KATRINA MUSA—On September 20, 2022, Aaron Judge hit his 60th home run of the season, marking his place in baseball history and putting him on the same level as baseball legend Babe Ruth. Michael Kessler, a 20-year-old Yankees fan, caught the ball, and under baseball rules, he was free to keep it. However, Kessler returned the ball directly to Judge after the game ended, saying that the ball belonged to Judge. In exchange, Judge signed a bat and baseballs for Kessler and his two friends. As he walked away from the stadium that night, Kessler was probably not thinking about the Federal Income Tax or whether the record ball or sports memorabilia he received were taxable income under the Internal Revenue Code (“I.R.C.”).
Section 61 of the I.R.C. defines gross income as “all income from whatever source derived,” except as otherwise provided by another section of the Code. The effect of this broad definition is that the I.R.C. creates a presumption that everything is income to the extent that there is an accession to wealth, realization, and taxpayer dominion and control, unless otherwise expressly excluded. Thus, the question presents itself: are any of the things that Kessler received gross income, and if so, can they be excluded?
Firstly, luckily for Kessler, the record setting ball is not gross income to him. How the Internal Revenue Service (“I.R.S.”) should treat the catcher of record-setting balls is a lively debate amongst tax scholars. Some argue that the ball should only be taxed if the catcher keeps and then sells it later, while others argue that the catcher should be taxed immediately even if they give it back because it is an accession to wealth and realized income. However, in 1998, the I.R.S. announced that a fan who catches a home run ball and immediately returns it does not have to include the value of the ball in their gross income. Nothing in the I.R.C. expressly addresses how record setting balls should be treated. However, the I.R.S. reached this conclusion by analogizing that the catcher is like someone who “immediately declines a prize or returns unsolicited merchandise.”
On the other hand, the tax implications for the sports memorabilia that Kessler received are more unclear. The I.R.C. similarly does not have any provision that specifically addresses sports memorabilia. Moreover, the I.R.S. has declined to speculate on the tax liabilities of a fan who receives merchandise in exchange for giving record setting balls back to the player or baseball club. Therefore, the tax treatment of Kessler’s memorabilia requires analogizing it to a gift or a prize.
Section 102 of the I.R.C. excludes from gross income the value of property acquired as a gift. However, to qualify as a gift, Judge would have had to have given the memorabilia out of detached and disinterested generosity. Here, it is reasonable that he did. This was a historic moment in Judge’s career. The ball was a physical representation of Judge’s achievement and hard work. Moreover, Kessler’s only request that induced him to give the ball back was that he wanted to meet Judge. This is important because Judge was not prompted by Kessler to sign the other sports memorabilia, and it makes it more likely that Judge intended it to be a gift. This position that merchandise given in exchange for returning a record setting ball is a gift also has support from Michael J. Graetz, a tax scholar and law professor at Columbia University, who took the position that the season tickets and signed merchandise Christian Lopez received for returning Derek Jeter’s 3,000th career was an excludable gift.
However, the competing theory is that the sports memorabilia is a prize. Section 74 of the I.R.C. states that gross income includes amounts received as a prize. The idea behind this argument is that the catcher of a record setting ball is like someone who goes on the “The Price is Right” and receives an all-expense paid vacation. Moreover, Kessler knew that Aaron Judge was set to tie for the 60th home run record that night and that it was probable that the ball could be hit to his section in the left field bleachers. Thus, Kessler used his skills to maximize his opportunity to catch the ball and put himself in the position to receive the memorabilia just like the “The Price is Right” contestant uses their skills to win their prize. Additionally, in a press release on the topic, the I.R.S. likened a fan catching a record setting ball and returning it to someone who declines a prize. Thus, it follows that the I.R.S. will likely view the sports memorabilia here as a prize.
We might never know the ultimate answer to whether Kessler will have to pay taxes on the signed bat and baseballs he received from Judge. Christian Lopez’s tax liability was speculated over and received massive amounts of media coverage in the days after he caught Jeter’s record setting ball. However, we still do not know if Lopez paid taxes on the sports merchandise the Yankees gave to him in exchange for the ball. In any case, Kessler’s possible tax implications raise the issue of whether some things are just out of the realm of the federal income tax. Tax analysis hinges on locating and defining a transaction. However, is there really a transaction here? Kessler went to a baseball game that night, caught a ball, and received sports memorabilia from Aaron Judge, a player he idolized. Frances Hill, a Federal Income Tax Professor at the University of Miami School of Law, says this process “is just an inherent part of the game, and is just what happens when you catch a record setting ball, but where is the transaction?” The I.R.S. probably will not see it that way, but for Kessler’s sake, hopefully it characterizes the “transaction” as a gift.