Thursday, July 14, 2011

Here We Go, Again: Home Runs and Taxes.

Christian Lopez, the fan who recently caught Derek Jeter’s record setting home run baseball, which constituted Jeter’s 3,000th hit, joins a small group of fans who have caught historic home run baseballs only to find there may be tax consequences. First, there was the groundskeeper who retrieved Mark McGwire’s 62nd home run baseball in 1998, only to give it to McGwire. Most recently, there was Matt Murphy, who caught Barry Bonds’ record setting 756th career home run in 2007.
In 1998, the Service issued conflicting statements regarding the tax treatment of a fan who caught a historic home run ball and returned it to the player. The Service ultimately issued a press release stating that the fan would not have taxable income or gift tax issues upon catching the ball or relinquishing the ball to the player, absent a situation where the fan sold the ball. In 2007, the Service was more cautious, declining to comment on the possible tax treatment of the fan who caught Bonds’ record setting home run ball. Based on the belief that merely obtaining the ball constituted gross income, Murphy sold the baseball to create liquidity with which to pay the resulting tax liability.
With that background, what are the tax consequences for Lopez? Lopez gave the ball to Jeter, voluntarily. He was given season tickets and other items by the New York Yankees. Many are positing that the only tax issue in this scenario revolves around Lopez’s receipt of the tickets and items from the Yankees. Given the Service’s track record in handling these situations, this may be the end result.
I suggest there are other results possible. Among these other results, it could be asserted that the ball constituted an accession to wealth (i.e., gross income) to Lopez, to the extent of its fair market value. Lopez’s subsequent transfer of the ball to Jeter, coupled with his receipt of items from the Yankees, could be construed as a sale to the Yankees, perhaps at a loss. As the ball did not belong to Jeter prior to the hit, Jeter’s receipt of the ball from Lopez could be seen as compensation from the Yankees, which allowed the ball to pass to Jeter.
Determining the proper resolution of these situations is vexing. Attempting to develop ways to avoid the uncertainty, a number of articles have been written proposing non-recognition be afforded to fans who catch such baseballs, including an article I co-authored with Adam J. Poe entitled Home Run Baseballs and Taxation, an Open Stance: How a H.R. can be I.R.D., 3 Est. Plan. & Community Prop. L.J. 79 (2010) (available on Westlaw).