The IRS & Celebrity Tax Issues: Michael Jackson & Ronald Isley

The IRS is currently litigating with the Estate of Michael Jackson which they assert owes over $700m in tax, penalty and interest (which if upheld could potentially wipe out his estate and leave his heirs with no inheritance). At the heart of the case is the value of Jackson’s celebrity image, name and likeness (I have been interviewed by the Hollywood Reporter, republished in Billboard magazine, summer/2016, and written two articles published by Lorman Education Services. My latest article was recently published by UK based international investor magazine Offshore Investments (cover story).

In the Jackson case, the estate valued his name and likeness (“celebrity image rights”) at $2,105. The IRS disagreed and valued it at $434m (quite a spread). The IRS asserted not only the 40% estate tax but a 40% penalty for undervaluation which with interest means $250m+ of the asserted tax is from this one tax Issue. Inexplicably, Howard Weitzmann, attorney for the Jackson estate confirmed in the Hollywood Reporter 7/16 article that Jackson while alive had received $50m for product endorsements/celebrity image rights and related merchandising but still insisted that the estate value of $2,105 was reasonable “under the circumstances” (Jackson’s public affairs involving purported child molestation).

My position was that it is inconceivable that Michael Jackson, a legendary entertainer with a world wide following (who at the time of his death was booked to play multiple shows in London, which became the subject of his posthumous film “This is It”, which sold millions of dollars of tickets worldwide) had an image, name and likeness which was worth less than an expensive bottle of wine. The IRS apparently thinks the same and has purportedly sought discovery from the corporate sponsors for the London shows who appear to have committed (and lost) millions of dollars in sponsorship payments to confirm how they valued Jackson’s celebrity image rights (for merchandising and co-branding for their products).

In the case of Ronald Isley, band member of the famous band the Isley Brothers (“Whose that Lady” et al) he did not file tax returns for 1997-2002, previously filed bankruptcy in 1997 after the IRS seized is yacht, cars and other assets. He was held to owe $3.1m in back taxes and was jailed for 37 months.

So what is the message…CELEBRITIES ARE UNDER THE IRS SPOTLIGHT WHETHER DEAD OR ALIVE. The IRS does not have the money or the workforce to pursue all tax cheats or those who aggressively and perhaps illegally either fail to file tax returns, pay taxes due or report all taxes due (despite the IRS nearly 100,000 workforce and $10B annual budget they still process nearly 300m tax returns per year, collect over $3 trillion in taxes per year and do not have the ability to “chase everyone down who cheats or aggressively or illegally fails to file tax returns or report taxes due or pay the tax due.)

In the magnificent American book by F. Scott Fitzgerald, “The Great Gatsby” the quote “the very rich are different than you and I applies to celebrity entertainers. Unlike you and I, if the IRS makes an example of them like in the case of Jackson’s estate or Isley it is “page one news” and is intended to deter wrongful conduct by the rest of us. So if the rich are “very different” than you and I it may not “always be a good thing” especially with the IRS watching.

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