Taxes

Expensive Catch

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The guy who caught Barry Bonds' 756th home-run ball may already be on the hook for a big tax bill:

Before he celebrates his windfall, the New York Mets fan who emerged from a violent scrum clutching Barry Bonds' record-setting home run ball should probably call his accountant.

As soon as 21-year-old Matt Murphy snagged the valuable piece of sports history Tuesday night, his souvenir became taxable income in the eyes of the Internal Revenue Service, according to experts.

"It's an expensive catch," said John Barrie, a tax lawyer with Bryan Cave LLP in New York who grew up watching the Giants play at Candlestick Park. "Once he took possession of the ball and it was his ball, it was income to him based on its value as of yesterday."

[…]

Even if he does not sell the ball, Murphy would still owe the taxes based on a reasonable estimate of its value, according to Barrie.

I'm not sure about that "its value as of yesterday" part. Wouldn't it be the ball's value as of the end of the year? If it's the value as of the time he caught it, he could end up having to claim a loss. I heard one sports collector say on the radio this morning that Murphy's ball lost 30 percent of its value the moment Bonds hit number 757 last night.

This article also revisits St. Louis Cardinals groundskeeper Tim Forneris, who was lauded by sportswriters and politicians for voluntarily returning Mark McGwire's 62nd homerun ball back in 1998 (incidentally, the IRS initially claimed it could tax Forneris on the ball's value even if he gave the ball to McGwire, but then backed down). Forneris was given a trip to Disney and a minivan for his generosity. Meanwhile, Phil Ozersky, the guy who caught McWire's 70th, was vilified for being an evil profiteer when he sold the ball for $3 million, a windfall given what the thing is probably worth now. Forneris claims he's still comfortable with his decision. I'm guessing Ozersky is still pretty comfortable with his, too.

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  1. Ain’t it great to live in a country where $3,000,000 of wealth can be created with one swing of a piece of wood?

  2. i’d ask how irs officials can live with themselves each morning when they look in the mirror, but i remembered that only works with beings who have a reflection…

  3. dhex –
    agreed!

    (or some attack their reflection)

  4. Uh, didn’t you mean ” 756* ?”

    🙂

  5. Matt “Guitar” Murphy???

  6. ps the ny post headline for this was awesome.

  7. The guy’s first reaction was, “I won the lotto.”

  8. If all taxation is immoral and theft, the “reasonable estimate of market value” scam is among the most immoral and theft-like of all tax-related maneuvers. The only value that should count for tax purposes is the value of the profit or loss you take when you sell or otherwise dispose of an item. All the rest is fiction, yet people’s lives have been ruined by this fiction. Unconscionable.

  9. wasn’t the ny post headline “king shit”

    i saw that across the subway. what the hell was that about?

  10. I’m shocked that this is not a joke, but then again I remember the many people taxed out of there homes after getting an Extreme Makeover: Home Edition

  11. “IRS Has Sports Fan By The Ball!”

  12. He can claim its value as of yesterday as taxable income and pay that rate, then claim any increase in value through the end of the year as capital gains, and pay that lower rate on that amount.

  13. Those guys are media whores and they’re dead wrong. The guy who got the ball has a tax basis in the ball based on it’s value before it was hit.

    As an individual taxpayer, he’s on a cash basis which means so long as he does not sell the ball there is no taxable gain.

    If he holds the ball for the correct holding period, when he does sell, the income will be capital gain income and thus taxed at a lower rate.

    I’m quite sure that IRS would lose this case if it insisted that the value of the ball was any more than what it cost MLB to buy it. OTOH, I could also see them trying to send him a bill.

  14. James Anderson Merrit has it.

    And here’s another instance of one of my pet peeves. Development sprawl has been accelerated over the years as money-hungry state and local governments tax nearby farmland at the value it would have if converted to a development, not at the value it has as a farm.

  15. Oh, and if anything, the ball was a gift, therefore any tax due is due from the donor, which in this case would be MLB and/or Barry Bonds.

  16. McWire

    Sounds electric! Want fries with that?

  17. joe,

    The problem is, the ball is devaluing, not increasing in value.

  18. This should be a capital gains tax question,

    Before the juice got into the ball and over the fence it was worth $5 upon going over the wall it’s now worth $1,000,000 but until he sells it it’s not worth taxable income.

    If I go home and find a Picaso in my attic, the IRS can’t tax me on something it doesn’t know I’m going to sell or keep forever.

    Just another way the big man is keeping the little man down….

  19. Who here does not want TWC as their accountant?

  20. highnumber | August 9, 2007, 11:55am | #

    Who here does not want TWC as their accountant?

    URKOBOLD LIKES THE WAY TWC THINKS. I WILL HIRE HIM IF THE IRS TRIES TO TAX MY COLLECTION OF WITHERED TAINTS.

  21. Don’t worry. If the ball loses value he can just take that loss against his millions of gains in his other assets. Because everybody has millions in gains, right?

    Two words: Consumption Tax.

  22. Not a tax attorney, but… I’m not sure there’s any “savings” to be had if the ball loses some of its value.

    I thought that if a “non-professional” occurred a loss, it wasn’t claimable against income. The example given to me was that if Joe-blow buys a 1965 Mustang for $500 and puts $500 bucks in it, but manages to sell it for $50,000, he can be taxed on the $49,000 gain. But if he buys a 1972 Pacer for $2,000 and sells it for $200, he can’t claim a loss of $1,800, since he’s not in the “business of buying and selling cars”.

    I suspect that this guy isn’t “in the business of buying and selling sports memorabilia” so I suspect that any loss is of no value to him anyway.

    Again… not a tax guy.

    CB

  23. Urkobold,

    I’m not sure if TWC is right about this…and I think the Lobster Girl’s cleavage to you may result in mucho tax liability, as she’s worth an awful lot if rented out for weekends.

  24. So, you pay taxes on the value of something even if you haven’t cashed it in?

    I’ve been thinking about trying to solve one of the million dollar math problems. I doubt I’ll succeed, but I’ve been thinking about it. If I come up with an idea that will work, do I pay taxes on the value of the idea now, or when I cash it in and collect the prize?

    Most likely answer: When hell freezes over, given the odds of solving it.

  25. Thanks for the vote of confidence guys.

    Ammonium, if the US had a stable, rational, limited government consumption taxes would be an ideal way to raise revenue. Unfortunately, we don’t have one.

  26. At the time the guy got the ball, it was essentially worthless. It wasn’t until Mr. Bonds rounded the bases and called safe that the play became a home run. Otherwise it could have been ruled a foul or some other technicality; surely the IRS wouldn’t have let him write it off as a loss in that event.

  27. It really is debatable if the guy has to pay taxes or not. It makes sense he would only have to pay taxes on the value of what the leauge paid for the ball ($5, right?) until he sells it… but people have gone to jail for a lot less.

    The point is, that people defending the taxation are missing, is that you can’t catch a fuckin’ baseball anymore without hiring a tax lawyer. When having fun at the ballpark puts you at risk of going to jail for tax evasion, it means that the tax system is out of control. You are looking at a potential federal prison sentence for doing something as simple and innocent and all-American as catching a baseball!

    Something that joe and the tax-lovers need to understand is that if perfectly innocent people, do perfectly normal activities (such as enjoying a baseball game and all the things that go with it), have to worry about prison sentences and such, then the system is screwed up. It doesn’t matter if he can do some tricky accounting with capital gains to avoid going to jail – The fact that normal people need to go way out of their way to avoid going to prison for things as simple and innocent as catching a baseball means we are living in a police state!

  28. Who’s this guy Regus Patoff and why is he sharing name duties with TWC?

  29. I thought that if a “non-professional” occurred a loss, it wasn’t claimable against income

    CB, in general,you are pretty much correct.

    Tax law is tricky (45,000 pages of regs tricky–give or take) but if you can make the case that the ball is a collectible or an investment you could get some cap loss treatment.

    It’s so dam slippery and vile. Had a guy that bought old houses, rehabbed them, and then sold them. He generally timed it so as to get cap gain treatment on the gains.

    But, at some point this activity is a business and you don’t get capital gain treatment on the profits (plus you have to pay socialist security taxes too).

    The problem is, nobody can tell you where the line is. If you do one a year, you’re prolly ok, especially if you have a real job. But if you flip several a year and you’re retired suddenly you are self-employed and not an investor. Incidentally, we lost the case on that basis. IRS decided that my guy was self-employed and not an investor even though he was retired and legally blind.

    That is an example of why some people can say the ball has value and there is taxable income to the guy who now owns the ball.

  30. Taxing him before he realizes any profit from selling that ball is just wrong. I’ve had enough of this shit, and that’s why I support the FairTax.

    (Incidentally, under the FairTax, there wouldn’t be any tax owed if he did sell it, since it’s used.)

    -jcr

  31. Who’s this guy Regus Patoff and why is he sharing name duties with TWC

    That came from an old cartoon I saw in Playboy a million years ago where a seriously geeky accountant-type with Buddy Holly glasses is sitting at the counter of a soda fountain and says to the voluptuous and scantily dressed hottie in the pink striped uniform behind the counter:

    I’ll have a Coca Cola reg US pat off please

    Still makes me smile although I stopped LOL at it at least ten years ago.

  32. Rex,

    If you’re over your policy-state hysteria, might I point out that making a $1 million bucks for catching a ball in the bleachers isn’t exactly part of the Good American Fun of going to ballgame, either.

    Poor baby, he’s going to end up only with a high-six figure profit for going to a ballgame. I should have this guy’s problems.

  33. ….for you younguns out there….

    That’s ….

    Coca Cola

    registered United States patent office

    in the style of yesteryear….

    If you look at an old Coke bottle that’s what you will see right under the script that says Coca Cola

    reg US pat off

  34. Joe, you make a good point, and it is really easy not to feel sorry for someone who is an instant millionaire. My baseball was hit foul in batting practice by Albie Pearson (shortest guy to ever play MLB). I got a similar bloody nose for my trouble as all those kids tried to break my fingers at the bottom of the dogpile. Unfortunately, it isn’t even autographed and not worth much. But, it’s mine. I got it.

    And that’s the rub here, as with all earnings, the government didn’t catch the ball. They’re going to get several hundred thousand dollars in windfall because SOMEBODY ELSE went to the ballgame. What a deal. Nobody seems to snark about that except us libertarians.

  35. Um, I apologize beforehand if this comes out sounding really stupid 🙂

    Can’t the guy just place a value on the ball himself? I mean, it’s his ball until he sells it. He could claim it’s worth $0.98 while he’s in possession of it…no?

    I mean, I don’t see how others can arbitrarily set a value on this guy’s baseball. If that’s the case, we could get a group to go around and assess the value of everybody’s shoes at $1 million dollars a pair. Right?

  36. Lets say it is worth 3 Million when caught, and his tax bill is 750,000. Lets say next day it’s value drops to 500,000, and hes sells it for 500,000. Is he is now out 250,000?

  37. The guy hasn’t made the million bucks yet. I think Rex is saying that it’s ridiculous to have to deal with such serious consequences for an action you have not performed, have not indicated that you plan to perform, and may in fact never actually perform. Until he makes a dime on this ball, he actually is just a guy who caught a ball at a game.

    And I’m right with Rex on being “hysterically” angry about the increasing criminalization of ordinary life activities. Although maybe Florida Vicodin guy is a better recent example of this.

  38. I’m pretty sure it moot because the guy is obviously going to sell it, but what if he didn’t want to? Would he be forced to come up with an tax payment based on an estimate of what it might be worth at auction?

  39. What if I found a suitcase full of gold dust and put it under my bed? Does it have no value until I sell it?

    How about cash?

  40. Rex,

    If you’re over your policy-state hysteria, might I point out that making a $1 million bucks for catching a ball in the bleachers isn’t exactly part of the Good American Fun of going to ballgame, either.

    Poor baby, he’s going to end up only with a high-six figure profit for going to a ballgame. I should have this guy’s problems.

    How do you know he is going to sell it? And what makes you think he will get a million dollars? Even if he decides to put it on display on his mantle, the guy is going to have to hire a tax lawyer to make sure he doesn’t go to jail.

    And someone who catches a ball that is worth $1,000 instead of $1,000,000 still has to worry about prison time.

  41. Cash and has a definite value. The box of gold dust probably does as well. The ball doesn’t and it’s actual value will only be known after it’s sold.

  42. Joe,

    When did you become Dan T?

  43. Rex: I guess you count yourself lucky that you didn’t catch the ball, huh? After all, who the heck would want $600,000 after paying Uncle Sam? –Ron

  44. David,
    Yes and that’s what’s unjust. When he sells it, he will make some amount of $, which can be taxed as capital gains/income/whatever. Until he does, he shouldn’t be taxed at all.

    Property taxes are fundamentally unjust, worse than any other kind. Income and Sales taxes are levied on productive activity, so government has one chance to get its cut. Property taxes, on the other hand, let government take another bite out of the same apple every year. Eventually the owner will have paid more to the government for owning it than he did to the seller to get it–that’s just wrong.

    You might say it encourages productive uses of capital, but that’s only if you place no value on the enjoyment of one’s possessions.

    (Income taxes, however bemoaned they are on this board, remain the only tax that automatically scales with your ability to pay it).

  45. How do you know he is going to sell it?

    Oh, come ON!

    Even if he decides to put it on display on his mantle, the guy is going to have to hire a tax lawyer to make sure he doesn’t go to jail.

    That’s a fair point. He should be taxed when he realizes a profit, like someone who owns minerals in the ground but hasn’t mined and sold them.

    jb,

    Inheretance taxes scale with your ability to pay, too. They are also the only tax in existence guaranteed not to take wealth away from the person who created it.

  46. Cash . . . has a definite value. The box of gold dust probably does as well. The ball doesn’t and it’s actual value will only be known after it’s sold.

    As much as I hesitate to agree with joe, I don’t think that refutes his point he was trying to make. The ball certainly has an easily determined market value just like the gold dust and the cash. You don’t need to sell any of those to know essentially what they are worth. So whatever the issue is, it is not the uncertainty of the value since any asset could be said to have an uncertain value – the price of gold can fluctuate quite a lot, for example.

    Having said that, it doesn’t make the answer to this issue easy. In fact, I suspect there is no answer, in the sense that any number of potential answers could be reasonably well argued with support from both the colossal convoluted tax code and surrounding case law. I think this post from the WSJ Law Blog articulates that point and lays out a couple basic alternatives.

    “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.

    And, from the TaxProf Blog, it looks like it is an interesting and debatable enough issue to have been the subject of at least a couple journal articles.

    Joseph M. Dodge, Accessions to Wealth, Realization of Gross Income, and Dominion and Control: Applying the “Claim of Right Doctrine” to Found Objects, Including Record-Setting Baseballs, 4 Fla. Tax Rev. 685 (2000)

    Lawrence M. Zelenak & Martin J. McMahon, Jr., Taxing Baseballs and Other Found Property, 84 Tax Notes 1299 (1999)

  47. Read Charles Adam’s classic “For Good and Evil-Impact of Taxation on Civilization

    In ancient Egypt, the Pharaoh collected agricultural taxes based on what the crops should have been worth, not what they actually were sold for…the calculations to derive this were the origins of geometry.

    However, more benevolent Pharaohs would rebate some of the money to poor farmers. Other Pharaohs, not so nice.

    The scam of taxing on what the taxman says something is worth is a pretty old government policy.

  48. Mr Von Mises says” Ain’t nothin’ worth nothin’ ’til someone wants to buy it. Maybe Mr IRS is willin’ to spring for the big ones for this feller.

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