With prizes or diamonds there is a fixed value for the item you could buy the same thing for X dollars but with the Barry Bonds’ ball you could buy the same thing for $5 at a sporting goods store the value added by it being the 756th HR is meaningless until he sells it, because it cannot be properly valued.
For instance if your friend Monica gave you a dress with a stain on it you could only be taxed at the price of the dress, but if your friend is Monica Lewinsky that dress has added significance would you be taxed on what a tabloid might pay for it. Its ridiculous until he sells it the ball is worth $5.
Bull.
Try telling that story to an IRS Tax Auditor. They will just say that our determination is that this ball is worth X dollars. We base that on comparison to other historic baseballs, the prices they have sold for, the uniqueness of this baseball, the growing market for such memorbilia, etc. If you wish to dispute our valuation, get your own experts to value it at $5, and see us in Tax Court. No Judge is going to accept a $5 valuation.
From the WSJ blog, this appears to be the informed consensus (versus the ‘common sense’ consensus to which tax law does not conform):
As t-bonham notes, the ball will not appraise at $12.99, and anything else is wishful thinking. I asked one other tax professional, whose response was that this isn’t her area of expertise, but she believes the above to be correct.
Thank Congress for ambiguous and confusing tax laws, plus putting an imperative on the IRS to collect as much $$ as feasible. The IRS is often (but not always) the fall guy.
I would say yes, but obviously the IRS thinks differently.
So how does it work, do I get taxed on the $1,000,000 and then, let’s say the world’s diamond supply is flooded and the value of the diamond plummets to a dollar? I’m just shit out of hundreds of thousands of dollars? That sounds incredibly unfair to me.
I remember a fan a couple of years ago giving back a historic homerun ball since they had posession did they have to pay taxes on it and did Mark Maguire have to pay a gift tax. If not legal precident and what not and if so that really sucks for both people involved.
Maybe I misunderstood the informed consensus posted above, but does the windfall part mean that you would have to report ‘income’ and pay appropriate taxes if, say, a moose with record-breaking antlers (presumably worth lots of money) dropped dead on your back porch? Not that the IRS would know about it, or care if they did, but would you be bound by law to report it and pay? Is it a windfall if your house suddenly increaes in value? What if you caught Barry’s record ball and then were mugged on the way home? Also, every time a famous person dies (or becomes popular) do you have to re-appraise works of art, autographs, first-edition books, etc and pay taxes on them? This seems like it would lead to huge amounts of accidental tax under-reporting. What I’m driving at is: how does the IRS define a windfall?
Well, here’s what Murphey said “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.”
The IRS can NOT answer a question about an individuals tax situation, except to that individual or his designaed Tax rep. It would mean his job and even doubtful jail time, but at the very least his job.
My Bro the Enrolled Agent sez that it likely is not taxable until Mark sells it, but would advise hm to sell, or donate. My Bro sez it would be a very interesting Tax Court case, and if he was still doing private practice he’d love to fight it all the way up. My Bro sez : If the IRS did audit Matt, there is little doubt the line auditor would rule it was taxable. But that doesn’t mean much, as there is then Appeals and Tax Court. It would likely have to go to Tax Court. It might cost $5000- $10,000 to fight it, even more if you hired a Tax Lawyer, which might be your best route here (depsite my Bros insistance that 9 times out of ten an EA is a better bet that a Tax Attorney, he concedes this might be that one time in ten ). Questions arise as to: is it a Gift until sold and what is it’s FMV if not sold? Unearned Income? Capital Gains? He sez he’d take the position that until sold it is a gift, but that is a curbside opinion and he’d want several dozen hours to research it. For example, is there any Case law? What is the exact language on the back of the ticket?
Uncommon Sense: if “you’re *given *$1,000,000” you owe no taxes as gifts are not taxable to the giftee.
So, you buy a baseball for $12.99, and manage to get it into the game. It’s still your baseball. Now it’s hit out of the park setting a record, and you catch it. It’s still your ball, but it’s appreciated considerably in value? How do you handle that? The value of your own property appreciated.
My grandpa put a '65 Mustang in the barn and kept it cherry. It’s worth, let’s say, $30,000 more than it was back then. Is this suddenly income? Capital gains?
Okay, in these examples there’s no transfer of the property. How does that affect things?
Well, money isn’t worth anything until I spend it either. What if I made $100k last year, but just piled it up in neat stacks of $100 bills on top of the mantle just to look at it?
Are you saying that I shouldn’t owe any income tax until I actually spend the money? That’s not how income tax works. I get taxed on the amount of money that comes my way, either through a paycheck, a lottery win.
My argument is that the ball is a gift from the home team. When the pitcher has the ball, it is the property of the home team. When a batter hits the ball in the stands, fans are allowed to keep the ball, indicating a transfer of property from the ballclub to the fan. The fan paid no money for the ball, so it must be a gift.
I quote from the 2007 Pittsburgh Pirates media guide, “The Pirates are happy to allow fans to keep any batted balls hit into the stands, but require that no fan enters the field of play…”
It seems to me from that very wording that any ball, including a valuable one, has to be a gift, and as others have said, a giftee owes no taxes, but the giftor does…
This is not true. Look at your money. It has numbers on it. The big ones are how much it is worth, even if you never spend it. If your money is income, you owe taxes on it, even if you never spend it…
As an individual blessed with a decent income, I am delighted to see a typically socially liberal board complain about taxes…as a reminder, we are the government. We are the IRS. The IRS only gets to do what we want; it’s pretty easy to be for all kinds of government bennies until the bill comes due. Somehow when taxes come up in a negative way, it starts to sound like the IRS is a “they.” Sorry for the whine…
Anyway, what strikes me about this Bonds ball is that there must be substantial and frequent precedent. I understand the arguments all the way around, but what has happened in the past? Anyone? Anyone? Bueller?
How in the world can this tax issue not have been decided hundreds of times before, given all the sports paraphernalia and the substantial prices paid for it to those who have taken possession of it at no cost to themselves? I suspect Mr. Murphy could keep this ball and simply claim absence of consistent precedent. If the IRS is unwilling to take a public stand it’s because it’s a can of worms. On average those sorts of disputes, with strong precedent on the taxpayer’s side would go to the taxpayer. That gives the IRS little incentive to come out and say, “Don’t worry about it.”
What can I do with a $100 bill? Eat it? Burn it for fuel (then it’s worth about 3 cents)? Make a toy paper airplane?
My point is until I, say, take that $100 bill to a grocery store and exchange it for $100 worth of food, the money itself has no value; just like a Bonds 756 baseball you don’t sell, or a diamond ring you don’t sell…
I disagree. While your $100 bill has no intrinsic value, it has monetary value, whether you spend it or not, and that is all that interests the IRS. The Bonds ball is less clear, because, IMHO, it has no monetary value until some one pays money for it. So they are not the same.
). Questions arise as to: is it a Gift until sold and what is it’s FMV if not sold? Unearned Income? Capital Gains? He sez he’d take the position that until sold it is a gift, but that is a curbside opinion and he’d want several dozen hours to research it. For example, is there any Case law? What is the exact language on the back of the ticket?