According to articles published this week, it appears as if Matt Murphy, the fan who caught Barry Bonds’ record breaking 756th home run ball, will sell it via auction. The official AP article states: “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.”
Is Matt just using this as an excuse to sell the ball? Or is he just misinformed? Several people told him he would be taxed? Who are these “several people”? Mikey the butcher? His uncle’s girlfriend’s sister’s best friend?
There is nothing in the tax law governing souvenir baseballs. There has never been any official IRS statement regarding the tax treatment of this home run ball.
We must understand the difference between valuation and realization. The home run ball is valued at $500,000, but no cash has been realized yet. Tax is triggered upon realization and is calculated on the cash or consideration received minus the cost basis of the item sold.
Let’s say a major league baseball costs $5. Before each major league game, a public announcement states “You may keep all balls and bats thrown or hit into the crowd.” So it looks like this is a unilateral transfer, which is a fancy term for a gift. So when you catch a foul ball, major league baseball is giving you a $5 gift. When a gift transaction occurs, the receiver never pays a tax and for tax purposes, the receiver’s cost basis is the cost basis upon transfer. So, if one sells a major league foul ball for $100, they are responsible for paying taxes on $95 ($100-$5).
When the ball left Mike Bacsik’s hand, it cost and was worth $5. When it made its way to the stands, it was worth $500,000, appreciating 100,000 times its value in 2 seconds. What Matt Murphy has is a gift from major league baseball, costing $5 but valued at $500,000. If Matt sells for that amount, he should have to pay taxes on $499,995. But if he keeps it, he shouldn’t have to pay a dime in taxes. Just like you don’t pay capital gains taxes on stock unless you sell it, you shouldn’t have to pay it on a baseball.
The guy quoted in most of the stories is John Barrie, a tax attorney. He probably thinks the IRS will classify the ball as "found property." From IRS publication 525:
"If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession."
I agree with your position. The ball, as a collectible , is a capital asset and gain is recognized only when the ball is sold. In addition, he should hold the ball for more than one year so that he can get the favorable 15% capital gains tax rate.
bad dad
Your outrageous claim that tax is triggered only upon realization of some sort of CASH benefit is demostrably false. See Oprah's audience for but one example. I'm guessing that you aren't a tax attorney.
But the cars on Oprah have a cash value of say $20,000. So the gift is valued at $20,000. The baseball has a value of $5 as pointed out in the article.
It is simply false to say that the cash value of the ball is $5.00. The cash value of any random ball is $5. The cash value of this particular ball is much much greater.
Consider an autographed photo of Babe Ruth. A photo costs $.30 to print. The cost of the ink to sign it is negligible. Do you honestly think that, for tax valuation purposes, it is worth $.30?
I disagree. To determine if there is taxable gross income, there must be an undeniable accession to wealth, which is clearly realized by the taxpayer, over which the taxpayer has complete dominion. Such is the rule from the Glenshaw Glass case.
In this context, catching the ball is a clear accession to wealth. It is an accession even if you characterize it as a gift from the Giants or MLB. Second, contrary to some prior comments, he has clearly realized this gain, at the point his property interest in the ball was asserted. It need not be reduced to cash, sold or anything of the like to be "realized." Finally, because he has complete dominion over the ball (he can sell it, burn it, put it on the road, whatever), I think it's a no-brainer he has taxable income, this tax year.