Michael Jackson's Estate Beats The IRS: Tax Court Sets FMV Of His Name And Likeness At $4 Million, Not $161 Million

Wall Street Journal, Michael Jackson Estate to Face Smaller Tax Bill After Court Ruling:

Michael Jackson’s estate prevailed over the Internal Revenue Service on several key issues in a closely watched court case, an outcome that will push the estate’s tax burden below the government’s initial assessment.

In a ruling issued Monday, U.S. Tax Court Judge Mark Holmes found that the singer’s name and likeness were worth $4 million when he died in 2009 at the age of 50, not the $161 million the government had claimed. The IRS won on some other points about the value of other Jackson assets, but will get far less than the hundreds of millions of dollars in taxes and penalties it had sought from the estate.

The government and the estate settled some issues, and the case came down to the question of how to value three main assets: Mr. Jackson’s name and likeness and two entities tied to the music business.

The estate initially started with some lower values, but by Monday’s decision, it had said those three assets were worth $5.3 million combined. The government had started with higher values and an estate tax bill topping $500 million, but eventually concluded those three assets were worth $481.9 million combined. Judge Holmes, in his ruling, said they were worth $111.5 million. The estate’s actual tax bill will be determined later. ...

A central question in the case was this: Was it foreseeable that the estate would—as it since has done—build a successful business around Mr. Jackson’s image? Or was that such a long shot that the estate could plausibly claim, as it initially did, that Mr. Jackson’s name and likeness was worth $2,105? As Judge Holmes put it, the estate was “valuing the image and likeness of one of the best known celebrities in the world—the King of Pop—at the price of a heavily used 20-year-old Honda Civic.” ...

“I can imagine the IRS being a little bit more gun-shy on coming in with assessments that are astronomical in light of this case,” said Mitchell Gans, who teaches estate tax law at Hofstra University.

• Bloomberg, Michael Jackson Estate’s Tax Win a Warning to Aggressive IRS
• Forbes, Death & Taxes: The Michael Jackson Estate, The IRS And Posthumous Celebrity Valuations
• Forbes, The King Of Pop Beats The IRS In Tax Court Estate Case
• Forbes, Michael Jackson's Estate Mostly Prevails In Valuation Fight With IRS
• Law360, 3 Takeaways For Stars From Michael Jackson Estate Ruling
• New York Times, Michael Jackson’s Estate Is Winner in Tax Judge’s Ruling

Prior TaxProf Blog coverage:

• Settling Michael Jackson's Estate May Be a Thriller for the Lawyers (June 26, 2009)
• Michael Jackson's Looming "Estate Tax Disaster" (June 29, 2009)
• Michael as Elvis: Post-Death Exploitation of Jackson's Name Will Create "Money-Making Machine" to Pay Off Hefty Estate Tax Bill (July 7, 2009)
• Celebrity, Death, and Taxes: Michael Jackson's Estate (Oct. 21, 2009)
• What Is Michael Jackson's Name Worth? Estate Says $2,105, IRS Says $434,000,000 (Nov. 12, 2013)
• What Is the Value of Michael Jackson's Estate? Executor Says $7.2 Million; IRS Says $1.25 Billion (Feb. 10, 2014)
• Michael Jackson's $1 Billion Tax Court Thriller: IRS Values His Name At $434,000,000, Estate Says $2,105 (Apr. 26, 2016)
• Michael Jackson Estate's $700 Million Tax Court Thriller Turns On Value Of Star's Name At Time Of Death (Feb. 18, 2017)
• Tax Court Judge Gets His Moment In Michael Jackson Case (June 2, 2018)