The Tax Consequences of Playing BaseballJacob Stein Esq.
September 17, 2007 — 2,269 views
Here is a question that every tax accountant salivates over: What are the tax consequences of catching Barry Bond’s recording breaking home run ball?
The choices are as follows:
1. The fan who catches the ball does not owe income tax until he sells it. This is the choice that most non-tax experts would pick.
2. The ball represents taxable income to the fan when caught because it is “accession to wealth.” If you are walking down the street and find a diamond, you are taxed on your find at its fair market value.
3. The ball is a gift from the baseball team to the fan. The baseball team can require fans to return fly balls back to the team, but they don’t.
4. The ability to catch a fly ball was purchased by the fan together with the ticket. Each ticket purchased represents a bundle of rights, including a seat, ability to purchase outrageously expensive peanuts and hot dogs, and the ability to catch an occasional fly ball.
The IRS has never commented on this matter. Will the fan have to pay tax immediately, based upon the ball’s estimated fair-market value? Most of us who have experience working with the IRS would guess that this may be their approach. Will the IRS show compassion and tax the fan after he sells the ball? Would the fan be able to benefit from capital gain rates if he waits a year to sell the ball? Other than the price of the ticket, what would be the fan’s tax basis in the ball?
It does not appear that the ball will be deemed a gift from the team to the fan. Under the Duberstein test, a gift must be an act of disinterested generosity. MLB teams are motivated by profit, not by disinterested generosity. So the proper tax treatment would be to either tax the fan immediately because of “accession to wealth” or to treat the fan as if he purchased the ball, and not tax him until he sells.
For fun, lets complicate things with the following hypothetical. The fan catches the ball and then gifts it to the kid sitting in the next row. Should the fan then be subject to income tax for catching the ball and gift tax for gifting the ball?
Jacob Stein Esq.
Jacob Stein, Esq. is Managing Partner at Aliant, LLP. He specializes in structuring international business transactions, complex U.S. and international tax planning and asset protection planning. Mr. Stein received his law degree from the University of Southern California, and a Master of Laws in Taxation from Georgetown University. He has been accredited by the State Bar of California as a Certified Tax Law Specialist, is AV-rated (highest possible rating) by Martindale-Hubbell and has been named â€śA Super Lawyerâ€ť by the Los Angeles Magazine. Over the course of his career Mr. Stein has represented thousands of clients, including: officers and directors of Fortune 500 companies; Forbes 400 families; celebrities; Internet entrepreneurs; high-profile real estate developers, builders and investors; physicians; wealthy foreigners doing business in the United States; small business owners; attorneys, accountants and financial advisors; and many other individuals facing financial adversity or seeking privacy for their holdings. He is the author of numerous books, scholarly articles and technical manuals including his most recent article, Pre-Immigration Taxation, published in the January 2016 edition of EB-5 Investors Magazine Volume 3, Issue 3. His other works include his most recent book: A Lawyerâ€™s Guide to Asset Protection Planning in California, Second Edition, published in April of 2016, which is the only legal treatise on asset protection specific to California; International Joint Ventures â€“ A Concise Guide for Attorneys & Business Owners, published in 2014 and his Asset Protection Planning and Advanced Tax Planning Techniques manuals,which have been used by the California CPA Education Foundation for the past 10 years. Mr. Stein is a frequent lecturer to various attorneys, CPA and other professional groups, teaching over 100 seminars per year. His presentation topics include: A Foreignerâ€™s Guide to Investing in U.S. Real Estate, Tax Planning for Cross-Border Joint Ventures, Creative Planning with Controlled Foreign Corporations, Advanced Asset Protection Planning, Choice of Entity Planning, Estate Tax Planning and various courses on trust law. He is an instructor with the California CPA Education Foundation, National Business Institute, Thomson Reuters, the Rossdale Group and Lorman Education Services where he teaches courses on advanced tax planning, structuring international business transactions, asset protection and trust law. He is an adjunct professor of taxation at the CSU, Northridge Graduate Tax Program.