Why is Catching a Baseball Taxable Income?
As soon as 21-year-old Matt Murphy snagged the valuable piece of sports history Tuesday night, his souvenir became taxable income in the eyes of the Internal Revenue Service, according to experts.
"It's an expensive catch," said John Barrie, a tax lawyer with Bryan Cave LLP in New York who grew up watching the Giants play at Candlestick Park. "Once he took possession of the ball and it was his ball, it was income to him based on its value as of yesterday,"
By most estimates, the ball that put Bonds atop the list of all-time home run hitters with 756 would sell in the half-million dollar range on the open market or at auction.
That would instantly put Murphy, a college student from Queens, 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 Barrie. Capital gains taxes also could be levied in the future as the ball gains value, he said...
[A]t least one ball was as much a source of embarrassment for the IRS as revenue.
As Mark McGwire chased the mark for most home runs in a season in 1998, IRS officials initially said the ball that broke Roger Maris' long-standing record could be subject to taxes even if it were returned to McGwire. The statements were ridiculed by politicians and quickly disavowed by the agency's top brass.
Comments (78)
He would still come out ahead, if he sold it. That is what I would do.
Published: August 8, 2007 11:40 PM
Would it be wrong for him to heave the thing through an IRS window somewhere?
Published: August 8, 2007 11:43 PM
Oh, wait. I suppose the government would claim that fixing the window represented "the start of a new period of economic growth."
Published: August 8, 2007 11:44 PM
Take out the fees for selling the ball in addition to the taxes plus other incidentals and that half million dollar ball is worth a lot less when the resulting money is placed in a bank account.
Published: August 9, 2007 12:12 AM
I'll bring a comment up that is amazingly missing. What legal right does the IRS have to tax this, or any income whatsoever? Whoever can give me an answer based on our constitution or federal law gets put into my cool book.
Published: August 9, 2007 12:22 AM
Perhaps that ball could be thrown as the first pitch of....A Revolution...
Published: August 9, 2007 12:24 AM
Start a trust fund and place the ball into that as collateral.Deduct the fees for maintain the ball and your ceo fees on your taxes.Purchase am expensive office to room the ball in .Invite celebrities to visit the ball and write off those expenses.Find a excellent account to do this and write it all off.He could live tax free in a while.
Published: August 9, 2007 12:27 AM
16th Amendment:
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration.
Put me in your cool book.
Published: August 9, 2007 4:30 AM
Here's my argument: when he caught the ball, it did not have value, because Bonds had not yet achieved his home run. After he owned it for a few seconds, Bonds hit home plate, so the value of the ball rose from a few dollars to $600K. Hence he should pay income tax only on the value it had when he caught it, and capital gains on the subsequent appreciation only when he sells it.
Published: August 9, 2007 4:30 AM
Regarding capital gains on the item, do owners of rookie sport cards owe some kind of retroactive tax for possessing those of Mickey Mantle, Willie Mays, Nolan Ryan or other famous players?
At what point does the capital gains tax come into existence?
Published: August 9, 2007 5:23 AM
Has anyone thought of the 715 homerun ball that Hank Arron hit to pass Babe? where is that ball now. Barry has hit quite a few home runs this season. So your telling me he is not going to hit ANYMORE, and this ball is going to be the last home run he hits EVER? i find that hard to believe. so it puts be back to how much is Hanks 715th homerun ball worth? and how much is his 755 worth? Someone explain this to me. thanks.
Published: August 9, 2007 7:06 AM
Mike:
Aaron's 715th home run was caught by Braves pitcher Tom House, who was sitting in the bullpen at the time. Because of that, I would assume that that ball is in Cooperstown.
I would bet that Aaron's 715th home run ball would be worth more than Aaron's 755th home run ball.
I would suggest that Murphy sell the ball quickly, because Alex Rodriquez will pass Bonds in a few years.
Published: August 9, 2007 8:32 AM
Ryan, don't. Recognize bait when you see it
Published: August 9, 2007 9:09 AM
Mike,
Nobody is claiming that Bonds will stop hitting HR's now; but the one that broke the previously held record (held by someone else for a long time) is the one that will be worth the most. Subsequent "record-breaking" home run balls (breaking his own record every time he does it) should be worth, according to auction experts, between 3 and 5k apiece. The next one that will be worth anywhere close to the original record breaker is that last one he hits...but nobody really knows when that will be, unless it happens in the 9th inning of the last game of the season after he announces he's retiring.
Published: August 9, 2007 9:10 AM
Well, I don't see how he owes income tax on the ball. By law, it appears to me that he will owe capital gains tax on the entire amount. The appreciated greatly starting the instant he caught it.
Published: August 9, 2007 9:20 AM
I think a l337 h4x0r has pwn3d mises.org and replaced it with The Onion
Published: August 9, 2007 11:01 AM
What this really points out is that bureaucracy can't be supple enough to say that this particular instance is a unique enough set of circumstances and that if tax is ever recognized it will be capital gain with zero basis. How hard is that? But of course every other savvy taxpayer will try and state that their case is similar to this, and so the IRS has to toss out the barrel for one perceived "bad apple" (from their point of view anyway"). So we get an endlessly rigid set of rules that steamroll over people regardless of common sense. Of course the Government makes out now with the tax assessed up front, but if they're so poorly off that they need the $200,000 now we're in a world of hurt. I also assume that he needs to come up with the money not next April, but this fall with a quarterly deposit. The ball might not fetch its peak price for a while, but he would be forced to sell it to cash flow to Ceaser. And unfortunately for him it was California and he's from elsewhere so he'll owe two State taxes. Hopefully there is some offset.
I guess one could always collateralize a loan with the ball and wait for it to appreciate even more before selling it, but one has to wonder what we are coming to when someone finds good fortune and the first thing that happens is the government gets up in has face about it. What a lovely world we've made for ourselves.
So after paying legal fees, auction fees and taxes, you wonder just how much you have left over.
Published: August 9, 2007 12:21 PM
This story is the OPINION of one tax lawyer. There are plenty of other tax lawyers and accountants who would say that the kid does not owe any tax until he sells the ball. There are even some tax lawyers who would consider the ball to be a gift from the Giants, and therefore the Giants are responsible for paying the tax in the form of a gift tax.
This only matters if he keeps the ball and is forced to pay tax which of course he cannot afford. If he sells the ball then of course he would have to pay tax and there is no debate.
The only fact is this - the IRS has not made any claim or issued any ruling, either in this case or as precedent in past cases. Always in the past the valuable ball has been sold and normal taxes paid.
Published: August 9, 2007 12:55 PM
I actually have a better solution for him, if he were willing:
If the IRS demands 35%, then divide the ball into two portions constituting 65% and 35%. FedEx the smaller piece to the IRS.
Published: August 9, 2007 12:56 PM
Yancey, perfect suggestion. Let the world quake with dismay at the destruction of this hallowed artifact... That would make a story of unparalleled awesomeness... Some people might even direct their rage at the IRS instead of the dude...
Then of course a couple years later he can just sell the authentic, undamaged ball on the black market tax free.
(we didn't honestly think he'd wreck the real one, did we?)
Published: August 9, 2007 1:48 PM
I would take the ball and wrap it in black tape. Then I would go out in the street and hit grounders to the kids.
Published: August 9, 2007 1:50 PM
If the value is derived from yesterday, then the ball wouldn't be $600,000. If yesterday it was just another baseball, it'd be worth the price paid for it - not $600,000.
Published: August 9, 2007 1:53 PM
what a joke.. the US is becoming a big joke.. they tax every damn body who makes crap per year, so hard.. but yet a decrease in income tax on everyone who makes 999,999/yr and bellow, and an increase by say 5% on everyone above, would come out soooooo much better. and they say we have no $$, but yet, we give it all away and spend it on a useless war??
Published: August 9, 2007 4:36 PM
He should give the ball away to someone who then gives the ball away, and so on. Since each gift is taxable, the IRS could eventually collect the national debt off this one ball.
Published: August 9, 2007 4:42 PM
Do the people that caught the other 35 balls that went into the crowd that night - have to pay taxes on them? It seems to me that the true value of the ball is closer to $5 (actual cost), rather than $500,000...
PS - the 16th amendment refers to CONGRESS - NOT the IRS... The IRS uses "Implied" authority... There are NO laws requiring anyone to pay taxes...
Published: August 9, 2007 4:45 PM
What is the IRS's policy for valuing the ball? I know they say that they want %35 of the fair market value, but can't the guy claim that Bonds is a steriod user so noone would pony up $600,000 for the ball? Also, how about selling the ball to a relative for $1. I'm pretty sure the IRS still considers the "fair" market value of the ball when it decides that it wants its taxes.
Published: August 9, 2007 4:51 PM
Obviously that lawyer is mistaken, the 21 year old catching the ball has a basis of 0 in the ball. It only becomes taxable when he sells it. On the other hand, if the the 21 year old caught a wad of cash, he would have to: report that amount as taxable income and pay respective taxes on it.
I think the lawyer is basing his advice on Murphy's law, which is based on murphy v. IRS. Even so, I wouldn't be suprised that he'll get a tax bill for a "FMV assessment."
I would try holding the ball over a year and consider it as a capital asset (better cap gains rates if long term) and start deducting everything that pertained to his ascension of wealth (hobby losses: cost of tickets, food, etc...)
Published: August 9, 2007 4:54 PM
Another fun IRS fact. Let's say your grandfather wins the lottery and then dies, leaving you his lottery winnings in his will. The IRS will immediately demand to be paid all taxes on the lottery money (that you haven't even collected yet because the lottery is paid out over 20 years). Now, if you account for inflation, your lottery payments have less value every year even though you receive the same dollar amount. Bottom line, the value of the taxes you pay is greater than the value of your lottery "winnings" when you adjust for inflation.
Published: August 9, 2007 4:55 PM
Wow! That's crazy! I know here in New Zealand you'd be safe, with the defense that you do not carry out 'baseball catching' as a regular and continuous activity, and as such it's not a taxable activity in the eyes of our tax laws.
ps. Don't declare anything, and when the IRS come visiting toss one of their investigators the ball and claim they have to pay the tax once they've caught it ;)
Published: August 9, 2007 4:55 PM
Jason, Congress is levying the taxes, Congress set the income tax. IRS is just a collection agency set up to do the administrative work involved in the payment of taxes. Congress sets the rates, IRS does all the dirty work with authority given to them by congress. Representatives and Senators don't have the time or resources to do the administrative work to make a tax system work.
Published: August 9, 2007 4:58 PM
I can't believe this lib website cares about somebody being overly taxed! How about the AMERICAN PEOPLE!?!?
Published: August 9, 2007 5:06 PM
You can't do that to baseball. Who would wantto attend and catch a ball. After this non-sense, what will they do if it is a four year old who chatches the ball!?!?!?!
Published: August 9, 2007 5:09 PM
This is the point where we should be asking if the US needs a big change. This is giong way to far, the goverment was never ment to have this much reach.
Published: August 9, 2007 5:09 PM
hrm. Seems to me that the ball is valueless until sold and should not be taxed. Just because some 'expert' values the baseball at $600,000 doesn't mean that it will be purchased for that amount. Besides, the baseball was not income, was not a gift, and is not inherently valuable like a gold nugget or a diamond.
Published: August 9, 2007 5:14 PM
The United States is unique in that it is one of the few countries to tax income resulting from a windfall (i.e. lottery, game show, etc.) In all likelihood, the IRS will argue that the ball represents a windfall to its owner and should be taxed as such. As a result, the value of the ball (i.e. as estimated by auction) will be subject to income tax.
If the ball is treated as a windfall then the approximate amount of the tax must be withheld immediately. So, the owner will be forced to sell the ball to pay the tax.
Published: August 9, 2007 5:20 PM
How much does a ball cost? Reasonably, it should be assumed that the ball cost about 5 bucks at Wal-Mart, and used resale value might be 1 dollar. Fuck 'em, and let 'em tax him on 1 dollar.
Published: August 9, 2007 5:25 PM
It just goes to show: there's no such thing as a free baseball :-)
One Man. One Year. $100,000 online. Learn how free (don't tell the IRS.)
http://www.oneyeargoal.com
Published: August 9, 2007 5:25 PM
First I wanted to say that I think our current tax system is despicable. I have to disagree with the gentleman who directed us to read the 16th amendment as giving the federal government the right to tax income as a direct tax. The 16th amendment did not give any new powers to tax, instead it only clarified what type of tax an income tax was.
For more info, read this website: http://www.thepriceofliberty.org/04/04/16/greenslade.htm
Published: August 9, 2007 5:26 PM
If I was in Matt's position, I would auction off the ball, keep the money, and renounce my citizenship in protest. The IRS practices institutionalized extortion, which is bad enough, but the fact that our money is either flushed down the toilet of bureaucratic waste or used to murder children in third-world countries makes it utterly intolerable.
Published: August 9, 2007 5:28 PM
"I can't believe this lib website cares about somebody being overly taxed! How about the AMERICAN PEOPLE!?!? "
And this person being overly taxed is somehow not an American person, i.e. part of the "American people"?
Published: August 9, 2007 5:29 PM
So just to ask a silly question; What would happen if this guy (or anyone) choose not to pay taxes?
Let's assume average 21 y/o - Lives in apartment or college dorm, part time income, few valuable possessions. Just what are the powers of the spooky IRS?
Published: August 9, 2007 5:32 PM
IRS - We are taxing you on the famous baseball you received from the homerun hit on blah blah blah blah.....
KID - What ball?
Published: August 9, 2007 5:40 PM
I figured its NOT income since he PAID for it by buying his ticket. The Value of the ball has to be less than the ticket.
Published: August 9, 2007 5:45 PM
16 amendment
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Published: August 9, 2007 5:49 PM
"I can't believe this lib website cares about somebody being overly taxed! How about the AMERICAN PEOPLE!?!?"
Good point. The American People are all overtaxed.
Published: August 9, 2007 5:51 PM
Keep the ball, but store it in a big bucket of shit. How much is a ball worth when it's clearly in a bucket of shit? Or what if he accidentally dropped the ball in the bucket of shit? By the IRS reasoning, he should then be able to get a tax write off for loss of income.
Published: August 9, 2007 5:54 PM
Move to the Bahamas!
Published: August 9, 2007 6:21 PM
To all those pointing the the 16th amendment as the law requiring anyone to pay an income tax, please note that the 16th amendment is not a law that creates any liability on anyone. It is the authorization for the congress to pass statutes that create liability to pay a tax. So, if you want to site a law, you will need to look at Title 26 and find the number of the statute that makes this man liable to pay taxes on the estimated value of this baseball.
Published: August 9, 2007 6:23 PM
Actually citizens agreed to a having a temporary income tax levied to pay for World War 2. After those two years were over, someone forgot that the levy was done with. When we fill out a W-2 form we become voluntary Income Tax payers. The guy owes IRS zero when he sells the ball. But IRS uses unauthorized actions to seize bank accounts and such.
Published: August 9, 2007 6:38 PM
Will it blend?
Published: August 9, 2007 6:48 PM
Here's a thought:
Quit arguing that people don't legally have to pay taxes and start arguing that taxes, legal or not, are a violation of property rights.
Published: August 9, 2007 6:53 PM
Hank Aaron's 715 ball (& bat) are in the Braves museum at Turner Field.
Published: August 9, 2007 7:34 PM
Micah,
ROFL
Published: August 9, 2007 7:42 PM
"Here's a thought:
Quit arguing that people don't legally have to pay taxes and start arguing that taxes, legal or not, are a violation of property rights."
Kevin, why not do both? De-fang the beast and deprive it of any claim to moral or legal superiority.
Published: August 9, 2007 7:52 PM
Throw it in a bag of balls and go do batting practice all year. Make the IRS agent identify it next Spring.
Published: August 9, 2007 9:01 PM
Two words:
FLAT TAX
Published: August 9, 2007 9:54 PM
The real issue here is the sad fact that the ball’s worth will be determined by “market value.” What about personal value, which might be immense but which can’t be determined monetarily. If I don’t want to sell the ball, then I’m not sure how “market value” can be applied, since it’s never going to be on the market. And what if a child had caught it? Would that child then be in the same situation? But finally, perhaps we should consider the category of “historical value,” because frankly, I wouldn’t really place that above zero. When Bonds is banned from baseball ala Pete Rose, and his record officially removed from the records book, and the ball DROPS in value, will the IRS return to issue a refund on the previously collected taxes?
Published: August 9, 2007 11:39 PM
There are two issues here:
(i) the 'ex ante' issue - what would constitute fair tax treatment in this situation?
(ii) the 'ex post' issue - what is the correct tax treatment given the existing legislation?
In terms of issue (ii), the IRS will argue that this is a windfall and tax should be withheld and paid. The counter-argument is that the ball is personal property and should be subject to capital gains tax IF and WHEN sold. The outcome will depend on how some judge interprets the law, and not whether any of us agree with the law.
In terms of issue (i), I believe that the fairness of any tax law can be measured based on the principle of equity, meaning that persons at the same economic level should bear the same tax cost. So, a person who catches a ball and sells it for $x should be taxed the same as a person who earns $x in the year. However, to demand the payment of tax before the ball is caught is the same as asking a person to prepay their taxes at the beginning of the year. So, the counter-argument mentioned above seems to be the most fair tax treatment.
Published: August 10, 2007 12:35 AM
where are we getting the $600k number? was that one expert's estimate? this ball would fetch a FAR higher price than that at auction. I'd say at least double.
Published: August 10, 2007 12:36 AM
The US is also a country that takes away about half of a persons net assets (above an arbitrary minimum) when they die. Even Russia doesn't do this any more. If you want to grow a business, stay away from the US. There is no limit to the governments appetite. A national consumption tax will likely be added as well in the next 10 to 20 years. Massive government bloat will make us look like a sick animal to the other "predators" in the global "forest".
Published: August 10, 2007 1:21 AM
I wonder if he pays taxes on an estimated value at auction does the auction house have to pre-pay the irs for selling the ball and if it doesn't meet the irs estimated value how fast is the refund and if it's worth $500,000.00 at auction and the auction house gets 25% of sales on average then he's taxable value of the ball is less.
Published: August 10, 2007 9:28 AM
Only in America; What a place!! What's next? Taxing of entrepeneurial ideas while they are still in your head??
Published: August 10, 2007 11:08 AM
Anthony: "Kevin, why not do both? De-fang the beast and deprive it of any claim to moral or legal superiority."
It appears to me that the beast grows it's teeth back as fast as they fall out.
Published: August 10, 2007 1:20 PM
The IRS wouldnt claim anything for such a high profile event.
The universal goal of a parasite is to suck as much blood as it can without damaging or bothering the host.
That's why every parasite in nature also produces pain killing drugs.
Of course states arent always as smart as a leech or a mosquito so once in while the host gets riled up and revolts.
Published: August 10, 2007 1:32 PM
Anyone who is an American should be ashamed of their citizenship because of this.
Published: August 10, 2007 10:54 PM
vote Ron Paul!
He wants to get rid of the IRS and setup a flat tax!
Published: August 11, 2007 9:09 AM
Would this idea work?:
If I caught the ball, I would just 'give' it to a relative of mine who lives in a country that doesn't tax this sort of thing (not a US Citizen btw) and have him sell the ball and keep the money in his account. I live the good life whenever I visit Europe as well as have him send me lavish gifts. For the sake of argument let's assume he doesn't keep any of the money for himself. How will the IRS go about taxing me if they can at all?
Published: August 11, 2007 1:57 PM
George W: they won't - they'll charge you with criminal evasion, lock you up forever, and argue with the foreign govt that the money in your relative's account is really yours and they want 100+% of it. (And if they don't get it, there might be a "regime change" in that country...)
Published: August 12, 2007 11:16 PM
I have to agree with the article, if your given $600,000 for one catch, there is no doubt you should be taxed! otherwise its just not fair.
Published: August 15, 2007 6:42 AM
interesting thought, but then we could argue about lots of things, for example kicking a ball or cooking an omelete?
Published: August 15, 2007 4:27 PM
This seems not quite accurate somehow. As several people have commented, how can you tax someone on what an item might be worth if they sold it when they have not, in fact, sold the item. As I understand tax law, an actual transaction beyond mere possession must take place before taxation occurs. If I were hired for a job at $50,000 a year and then, before earning any money chose to take no job for the year, would I still face a taxable action merely because I had been hired? I realize that's an awkward example because it's income tax law, but it seems relevant in that if you simply possess the ball, it doesn't mean you will sell the item. I have a few rookie baseball cards of players who are and who probably will be Hall of Fame caliber players - will the IRS come and bill me ahead of time even if I never sell these cards?
Published: August 22, 2007 2:08 PM
Ok, riddle me this. If he were to lose the ball, or if it were destroyed, say, in a fire, or if it were chewed up by a dog, or defaced, or otherwise rendered worthless. Would the owner then be able to claim a loss?
That would be poetic justice. Nobody gets the ball. It rolls off the deck of a ship and sinks to the bottom of the ocean, or accidentally falls into a wood chipper, or is stolen, never to be seen again. Both the IRS and baseball fans lose.
Published: August 29, 2007 1:07 PM
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Published: August 31, 2007 1:32 PM
This has got to be the most rediculous thing I have ever heard in my life.
Published: August 31, 2007 10:02 PM
He would still come out ahead, if he sold it. That is what I would do.
Published: December 19, 2007 10:27 AM
Intriguing. Highlights the absurdity that lurks everywhere in the details of taxation laws.
you should be able to beat them at their own game, implicit in these words:
"It's an expensive catch," said John Barrie, a tax lawyer with Bryan Cave LLP in New York who grew up watching the Giants play at Candlestick Park. "Once he took possession of the ball and it was his ball, it was income to him based on its value as of yesterday,"
Correct me if Im wrong, but the ball's value 'as of yesterday'( before the big game) would have been less than five dollars - it was at that point an unremarkable baseball just like millions of others. It took its use in the game the next day to give it the higher value driven by collectable desirability.
and even if they do decide to base it on the post-game value of the ball, there is no way to determine that value without entering into an arms-length sale agreement. so how would they manage to assess it, short of confiscating it and placing it on auction?
Published: January 2, 2008 4:35 AM
This reminds me of a set of collectible items featuring a world-famous athlete. The items include his pictures, moves, tips and sports items. In exchange this athlete is paying high taxes. It’s quite unfair that the government is exacting unreasonable taxes and yet the people can’t see any output or product from these taxes. What’s unfair is that they’re asking for almost 75% of one’s income; sometimes 100% for the first taxes.
Published: February 4, 2008 8:15 AM
Responding to this post: "You can't do that to baseball. Who would wantto attend and catch a ball. After this non-sense, what will they do if it is a four year old who chatches the ball!?!?!?!
Well, the dispicables from the IRS would probable take your kids for hostage.
The kid ought to sell the ball to his brother, friend, whoever for $1 and let the new owner do the same, and on and on.
The IRS needs a slap in the face and a kick in the groin from all of us until they are lying in their own excramant and then swept away with the next morning's rubbish removal.
Their is no law making 98% of Americans liable for any Federal Income Tax.
Published: February 12, 2008 12:11 PM