Well, what if a collector offered the man $500k for the ball, and he turns him down? Would the ball have no monetary value then? Or only if and until the transaction takes place?
Because in this case, I think my original analogy is accurate. The ball = $500k cash. Why is one taxed and the other not?
If you would still say that the ball has no monetary value, could I work out a deal with my employer to pay me in gold, or in priceless jewels, or rare stamps, or collectible bottles of wine, or a Barry Bonds 756 home run ball, and similarly skirt the income tax laws?
I believe it would increase in monetary value only when the transaction occurs. No transaction, no $500k valuation, no taxes.
No, because all of those items have monetary value: gold is valued by the ounce on the commodities market, jewels from their last sale, same with rare stamps and wine.
This is an interesting subject. I agree that the IRS would likely try to collect taxes now, as that is their purpose. I also think that the analogy to cash, cars, or jewels is not quite right as those items have set values (especially the cash) and are immediately exchangeable.
The ball, not so much. Another analogy; Someone I know paints a picture and gives it to me. Another person likes the painting and offers me $100k for it. Am I liable for taxes on the $100k? That seems to me a more apt comparison, as the painting has no intrinsic value until someone offers me money for it. Same with the ball. Yes, there are precedents, but there are with paintings also. If someone paid some ridiculous amount for a Van Gough painting and someone paid some amount for McGwire’s home run ball, that doesn’t mean that this painting (and this ball) are equivalent. Collectibles are not completely fungible.
Also the 756 ball is not the record. Each HR Bonds hits is the new record, and thus most likely dilutes the value of 756. How should that be handled?
It would be interesting to see how good an object like the 756 ball would be as collateral. That might be the real test of its value.
Again, I agree that the IRS would likely ignore all of these questions and demand payment. Would be quite the legal battle if someone wanted to push it ( and spend the $$ pushing it).
My thought precisely. I’m sure that if brought a case of a couple dozen balls into be appraied, saying “I don’t know which one, but one of these slightly used balls was the 756 ball”, it’d be appraised at about 10 bucks times the number of balls.
That’s the difference between this and a gold watch found on the beach. It has no intrinsic value on any market, only in reference to how much some moron might pay for it.
If there’s some sicko willing to pay a woman $100 for her used underwear, should she have to declare that value to the IRS?
That would be a theft. Deductible on Form 4684 (pdf).
I would think that the MLB Players Association might want to step in and help this guy out. Bonds doesn’t seem to care about getting this ball back, but other players in similar situations would. If this is going to be the IRS’ position, I would think that no fan anywhere would ever give back a valuable ball again.
This situation brings up so many interesting hypotheticals. What if the home run was hit in a park with an outfield bullpen and caught by a Giants player. Is it the player’s ball…or the teams? I could certainly see the Giants making a claim for the ball (see Red Sox v. Mientkiewicz). What if the ball was hit to a location (McCovey Cove) such that it’s authenticity was in question?
I have to wonder if this whole argument is moot though. Does this guy really want to keep this ball? I certainly wouldn’t want to keep it at my house. And is it really worth keeping if you have to put it in a safe deposit box somewhere? Once he sells it, he’ll get taxed on any capital gains. All we’re arguing about now is what his basis is when that time comes.
So, what if he takes the huge tax hit now, holds onto the ball and five years from now Barry Bonds is conclusively exposed as a giant cheater, and the ball becomes worthless. For how many years will this guy be able to carry over this capital loss? He may never recoup the loss in his entire life.
In the case of your Grandpa’s Mustang, it isn’t income until he sells it, then it would be Capital gains. Now, if he died and you inherited, his* Estate *would be liable for any Capital Gains taxes, but unless Gramps was very wealthy there would be no Estate tax, and your inheritance is not taxable to you.
I’ll point out that so far the IRS has very pointedly **not **said that the Ball is Taxable income. If it was very clearly taxable, the IRS rep would have said something vague and general like “All income, from whatever source, is taxable, unless specifically excluded”. The fact he did not say that or anything like it is very telling to my Bro. (It tells him that the IRS isn’t sure one way or the other, either. ) Ispolkom’s cite quotes a rather prominent Tax Attorney who sez ““Everyone’s sure they know the right answer, but there’s very little agreement” on what it is, tax lawyer…”
But honestly, the guy is best off selling the ball and paying taxes on it, after taxes he’ll still net at least $300,000. Certainly, if he didn’t want to pay taxes he could just donate it. This tells me it isn’t the Big Bad IRS that is making this guy auction off the ball.
It seems to me the confusion in this case comes from the fact that the Bonds ball is a unique item whose value hasn’t been firmly established. In most cases when someone gets a valuable piece of property, e.g. when someone wins a Brand New Car on a game show, the value of the property is easily established. In the case of the Bonds ball the tax implications are much simpler if one assumes the ball doesn’t have any value until it is sold. The law doesn’t always follow the easiest path, though. Just because it’s simpler doesn’t mean it’s legal.
Let’s assume the income is realized when the ball is caught (and the taxes paid in that year), and the ball is sold in some later year when its value has substantially changed. Isn’t this a capital gain or loss? That is, if the value of the ball goes up, you have to pay more taxes when you sell it, and if the value of the ball goes down you are entitled to deduct the loss. I believe there are ways of spreading capital losses over several tax years if it is helpful to the seller.
There’s a way I can imagine Murphy getting into tax trouble (again, assuming that the income is realized when the ball is caught). Suppose he decides to wait until March, 2008 to sell the ball, and in February Barry Bonds tests positive for steroids and is indicted for perjury. The value of the ball is likely to plummet. I think Murphy would owe taxes on the market value of the ball at the time he caught it. He’d be entitled to claim a capital loss, but not until tax year 2008. In the worst case he could owe more in taxes for 2007 than the ball is worth in 2008, and he might not have the assets to meet his tax burden.
The ball in question was premarked (serial number, hologram) and put into play just for such purposes as to identify it later. The umps made sure Bonds was hitting the premarked balls. They can account for every single ball he hit.
You would pay taxes on the appraised value. If the value drops before you liquidate, then you would not pay any additional taxes on the proceeds, and would be allowed to write off the loss (difference between your cost basis - the amount you were taxed on - and the proceeds) against future income.
The ball cannot be compared to diamonds or gold because they have standardized values, while the only way the “value” of the ball can be determined is by selling it.
Also, remember that the IRS serves us. We do not serve the IRS.
The vast majority of people would agree that we are not served by taxing a caught HR ball, a female celebrity’s used underwear, or a Triscuit that looks like Jesus, unless and until they are sold or exchanged for something of standardized value.
Taxing things like that before they are sold is stupid (because their “value” varies wildly on the whim of the highest bidder), unfair (because it forces us to sell anything that someone wants to pay a lot for), and unnecessary (because there is no way to convert any other assets into an untaxed ball, since the act of acquiring the ball through money or assets would make it taxable).
This is an interesting argument. How would things change if this was the detirmination? How is a gift different than a prize, and how is the distinction made? Wouldn’t it be in MLB’s interest to petition or argue for this label on their fans behalf?
I’m also still not over the one-of-a-kind aspect. Couldn’t Murphy declare his ball priceless, not for sale, “no amount of money will make me sell this ball”? I could understand seeing it as an asset if he borrowed money against it, or charged money to see it, but as a knick-knack on his mantle that he steadfastly refuses to sell, how does it have any value? Thank you DrDeth for telling us in his nice post that somebody would like to fight the taxation of things like this.
I do like the suggestions that he “lose” it. How about if he took it to Australia? Would he still be taxed if it mysteriously dissappeared from the safety deposit box in S.F.? Would the IRS have to prove he has it to tax him?
So the IRS in the past has declared homerun balls valuable but they have made exceptions for the situation. I don’t see the problem in another exception at least letting the guy keep the ball untill passes it to another either with a sale. I think if he gives it as a gift it stays untaxable.
BGW, what happens if the IRS appraised the value at $500,000 and he sells it for $600,000? $400,000? Is the extra $100,000 taxed as regular income? Capital Gains?
Depends on the holding period. It is considered a capital item, and likely a collectible, which I understand have different capital gains rates.
Oredigger, while similar, the case you quoted is different. The ball in question was almost immediately handed back to McGuire, if memory serves. In that case, it was if someone gave you $1,000,000 in diamonds, and you said, “No way, I don’t want it!” At least, under prodding from Congress, that is how the IRS handled it. The ‘gift’ was the fan giving the ball to McGuire, not the fan catching the ball. I haven’t read one tax professional who opined that catching the ball counts as a gift.
) Ispolkom’s cite quotes a rather prominent Tax Attorney who sez ““Everyone’s sure they know the right answer, but there’s very little agreement” on what it is, tax lawyer…”