Bonds 756 homerun ball tax questions

[Mustang]

Ok, what I don't really understand about this is why the person would be subject to taxes if he kept it? Wouldn't the value of the ball just be $15?

I understand that there are people out there willing to spend thousands or more on the ball but, are they saying that if anyone is willing to spend $$$ on something you own, therefore you can be taxed? For example, you buy the last Xbox 360 right after release and someone offers you $1000 for it you keep it and go home. Does that mean you have to technically claim this increased value? (Yes, I know IRS wouldn't go after you and you could probably claim the resulting drop in price as a loss so.. of course, probably answered my own question)

What if he would have given the ball back to Barry Bonds, does that mean he would have been subject to a gift tax?

Could Barry Bonds be subject to a gift tax?

Just curious....

[rkmsuf]

the earth is doomed when these questions have to come up in a case like this

[Doug5984]

My class on Tax Accounting started Monday, at class she said that would be on of the topics we discuss in the coming weeks... All the tax implications of that ball. Should be pretty interesting, probably the only interesting thing we'll do in Tax Accounting.

[SackAttack]

The Bonds ball is the single biggest reason the tax code needs to be dismantled, and tax collectors burned at the stake.

I mean, Jesus Christ. That's nearly as retarded as the idea of "Wow...people play MMO's, and sometimes people sell the little digital items for money. How can we find a way to tax that?"

[SackAttack]

Dola,

"that," in the latter example, being the acquisition of said items, and the assessment and taxation of their "value." Taxation on the sale oughta be fair game, but not on the potential value of something that doesn't even exist in the real world...and yet every so often I see articles of that nature pop up in the financial news.

[Passacaglia]

The Bonds ball is the single biggest reason the tax code needs to be dismantled, and tax collectors burned at the stake.

I mean, Jesus Christ. That's nearly as retarded as the idea of "Wow...people play MMO's, and sometimes people sell the little digital items for money. How can we find a way to tax that?"

Are these little digital items being taxed only when sold? Or are people being taxed for the value of the items they possess?

[Logan]

I'm really curious why this is first coming up now. I mean, I never heard this ridiculous "pay the tax prior to selling it" with, let's see...#62 for McGwire, any other McGwire/Sosa HRs, A-Rod's recent 500th or any other 500th, #71 or #73, etc.

I have only one idea...Bonds got popped on tax evasion, so for some reason it's being linked to now.

[Mustang]

I'm really curious why this is first coming up now. I mean, I never heard this ridiculous "pay the tax prior to selling it" with, let's see...#62 for McGwire, any other McGwire/Sosa HRs, A-Rod's recent 500th or any other 500th, #71 or #73, etc.

I have only one idea...Bonds got popped on tax evasion, so for some reason it's being linked to now.

Hence why I asked the question. I'm confused as to why this is a special case or if it was just conveniently ignored or not covered.

[lordscarlet]

I'm really curious why this is first coming up now. I mean, I never heard this ridiculous "pay the tax prior to selling it" with, let's see...#62 for McGwire, any other McGwire/Sosa HRs, A-Rod's recent 500th or any other 500th, #71 or #73, etc.

I have only one idea...Bonds got popped on tax evasion, so for some reason it's being linked to now.

Poor Todd McFarlane..

[molson]

I think taxing it is reasonable. If you win an expensive painting on a game show, you've won something that has a shitload of value. Whether you keep or not, it increases your net worth. You can use it as collateral on a loan, etc, or sell it down the road.

The baseball's the same thing. It sure as hell's worth more than $15, even if you want to keep it for some reason.

[Mr. Wednesday]

I think it should be treated like an investment. You have a basis value of $0, you get taxed for capital gains when you sell it.

[lordscarlet]

From my tax accountant fiance: "count me in the category of people who do not agree w/ that dude's assessment of tax law. sound sketchy to me."

[lordscarlet]

I think taxing it is reasonable. If you win an expensive painting on a game show, you've won something that has a shitload of value. Whether you keep or not, it increases your net worth. You can use it as collateral on a loan, etc, or sell it down the road.

The baseball's the same thing. It sure as hell's worth more than $15, even if you want to keep it for some reason.

The painting was purchased by the game show for a specific dollar amount and that is what you would be taxed on.

[SackAttack]

Are these little digital items being taxed only when sold? Or are people being taxed for the value of the items they possess?

They aren't being taxed for possession yet, but I have read several articles in the past dealing with the IRS trying to find a way to extract revenue from those little digital items.

[MikeVic]

The painting was purchased by the game show for a specific dollar amount and that is what you would be taxed on.

I always thought game shows received items for free, in return for the brand being mentioned?

[lordscarlet]

I always thought game shows received items for free, in return for the brand being mentioned?

Hm. Maybe. Regardless, the item, in my mind, has more of an inherent value. Acme sells the painting for $1,000, but they give it to Wacky Bucks for free. I find that very different from catching a $15 ball at a baseball game that under normal circumstances is lucky to go for $10 when it's used.

[Deattribution]

I always thought game shows received items for free, in return for the brand being mentioned?

What 'brand' creates expensive art?

[molson]

The income tax system has a ton of flaws, obviously. But under the tax code we all live under, that ball is highly valuable income. Nothing really has "inherent value", it's real-world value that the IRS is concerned about.

[Logan]

The income tax system has a ton of flaws, obviously. But under the tax code we all live under, that ball is highly valuable income. Nothing really has "inherent value", it's real-world value that the IRS is concerned about.

But that real-world value is all speculation. Just because people say he could get $500k or whatever for it, doesn't mean that's how much it will bring at auction. I believe a recent big ticket memorabilia sale went well below what was expected -- it's not like this stuff always sets off a bidding war.

[molson]

But that real-world value is all speculation. Just because people say he could get $500k or whatever for it, doesn't mean that's how much it will bring at auction. I believe a recent big ticket memorabilia sale went well below what was expected -- it's not like this stuff always sets off a bidding war.

That's true, the value would need to be estimated, but that happens all the time with things like real property. That process can be very specualtive (not as speculative as this, of course)

Just because there's no firm number, that doesn't mean that by default, the value should be considered $0 for tax purposes.

[Logan]

That's true, the value would need to be estimated, but that happens all the time with things like real property. That process can be very specualtive (not as speculative as this, of course)

Just because there's no firm number, that doesn't mean that by default, the value should be considered $0 for tax purposes.

(I won't use this thread to take a shot at the appraising industry :))

Again, fair point. Basically, I just don't see how this is in anyway different than how we pay capital gains taxes or even estate taxes. I think this is very similar to investments -- if he paid the appropriate tax on it, prior to a sale, by the time he chooses to sell the ball the "gain" may have significantly decreased or been eliminated completely. Is the government now in the business of determining that no one is close enough to Bonds' record right now where such a situation wouldn't come up?

[Mustang]

I'd still love for the IRS send the Giants or Bonds a bill for gift tax. :D

[SnowMan]

They aren't being taxed for possession yet, but I have read several articles in the past dealing with the IRS trying to find a way to extract revenue from those little digital items.
Accoring to most MMO EULAs, the players don't own the items, the game company does. People get away with selling stuff on ebay by saying that they are selling the time and effort it took them to obtain the items. Is time taxable now, too?

[DanGarion]

Any tax on anything before the sell of the item is BS. Heck he could sell it for $1 and he would be taxed on a speculative amount? Come on.

[DanGarion]

Accoring to most MMO EULAs, the players don't own the items, the game company does. People get away with selling stuff on ebay by saying that they are selling the time and effort it took them to obtain the items. Is time taxable now, too?

I don't think ebay allows the selling of MMO stuff anymore.

[clintl]

Why should the baseball be treated any differently from a large ticket item won on a game show? The guy's net worth just went up by a large amount. I don't see anything at all with taxing him on it. To not tax him on it would be giving him special treatment compared to how the IRS deals with others in similar situations.

[Buccaneer]

Why should the baseball be treated any differently from a large ticket item won on a game show? The guy's net worth just went up by a large amount. I don't see anything at all with taxing him on it. To not tax him on it would be giving him special treatment compared to how the IRS deals with others in similar situations.

Because winning prizes already have an established or prior value. Sotheby's (as well as other auction houses) has been quite wrong on what an item would go for (both high and low) and in this case, there is no established value to base a capital gain. I have seen an argument made about the Wagner card that the lady won back in the 1980's at Walmart. She had to sell it because she couldn't pay the taxes. The capital gain on that card was set at what it had sold for previously.

[BrianD]

I agree with those calling for this to be treated like a capital gain with the taxes coming after it is sold. I can't believe anyone could put a good value on this until it is sold. I also can't believe a person could get much of a loan using the ball as collateral until after the ball has been sold and valued.

[molson]

I'm not sure how you codify that standard. (If property is just "too speculative", it's income counts as zero when you obtain it?)

It may make some practical sense, but at lot of people would try to include their own property as part of that loophole. From an IRS standpoint, it's safer and more efficient just to close the loophole entirely, even if it "screws" one lucky bastard who caught a ball.

That's the tricky part of tax law, you can't just see something happen and react to it, you have to codify a standard that's going to apply to everyone.

[BrianD]

But this is a unique property. It isn't like real estate which can go up and down but still has a historical value from the last time it sold (or was assessed). This is something which is truly priceless...as in there is no value until someone buys it and gives it a value.

[st.cronin]

I think it should be treated like an investment. You have a basis value of $0, you get taxed for capital gains when you sell it.

Makes sense to me.

[Tyrith]

I think it should be treated like an investment. You have a basis value of $0, you get taxed for capital gains when you sell it.

Have to agree that this is the most fair thing to do. Although the ball would have a value of what, fifteen bucks or so? :P Pay up your two or three bucks on it.

[molson]

I just can't wrap my mind around how people don't think this ball has value until he sells it. What about a new house that hasn't been sold yet? Or securities that aren't publicly traded? The process to determine value would be similar (examine recent sales of similar property).

The closest comparison isn't the game show example I posted about, but if you moved into a house, and found a painting hidden in the basement. It's never been sold before, but art dealers know it will fetch a fortune if it ever hit open auction. You're not entitled to just hoard that wealth, tax-free, until a year where it's more financially advantageous for you to sell it in a tax sense. That painting is included in your gross income the year you find it. Just because it hasn't been liquidated to cash yet, it sure as hell has value, and it's definitely income.

[BrianD]

The ball has value, but how do you decide how much value it has? It isn't like a painting where you can assess the value based on other similar paintings from the same artist.

What happens if the value is assessed to be $500,000 but at auction nobody bids over $100,000? Does the guy who caught the ball need to come up with another $100,000 (assuming a tax of 40%) out of his own pocket to cover the taxes? I don't think there is any way of fairly defining the value other than selling it to see what it is worth.

[lordscarlet]

I just can't wrap my mind around how people don't think this ball has value until he sells it. What about a new house that hasn't been sold yet? Or securities that aren't publicly traded? The process to determine value would be similar (examine recent sales of similar property).

The closest comparison isn't the game show example I posted about, but if you moved into a house, and found a painting hidden in the basement. It's never been sold before, but art dealers know it will fetch a fortune if it ever hit open auction. You're not entitled to just hoard that wealth, tax-free, until a year where it's more financially advantageous for you to sell it in a tax sense. That painting is included in your gross income the year you find it. Just because it hasn't been liquidated to cash yet, it sure as hell has value, and it's definitely income.

A new house that hasn't been sold has the value of the materials and labor to build it in addition to the already-established value of the land it was built on. Please give me an example of something that has no value and we can start taking this argument seriously. If Andy Warhol is my best friend and he gives me an original painting do I pay taxes on that? And I have never heard that about "finding a painting" either.

[Logan]

A quick google search found this WSJ blog, complete with many back and forth comments from people with clear tax knowledge.

My favorite:
The debate above confirms what we already knew: our tax laws desperately need to be simplified.
Comment by nyc - July 25, 2007 at 1:54 pm

http://blogs.wsj.com/law/2007/07/25/tax-law-final-exam-question-barry-bondss-ball/

[molson]

And I have never heard that about "finding a painting" either.

It's the "treasure trove" concept, which has been recognized in the US for at least a hundred years (though some people think it's one the way out).

I can understand how people can get hung up on the speculative value of the ball, but it's an incredible stretch to say "we don't know if this is $100k or $500k, let's just count it as zero". I don't think that's a logical conclusion. There's definitely real or other unique personal property than is MORE speculative than the ball - at least we have some track record of historic ball sales. Everyone and their mother would be trying to get into this loophole (of no income tax if property is too "speculative"). It'd be a huge can of worms. The value of real property isn't just the material and labor. If you're against taxing income in general, I'm right there with you, but that ain't happening any time soon.

This is why speculative "investments" can be risky in a tax sense. I realize this isn't an "investment" per se, and one poster in that link Logan posted makes an interesting point that "if the fan claims he or she has no right to the ball and gives it immediately either to Mr. Bonds or MLB, that the fan might be able to avoid income tax on it. He or she would be asserting “no claim of right” to the ball and thus no taxable income."

Otherwise, it's income, though that links gives some very interesting suggestions about how he could have dealt with this income. A good accountant or tax attorney would have been a good investment here.

It's an interesting issue - I'm no tax attorney, but I took a couple of fed tax courses in law school and was SHOCKED that tax could actually be interesting (Not just questions of what's taxed and what isn't, but coming up with solutions to tax problems, like this one).

[chesapeake]

Don't get angry with the IRS yet...they haven't made a decision as to what to do with this. The decision they made in the most prominent McGuire case, where the person who caught the ball gave it back to the player, is only somewhat relevant here. The IRS ruled that the guy who caught the ball should be considered as "declining the gift" and owed no tax liability. It implies that keeping the ball could be interpreted as accepting a gift, but it is not set.

My own opinion is that he is liable for the gift tax on the value of the ball (as determined by a qualified appraiser) at the point he caught it. When he sells the ball, he will owe the capital gains on the difference between the sale price and the value the appraiser determines. Note that could be a gain or a loss.

The Andy Warhol example above is somewhat tangental; but yes, you would owe taxes on the gift if it exceeds the exemption. Since the IRS would likely never know about it, however, I find it unlikely that you would get billed.

The example of winning a work of art in a raffle is a little bit closer to an apples to apples comparison. If the artwork was donated by a prominent living artist whose work sells for $500,000, the IRS would likely know about it and be there to say hello before you could leave the building. The value of the component parts of an oil painting -- paint, canvas and wood -- is nominal. It is the skill and reknown of the artist that gives it the value, and that value is functionally set by the free market. In my mind, this is similar to what makes the Bonds HR ball valuable.

The IRS ruling on winnings from raffles is established -- it is taxed as a gift at the fair market value. And when you sell, you pay capital gains tax on the increase or decrease from the cost basis.

[TroyF]

Unless the guy is an idiot, there will have to be a price set on that ball at some point. He's certainly going to insure the ball, right? What value is he going to insure it at? I understand he can set any value he wants (provided he's willing to pay the price to insure it), but he's going to have to find a way to set some sort of value on the ball for that purpose. Seems like the IRS could come in and use that for the tax purposes anyway.

[BrianD]

How do taxes work for someone who is given stock in a startup before it goes public? Do they have to pay taxes once the stock goes public or just on the gains when they sell it?

[lordscarlet]

It's the "treasure trove" concept, which has been recognized in the US for at least a hundred years (though some people think it's one the way out).

I can understand how people can get hung up on the speculative value of the ball, but it's an incredible stretch to say "we don't know if this is $100k or $500k, let's just count it as zero". I don't think that's a logical conclusion. There's definitely real or other unique personal property than is MORE speculative than the ball - at least we have some track record of historic ball sales. Everyone and their mother would be trying to get into this loophole (of no income tax if property is too "speculative"). It'd be a huge can of worms. The value of real property isn't just the material and labor. If you're against taxing income in general, I'm right there with you, but that ain't happening any time soon.

This is why speculative "investments" can be risky in a tax sense. I realize this isn't an "investment" per se, and one poster in that link Logan posted makes an interesting point that "if the fan claims he or she has no right to the ball and gives it immediately either to Mr. Bonds or MLB, that the fan might be able to avoid income tax on it. He or she would be asserting “no claim of right” to the ball and thus no taxable income."

Otherwise, it's income, though that links gives some very interesting suggestions about how he could have dealt with this income. A good accountant or tax attorney would have been a good investment here.

It's an interesting issue - I'm no tax attorney, but I took a couple of fed tax courses in law school and was SHOCKED that tax could actually be interesting (Not just questions of what's taxed and what isn't, but coming up with solutions to tax problems, like this one).


I am not against income tax. If he had to, you know, give 30% of a baseball on his reception of a baseball, sure. To think that he could not hold on to a piece of memorabilia because someone decides he owes $100,000 for catching a ball is just absurd to me. I am sorry that I have not come up with a good enough analogy, but there is no way this is income. He did not win a prize, he did not do work and receive it as compensation, at best it was a gift. He caught a baseball. What if I caught Barry Bonds homerun #1. It meant nothing at the time. Then, all these years later he breaks the all-time homerun record. Do I need to taxes based on the appreciation of the ball? I'm sure you will claim some difference because of the perceived value when it was obtained, but I don't see one.

My fiance is not a tax attorney, but she is a tax accountant for a very large (Big Four) firm. She agrees that it is an odd interpretation of tax law to say that catching the ball is income.

[Toddzilla]

Barry Bonds still owns everything else from the event - his cap, glove, bat, batting gloves, elbow pad, jersey, pants, shoes, stirrups, t-shirt, jock strap - so shouldn't the IRS put a value on those and tax him?

[Logan]

If he gave the ball back to Bonds, is Bonds taxed on the value of the ball? He could sell it just like a fan.

[Mr. Wednesday]

I just can't wrap my mind around how people don't think this ball has value until he sells it. What about a new house that hasn't been sold yet? Or securities that aren't publicly traded? The process to determine value would be similar (examine recent sales of similar property).
Note that you're not taxed on appreciation on the securities until you sell them. Nor are you taxed on the new house until you sell it, aside from property taxes which are a separate argument since they involve local entities and not the IRS.

Basically, my point of view is that property is not income until it's converted into money via sale.

[lordscarlet]

From the fiance:

i want to say that you buy a ticket to a baseball game with the assumption that you might get small, nominal value things in return. a bobblehead, a baseball from batting practice, a t-shirt shot from a cannon, maybe if you're lucky catch a home run ball. i feel like the price of your ticket covers all those possibilities. and most of the baseballs you get aren't going to be worth jack. my gut says that the ball is not income to the dude. if he sells it, clearly cap gains though. basically, the question is the timing of when he gets taxed and at what rate - if he pays income tax when he catches the ball, his basis in the ball gets stepped up to that value and he pays a smaller capital gains tax when he sells. if he doesn't pay income tax when he catches the ball, his basis would be the cost of the ticket. so when he sells, he has a huge capital gain. my guess is that most dummies sell the ball right away (within a year) so they're gonna be paying tax on the capital gains at the regular income tax rate anyway.

if you want me to ask one of the former irs guys that i work with so you can settle the debate on your message board, i can :)

[Masked]

How do taxes work for someone who is given stock in a startup before it goes public? Do they have to pay taxes once the stock goes public or just on the gains when they sell it?

If you are given stock, it is taxed as ordinary income when you receive it even though the stock is not marketable (the lack of marketability is priced into the value of the stock though). If you receive stock options, there is generally no tax consequences until you exercise the option. Upon exercise, the difference between the strike price of the option (the price you buy the stock) and the current fair market value of the stock is taxed as ordinary income. Your basis for capital gains purposes is the fair market value. Therefore, if you immediately sell the stock (which is generally the case because you have to pay the tax), there are no capital gains (and may be a small capital loss due to trading costs).

[Silver Owl]

My wife bought me a pack of basketball cards. It had a Michael Jordon rookie card in the pack. Do I pay taxes on the card at the time she gave me the pack of cards or when I sell the card.

[Atocep]

Barry Bonds still owns everything else from the event - his cap, glove, bat, batting gloves, elbow pad, jersey, pants, shoes, stirrups, t-shirt, jock strap - so shouldn't the IRS put a value on those and tax him?

Would it matter? Its not like he'd pay it. ;)

[EagleFan]

With all the steroid use I would figure Bonds could declare a loss for his balls...

[CU Tiger]

What if the guy donates the ball to the HoF or a similar charitable trust.

He could then claim an amoritized deduction for a charitable donation of $500,000.

Then to further the argument, the HoF could allow the ball to remian "on display" or as "part of a private collection" at this guys home.

If he really wanst to keep the ball this is the answer (or at least what my CPA said Saturday night as were pounding beers and talking shit0