Why would the person who caught Barry Bonds 756th homerun ball owe taxes even if he doesn't sell the ball?

Question

http://sports.yahoo.com/mlb/news;_ylt=ArsLkjGQCTqQvRFFv7iROjg5nYcB?slug=ap-bonds-ball&prov=ap&type=lgns

"Even if he does not sell the ball, Murphy would still owe the taxes based on a reasonable estimate of its value, according to John Barrie, a tax lawyer with Bryan Cave LLP in New York. Capital gains taxes also could be levied in the future as the ball gains value, he said."

I don't understand why he would have to owe taxes on the "reasonable estimate" of the value of the ball if he never sells it? I understand paying taxes AFTER he sells it.

Answer 1

That's Mr Barrie's opinion. I do not agree with it, and the IRS has refused to comment publicly on the issue.

Several folks have already commented on the issue. Do a search and you'll find a number of comments that disagree with most of what Mr Barrie says. IMHO, Mr Barrie is pushing for some free publicity and he's certainly getting that.

Determining the ball's value is fraught with multiple minefields. When it left the pitcher's hand it was worth about $8.00 or so, the price of a MLB ball. Can anyone accurately predict a value based upon it being hit by a possbily juiced-up ballpayer? Will further home runs by Mr Bonds affect the value? How about if his records are stripped? The best predictor of its value will be what it sells for, should Mr Murphy decide to sell it. At that point, the IRS will be unquestionably entitled to its due. Given the fact that Mr Bonds' future is not assured, Mr Murphy's best bet would be to unload it as quickly as possible and pay any tax based upon the sales price.

Answer 2

I agree with Bostonian. There is no taxable event until Murphy sells the ball. In order to be taxed on a capital gain, you have to sell the asset.

The problem with the property tax issue is the state ultimately owns the land and improvements made on the house. The property tax you pay every year gives you the right to use the land and the house. You are buying rights when you pay those taxes.

Neither the federal government nor the state owns that ball. So those arguments are moot. And, since the ball was not sold to Murphy, he owes no California sales tax, either. There is no way anybody can tax him on the ball until he decides to sell it.

The treasure trove's marketable value is easily determined and valued because gold and silver trade as commodities today in dollars/ounce. A baseball cannot be valued so easily and the valuation is much more subjective than that. The only way the ball can be valued is when Murphy sells the ball.

A door prize has value. Somebody paid for the door prize and the value of the door prize can be easily referenced. The price of a baseball is de minimis.

Barrie is a lawyer with not much experience or understanding of tax.

Answer 3

They will not tax him UNLESS he sells the ball for a profit but not before. The IRS is simply telling him that if he sells the ball for a profit this will be considered income and taxed appropriately. Now... to this end, he could sell the ball and then from the amount he receives he could deduct the cost of the ticket to the game, the gas to get there and back, the cost of sale (auction fees and such), storage fees, display case fees, authinication cost, etc. However, since the price he can get for it will probably exceed $400,000 the amount he can deduct will be pennies on the dollar so those deductions won't really add up to much. But again, he can't be taxed until he actually sells the ball or if he uses the ball as collateral in a loan (for he then declared the ball as valuable income). I wouldn't say that taxation is out of conrol, but the fact that ANYONE would pay over $14 for a baseball is out of control. Just my thoughts!

Answer 4

Whether the IRS will litigate this issue, I don't know. But let me make their argument for why it should be taxed.

There is little difference between "winning" the homerun ball and winning a door prize.

If you attend an event, enter a contest, and they draw your name and you win ... say a new vehicle. You are liable for income tax on the value of the vehicle.

If you enter a lottery or raffle by buying a ticket ... and win whatever the prize it ... you are liable for the income tax on the value of the item won.

The individual in question bought a ticket to watch the game AND included in that ticket was the right to keep any baseball hit into the stands.

As to the argument that he shouldn't owe taxes on it unless he sells it ... that same door prize (a vehicle) is taxed when received whether it is sold or not.

As to the argument that when the ball was pitched it was only worth $5. That is true. But the moment the ball passed the fence as a homerun ... it was worth significantly more. The individual acquired the ball AFTER it was a home run ... and AFTER it was worth the significant value.

As to the argument that it is a hard to value asset, that occurs often. We rely on bonafide appraisals of the FMV of the asset.

Answer 5

Suggestion - take what this kook lawyer says with a grain of salt. He's gotten his name splashed all over - don't you wonder why he seems to be the only one making these pronouncements? Like maybe he'd full of .........?

Capital gains taxes are levied at the time of sale, not as an asset you hold gains value. If he's anywhere knowledgeable about capital gains tax, he'd know that. If you own a stock for example, you don't pay on the ups and downs of its value each year, but on gain at time of sale.

Answer 6

I guess the best explanation I have heard is pretend you found a paper bag with $1,000 in it. That's income to you. Now pretend you found a ring valued at $1,000, that's also income to you according to the IRS, even if you didn't sell the ring. The IRS (sometimes I think it should be called the ERS (Eternal Revenue Service) or change it from Internal Revenue to Infernal Revenue Service) could treat the guy who caught the 756th ball the same way.

Answer 7

Let's say, Murphy were unemployed with no money. How is he going to come up with that kind of tax money the IRS is going to charge him? Would he be forced to sell the ball? If so, it really sucks.

Answer 8

Once the ball is in his possession, it is his legal property. The problem for him is that that property is very valuable and would be considered one of his assets. Any estimation of the value of the ball would be included in his income for tax purposes, therefore he would owe taxes on whatever the ball is worth. It would be the same as winning a new car or winning the lottery. The money (or the car) are now part of your property, so you would be required to pay taxes on them.

Answer 9

Um, no...
There are property taxes for your house, land, car and boat. I've never heard of a baseball tax.

That's like saying if you find a T Rex fossil in your yard, you have to pay a dinosaur tax.

Answer 10

I believe Mr. Barrie is full of it. Unless he sells it, he won't owe taxes on it's value. Especially since the value is unknown. How much would he claim.? Estimates of it's POTENTIAL value vary.