Does the tax code need reforming?

Question

http://sports.yahoo.com/mlb/news?slug=ap-bonds-ball&prov=ap&type=lgns

The IRS intends to send a bill for $210,000 to the guy who caught a baseball in Giants Stadium.

Oh, so it's sloppy journalism. An op/ed piece masquerading as news?

Answer 1

No one other than some kook attorney has said anything about the IRS sending such a bill. This is such a rare circumstance that anyone including the IRS would just be guessing what the tax consequences might be of having caught this ball. Let us imagine that Mr Murphy caught the ball and took it home never having any intention of selling it or making any money off the fact that he possess such a prize. What would be it's value. I would take the position that he has a basis of the price of his ticket to the game and no gain. Some IRS examiner might have another opinion and the courts would resolve this issue years from now.
At this point I would advise Mr. Murphy to be very careful how he proceeds with the found property which he seems to have recovered.
If I am correct that there is no taxable event until he sells the ball let's look at another possibility. He "gifts" the ball to his dieing cousin (a non taxable event) who leaves it to me in his will (a non taxable event when I inherit the ball but the basis is now the MFV). Being the gracious person that I am I gift it to Mr. Murphy (a non taxable event to Mr Murphy). I report the gift (estimated value $3Mil) on a form 709 and die a insolvent.
What do you think? Would this plan work?

Answer 2

Does the tax code need reforming? Yes. But ... as long as you have unfettered lobbying ... reforming it will be just as bad as not reforming it.

As to the Bonds ball, you have some good comments about it already. No one has stated definitively that it was a taxable event.

One theory is that when the individual used the ticket to enter the game ... anything he received of value would be income. For instance, if one wins a door prize at an event ... it is income. It might be so small of a value that it would be deminimus ... but not if it was valued at 6 figures.

Another theory is that no taxable event occurred. For instance, if one was walking along a beach and picked up an item that turned out to be of significant value. The mere act of finding it wouldn't be a taxable event. Selling it would.

This is a gray area of the tax code. It has not been litigated in regards to baseballs. IMO, if it were litigated, I think the IRS has a reasonable chance of prevailing utilizing the door prize theory.

Answer 3

The IRS has NOT stated that they would tax the ball now. Go back and re-read the article! In fact, they have refused to publicly comment on the issue at all.

Until a value can be placed on it, there's no way to correctly assess any tax. And with each homer he hits it's value will drop a bit. And if Mr Bonds is stripped of his title over the "juicing" allegations the value could easily drop to nearly zero.

One wag has opined that the fan may be facing tax immediately. I do not share that person's opinion and neither do a lot of tax experts.

Answer 4

If you read the article, the IRS didn't say they are sending him a bill - this is ONE tax guy, and very likely not even close to correct. The article does talk about a previous similar occurrence, and the IRS did NOT send a bill like this.

Don't blame the IRS for something they haven't done.

If he sells the ball, then that would be taxable.

Answer 5

It always needs reforming, and it always gets reforming, but usually after it gets reformed everyone's taxes are more complicated than the year before. (not that I'm complaining, since I'm a tax preparer.)

Answer 6

If it were not, we consultants would have to change profession. Everything should change as the real life and environment changes.