Tax Consequences of A-Rod's 600th Home Run • TaxProf Blog

Wall Street Journal, A-Rod’s Home Run Ball: A Tax Headache for the Record Books?, by Laura Saunders:

Will A-Rod’s 600^th homer score him a huge federal tax bill as well as a line in the record books?

Probably not unless he sells it, says tax expert Richard Lipton of Baker & McKenzie in Chicago.

New York Yankee Alex Rodriguez became the seventh — and youngest — pro baseball player to achieve 600 career home runs when he whacked a shot to center field at Yankee Stadium Wednesday. The ball landed in the security netting and was retrieved by stadium personnel. Brandon Steiner of Steiner Sports, a New Rochelle, N.Y.-based sports memorabilia firm, estimated the ball to be worth $100,000. …

It is unclear what will happen to A-Rod’s ball, but Steiner and others believe the team may allow the player to keep it.

That gesture could raise thorny tax issues, says Lipton. If the ball is the property of the Yankees and they allow A-Rod to have it, this could mean an extra $100,000 of taxable compensation for the player, while the team would see a corresponding deduction. (Under settled tax law, the ball cannot qualify as a tax-free gift from the Yankees to A-Rod because he is an employee of the team.)

On the other hand, team executives could argue that the ball became A-Rod’s when he hit it, and they are simply returning his property to him. In that case, neither the player nor the Yankees would owe taxes.

But even if Rodriguez pays no tax upon receiving the ball,another serious tax question could arise if he either sells or donates it. Under one theory, the ball has increased in value due to A-Rod’s services, so a sale would simply generate ordinary income to him of almost $100,000, taxable at a top rate of 35% this year. In this case, donating the ball to a qualified charity would generate no tax deduction.

But A-Rod — or, more likely, his lawyers — might also argue that the ball is more like a $50 yard-sale painting that turns out to be a $100,000 work by Picasso (or a jumbled box of negatives that turn out to be Ansel Adams originals). Under this theory, if he sells the ball, nearly all the $100,000 would be a capital gain taxed at the 28% rate that applies to collectibles–provided he hangs onto the ball for more than a year. (The gain on collectibles held less than a year is taxed at ordinary income rates.) And if he donated it after a year — say to the not-for-profit National Baseball Hall of Fame — he might get a near-full deduction for the ball’s fair market value.