Tax implications of catching #756

[TheSaint]

There were some previous posts about this. Here's what a CBS Sportsline article says:

Matt Murphy could become $500,000 richer if he sells Barry Bonds' record-breaking home run ball.

Selling the ball for that amount would instantly put Murphy in the highest tax bracket for individual income, where he would face a tax rate of about 35 percent, or about $210,000 on a $600,000 ball.

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.

On the other hand, he said, if the ongoing federal investigation into steroid abuse among professional athletes takes a criminal turn for Bonds, the ball's value could go down - which would likely allow Murphy to claim a loss.

Link: http://www.sportsline.com/mlb/story/10288361

[Weathervane]

Selling the ball for that amount would instantly put Murphy in the highest tax bracket for individual income, where he would face a tax rate of about 35 percent, or about $210,000 on a $600,000 ball.

For $390,000 in my pocket for a day at the ball park, I'd have to say "Its a DEAL, Howie".

[Cpt Banjo]

It would be nice to be independently wealthy and to have been able to throw the ball back onto the field as a symbolic gesture.

[Weathervane]

It would be nice to be independently wealthy and to have been able to throw the ball back onto the field as a symbolic gesture.

The independently wealthy don't sit in the outfield. They have box seats, and only catch foul tips.

[No_Name1]

The independently wealthy don't sit in the outfield. They have box seats, and only catch foul tips.

Not to mention they don't throw money away, as a rule.

They may give it to a charity, if they don't want or need it, but they don't throw it away.

Rule number 1.

[Quixote]

If I heard correctly, the guy who caught the ball, was only there because of a one-day layover, before he headed back home.......to Australia.

Therefore, it is an Australian income tax issue and since I do not live in or pay Australian income taxes, I don't give two farts in Hell about the guy's gains, as it will be Australian in nature with no application to US situations.

The US/Australia tax treaty seems to say otherwise.

ARTICLE 21
Income Not Expressly Mentioned
(1) Items of income of a resident of one of the Contracting States which are not expressly mentioned
in the foregoing Articles of this Convention shall be taxable only in that State.
(2) However, if such income is derived by a resident of one of the Contracting States from sources
in the other Contracting State, such income may also be taxed in the State in which it has its source.

If the value of the ball is taxed as treasure trove, it looks like US source income to me.

[TheSaint]

If I heard correctly, the guy who caught the ball, was only there because of a one-day layover, before he headed back home.......to Australia.

He lives in New York. He was on his way to visit Australia.

[notorial dissent]

A question for those of the profession. What is the tax implication if the person who caught the ball simply takes it and puts it in a box and forgets about it? It is no different than anyone who finds a rare coin on the ground, takes it home and throws it in the spare change jar.

[Imalawman]

A question for those of the profession. What is the tax implication if the person who caught the ball simply takes it and puts it in a box and forgets about it? It is no different than anyone who finds a rare coin on the ground, takes it home and throws it in the spare change jar.

My quick two cents would be that he has experienced a gain, but has not realized that gain until he sells it. He maintains a zero basis in the ball (perhaps a small amount for price of admission) and will be taxed on the gain when he exchanges it outside of a like kind exchange.

[Demosthenes]

A question for those of the profession. What is the tax implication if the person who caught the ball simply takes it and puts it in a box and forgets about it? It is no different than anyone who finds a rare coin on the ground, takes it home and throws it in the spare change jar.

You could also compare it to winning the lottery, which would be taxable.

[notorial dissent]

However, if I throw the ticket in the drawer and forget about it, or lose it, then I am still no better off than I was before.

I recognize that there is a "possible" gain here, but like a stock option, that may be worth 90 kabillion dollars at some future date, until it is exercised, it is still just a piece of paper, or in this case a baseball. And, while the subjective value at the moment may be high, in ten years, no one may care, and after sitting for ten years in a box in the back of the closed it then may well be just another baseball once.

[Imalawman]

However, if I throw the ticket in the drawer and forget about it, or lose it, then I am still no better off than I was before.

I reacognize that there is a "possible" gain here, but like a stock option, that may be worth 90 kabillion dollars at some future date, until it is exercised, it is still just a piece of paper, or in this case a baseball. And, while the subjective value at the moment may be high, in ten years, no one may care, and after sitting for ten years in a box in the back of the closed it then may well be just another baseball once.

In the lottery case, you would be deemed in constructive receipt of the money and unless you affirmatively rejected the winnings you would be taxed on the value of the ticket. (even if you rejected the winnings, there might still be some taxation issues) The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization. In the case of a winning lottery ticket, I think it would deemed the same as in constructive receipt cases dealing with checks not cashed or deposited.

[Demosthenes]

The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization.

How about when a contestant wins a new car or a fancy appliance on a game show?

[Cpt Banjo]

The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization.

How about when a contestant wins a new car or a fancy appliance on a game show?

In the case of a game show prize, you've got a specific Code Section (Sec. 74) that taxes its value. In addition, you have an intentional transfer of the prize from the sponsor to the contestant, a fact that is lacking when dealing with found property. (Whether #756 is "found property" in the same sense as a 1913 Liberty Head nickel that is found on the sidewalk may be debatable, though.)

[Imalawman]

The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization.

How about when a contestant wins a new car or a fancy appliance on a game show?

Well, there you go complicating things again....Good point though. My opinion without spending any time researching, would be that prizes and awards are taxed specifically under section 74. There is no specific provision for a windfall and thus general rules of income, gain, and realization come into play. There have been cases in which someone acquires an old chest for $10 only to discover its a rare antique worth $40,000. In this case, the taxpayer takes a basis of $10 and would recognize a gain upon the sale of the chest.

I think catching 756 for the price of admission would be closer to a windfall than a prize. I don't think that Section 74 would apply. Therefore, I think that you would take a basis of the ticket price (maybe, its probably going to be a basis of zero) and then pay taxes on the gain when you sell it. I don't know what has happened in the past with caught baseballs, but this is my opinion.

EDIT: I see I wasn't quick enough with my response, but its nice to know that we agree.

[Nikki]

The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization.

How about when a contestant wins a new car or a fancy appliance on a game show?

No taxes are owed. Just ask NakedSurvivorDude.

[notorial dissent]

However, if I throw the ticket in the drawer and forget about it, or lose it, then I am still no better off than I was before.

I reacognize that there is a "possible" gain here, but like a stock option, that may be worth 90 kabillion dollars at some future date, until it is exercised, it is still just a piece of paper, or in this case a baseball. And, while the subjective value at the moment may be high, in ten years, no one may care, and after sitting for ten years in a box in the back of the closed it then may well be just another baseball once.

In the lottery case, you would be deemed in constructive receipt of the money and unless you affirmatively rejected the winnings you would be taxed on the value of the ticket. (even if you rejected the winnings, there might still be some taxation issues) The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization. In the case of a winning lottery ticket, I think it would deemed the same as in constructive receipt cases dealing with checks not cashed or deposited.

Actually, I will have to disagree with you here on the ticket, there is no way to know who won a lottery, since they are issued blank, and they expire after a certain period of time. As far as the ball is concerned, that is my understanding as well, that until it is sold it remains just a ball.

I agree on the game show prize winnings, that has always been my understanding as well. Although I have always wondered what happens when they win something like that and then turn around and donate it directly to charity or are playing for charity in the first place. And just to add insult to injury, they will also owe the sales tax on whatever they won, so hardly a prize in my estimation.

[Demosthenes]

I think there was legislation passed a few years ago (2000 or 2001) the last time a famous baseball home run was hit (I'm not a baseball fan) that allowed the person who caught it to donate it without negative tax consequences to the baseball hall of fame. My hubby wrote the legislation and I remember him telling me that various congressmen were scrambling to among the first to sponsor the bill.

[Imalawman]

However, if I throw the ticket in the drawer and forget about it, or lose it, then I am still no better off than I was before.

I reacognize that there is a "possible" gain here, but like a stock option, that may be worth 90 kabillion dollars at some future date, until it is exercised, it is still just a piece of paper, or in this case a baseball. And, while the subjective value at the moment may be high, in ten years, no one may care, and after sitting for ten years in a box in the back of the closed it then may well be just another baseball once.

In the lottery case, you would be deemed in constructive receipt of the money and unless you affirmatively rejected the winnings you would be taxed on the value of the ticket. (even if you rejected the winnings, there might still be some taxation issues) The lottery ticket is rather different than receipt of tangible personal property. In the case of 756, I think that gain would be deferred until realization. In the case of a winning lottery ticket, I think it would deemed the same as in constructive receipt cases dealing with checks not cashed or deposited.

Actually, I will have to disagree with you here on the ticket, there is no way to know who won a lottery, since they are issued blank, and they expire after a certain period of time.

I'm not following you here. I think we're talking about true tax liability, not the ability of the IRS to discover you owe the tax. My point is that when you receive a lottery ticket, you are in constructive receipt of income because there are no substantial limitations or impediments to your ability to collect the money... i.e. cash in the ticket. Courts have been consistent in constructive receipt cases when it involves a check that you wait to cash in on. You can't delay the taxable year simply by failing to cash the check. In the event you held the ticket too long and never cashed it in, then you would probably be able to argue against taxation. However, given the doctrine of constructive receipt, I would make sure I specifically reject the money in order to avoid taxation.

[silversopp]

A question for those of the profession. What is the tax implication if the person who caught the ball simply takes it and puts it in a box and forgets about it? It is no different than anyone who finds a rare coin on the ground, takes it home and throws it in the spare change jar.

You could also compare it to winning the lottery, which would be taxable.

I thought that you paid taxes only after exchanging the winning lottery ticket for cash. If I buy the winning ticket, and forget about it, I would still be liable for taxes? That doesn't seem right.