JUANA SUMMERS, HOST:
It costs about 25 bucks to buy an official Major League baseball - that is, until a superstar hitter like New York Yankee Aaron Judge socks it into the stands.
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SUMMERS: That's Judge this week on the YES Network breaking the American League single-season home run record.
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UNIDENTIFIED SPORTSCASTER: He's done it. He has done it - 62.
SUMMERS: In an instant, that $25 ball could be worth millions, and the Internal Revenue Service might be interested in a cut. Michael Bologna wrote about that for Bloomberg, and he joins me now. Hi there.
MICHAEL BOLOGNA: Hi.
SUMMERS: Can you just explain to us a little bit about how this works? What does the IRS say about this kind of situation?
BOLOGNA: Well, first, I should say that the IRS has said very little about this situation. And what the IRS has said about it is about as clear and as precise as a Yogi Berra aphorism. If you were to take the Internal Revenue Code quite literally, the finding of a million-dollar baseball, for argument's sake, would be treated under what's known as the treasure trove regulation. Any windfall that a taxpayer comes across immediately becomes recognized as ordinary income. And so you would have to realize that million-dollar baseball is a million dollars in income. And then you'd probably be at the 37% rate, top marginal rate. And by my estimation, you'd need to pay the government $332,000 approximately.
SUMMERS: Just to make sure I understand you clearly here, you're saying if I'm just in the stands, I reach up and somehow I manage to catch this ball, I could be on the hook for $332,000.
BOLOGNA: Right, right. On the other hand, you still have a baseball worth a million dollars.
SUMMERS: Wow. OK. So, Michael, could someone simply avoid all of this by just picking up that ball and tossing it right back to the team?
BOLOGNA: Yeah, and that is exactly the question that the IRS tried to answer in 1998. So if everyone remembers, there was sort of this home run derby going on at that point between Sammy Sosa and Mark McGwire, and this question came up. And an Internal Revenue Service spokesperson was interviewed on it and said that that person, assuming that they handed the ball back to McGwire or the ball club, would immediately be hit with a gift tax. So this turned into quite a controversy. There were even members of Congress complaining about this. The IRS was looking pretty bad in this scenario. They decided to draft this press release that came to the conclusion that using an analogy of principles of tax law that apply when someone immediately declines a prize or returns an unsolicited piece of merchandise - in those circumstances, there would be no gift tax for the taxpayer.
SUMMERS: So I know you talked to some experts about all of this. And did any of them offer any tax advice to people catching these million-dollar baseballs?
BOLOGNA: I think at a very literal level, you'd have to use the treasure trove regulation that I discussed before. But there are a lot of tax professionals who believe that that is really the wrong answer and that you should only be taxed when the ball is sold. That maybe seems like a fairer treatment. You know, you only have income when you sell the ball.
SUMMERS: Michael Bologna is a senior correspondent with Bloomberg Tax. Thank you for being here.
BOLOGNA: Thank you.
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