Battle of the Appraisals: Jackson Estate Continues Tax Fight With IRS

Posted on Jan 15, 2014

Following pop star Michael Jackson’s unexpected death on June 25, 2009, his estate continued to earn staggering sums of money based upon his image and musical successes. His estate received a $60 million advance for the film This Is It, as well as a new recording contract worth a reported $250 million. Additional sources of revenue include his Immortal World Tour, a joint venture with Cirque du Soleil. The estate reportedly earned $170 million in 2011 and another $145 million in 2012.

When someone passes away, the IRS still wants its share of taxes if the estate continues to earn money. The income collected by the estate is subject to income tax. The estate is also subject to the estate tax. Currently, the IRS and the Jackson estate are battling it out in court over the correct amount of estate taxes that the estate owes.

As part of their argument, the IRS states that Jackson’s estate owes $505.1 million in estate taxes, and an additional $196.9 million in penalties. Complicated issues that make it difficult to definitively value the assets in Jackson’s estate include the following:

  • Jackson’s real estate, Neverland Ranch, is highly unique, and the value is arguably tied to Jackson’s image. This makes an accurate valuation of the property difficult to obtain.
  • Jackson’s image, likeness, and intellectual properties did not dramatically rise in popularity until after his death. Arguably, this means that they were unforeseeable. Future payments to the estate are valued by taking the projected future worth and discounting it to a present value. It is difficult to make these calculations when Jackson’s earnings fluctuated so dramatically.
  • It can be argued that the This Is It movie was only successful because of Jackson’s death, and therefore was not worth as much at the time of death as it was after he passed.
  • It can also be argued that a scheduled concert tour was a huge gamble prior to his passing, when his popularity was dramatically lower than it became after death.

The estate further argues that while the value of these assets at the time of Jackson’s death may be lower, the IRS still received payment on the dramatic rise in value and earnings by virtue of the income taxes that have been paid to date. Ultimately, this boils down to a battle of the appraisals on the assets, and it remains to be seen how the courts will decide.

To learn more about the Jackson estate and other estate tax matters, contact our office today at (714) 459-5481.

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James F. Roberts
Founder and owner of the Law Office of James F. Roberts and Associates, a premiere estate planning law firm