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Not so 'Black or White': IRS Takes on Michael Jackson

February 17, 2017
Post by Nicholas J. Krob

How much is Michael Jackson worth?  This is one of the underlying questions currently being considered in U.S. Tax Court right now, as Michael Jackson's estate battles with the Internal Revenue Service over the late entertainer's estate taxes.

The IRS served the Jackson estate with a notice of deficiency back in 2013 contesting the estate's valuation of various items following Jackson's 2009 death.  The IRS valued Jackson's estate at $1.32 billion, demanding $505.1 million in tax deficiencies and $196.9 million in accuracy-related penalties.  The Jackson estate has rejected this valuation and the matter is now before the U.S. Tax Court in Los Angeles.

The most notable dispute in this case is over the valuation of Jackson's name and likeness rights (commonly referred to as "publicity rights‚¬) at the time of his death-rights which the IRS initially claimed were worth $434.3 million and the Jackson estate initially claimed were worth $2,105.

One's rights to his or her name and likeness-or, more specifically, the exclusive right to sell or license such name and likeness-can be very valuable, particularly in the case of celebrities or other public figures who often make a great deal of money through sponsorships and advertisements.  However, assigning a specific dollar value to such rights can be quite tricky.

The difficulty in valuing the rights to one's name and likeness is currently being made clear in Los Angeles.  The Jackson estate, while raising its estimate from the eyebrow-raising $2,105 to a more reasonable $3.078 million, claims Jackson's name and likeness was nearly worthless at the time of his death.  The estate claims Jackson's image was so damaged in the public eye by allegations of child molestation, rumored drug use, and other tabloid scandals that few wanted anything to do with him-rendering his name and likeness essentially worthless.

The IRS disagrees with the Jackson estate's valuation, noting that Jackson was "an international icon"and citing the hundreds of millions of dollars the estate has made through projects featuring Jackson's name and likeness following his death.  Despite revising its initial $434.4 million figure to $161 million, the IRS believes the Jackson estate is mischaracterizing the true value of the Jackson's name and likeness.

One of the primary reasons for the wide disparity between the two parties' estimates appears to be an issue of timing.  For estate tax purposes, it is the value of the estateat the time of death that is at issue.  The Jackson estate claims the estate itself was virtually worthless at the time of Jackson's death and has only since become valuable due to Jackson's commercial rebirth stemming from the successful management of the estate.  Conversely, the IRS appears to be framing the success following Jackson's death as evidence of the estate's value at the time of Jackson's passing.

This is a notable case in that it marks the first time the IRS has pursued estate taxes for an individual's name and likeness.  The outcome of this case could have a vast impact on how the estates of deceased individuals are commercialized and the corresponding tax implications thereof.


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