Paul L. Caron

Monday, May 9, 2016

WSJ:  What Is Prince’s Legacy Worth? The Tax Man Wants To Know.

DovesFollowing up on my previous post, Prince Died Without A Will, According To Court Documents:  Wall Street Journal, What Is Prince’s Legacy Worth? The Tax Man Wants to Know:

After the doves cry, there’s IRS Form 706.

Estate-tax attorneys for Prince, who died [April 21], must attempt to put a precise financial value on his name, image and likeness.

That Prince-ness could make him one of America’s top-earning deceased celebrities, and it may be one of his estate’s largest assets—subject to a 40% federal tax.

The Internal Revenue Service is used to putting price tags on tradeable assets and is well-trained in taking existing revenue streams and capitalizing them into a value. It is much trickier to divine the worth of a unique niche business—marketing Prince’s legacy—that doesn’t really exist yet.

There is no real precedent for Prince. The closest thing is the Michael Jackson estate-tax battle, headed for trial in the U.S. Tax Court in February.

Mr. Jackson’s estate initially said his image and likeness were worth $2,105 when he died in 2009, near the nadir of a career dragged down by scandal. The IRS, however, said the King of Pop’s posthumous image was worth $434 million.

Mr. Jackson’s total estate, according to court records, tops $1 billion under the original IRS estimate, while the estate first said it was just $7 million. The two sides have resolved some valuation disputes, but the name-and-likeness fight is what the estate-tax bar is following closely.

“This could be very ground-breaking,” said Jonathan Blattmachr, a retired estate-tax lawyer from Milbank, Tweed, Hadley & McCloy LLP. A victory for the IRS, he said, could spur celebrities to alter how their estate plans handle their image rights.

Beyond hundreds of millions of dollars for the U.S. government, Mr. Jackson’s case also has tax-planning consequences for any actor, musician, politician or athlete famous enough to earn beyond the grave. ...

The toughest issue won’t be Prince’s real estate, song royalties or his unreleased trove of recordings, though that could all be contentious. It isn’t even the future profits from his name, image and unpronounceable glyph, which the government will tax as income as it is earned.

The estate-tax challenge is setting a cumulative value on Prince’s profit potential on the day he died. How much would someone pay now to follow Mr. Jackson’s model: product endorsements, a biographical film, a themed Cirque du Soleil show and much more? ...

Prince is valuable in part because he died relatively young. If he had died at age 87, instead of 57, he would have outlived many of his biggest fans. Instead, they can spend for decades. ...

Celebrity estates can only control their names and likenesses if they lived in a state that recognizes such a right of publicity after death. New York doesn’t, and Marilyn Monroe’s estate has had trouble as a result.

Celebrity Tax Lore, Tax | Permalink