IRS v. the Estate of Michael Jackson: IRS Ups Claim to $731m

In the ongoing dispute of the Estate of Michael Jackson, in a previously unreported court filing the IRS has increased their original claim for tax and penalty from $702m to $731m. The IRS now values the Estate (and Lifetime Taxable Gifts) at $1.178B compared to the Estate Form 706 Valuation of $7m, a valuation difference of $1.171B.

Jackson the “King of Pop” died in 2009 and this estate tax battle with the IRS has been ongoing for years with no end in sight and no trial date yet set.

IRS tax auditors previously valued Jackson’s original master recordings at $45.5 m (for a 50% ownership interest); the IRS asserts that he actually owned 100% of them so the value is now $91m (not the $11.9m as reported on the estate tax return).

The IRS tax dispute centers around the following valuation issues:

1) The Estate valued Jackson’s name and likeness at $2,105; the IRS valued it at $434.26m, a difference of over $434m;

2) The Estate valued Jackson’s interest in the Trust that owns the Beatles/Jackson’s songs at $0, the IRS valued them at $469m, a difference of $469m;

3) The Estate valued Jackson’s master recordings at $11.9m while the IRS valued them currently at $91m, a difference of nearly $80m;

So, how is this all possible? Someone appears to have “bad math.” The IRS claim is for tax: $525.6m and penalty: $205m, total: $730.6m. In addition interest accrues and legal/professional fees run. So in the end is this a billion dollar tax and fee dispute? Certainly appears to be the case with no apparent end in sight.

If the Estate tax return is based on the law and the facts support it they may win. However, it is incredible that Michael Jackson the world’s most famous entertainer whose estate earns $160m per year (nearly 3 times Elvis at $55m per year, nearly 10 times Bob Marley at $18m per year, and nearly 14 times John Lennon at $12 m per year) had a name and likeness worth $2,105 (not to mention a $0 valuation for the Beatles/Jackson songs). In the words of Bob Dylan: “Something is Happening Here and You Don’t know What it is.”

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