http://sports.yahoo.com/mlb/news?slug=ap-b...p&type=lgns
Now that Barry has scored his homerun record, there is now a debate on how much tax money the IRS could claim from the fan who caught the homerun ball. Experts are saying that if the fan does not return the ball to the team, he could be billed for the estimated value of the ball at an auction.

Now, here's where the problem is. The ball has not been sold at an auction yet. If the IRS sends him a huge tax bill for the ball and the fan ends up selling the ball at a much lesser value, then he could be getting taxed for income that he did not earn. If this baseball fan was not interested in money but merely wanted to keep the ball, he would still be forced to either sell the ball or give the ball back to the team, even though the ball is legally his property. Also, taxing the fan on his potential income from the ball would set a possibly bad legal precedent.

For example, the IRS could look at my Computer Science degree and say that my potential income is going to be 50K, and tax me based on that estimate, even though I'm over at an English school making about 10K/year in a foreign country.

So,
1. Does the IRS have the right to tax the fan who caught Barry Bond's ball, even though he hasn't sold the ball yet?
2. Or should the IRS wait for the ball to go to auction before putting a tax on it?

Sounds a bit odd, this.

Here in the UK, random windfalls such as gambling wins - lotteries, casino jackpots, horse-racing bets - (the closest analogy to picking up a ball hit into a crowd) are not subject to taxation at all. In some cases (such as sports betting) the stake money is subject to tax, and you can elect to pay it on your stake, or on any winnings. Anyone sensible will see that 15% (or whatever the rate) of a ten pound bet is a better deal than 15% of £X,000 winnings, so almost everyone elects to pay tax on the stake and take any winnings tax-free.

Presumably there are taxes levied on the cost of the ticket that got the guy into the stadium in the first place? So he gets to keep the money he raises from auctioning the ball, and just pays taxes at the going rate on any income he makes from investing that money, sales taxes on what he spends from it, etc. The IRS is going to get a fair shake of the money anyway, without taxing the random windfall itself.

But then, we don't have the USA's puritan past which sees gambling (like drinking) as something to be frowned upon. (Likewise, organised crime has not been able to make money from gambling here since the industry was legalised in the early 1960s. Drugs, racketeering and prostitution, yes. Gambling - no.)

1. Does the IRS have the right to tax the fan who caught Barry Bond's ball, even though he hasn't sold the ball yet?

Nope.


2. Or should the IRS wait for the ball to go to auction before putting a tax on it?

Yep.

It's difficult for me to see any other answer to these questions. The ball itself isn't income until it is sold. What if the fan is a rapid baseball freak, who just wants to keep the ball (sealed in a nitrogen atmosphere in an impregnable vault, no doubt)? How can it be imagined that this would be, in any sense, "income" until some money "comes in", so to speak.

I think the IRS won't try to collect from this person until the ball is sold, even if there is some entangled interpretation which would make it seem that he owes them money. From the linked article:



Having been made to look foolish and petty before, I don't think that the IRS (hardly a popular organization, at best) will be eager to do so again.

I thought Denmark had draconian tax laws, but even here the IRS would not be allowed to tax the resell value of such an item.

1. Does the IRS have the right to tax the fan who caught Barry Bond's ball, even though he hasn't sold the ball yet?
2. Or should the IRS wait for the ball to go to auction before putting a tax on it?
I do not know the US tax code very well, so maybe the IRS indeed has such a right, but they certainly shouldn't have it, not even after a potential sale.
If you find a rare coin in the gutter, are you then legally required to pay tax after you sell it? That certainly sounds strange to me.
Selling and buying goods in Denmark between private individuals are tax-exempt, no matter how the goods in question are obtained (legally obtained that is). I would have thought it was the same in the US, and I think it reasonably should be the same.

The item in question has most likely already been taxed, when the Baseball bought the ball from the supplier (VAT). I firmly believe you should not be able to tax the same item twice, even if the value of the item has risen.

Welcome to the wonderful world of the IRS.


1. Does the IRS have the right to tax the fan who caught Barry Bond's ball, even though he hasn't sold the ball yet?

Using the term "right" in conjunction with the IRS is the ultimate oxymoron. If they think they can tax it, they will, or at least try to and the burden of proof is not on them but rather on the person they are attempting to steal from to prove they are wrong. In this case it sounds like the theory behind all of this as advanced by some of the tax "experts" is that the IRS may look at this ball the same way they look at someone winning a prize on a game show, or a sweepstakes or lottery. In those cases the value of the "prize" is taxed as so-called "unearned income", and generally is taxed up front .ie. the government gets their cut first. In this case, I'm not so sure that's going to happen because the actual value of the ball hasn't really been established.



2. Or should the IRS wait for the ball to go to auction before putting a tax on it?

I think they should, but that doesn't mean they will.


Aquilla

1. Does the IRS have the right to tax the fan who caught Barry Bond's ball, even though he hasn't sold the ball yet?

Yes. Items obtained are considered income, and subject to taxation. How much taxation? Let me see, 1 baseball, should be about $1.96. Any other valuation is pure speculation, and couldn't be determined until the item was actually sold, and therefore couldn't be taxed. For items such as these, fair market value just can't be determined until the item is actually sold. For most items, retail price is used, hence the $1.96. Hardly worth it for the IRS to go after that, especially when doing so might keep them from collecting anything on the real value of the ball later.

2. Or should the IRS wait for the ball to go to auction before putting a tax on it?

See above. Makes no sense to even attempt to tax it now.



Not here. The sale of any good provides income, and that income is taxable. Any good given to you is also considered income, and is therefore also taxable. There are many exemptions to the latter, however I doubt there's a section in the tax code specifically relating to 'Catching ball hit to break Hank Aaron's home run record.'



We have no VAT. When baseball bought the item from the supplier, it provided income to the supplier, which would be taxed, but was an expense for baseball, and as such would be an deduction.

So if you sell your used car for $10.000, you have to pay income tax of that? I'm starting to like Danish tax laws more and more.

Of course we have some restricting rules too. You just can't give away items to anybody for free, because then it will be taxed as a income (if its above a certain amount), but if you sell it privately for a reasonable price, its tax-exempt, even if the buyer can sell it again and make a big profit. A lot of parents use this trick to sell their expensive apartments to their kids for half price, so they can in essence give their kids a huge bag of money tax-free (there is a limit on how big money gifts can be, larger than that, they become taxable, and inheritance is also taxed above a certain amount). I'm against these taxes as well, because the money people have earned, which they then give away, already has been taxed heavily. That doesn't mean I am against taxes per say, not even the large Danish taxes in general.


I know you have VAT in at least one state, but I know it differs from state to state.

You are right, Carlsen! Nearly every state has a VAT (sales tax), we just don't usually think of it that way. It does differ from state to state...the highest I've seen was over 7 percent. Here are the rates. States that don't have sales taxes generally charge income taxes so they get it out of you one way or another, in addition to the federal government which charges a tax on everyone's income in all states.

Per the topic, I remember a similar point of contention with the winners of Oprah's car giveaway a few years back.

No, I don't think Mr Murphy should have to pay taxes on the ball he caught. The value of that ball is arbitrary, unlike Oprah's cars. If and when he sells it, the government can get "its" money.

Ahh, 7% sales tax..... I wish. We pay 25% sales tax on everything, on top of the 40% income tax (or more). But I am not really complaining. We do alright and things are good here. People can still afford two or three cars and big houses and a sommer cottage. We buy just as much garbage as anybody else.

Luckily we can also buy cheap goods from the rest of the EU without being penalized with VAT or import duties. Guess thats the only good thing I can really say about the EU. But I digress.

Just nice to see you have some weird draconian tax laws over the pond also (but I guess all laws have a tendency to become draconian in nature).

Sales tax is not a value added tax; they are different.