Originally appeared in Law360 on August 14, 2015.
—by Gregg Benson, Eli Krause and Sydney Unger
On June 17, 2015, Alex Rodriguez, a star slugger for the New York Yankees, hit a home run for his 3,000th hit. Zach Hample, a passionate baseball fan, was sitting in the bleachers, and snagged the ball with his glove. He was immediately approached by Yankees personnel, who offered to exchange the ball for other valuable Yankee merchandise. Hample, however, was hearing none of it, and told the Yankees that he was keeping the ball.
Subsequently, Hample started to have second thoughts, and said that he might give the ball to the Yankees in exchange for a large donation to his favorite charity. Finally, on July 3, 2015, the drama came to a close, as Hample gave the ball to Rodriguez, in exchange for a $150,000 donation to charity by the Yankees and some signed memorabilia. While Hample should be lauded for his generous gesture, he is probably unaware of the complex tax issues relating to catching a historic home run ball — issues that were exacerbated by his flip-flopping.
The issue of taxes and catching baseballs is nothing new, but some of the tax implications are still uncertain. In September 1998, when Mark McGwire was about to break the single-season home-run record, the Internal Revenue Service declared that the “catchers” of record-setting balls would be taxed, even if they returned the ball to the player. The IRS statement caused an uproar, angering Congress and baseball fans alike. The IRS, in the face of much criticism, quickly retracted its initial announcement, and issued a press release stating that there is no taxable event if the catcher “immediately returns” the baseball (IR-98-56).
There are two questions, however, that the IRS has left unclear. First, what are the tax implications of a fan who chooses to keep the baseball — much less sell it? The IRS chose not to clarify that issue when it stated in its release that “The tax results may be different if the fan decided to sell the ball.” Second, exactly how much time does the fan have to “immediately” return the ball to the player (or to the team)? Hample, with his lucky grab, brought both of these issues to light.
Keeping the Baseball
Section 61 of the Internal Revenue Code states broadly that "gross income means all income from whatever source derived." The Treasury Regulations (§1.61-14) add that gross income includes finding a "Treasure Trove." Probably the most famous “Treasure Trove” case is Cesarini v. United States, 296 F. Supp. 3 (N.D. OH 1969), aff’d, 428 F.2d 812 (6th Cir. 1970) (per curiam). In Cesarini, a couple found $4,467 in cash while cleaning their piano. The court held that the cash was considered income in the year in which it was found.
Finding a Treasure Trove is distinguishable from self-created property, which is not taxable until the taxpayer sells it. An example of self-created property is where the taxpayer is a professional fisherman who catches a fish. The fisherman in this case does not have to pay tax until the fish is actually sold.
The precise tax treatment of catching baseballs has evoked different opinions from noted tax experts. Although most tax experts agree that a fan who catches a record ball should be taxed, they disagree as to the exact point in time at which the tax liability is created. Is the catching of the ball the taxable event, or the subsequent sale? The root of the argument is whether catching a record baseball is akin to finding a treasure or more similar to self-created income. Some authorities are of the opinion that the fan should be taxed immediately on the fair market value of the baseball, as the fan catching the ball has essentially found a treasure. Others, however, argue that catching a baseball is more similar to self-created property, as the fan made the effort to come to the ballpark and reach for the ball. Additionally, similar to a fisherman who obtains a fishing license, baseball fans pay for their ticket, which gives them the right to catch any balls that are hit their way.
In most cases, the analogy of self-created property to catching a record-setting baseball is rather weak. In a typical case of self-created property, such as the case of a fisherman, the fisherman has certain unique skills and expends a significant amount of money and effort to catch the fish. A baseball fan, on the other hand, comes to a game with no unique catching skills and does not expend any monetary or physical effort beyond paying for his ticket and reaching up his hand. At least that was the case until Hample caught Rodriguez’s record ball.
Hample is, for lack of a better title, a professional catcher of baseballs. He has written three books on baseball, one of them entitled, How to Snag Major League Baseballs. He has reportedly caught more than 8,000 balls at over 51 different major league stadiums. Hample also holds a world record for catching a baseball dropped from an altitude of 1,050 feet. In Hample’s case, it is definitely plausible to argue that the ball is self-created property, as it is a product of his effort and skill, and should not be taxable until it is sold.
Can Hample Still Change His Mind?
Once Hample caught the record ball, he had two choices with relatively clear tax consequences. Return the ball immediately and pay no tax, or keep the ball and pay tax (at some point in time). Instead, Hample — clearly not thinking of the tax ramifications — after initially claiming that he was keeping the ball, later decided to return the ball to Rodriguez. If Hample is assuming that he will not be taxed, he may be very wrong. The IRS in its 1998 press release only explicitly allowed for an exception if a fan “immediately returns it.” While the IRS may be somewhat flexible regarding what “immediately” means, it may also be very wary of extending the exception further and allowing fans to change their minds a significant amount of time after the catch. This is especially true because the exception to gross income that the IRS created for returning the ball was already — according to a number of tax experts — a clear deviation from undisputed tax principles.
When Hample files his tax return, he may take the position that he has no income under the “immediate” standard, and the Yankees will likely report a charitable contribution of $150,000. In the best-case scenario, the IRS will accept both of those tax positions. There is a chance, however, that the IRS will challenge Hample’s classification of his returning the ball as “immediate,” and claim that Hample has income equal to the value of the ball. Although Hample will presumably be entitled, in such case, to take a charitable deduction of $150,000 — for the donation the Yankees made on his behalf — charitable deductions are subject to certain significant limitations, which could give rise to a certain amount of tax leakage.
So, while Hample’s intentions are generous and impressive, he should probably engage a tax counsel to clarify what role taxes might play in the equation.
 Even assuming that a fan catching a baseball is comparable to the finding of a treasure, a taxpayer may try to argue that, as the value of a record-setting baseball is unique and not readily determinable until sold, under an “open transaction doctrine” type analysis, the catching of such a baseball is not be taxable until such time that the baseball is sold and the value can be accurately determined.
 Some of the information in this article, and in particular the Treasure Trove/Self-created Property distinction, came from an article by Andrew D. Appleby, Ball Busters: How the IRS Should Tax Record-Setting Baseballs and Other Found Property under the Treasure Trove Regulation VERMONT LAW REVIEW, VOL. 33, P. 43, (2008)
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