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IRS continues fight over Jackson estate valuation

The conflict between the Internal Revenue Service and the estate of legendary pop singer Michael Jackson continues as the IRS announces huge penalties for the alleged purposeful undervaluing of the estate. We covered this issue in a post last year when it first came to light that there was a valuation issue.

Valuing an estate can be a tricky business, particularly when the estate is made up assets like intellectual property that can change in value over time and may have unpredictable worth. In the case of Jackson’s estate, two central trust assets were responsible for a large part of the discrepancy between the estate’s $7 million valuation and the $1.125 billion valuation assessed by the IRS.

One of those trust assets is Jackson’s likeness, which the estate valued at just $2,105. His likeness is used for merchandise and promotional materials and may rise or fall in value depending upon the popularity of the singer at any given time. We know now that in the months after he passed away, Jackson’s work began selling at higher rates and his likeness was shown to have quite a high value, perhaps closer to the $434 million that the IRS estimated.

Another asset of uncertain value is Jackson’s interests in copyrights, particularly his interest in a large portion of The Beatles’ catalog of hits. At the time of his passing, Jackson had taken out a large loan on the value of that catalog. The estate valued the catalog at zero dollars, while the IRS found it to be worth $469 million.

These are clearly contentious issues and the vast difference in valuation on this scale is not something that the average California family will face. However, the issue of properly valuing estate assets to minimize taxes within the bounds of the law is something that many family deal with and often the advice of an expert can help strike the appropriate balance.

Source: Los Angeles Times, “Michael Jackson estate embroiled in tax fight with IRS,” Jeff Gottlieb, Feb. 7, 2014.

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