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  • Jenny Rozelle, Host of Legal Tea

Current Trends - Aaron Judge, Home Runs, and Taxes - Episode 67


Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle. Welcome back for another episode of Legal Tea! As you may have noticed, I took a break last week – As I shared at the end of my last episode, where I try to do a little sneak peak at what the following episode will be about, I shared that I was falling a little behind and it was easier for me to “hit pause” and catch my breath (and devote my time and attention to my law firm), rather than try to do too many things at once and run myself too much. So, I did just that – I took a week off and I am feeling so much better and am ready to go for this next episode. Thank you for bearing with me – I hope you used the time to catch up another favorite podcast of yours or even catch up on episodes of Legal Tea you haven’t been able to listen to yet!


Alrighty, here we go…


Today’s topic is a current trend … something going on in current time, that is pertinent to my little estate and elder law world. This week’s episode is going to be about odd little tidbits from tax law and the tax code – which okay, I get it, sounds a little boring, but the thing that made me think about this topic and why I’m talking about this topic under a “current trends” episode is because I stumbled about an article talking about Aaron Judge, his homerun ball, and how “the tax man will be following the fan who caught the home run ball.” As a lawyer, who practices in estate and elder law that often intersects with tax, I was 0% surprised, but maybe you are surprised (or not) to hear about the fan maybe getting taxed for catching this home run ball. Before I go on, though, let’s get some basics out of the way for my non-sports lovers on here…


So, who is Aaron Judge? Well, Aaron is a baseball player (hence home runs – ha!) for the New York Yankees. He’s an outfielder and he’s a big boy for a baseball player—he stands at 6’7” and is just north of 280 pounds. According to Fanatics Forum blog, Aaron Judge is one of the largest players in Major League Baseball. So, given his talent and his size, he can slug some balls when he’s batting. He’s smashed (pun definitely intended) many records, including the most recent record this baseball season (which is why his name has been all over the news lately and why this episode, we’re even talking about him).


According to his Wikipedia page, roughly 95 years after Babe Ruth hit 60 home runs in a season, Aaron now gets to be on the short list of Major League Baseball players to hit 60 runs in a season. That happened on September 20, 2022. Eight days later, on September 28th, Aaron hit his 61st home run, which tied for fourth place (with Roger Maris) for the most home runs in a single season in American League history. And then, finally, on October 4th, 2022, Aaron hit his 62nd home run, which allowed him to take the fourth place spot alone bumping Maris to 5th place. Now, the only individuals ahead of him are Barry Bonds (who has the record for 73 runs in a single season), Mark McGwire, and Sammy Sosa. Incredible, right?


I recall watching something on television, I forget what it was, but they kept interrupting the program to tune in for the Yankees game so that the world could watch Aaron break these records. I’m not the biggest baseball fan in the world – I much prefer to watch college basketball, but don’t get me wrong about all of this either, I played softball from a child to high school, so I’m not a big dumb-o when it comes to rules and stuff. I just don’t watch it faithfully, but my husband and I were in New York City just earlier this year and we attended a Yankees game. Beautiful stadium – I bought a Yankees hat that I routinely wear when I go to the grocery store. Ha! Anyway, so not you know way more about Aaron Judge and me probably, than you really cared or needed to know, but oh well!


So Aaron’s last few home run baseballs are obviously high value and going to be QUITE the collectors item in the future, right? So when I stumbled upon this article on Bloomberg written by Michael Bologna, I was quite intrigued when the article opened up with the following sentence: “Million-dollar baseballs are raining down on fans like pennies from heaven, and the tax man isn’t far behind.” Well, the fan we’re going to be talking about is the one that caught the 62nd home run ball that set the new record – his name is Cory Youmans. So, Cory, maybe not when he caught the ball, but eventually when he found out the IRS would sure be inquiring about his winning catch, may have been caught by surprise that while catching Aaron’s 62nd home run ball had to have been a life-changing awesome moment, all things come with consequences. Some consequences are good (hey, like catching this ball!) and some consequences are bad (looking at you, IRS).


Interestingly, the IRS’ rules aren’t exactly the most clear in the world – which does that really surprise you? In fact, according to the Bloomberg article, there’s a single IRS quasi-guideline that deals with “rare, record-setting baseballs” and it’s a three paragraph press release from 1998. Though, it’s really not super clear and not to mention it’s merely a press release … nothing more. So, very recently, the Treasury Department was asked about Aaron’s home run ball and whether the government had intentions to modify, change, alter, anything their view from 1998. The Treasury Department Senior Spokesperson, Julia Krieger, responded with a brief statement, which was: “We don’t have anything to add.” Ummm … what does that mean?


It’s SO confusing because different people, different representatives say different things. For example, this whole 1998 press release came about after in 1998, when Mark McGwire and Sammy Sosa were battling to be the home run king, an IRS spokesperson said that any fan that hands back a record-setting home run ball would be served a gift tax bill. The IRS, conversely, doubled down and said the OPPOSITE – instead, they said, via the press release, that a fan snagging a home run ball would not be hit with income or gift tax bill – and the then-Commissioner actually came out and said, “the fan deserves a round of applause, not a big tax bill.”


Well, if you take a look at the literal tax code, a fan that catches one of Aaron’s super-cool baseballs MAY fit into, what the Bloomberg article refers to as, the “treasure trove regulation.” Basically, what the regulation says is that “windfalls dropping into a taxpayer’s lap must be immediately recognized as ordinary income.” If you’re a giant nerd, that’s under Section 1.61-14. Beyond being considered “ordinary income” the tax code would even consider it a gift, under the gift tax rules, if the fan handed the ball BACK to Aaron or the Yankees, or if the fan gave it to his friend, child, parent, etc. It’d be considered a gift. And remember, that’s what that 1998 press release was about – like, “Yeahhhhh, we’re not going to come after you; chill out!”


Though, as the Bloomberg article states, the big issue, the big question would be whether the IRS would *actually* ever apply a rule like the “treasure trove regulation” or even…what happens if a fan SELLS the home run ball? So many questions, so little answers, right? Well, to continue on with the slight confusion, the Bloomberg article talks about the academic debates going on about this very issue – and specifically, the former IRS chief counsel, Donald Korb, said the “treasure trove regulation drives him bananas.”


Korb was quoted in the article saying, “If the IRS Commissioner Chuck Rettig were asked the question, there is no doubt in my mind that he would say that merely catching the ball does not result in taxable income for the lucky fan.” So, it sounds like now we have someone that was formerly directly with the IRS saying, “Nahhhh – probably not going to be considered taxable income to the fan.” Though, what he did NOT say was what would happen if the fan sells it – or gifts it. And in those situations, I think the IRS definitely had a better argument to get into the mix. So – Say, the fan did gift it – that would very likely be subject to the gift tax rules; or if the fan did sell it, that would very likely be subject to capital gains (whether it’d be characterized as long term capital gains or short term capital gains, …. Not sure).


And continuing on with the academic debates, the article mentions a tax law professor at Stetson University, Andrew Appleby, who said that the answer is probably somewhere in the middle – that the practical solution (from a tax perspective) for things like catching a record-setting baseball is probably a combination of a lot of things. That, the initial value of the baseball is, say, $25, or whatever a ball game baseball costs – but then deal with the “true” value (due to it being a record-setting baseball) as the unrealized gain. That means, that while the fan who caught it does not get a tax bill (from a taxable income standpoint), but if he does sell it, capital gains taxes would definitely be owed. Appeby ended his comment for the article with, “the tax advice I provide is, please talk to your accountant.” Fair; very fair.


So, I guess right now, we don’t have a really solid answer for this fan besides 1) get yourself a good Accountant and 2) it sounds like you’re probably not going to have to report it as taxable income (if the IRS takes the position of the majority), but if you do sell it, to get ready to talk to Uncle Sam! And hey, it’s probably a good, timely time to remind all of you listeners, that say you don’t have something like this (maybe not to the extent of a super cool record-setting baseball, but something of high monetary value and/or sentimental value), that my goodness – you need to be taking a look at your estate plan, too. The Accountant will have this fan’s back on how to navigate the murky tax waters following catching Aaron’s home run baseball, but an estate attorney is probably just as important to ensure that if something happens, that ball goes to who the fan wants it to go to. Same for your “stuff” that has monetary value and/or sentimental value – your estate plan should “touch” on these things like who should get it, should it “count” as part of the beneficiary’s monetary share, etc. Just figured it was a good time to remind you all of that!


Alrighty, next week’s topic is on estate planning of the rich and the famous – on that episode, it’s going to be quite the timely one, we’re going to talk about Anne Heche – oh my goodness, maybe it’s just me since I’m in this estate space, but there’s a lot of “stuff” and drama going on estate-wise following Anne’s unexpected, sad passing. Tune in next Tuesday, Legal Tea Listeners, to hear all about it. Talk to you then and stay well!


Sources:


https://www.bloomberg.com/news/articles/2022-10-05/historic-baseballs-are-fan-gold-murkier-for-tax-accountants?utm_content=pursuits&utm_campaign=socialflow-organic&cmpid%3D=socialflow-twitter-pursuits&utm_source=twitter&utm_medium=social

https://www.irs.gov/pub/irs-news/ir-98-56.pdf

https://blog.fanatics.com/baseball-players-shapes-sizes/

https://www.baseball-almanac.com/hitting/hihr4.shtml

https://www.cnn.com/2022/10/04/sport/mlb-aaron-judge-62nd-home-run-spt-intl#:~:text=Barry%20Bonds%20set%20the%20major,73%20home%20runs%20in%202001.

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