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DGRROSEN
08-10-2007, 01:14 PM
TAX REPORT
By TOM HERMAN http://online.wsj.com/img/colhed_tom_herman_on_taxes.jpg


The Big Catch
Could Have
A Big Catch
July 25, 2007; Page D1

As San Francisco Giants slugger Barry Bonds closes in on Hank Aaron's career home-run record, a thorny question looms: If you're the lucky fan who catches the record-breaking home run ball, what are the tax consequences?
http://online.wsj.com/public/resources/images/OB-AN338_Ruth_s_20070724202152.jpg (http://online.wsj.com/public/article/SB118531053992176613.html)
The short answer: Find a very smart accountant -- and if you don't like the answer, try someone else.
"Everyone's sure they know the right answer, but there's very little agreement" on what it is, says Phillip Mann, a tax lawyer at Miller & Chevalier in Washington and a former head of the American Bar Association tax section.
Mr. Bonds, who turned 43 yesterday, hit his 752nd and 753rd homers last Thursday, leaving him only three away from eclipsing Mr. Aaron's record of 755. Last night, the Giants played the Atlanta Braves at home in San Francisco.
Common sense might suggest the answer is simple: The lucky fan who catches the historic ball shouldn't owe tax until he or she sells it. But relying on common sense to interpret tax laws can often lead to trouble. Asked whether any fan who has ever caught a valuable home-run ball has had to pay tax on it before selling it, an IRS official declines comment.
Some professors, such as Alice Abreu of Temple Law School, feel strongly the answer is clear. "It's taxable income" to the fan the instant that person catches the ball, Prof. Abreu replies. How come? "It's accession to wealth," and nothing in the tax code specifically exempts from taxation a Barry Bonds-propelled baseball. Lawyers say this view logically stems from cases saying that someone who finds a "treasure trove" owes tax on it right away.
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But other lawyers disagree. They also say it's highly unlikely that the IRS would be willing to risk the wrath of a baseball-loving nation by taxing the fan right away.
Yale Law School Prof. Michael Graetz, a former Treasury Department official and co-author of a leading course book on federal income taxation, says that the Bonds issue "would make a great law-school exam question."
Actually, there's way more than one question. Will the Internal Revenue Service require the fan to pay tax immediately, based upon the ball's estimated fair-market value? Or only after the fan sells the ball? Will the fan have to pay tax based on regular federal income-tax rates, which range up to 35%? Or, if the fan waits to sell the ball for more than a year after catching it, would any profit qualify as a long-term capital gain taxed at the maximum rate of 28% on collectibles?
If the prize catch does qualify as a long-term capital gain, what would the fan's cost be for tax purposes? Zero? The price of the ticket? The ticket price plus the value of a new baseball? What if the fan purchased a season ticket? Could he or she consider the cost of the entire season package as the cost basis? Would it make any difference if the person who catches the ball isn't a fan but rather a player standing in the bullpen? Or a groundskeeper?
These are just some of the curveballs that IRS officials don't want to try hitting. The IRS's expert is Don Korb, who not only is chief counsel, but also the agency's resident baseball fanatic. His office is filled with sports memorabilia, especially those related to his beloved Cleveland Indians -- including two home-run balls he personally caught in Cleveland. Last summer, he gave a speech at the Hall of Fame, where he discussed "the 10 most significant tax events in the history of baseball." If anyone knows the answer, it should be Mr. Korb.
When asked, Mr. Korb hides his head in his hands and replies: "Please, whatever you do, don't ask me that question."
A senior IRS official says, to the best of his recollection, the issues involving milestone home-run balls haven't been addressed in any formal IRS guidance. Yet the IRS did offer its thinking on one aspect of the subject back in 1998 -- and the story behind that pronouncement helps explain why IRS umpires are so reticent to discuss the subject today.
In the summer of 1998, a tax tempest flared up when St. Louis Cardinals slugger Mark McGwire was on the verge of smashing Roger Maris's single-season record of 61 homers. At the time, a reporter asked an IRS spokesman what might happen if the fan who caught the record-breaking ball gave it back to Mr. McGwire as a gift.
The IRS spokesman replied that the fan could get hit with a hefty gift tax. That response produced howls of protest from the halls of Congress, as then-IRS commissioner Charles Rossotti recalls vividly.
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"More than innocent-spouse cases, more than small-business owners losing their businesses, more than IRS modernization failures, the prospect of the IRS taxing this hypothetical good-hearted fan unleashed the fury of the American people, not to mention their representatives in Congress," Mr. Rossotti wrote in his memoir, "Many Unhappy Returns."
The IRS quickly reversed itself. Mr. Rossotti issued a statement saying that if a fan caught the ball and gave it back to Mr. McGwire, the fan wouldn't be taxed. "Sometimes pieces of the tax code can be as hard to understand as the infield fly rule," Mr. Rossotti explained. "All I know is that the fan who gives back the home-run ball deserves a round of applause, not a big tax bill."
That witty response drew its own round of applause -- and relief within the IRS. But it seems unlikely that the fan who catches the Barry Bonds ball will give it back to the slugger as a gift. For one thing, the ball probably will be worth a considerable amount of money -- "probably somewhere in the half-million range, four or five hundred thousand" dollars, says Dan Imler, managing director of SCP Auctions in Mission Viejo, Calif. (Mr. Bonds's 700th home-run ball was sold through SCP in 2005 for $102,000.) Mr. Imler says his estimate is based on such factors as "what other milestone home-run balls have sold for recently, the mixed public opinion about Barry Bonds and the record, and market conditions in general."
Mike Heffner, president of Lelands.com, a sports-memorabilia auction firm, thinks the price could be higher. "In my estimation, it's a half-a-million-dollar baseball, but it could sell for more at an auction," he says. "Sometimes people get crazy at auctions. Strange things do happen."
In May, Heritage Auction Galleries offered $1 million to buy the ball that Mr. Bonds hits when he breaks the record, says Chris Ivy, director of sports auctions for the Dallas-based auction house. But Heritage recently withdrew its offer because of what it referred to as "concerns about the safety of fans in the stadium and potential legal liability."
Prices for historic baseballs have swung widely over the past several decades. When Mark McGwire hit 70 home runs in 1998 -- breaking the single-season record -- the ball was sold at auction for about $3 million. Since then, prices for home-run balls haven't come close, partly because historic records have been falling more frequently and because of suspicion that some players -- including Mr. Bonds -- have used steroids to enhance their performance. (Mr. Bonds has denied using steroids.)
Yale Law Prof. Graetz helped advise the IRS on the Mark McGwire flap in 1998 before Mr. Rossotti issued his statement resolving the issue. In return, the grateful Mr. Rossotti sent Prof. Graetz a baseball signed by Mr. Rossotti, saying: "Thank you for saving us from a strikeout on national TV."
So did Prof. Graetz declare the Rossotti ball on his tax return as income?
No, Prof. Graetz replies with a chuckle, explaining: "I don't think it has a lot of value to anyone but me."
• Discuss in Law Blog (http://blogs.wsj.com/law/2007/07/25/tax-law-final-exam-question-barry-bondss-ball/)

guDon
08-11-2007, 03:11 PM
The guy who caught the ball did the right thing and consigned it to SCP Auctions/Sotheby's. Of all the auction houses, SCP Auctions appears to get the least criticism from forum members.

Now he gets to pay the taxes and have some money left over. I bet it sells for $600,000+.

guDon
08-11-2007, 03:14 PM
The guy who caught the ball did the right thing and consigned it to SCP Auctions/Sotheby's. Of all the auction houses, SCP Auctions appears to get the least criticism from forum members.

Now he gets to pay the taxes and have some money left over. I bet it sells for $600,000+.

But...that kid calling the #756 the greatest accomplishment in American Sports history? C'mon!

whatupyos
08-11-2007, 03:23 PM
What about Heritage Auctions...I thought there was a thread that said they were going to offer $1 million to the person who caught the ball? Did they pull out of that statement or did I just make that up?