Taxable Talk

An interesting article this morning in the Wall Street Journal: What are the tax implications of catching Barry Bonds' 756th home run? Sometime in the next few weeks some lucky fan will likely catch the ball. (There's always the chance, albeit slight, that the ball will ricochet back onto the field, say, off a foul pole, and this issue will be moot.)

Tom Herman in today's Tax Report in the Journal (Note: Pay Link) ponders that question, and gets different answers from different experts. The IRS prefers not to answer the question. Alice Abreu, a professor at Temple University Law School, believes its taxable income the moment its caught. Other unnamed law professors disagree. And Don Korb, Chief Counsel of the IRS (and a baseball fan), told the journal, "Please, whatever you do, don't ask me that question."

My view is that a fan, having purchased a ticket, has the right to take with him from the game anything thrown or hit from the field of play (such as a baseball). If he is lucky enough to catch the ball, he's paid for it by the ticket.

However, if (or should that be "when") he sells the baseball—and estimates of the worth of Bonds' 756th home run baseball start at $400,000—that lucky fan will owe tax on the proceeds.

Of course, we're dealing with the IRS and it wouldn't shock me for them to interpret this completely differently.

When I see that phrase, I just know that a whopper of an error is about to be seen. Well, those words weren't used, but the DC Circuit realized that they did just that--made a whopper of a mistake. On Tuesday, they reversed themselves in the Murphy case.

If you remember the Murphy decision, the DC circuit ruled (in September 2006), "that §104(a)(2) of the Internal Revenue Code (Title 26, U.S.C.) is '...unconstitutional insofar as it permits the taxation of an award of damages for mental distress and loss of reputation.'" The same panel of judges reheard the case earlier this year, and the decision came out on Tuesday—probably, as Joe Kristan of Roth Tax Updates said, "...Courts are hip to the public relations technique of issuing embarrassing news at holiday times, when it is least likely to attract attention."

The ruling itself is very ordinary, which tells you how off-base the original Murphy decision was. The Court now notes that even if "[Murphy's award] is not income within the meaning of the Sixteenth Amendment, is within the reach of the congressional power to tax under Article I, Section 8 of the Constitution."

Other Coverage:
AP
New York Times/Bloomberg
Roth Tax Updates
The TaxProf Blog