In addition, the IRS’s expert included assets that simply were not foreseeable at the time of Jackson’s death. Why were the IRS and the taxpayer so far apart? According to the court, the IRS was including assets that should not have been included in the “intangible” of likeness and image, and were already accounted for elsewhere in the assets of the Estate that the taxpayer and the IRS agreed upon. However, it is about $400 million less than what the IRS examiner came up with. This is about $1 million more than the Estate argued was correct at trial, but about $3 million more than the Estate reported on the Estate tax return.
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On the question of the value of Jackson’s image and likeness, the court determined a value of roughly $4.1 million. The different positions taken on the Estate Tax Return, IRS Exam, at Trial, and the opinion of the court are summarized below:Īmounts in dispute in Estate of Jackson v. This decision is the first of its kind in valuing a celebrity’s likeness and image after death. The court acknowledged the difficulty in “distinguis between the value of asset and the value of its management.” But that is exactly what the court was required to and did do in this case. The relevant inquiry for Estate tax purposes is only the value of what Jackson had in his hands to pass on, and not what his beneficiaries eventually stood to receive due to the careful and prudent management of the managers after his death. In other words, at the time of Jackson’s death, and in his hands, these three intangible assets were worth far less than what the managers grew them into after his death.
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This is a distinction with a significant difference, where, as in this case, the “estate” was in shambles when Jackson died, and it is only through the careful and shrewd guidance of the managers that it developed into the “Estate” that the Commissioner sought to tax years later. Judge Mark Holmes started by noting that the court “focuses on the nature of the estate tax as a tax on the privilege of passing on the property, not a tax on the privilege of receiving property.” T.C. The parties were able to settle all disputes except the value of these three intangible assets and whether penalties were applicable. The IRS audited Jackson’s estate tax return, and came up with very different values for these three assets than the estate reported on the estate tax return. Importantly both for the current value of the Jackson estate and for the Tax Court’s findings, shortly before Jackson died he fired his advisors and re-hired his former advisors from his “glory years.” However, the team of advisors had not yet had a chance to work their magic, and when Jackson died he was deeply in debt, had made no new albums for years, had not toured in years, and had made no money from his likeness or image for years. Judge Holmes aptly referred to the attempt to raise additional capital from touring as “The Unconsummated Comeback,” because while significant attempts were made to get a tour underway, several roadblocks prevented progress, almost all of which were directly due to Jackson’s tarnished image.
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He announced a new tour that sold out, but no concerts were held, and Jackson’s team struggled to find a sponsor for the tour in light of his tarnished image. Before Jackson’s death he had not toured for years, his image was severely tarnished by allegations of sexual abuse of young children, and he was hemorrhaging cash.
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Michael Jackson, the King of Pop, whose album Thriller was the first I ever owned, had fallen about as far from grace as one can fall before his untimely death in 2009.