So there is some scuttlebutt about Barry Bonds and taxes. No, he’s not going to count possible steroids on his Form 1040; I’m talking about the 756th home run ball he hits that breaks Hank Aaron’s record.
There is a debate going on about the person that catches Barry’s ball and what he/she might have to pay in taxes. From the Wall Street Journal:
As Barry Bonds closes in on Hank Aaron’s home-run record, a fun tax-law question looms: If you’re the lucky fan who catches the record-breaking home run ball, what are the tax consequences?
“Everyone’s sure they know the right answer, but there’s very little agreement” on what it is, tax lawyer Phillip Mann of Miller & Chevalier tells the WSJ’s Tom Herman in this article. Here are the choices:
1. The fan who catches the historic ball shouldn’t owe tax until he or she sells it. This is the common sense view, though as Herman points out common sense sometimes doesn’t comport with the tax code.
2. It’s taxable income to the fan the instant that person catches the ball because it’s “accession to wealth.” This view logically stems from cases saying that someone who finds a “treasure trove” owes tax on it right away.
There’s a host of related questions raised by Herman about the ball, which is expected to be worth in the half-million dollar range. Will the IRS require the fan to pay tax immediately, based upon the ball’s estimated fair-market value; or only after the fan sells the ball? Will the fan have to pay tax based on regular federal income-tax rates, or if the fan waits a year to sell the ball, would any profit qualify as a long-term capital gain? And if it qualifies as a long-term capital gain, what would the fan’s cost be for tax purposes?
The IRS refuses to comment on the matter. Herman asked IRS chief counsel and baseball fanatic Don Korb, who responded, “Please, whatever you do, don’t ask me that question.”
So, the IRS Chief Counsel really doesn’t know what to do. The IRS should probably just stick with the statement they made about Mark McGwire’s & Sammy Sosa’s 1998 HR Debry (at least when it comes to the gift tax):
In the summer of 1998, a tax tempest flared up when St. Louis Cardinals slugger Mark McGwire was on the verge of smashing Roger Maris’s single-season record of 61 homers. At the time, a reporter asked an IRS spokesman what might happen if the fan who caught the record-breaking ball gave it back to Mr. McGwire as a gift.
The IRS spokesman replied that the fan could get hit with a hefty gift tax. That response produced howls of protest from the halls of Congress, as then-IRS commissioner Charles Rossotti recalls vividly.
“More than innocent-spouse cases, more than small-business owners losing their businesses, more than IRS modernization failures, the prospect of the IRS taxing this hypothetical good-hearted fan unleashed the fury of the American people, not to mention their representatives in Congress,” Mr. Rossotti wrote in his memoir, “Many Unhappy Returns.”
The IRS quickly reversed itself. Mr. Rossotti issued a statement saying that if a fan caught the ball and gave it back to Mr. McGwire, the fan wouldn’t be taxed. “Sometimes pieces of the tax code can be as hard to understand as the infield fly rule,” Mr. Rossotti explained. “All I know is that the fan who gives back the home-run ball deserves a round of applause, not a big tax bill.”
OK, so I imagine the’ll stick with this if the person who catches the ball gives it back to Barry Bonds. But what happens in the person decides to sell the ball? Well that’s another story for another day.