For the record
Given what I do for a living, it's natural that readers would be asking me about the tax consequences of a fan's catching the historic Barry Bonds home run baseball. It's certainly a highly valuable piece of property, and the person who catches it will be greatly enriched by it, but is catching the ball income for tax purposes?
We went through all this when the original steroid titan, Mark McGwire, broke the single-season record for home runs. There was a great deal of speculation that the catching of the ball constituted income to the person who caught it, and that if he or she gave the ball to McGwire, it would be subject to gift tax. After being hounded about the issue for quite a while, the IRS caved in and said that neither tax would be imposed. It never fully explained why.
Later on, a couple of wise tax prof pals of mine came up with a theory of how catching the ball does not constitute income. They point out that a fisherman or fisherwoman does not have income upon catching a fish -- he or she is taxed only if and when the caught fish is sold. The same is true for farmers and their crops, and miners and their minerals. Just harvesting them is not an income-producing event. Attending a ballgame where a high-priced piece of memorabilia is about to be created is kind of like fishing, they reasoned, and so catching the prize, even if one keeps it rather than giving it back to the player, is not an income moment.
A bit strained, perhaps, but as a theory it works.
On to the gift tax. When wealthy people make huge gifts, they're subject to a tax, separate from the income tax, called the gift tax. When rich folk die and leave big wealth to their families, the tax is known as the estate tax. If an adoring fan who catches the ball gives it to Barry Bonds, is that a taxable gift?
I think so, but the IRS isn't pressing the point. The act of giving the ball to the player is not what they call a "qualified disclaimer," specifically exempt from the gift tax, because in order for a disclaimer to work, the fan couldn't say who gets the ball. By presenting it to Bonds, the fan is naming a new owner. Before it goes over the fence, the ball belongs to the home team of the game being played. And so it would seem that only transferring the ball back to the home team could constitute a tax-free disclaimer -- or so some think. But the IRS isn't going to use up the political capital to impose such a tax.
And what about Bonds? If he gets the ball back, either from the fan or from the home team, is that income to him? He seems like an artist, whose work is not taxed until it's sold. If I create a beautiful work of art and hang it on my own wall, that's clearly not taxable. For Bonds, that ball is value he created with his own efforts, and so it's what they call imputed income -- not taxed.
Thanks to everyone who's been alerting me to this pressing issue of national tax policy.