On Saturday, July 9, 2011, Derek Jeter achieved his 3,000th hit at Yankee Stadium. It was even a home run and one lucky fan caught the ball—a six dollar item now worth hundreds of thousands. The fan, Christian Lopez, uncharacteristically returned the ball to Jeter. His unselfish gesture was rewarded with a luxury suite for the team’s remaining games and various Yankee memorabilia. End of story? Not according to the New York Daily News.
In a story published July 12th, the News maintained that this good deed would not “remain unpunished.” The IRS will consider Lopez’s reward as taxable income on which he will owe thousands in taxes, is what a New York accountant contends. Can this be?
It depends on whether the reward is income or a gift. Gross income usually includes compensation for services, income derived from business and gains from dealing in property. Is catching a home run ball a service? Unless the Yankees contracted with Lopez to catch the ball, it seems like a gratuitous, unsolicited act. Lopez’s business wasn’t to retrieve baseballs either. Is it dealing in property when you don’t actually own the property, but are merely returning Yankee property to the Yankees? It may be a tradition for the fan to keep the ball, but shouldn’t that be considered a gift from the team?
So, it would appear that the ball was a gift which Lopez returned. The grateful Yankees gave him a different gift instead. Gifts are not taxable income. Gift donors, however, are responsible for paying gift taxes. If anyone owes taxes—it’s the Yankees. The receiver of the gift is responsible for tax on any future income realized from the gift. If Lopez had kept and sold the ball; he would have had one major tax liability.
What does this demonstrate? Don’t depend on a newspaper for tax advice. Get tax advice from licensed professionals.