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Julie Garber

Michael Jackson's Estate and IRS Nearly a Billion Apart on Valuation of Estate

By August 26, 2013

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Last week it was revealed that Michael Jackson's estate is suing the IRS over the agency's valuation of the King of Pop's assets for federal estate tax purposes which has resulted in the estate being slapped with a $505.1 million estate tax bill and $196.9 million in underpayment and late penalties. According to Reuters, while the executors of the estate valued MJ's taxable assets at only $7 million as of his date of death in June 2009, the IRS valued them at $1.5 billion. Not a lot of the meeting of the minds in this case, for example:

  • The estate valued Jackson's "image and likeness" at a mere $2,105; the IRS's value - a whopping $434 million.
  • For reasons that are not clear at this time, the estate did not include the value of MJ's 50% interest in the Sony/ATV music catalogue on the estate tax return; the IRS valued the interest at $469 million.

Other assets that appear to be in contention are the estate's interest in Neverland Ranch and MJ's vast art collection. While the IRS will not comment on the lawsuit -- federal law actually prohibits the IRS from doing so -- a spokesperson for MJ's estate said on Friday that the IRS's appraisal values "were based on speculative and erroneous assumptions unsupported by the facts or law."

So will MJ's estate have to fork over $702 million to the IRS? This seems highly unlikely given the fact that it is common knowledge that Michael Jackson was severely in debt at the time of his death, with estimates in the $500 million range. However, it is likely that the estate will have to pay something else given the billions of dollars separating the estate's values and the IRS's values.

Comments
September 3, 2013 at 11:07 am
(1) dcdoc says:

In the year 2011-2012, the Jackson estate earned roughly $150M. How much is an “asset” that generates annual income of that magnitude worth? Surely, it is worth many, many times the $7M value the estate claims.

There may have been some uncertainty at the time of Jackson’s death as to how much income the estate could expect going forward, and there may be a question as to how much of a “look back” or “look forward” the IRS can rely upon in setting the estate’s value. It’s pretty hard, though, to ignore for valuation purposes that extraordinary income stream.

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