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Are Derek Jeter’s Gifts Taxable?

September 9, 2014

Derek Jeter made the rounds receiving gifts from each team he played against this year.  The Yankees ended up providing the grandest of prizes on Sunday.  Question: Are these gifts taxable to him?

For starters all gifts to his Turn 2 Foundation, Inc. are tax deductible as charity contributions by the payer and not taxable to Derek.  The Foundation is a qualified charity and operates in accordance with IRS regulations.

If the gifts to Derek were completely gratuitous, then they would not be taxable to him.  However, they would also not be deductible by the teams making the gifts.  Actually, $25 would be deductible since that is the limit for business gifts, but that’s it.

If the gifts were made in the expectation that services would be provided by Derek, then they would be taxable as compensation and fully deductible by the teams.  The taxable income would be determined by the value of what Jeter received.  Old stadium seats, framed patches and game tickets and other items that had no or minimal cost to the team would still be valued and that is the amount Jeter would be taxed on. 

It would seem that the gifts were payment in conjunction with the promotion of Jeter being there to receive the gifts.  This looks like work to me, so he would be taxed on what he received.  He would also be subject to state taxes where the paying team was located.

If Derek decided to keep the gifts, then it ends there.  However, if he donates them within a year, to a museum or other public charity, he would get a tax deduction for either the lesser of his cost, i.e. the amount he was taxed on, or the value at the time of the donation.  However, if the donation was made more than a year after receipt, and the property was considered as either a capital asset or a collectible, then he could get a tax deduction equivalent to the value at the time he made the donation (provided the organization he gave it to retained the property in its collection or for its use.)  If the charity sold the property pretty quickly (within at least three years), or had it offered in a “charity” auction, then his deduction would be treated the same as if he donated it within a year after receiving the property.  If the value of any individual item was over $5,000 he would need a certified appraisal in order to get his tax deduction.  He would also need to file Form 8283 page 1 and Parts III and IV on page 2.  Charitable donations are also limited based on adjusted gross income and the form of gift that is made.

If Derek decides to sell the gifts at a later time, all income, i.e. the amount received in excess of his basis, would be taxed, but the collectibles would be taxed at a 28% federal capital gains rate instead of the ordinary income rates. 

If it is determined that the gifts were not taxable to Jeter, then his basis for any later sale, if that occurs, will the lesser of the donor’s cost basis or the fair market value at the time the gift was made.

Ain’t taxes fun!

4 Comments leave one →
  1. 6hawthorne permalink
    September 9, 2014 7:19 am

    hi ed  good to know

  2. Chris F. permalink
    September 9, 2014 1:21 pm

    Great article, Ed. He has been in these ballparks at various times over the past 20 years without being offered gifts and would have been there this year regardless. Why should the gift be taxable to him? I think the team is the one with the tax issue.

  3. Cohen, Harvey L permalink
    September 9, 2014 3:45 pm

    Ed,

    I would argue that the gifts were not taxable since they were made incidental to his being present to play the previously scheduled game that day. If it was a separate event on a day on which there was no scheduled game I would agree with you. That being said, I’m sure that this issue has been addressed by the IRS before and there’s been a decision that says “of course it’s subject to additional tax, we’re the government, everything you receive is taxable, we need the money”.

    In any event, I think that your excellent analysis of the options and consequences of these gifts is evidence that the tax code ain’t “fun”, but rather it’s insane. I know it won’t happen in my lifetime, but the tax code needs to be scrapped and replaced with some kind of simplified system.

    Harvey

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  4. September 11, 2014 1:56 am

    Bob, Chris and Harvey,
    Thanks for your comments. Taxes are complicated but also interesting and certain parts defy explanation or logic. This could be one of them. Whether Jeter is taxed or not will not provide any additional revenue to the IRS. If he is taxed the team gets a deduction. If he is not taxed, they are denied the deduction. Either way, it is fairly neutral for Uncle Sam. If there is an inconsistency in the treatment between Jeter and the teams, then the government will lose out. One purpose of the blog is to get people thinking – it worked with the three of you (and a few others that sent me personal emails) and possibly many others I did not hear from.
    Thanks for commenting and for reading my blogs.
    Ed

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