences of Catching Bonds Record Home Run?


Toby Joplin (talk|edits) said:

6 August 2007
In the spirit of the season, I am curious what my colleagues believe the tax consequences will be for the lucky fan that catches Barry Bonds' record setting home run. I have seen a couple of opinions on various blogs like Tax Prof Blog and The Wall Street Journal. But I am curious how the pros on TaxAlmanac would advise the recipient if he happens for be one of your clients.

Your thoughts?

Bushmaster (talk|edits) said:

6 August 2007
No tax consequence at all, until he sells the ball. Basis $0, gain = sales price.

TheTinCook (talk|edits) said:

6 August 2007
And it gets taxed at 28%!

Michaelstar (talk|edits) said:

6 August 2007
I would agree that the basis would be zero. Should not be allowed to use the cost of the game ticket as basis. I would also consider this a collectible.

TheTinCook (talk|edits) said:

6 August 2007
When do the treasure trove rules apply? Do they only apply when you find cash or cash equivelents?

Bengoshi (talk|edits) said:

7 August 2007
Although I haven't researched the issue, my hunch is that the tax is payable in the year the ball is caught (as opposed to the year of sale if in a different taxable year). It sounds pretty similar to the treasure trove rules that TinCook is talking about.

Michaelstar (talk|edits) said:

7 August 2007
Well, I did "some" research because of TinCook and Bengoshi posts .....

Reg 1.61-14 is the place "Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession." Which sort of imply's - to the extent of it's FMV.

I would guess that if the ball was not sold in the year obtained (obviously 2007), once the "treasure trove" value was reported as ordinary income on the 2007 t/r, the t/p would obtain basis in the item. I also would believe that determining the FMV would need to be based on more than just a low ball guess or it would be certainly subject to challenge.

Does anyone have actual experience in the reporting of such an item? It would be great to read of your take on this?

Taocpa (talk|edits) said:

7 August 2007
But is it truly a "treasure trove" if it's later found out the ball was on "performance-enhancing" materials, such as a bigger rubber and cork center and undetectable yarn? :-)

To echo Michaelstar, I would like to hear from someone who has experienced this situation.

Donniecastleman (talk|edits) said:

7 August 2007
What about old Ken Jennings (Jeopardy) being that he was on the game show so long? Because he basically made a living over a period of many weeks, would he have to claim it as self employment income instead of other income on the front of the 1040?

TheTinCook (talk|edits) said:

7 August 2007
Well, according to the Tax Prof Blog, the Mark McGwire balls would not be taxed until they were sold.

My concern with applying treasure trove rules to the Bonds ball is that the FMV would be almost impossible to determine until it sells due to its collectable nature and speculation.

As for Ken Jennings, game show winnings have a nice spot on Line 21, and thats the way I likes it. But all the income from his books and promotional activites is SE income.

I take great comfort in the fact that the question that stumped Ken Jennings was a question about HR Block.

Death&Taxes (talk|edits) said:

7 August 2007
I wonder if the McGwire basaeball has held its value what with he and Sammy Sosa being added to the Usual Suspect list of steroid users.

One interesting thought would be if a fan gave the ball back to Bonds, or traded to him for something. Would the ball be capital gain property in Bonds' hands since, like an artist, he created the work?

GeoEA1065 (talk|edits) said:

7 August 2007
Ken should have claimed he was an employee...he was under their supervision, they set the rules, told him where and when to show up and terminated him when he failed to perform.

Davidkm2@charter.net (talk|edits) said:

22 August 2007
So the story on the news now is that he is putting the ball up for auction this year because he has to pay the taxes on "catching" the ball. The story didn't go into specifics. Thoughts?

Corptaxhelp (talk|edits) said:

August 22, 2007
I think it is time to request a PLR on the issue.

(My bet is that he won't have to pay taxes until the ball is sold. The IRS certainly has a public relations department who will get a vote on the issue and they can't be in favor of taxing prior to sale in this case.)

LAddington (talk|edits) said:

22 August 2007
Since Bonds is still hitting home runs, I would think the value of that ball (the one that broke the record) would be falling. Therefore, what value would he pay tax on? I think a valid argument could be made that he doesn't pay tax until he sells it.

JR1 (talk|edits) said:

August 22, 2007
I agree. After reading a bit on the treasure trove rules, that doesn't apply. Overly conservative CPA's/attorneys...

Mscash (talk|edits) said:

22 August 2007
Since the ball is going to be sold by Sotheby's taxability of some kind will obviously occur in 2007 this is about to become a non-issue.

DavidKM (talk|edits) said:

22 August 2007
That is true. But why is the current owner saying he must sell the ball in order to have the cash to pay taxes on his "catch"? He's obviously being advised to do this although he sounds like he'd rather keep the ball for now. I'm just wondering if anyone has anyinsights as to why he is being advised that catching the ball created a tax liability.

JohnLoweCPA (talk|edits) said:

22 August 2007
I agree with Bushmaster, no basis (=) 0 gain. Unless, the individual is foolish enough to list the property as an asset, then the trouble starts.

Mscash (talk|edits) said:

22 August 2007
In response to DavidKM. My take is that the current owner is an ordinary guy who could find a good use for $500,000, even after taxes, and has little need to be the owner of a priceless relic. Looking at a used baseball doesn't have much long term entertainment value. If it were mine and I wanted to keep it, it would have to stay in the safe deposit box and never be looked at. Big Whoop! Some other blogs I have read hint that there is a tax evasion indictment coming down the pipeline. Anybody want to speculate how that will affect the ball's value.

1040man (talk|edits) said:

22 August 2007
tax evasion indictment coming down the pipeline. For who??

Taocpa (talk|edits) said:

22 August 2007
Here's a link to an article:

http://sports.yahoo.com/mlb/news?slug=ap-bondsball082207&prov=yhoo&type=lgns

Excerpt:

The 21-year-old New York man said Tuesday he had no choice but to sell the ball — several people told him he would be taxed on the souvenir just for holding on to it.

"It wasn't hard. It was simple math. I'm upset by the decision I had to make," Murphy said. "I wanted to keep it. I'm young. I don't have the bank account. ... It would have cost me a lot more to keep it."

I don't know. If he just hangs on to it and doesn't sell it, how can he have income? Is it because he has a collectible item? I can see if he sells it, he has income, but not if he simply catches a ball. It's not like he found $500,000 cash in a duffle bag in McCovey Cove.

KatieJ (talk|edits) said:

23 August 2007
Reg. Sec. 1.61-14(a) says "Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession."

The term "trove" comes from the French "trouver," to find, so it literally means "treasure found." Black's Law Dictionary defines "treasure trove" as "valuables (usu. gold or silver) found hidden in the ground or other private place, the owner of which is unknown; at common law, the finder of a treasure trove was entitled to title against all except the true owner."

IRS Pub 17 (and Pub. 525) state:

Found property.

If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is in your undisputed possession.

So, is the ball treasure trove? I'd argue that it is not. It was never lost or abandoned, it was not hidden, and there never was any question as to who owned it. No doubt Major League Baseball, or one of the teams, bought and paid for the ball and owned it before it was hit into the stands. The owner of the ball gave it to the young man who caught it with pure donative intent. He didn't perform any service to earn it. He didn't find it; it was never lost. It's a gift, not taxable.

I heard someone on an NPR program a while back say that they had asked four different tax experts whether the ball was taxable income, two said yes, and two said no. We have a similar result here: some say yes, some say no. I'd argue no, but I'm not sure I'd win the argument in court.

Clearly if the young man had bought the ball, brought it to the park, gave it to the pitcher, and Barry Bonds hit it out of the park, the ball would have appreciated in value, but he would have no taxable income until he sold or exchanged it.

However, he probably has more use for half a million dollars than he does for a collectible baseball.

Kendrick (talk|edits) said:

23 August 2007
Not familiar with treasure trove rules. If I discover a box in the desert with $500,000 in it and deposit it in a bank (which I wouldn't do) and got audited by the IRS by a fluke and they examined my bank statements and saw the $500,000 deposit and I told them the truth about where I got the money - is it going to be taxable to me? Hmmm.

KatieJ (talk|edits) said:

23 August 2007
Kendrick, in that situation you definitely would have $500,000 of taxable income. No question. That fits the definition of treasure trove.

Mr. and Mrs. Cesarini bought a used piano for $15 in 1957, and their daughter used it for piano lessons. While cleaning the piano in 1964, they found $4,467 in cash inside it. They had no idea who the cash belonged to. The taxpayers argued that it was not taxable income, or, if it was, it was taxable income in 1957, a closed year. The Sixth Circuit agreed with the Ohio District Court that the money was treasure trove and was ordinary income to the Cesarinis in 1964, the year it was found. CESARINI v. U.S., 26 AFTR 2d 70-5107 (428 F.2d 812), (CA6), 07/14/1970.

Kendrick (talk|edits) said:

23 August 2007
Very interesting. Thanks KatieJ.

Blrgcpa (talk|edits) said:

23 August 2007
The ball wasn't lost or found. I believe that there would be no tax until sold, which I understand is in the process of happening. As for the basis, I'd think it would be the cost of admission to the ballpark.

Dennis (talk|edits) said:

23 August 2007
I came to the same conclusion as Katie in another thread. This time I will go even farther. Any so-called TaxProf voting for immediate income recognition under treasure trove should be shot. First, there has never been an example of such recognition before and second the ball clearly has an owner before being struck and a clear intent to dispose to anyone in the stands who ends up with possession.

Cmt56ss (talk|edits) said:

23 August 2007
I believe there was a similar issue when Mark McGuire hit his 62nd HR a few years ago. The IRS had announced before the hit, that whoever got the ball would face a similar situation as the fan in the Barry Bonds HR. They also said that if a ballpark employee happened to catch the ball and return it to Mark McGuire (which I think they were required to do), they would NOT be charged with the treasure trove regulation, because they were an intermediary and gained nothing out of it.

I personally think the fan shouldn't have to pay tax until he sells it, similar to inheriting something of value after a death.

Corptaxhelp (talk|edits) said:

August 23, 2007
I wonder if you could consider the ball lottery winnings? The guy bought a ticket for a chance to win a very expensive ball. He did win the ball worth about half a million dollars. Instead of giving back the prize, he kept the ball. Why isn't that income?

I guess the way I'm looking at it now, the ball didn't gain value when it was caught. It was worth half a million as soon as it left the bat and went over the fence. The dude took possession of something worth half a million dollars.

I'm so conflicted! When can we turn our worksheets in and get the final answer?

Dennis (talk|edits) said:

23 August 2007
McGwire 62 was hit in 1998 and sold and taxed in 1999. IRS stated position at the time was no tax on catch but gift tax consequence if returned to McGwire.

Taocpa (talk|edits) said:

23 August 2007
A bunch of years back, I recall the IRS sending a letter to one of the parents of a victim of the PanAm 103 bombing. Here's some information I found on it:

While an excellent first step, the 1988 Taxpayer's Bill of Rights left many problems unresolved. IRS actions, according to Sen. Joseph Lieberman (D.-Conn.), still show "a lack of sensitivity." He was referring specifically to a tax deficiency notice of $6,400,000 sent in 1994 to the estate executor of a Pan Am 103 crash victim, before the family had received any compensation or reached a settlement in a pending suit against the airline and its insurer.

While not a new position by the IRS, back then I remember how incredulous news reporters, tax professionals and Congress were to this news. While I realize one case involved a terrorist act, it certainly seems the IRS, however wrong we might think this position is, is at least consistent.

Now, I dare say if the IRS attempted to collect taxes in advance of settlements paid to families of the 9/11 victims, the resulting firestorm would have changed the law.

It seems Congress should step in an "fix" this issue once and for all.

KatieJ (talk|edits) said:

24 August 2007
P.S. I just now, out of curiosity, ran that $4,467 the Cesarinis found in the piano through an inflation calculator. It was worth more than $28,000 in 2006 dollars. So the issue was much more significant than it seems to us looking at the numbers today.

The issue of the Bonds ball has been discussed in other forums with similarly indefinite results. Evidently the IRS has declined to address the issue. http://online.wsj.com/article/SB118532191532076935.html (and discussion blog linked to the article).

Several people in the WSJ discussion suggested that the owner of the ball would owe gift tax if it was a gift to the catcher. However, I doubt that Barry Bonds or any other individual was the original owner of the ball. Surely either MLB or the team originally purchased and owned the ball before it was hit. Gift taxes are imposed only on individuals.

Dennis (talk|edits) said:

24 August 2007
Balls are owned by the home team. Disposition is promotion expense. Ball in question specifically gained value at the point it crossed the fence in fair territory in clear sight of virtually everyone in the stadium.

Dcarlis (talk|edits) said:

24 August 2007
Does a collectible have to be held for over a year to get the preferential rate? Is it a collectible?

Why doesn't he have income at the time he possesses the ball? If I found a winning lotto ticket - when do I have income and for how much?

KatieJ (talk|edits) said:

25 August 2007
Your lotto ticket is treasure trove and is taxable as ordinary income in the year in which you find the ticket (assuming you are unable to identify its true owner). The taxable amount is the amount for which the ticket is redeemable. See the Cesarini case and the regulation referenced above, and IRS Pubs 17 and 525.

Kevinh5 (talk|edits) said:

25 August 2007
How can you determine the tax consequences of a baseball if you don't know the bases?? LOL LOL LOL

Kevinh5 (talk|edits) said:

25 August 2007
first base

second base

third base ...

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