IRS Hits Homer Too!

Last Saturday, New York Yankees shortstop Derek Jeter became the 28th major leaguer — and only the first Yankee — to achieve 3,000 career hits. Jeter’s third inning solo home run to left field wound up in the hands of a 23-year-old fan named Christian Lopez. Souvenier baseballs are big business, so team officials immediately whisked Lopez out of the stands, escorted him into the president’s office, and asked him what he planned to do with his windfall. (The fan who caught Barry Bonds’s 715th home run ball sold it on Ebay for $220,100. And Mark McGwire’s record-breaking 70th home run ball sold for $3 million in 2006. Nice timing, too — in 2010, McGwire admitted using steroids while he played, and that ball’s estimated value dropped faster than a pop fly!)
Lopez showed a bit of class that some would say is surprising from a Yankees fan. He passed on the chance to auction the ball, which some experts estimate would have fetched as much as $250,000. Then he told reporters he thought the ball belonged to Jeter and gave it back to the legendary slugger. But he still walked off with some lovely parting gifts, including three Jeter-autographed balls (worth about $600 each), three autographed bats ($900 each), and two autographed jerseys (another $1,000 each). The Bronx Bombers also gave him four tickets to every remaining home game this season. In fact, for the game after Lopez’s lucky grab, they gave him four front-row “Legends” seats, which sell for up to a whopping $1,358.90 each. Quite a haul!
Oh, and you know what else he’s likely to catch? That’s right . . . a tax bill from the IRS! And those opponents won’t be happy with jerseys or tickets, even if the Yanks make the Series. They just want cash, thank you very much.
Catching collectible baseballs presents all sorts of tricky tax questions that most fans won’t think of when they suit up for a big game:
• When does the lucky fan who catches the ball fan “recognize” the income? Now, when he catches it? Or someday down the road, when he sells it?
• If tax is due immediately, before the fan sells, how does he determine what it’s worth?
• If the proceeds qualify as capital gain, taxed at the special 28% rate for collectibles, what will the fan’s “cost basis” be? Zero? The price of the ticket to the game? The price of his season-ticket package?
And what if the lucky fan gives the ball back to the hitter, like Lopez did with Jeter? Back in 1998, just before Mark McGwire beat Babe Ruth’s single-season record, a reporter asked an IRS spokesman what would happen if the fan who caught that ball handed it back to McGwire. The spokesman replied that the fan might actually owe gift tax — and sparked howls of protest! Then-Commissioner Charles Rossoti quickly changed course, confessing that the Tax Code could be as hard to understand as the Infield Fly Rule.
Tax experts predict Lopez won’t owe tax on the value of the ball he caught, but will owe it on the value of his memorabilia and tickets. What do you think? Is that fair? Or should the IRS “intentionally walk” the fans who catch souvenir balls and let them enjoy a little tax-free history?