The Tax Consequences of Playing Baseball
Jacob Stein Esq.September 17, 2007
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.
WebsiteMr. Stein is a partner with the law firm Boldra, Klueger and Stein, LLP, in Los Angeles, California. The firm’s practice is limited to asset protection, domestic and international tax planning, and structuring complex business transactions. The firm’s goal is to provide the highest quality legal work that is usually associated with only the biggest law firms, in a boutique firm setting. Jacob received his law degree from the University of Southern California, and his Master’s of Law in Taxation from Georgetown University. Mr. Stein has been accredited by the State Bar of California as a Certified Tax Law Specialist and is AV-rated (highest possible rating) by Martindale-Hubbell.
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