Aaron Judge’s 62nd Home Run Ball Could Be Worth A Lot For The Lucky Fan And The IRS

Taxes and baseball don’t seem to go together, but America’s sport sometimes meets America’s great leveler: the income tax and the folks down at the IRS. Cory Youmans was the lucky catcher of Aaron Judge’s record-breaking 62nd homer run at Globe Life Field in Arlington, Texas, but is the IRS really after him? Not exactly. Even if he declares it as income, his tax return isn’t due until April 15, 2023. Many tax advisers would likely lean in favor of not reporting it, but tax advisers tend to be all over the map on this issue. It could be worth $700,000 or so, although no one is sure just how valuable it is, but it’s likely worth a lot of money.

In fact, JP Cohen, president of the sports memorabilia company Memory Lane, told the New York Post the ball is worth at least $2 million. Tax people have different views about taxing baseballs, but some people say that tax is due when you catch it. Most taxpayers would probably push back on that since it is hardly earned income. In any event, taxes more certainly apply later, depending on what the lucky fan does with the ball. And if the fan sells it, well, cash it taxable.

Keeping it until death? Over the exemption amount (which right now is a hefty $12 million per person), the IRS gets the tax there, too. After all, when it comes right down to it, just about everything is fair game for the IRS. Whether it is diamonds you find, gold bars or nuggets you discover, or just about anything else, it’s taxable according to a famous tax case, Cesarini v. United States.

That case involved a man who bought a used piano for $15 and found $5,000 in cash inside. When the IRS said it was taxable income, Cesarini went to court to push back on Uncle Sam’s cash grab, but the IRS won. The IRS calls finds like this “treasure trove” and says you have to value it and declare it as income. So some people even have to sell their discovery to be able to pay the tax.

About the only way you can guarantee that a recovery is tax-free is if you recover your own property — something like art stolen and later recovered. If you can prove it’s yours and you are just getting it back, it should not be taxed. But even then, under the “tax benefit rule,” if you originally claimed a tax deduction for theft or loss of the property, you must include the value of the recovered property in your income when you get it back. And if the property has gone up in value in the interim, you get stuck with tax on the increased value.

You might think that giving your find to charity would fix the tax problem neatly, but the IRS has an answer there, too. In fact, giving to charity can make the tax problem worse, as sometimes happens with prize money. You can decline a prize and avoid all taxes. But if you accept it and then donate it to charity, you can’t. Even if you immediately give it to charity, you can only claim charitable contributions only on part of your income, usually 60% of your “contribution base” — generally your adjusted gross income.

The limit is even lower (30%) for gifts to certain private non-operating foundations, veterans’ organizations, fraternal societies and nonprofit cemeteries. You can carry over excess charitable contribution deductions from one year to the next, and you have five years to use it up. In the meantime, though, you are paying tax on money you’ve given away. It’s another example of our complex tax laws, and the many tax traps you might encounter.

Can the fan fail to include the value of the ball in income, but still claim a big charitable contribution deduction? How about giving the ball back to Aaron Judge, or to the team? In the past, when this issue has come up — with Derek Jeter, for example — a fan might turn in a ball for “free” tickets and other baseball gear. It’s harder to say that swapping the ball for valuable tickets or other gear doesn’t involve what the IRS calls an accession to wealth.

Swapping assets — or bartering — is taxable, says the IRS. Even swapping bitcoin or Ether is taxable now. Up until 2018, some people claimed that swapping coins was protected by Section 1031 of the tax code. Art and airplanes could also qualify. But in 2018 the tax code was amended to say “real estate only.” There is lots and lots of tax learning on these subjects, and few definitive answers, except perhaps that tax people like to talk about baseball.