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Next up for California courts: IRS gone wild with Jackson estate p2

| Oct 17, 2014 | Uncategorized |

Michael Jackson’s music lives on, and, apparently so do the problems with his estate. The entertainer died more than five years ago, but the IRS is still trying to determine — and collect — the tax on the estate. Remember, Jackson died in California, so the only estate tax obligation is to the federal government.

Jackson was reportedly deep in debt at the time of his death. The concert he had been preparing for was supposed to have brought a much-needed infusion of cash. When he died, then, the balance sheet looked a little lopsided: He owed much more than he owned.

What he owned, though, and what his estate now owns, are the rights to his music, his performances and his image. And, it seems, the master recordings of some of his work.

Placing a value on these things is no easy task. The intangible nature of intellectual property has been a sticking point for the IRS in a number of cases, and the King of Pop’s estate has proved especially difficult.

With the master recordings, the value was not the only thing in question. The IRS initially believed Jackson had just a 50 percent interest. That share increased to 100 percent at some point, raising the auditors’ total value — of just the master recordings — to $91 million. Unfortunately for the estate, the tax return listed the value at $11 million.

According to Forbes magazine, the recalculation of the recordings’ value put the IRS’ estimate of Jackson’s estate and lifetime gifts at $1.178 billion. The estate put the total closer to $7 million. The new value also, of course, increases the government’s total invoice to $525.6 million for taxes and an additional $205.1 million “gross valuation misstatement” and penalties. 

The estate is already fighting the IRS’ attempt to collect $702 million in taxes and penalties, so new litigation isn’t really likely. Court documents show that the parties are still trying to settle disputes about Jackson’s tangible property. No one will say when they will get to the intangible property.

And that doesn’t even begin to touch the question of Jackson’s two trusts.

Source: Forbes, “IRS: We Made A Mistake Valuing Michael Jackson’s Estate,” James Novack, Oct. 3, 2014

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