The Hotly Debated Overlap Between Taxes and Home Runs
WHY YOU SHOULD CARE
A historic home run can come with more than one big catch for the lucky fan who hauls it in.
By Sean Braswell
Zack Hample is what you might call a professional baseball snagger. A superfan who has snagged thousands of balls at major league games over the years, he’s even written a book about the art he has perfected. Last summer, Hample landed perhaps his biggest catch yet when he hauled in the home run that New York Yankees slugger Alex Rodriguez belted for his milestone 3,000th major league hit.
It was a big moment — for Rodriguez, and for Hample. For the Internal Revenue Service, however, it was just another taxable event. Although Hample initially informed the Yankees that he was keeping the historic ball, he eventually agreed to hand it over to Rodriguez in exchange for a large donation to his favorite charity and some serious team swag. And by surrendering his prize catch, Hample may have gotten himself off the hook for some serious taxes on his newfound wealth had he held on to the valuable ball.
Fans looking to witness baseball history can only wait — and hope their heroes don’t hit it their way.
Hample’s altruistic act also might have spared the IRS from having to make a definitive — and possibly unpopular — pronouncement about the tax consequences of snatching a pearl of baseball history. As tax season winds down and baseball season begins, and Rodriguez continues to chase Barry Bonds’ all-time home run record, it is worth revisiting the biggest catch of all that comes with hauling in a historic home run ball.
Some fans were not as generous as Hample with their historic windfalls. The San Francisco man who snagged Bonds’ record-setting 715th home run ball in 2006 sold it on eBay for more than $220,000, presumably reporting the amount as income on his taxes that year. But what happens if a fan decides to keep the ball: Will he or she be taxed on what the tax code deems an “accession” to wealth? And if the ball is returned to the player, shouldn’t that be subject to a gift tax?
The IRS made its first ham-handed attempt to address those questions in September 1998, when St. Louis Cardinals’ slugger Mark McGwire was in pursuit of baseball’s single-season home run record. The day before McGwire smashed his historic 62nd home run, an IRS spokesman told The New York Times that any fan who caught the ball and returned it to McGwire could be looking at a substantial gift tax — to the tune of $150,000 if the ball were valued at $1 million. Needless to say, the statement caused an uproar across America and in Washington. Taxing the home run ball, as White House spokesman Mike McCurry put it, was “about the dumbest thing I’ve ever heard in my life.”
The IRS, under then-commissioner Charles Rossotti, quickly changed course, retracting its initial statement and issuing a press release stating that there would be no taxable event if a fan disclaims the gift and “immediately returns” the baseball. That fan would deserve, in Rossotti’s words, “a round of applause, not a tax bill.”
Crisis averted. But several big questions remain to this day, starting with when the tax liability gets created: Does it occur the moment the fan catches the ball, or only after the fan cashes in on it?
If Section 61 of the Internal Revenue Code states that “gross income means all income from whatever source derived,” then most any prize, award, lottery winning or other windfall would likely be considered realized income upon receipt. Most law school students learn about the landmark 1970 “treasure trove” case of Cesarini v. United States, in which a couple who found more than $4,000 while cleaning their secondhand piano was held to have uncovered a taxable treasure, and the IRS got a slice of their good fortune. Most of the 276 jubilant recipients of the free cars Oprah Winfrey doled out to her studio audience in 2004 were suddenly less excited when they learned that their “special package” came with a $7,000 tax obligation.
While the legal definition of income is certainly broad enough to encompass caught baseballs, says Alice G. Abreu, a professor at Temple Law School, that shouldn’t be the sole interpretation. A more appealing solution to the IRS’s dilemma, Abreu tells OZY, is to treat the definition of income as a standard, not as a rule. Treating it as a standard, she says, allows the IRS “to interpret the definition of income consistent with the values that are important in taxation, including equity, efficiency and administrability.”
In other words, a caught baseball would only be treated as income once a fan cashes in on it. Most of the other lingering tax questions — would a fan who waits to sell the ball for more than a year be hit with capital gains tax? — are better suited for a law school exam than coverage here. In the meantime, until the IRS (which didn’t respond to our request for comment before publication) provides answers or the taxman offers absolution for amateur catchers, baseball fans flocking to the bleachers to witness baseball history can only wait — and hope their heroes don’t hit it their way.