U.S. Tax Court Judge Mark Holmes is overseeing hearings on the value of the Gloved One’s estate. Depending on the findings, the estate may need to pay more than $500 million in taxes and $200 million in penalties. Jackson’s former attorney, John Branca, claims that Jackson was in debt to the tune of $400 million when he died.
As reported in a recent article in Accounting Today, “Court hears IRS dispute over value of Michael Jackson estate,” Jackson’s estate originally claimed it considered his name and likeness essentially worthless. Jackson’s reputation was tainted by child-abuse allegations and strange public behavior. The estate first estimated his name and image to be worth only $2,105, although it later said they could be worth $3 million. The IRS thought the number was more than $434 million. An estate of this size and public prominence, hardly needed a red flag like this.
After Jackson’s 2009 death, a documentary on rehearsals for his comeback tour grossed $261 million, Cirque de Soleil created a successful show with his music and Jackson’s songs and memorabilia continue to generate big sales figures. #LasVegas
However, it’s the valuation on the date of Jackson’s death that counts for estate tax purposes. The value of the estate on that date is what matters, not necessarily its value when it is exploited afterwards. However, the IRS examines post-valuation date events to determine the value. Since Jackson’s estate did a terrific job in exploiting the music catalog and the name and likeness after the date of death, there’s plenty of evidence of what the value of his name and likeness might have been worth on the date of his death. The estate will say that you can’t look at those post-valuation date events because they have nothing to do with what it was worth on the day he died. The licensing agreements weren’t in place, and his image was damaged, the estate’s attorneys will argue.
The IRS will respond, however, that it doesn’t matter what Jackson was doing with his name and likeness. In light of the fact that the music promoter AEG was supporting a multimillion-dollar comeback tour for him when he died, shows that he was worth far more. That tour suggests that maybe it wasn’t just his death that caused the renewed interest. Perhaps if Jackson lived another year, this cash flow would have been inevitable.
Before it can come to a final conclusion, the Tax Court will review expert testimony, valuation reports and other documents, which are under seal as part of an active case. Judge Holmes will take all of these factors into consideration and come to a final decision. #411probate #MichaelJackson
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Reference: Accounting Today (February 8, 2017) “Court hears IRS dispute over value of Michael Jackson estate”