Battle Royal: IRS v. The Estate of Michael Jackson

The King of Pop faced numerous legal challenges during his life, but arguably the biggest battle is taking place after his passing. The Internal Revenue Service (IRS) is seeking close to $731 million from Michael Jackson’s estate. Yes, you read that number correctly – $731 million.

How did the IRS arrive at such a huge tax bill? Well, IRS auditors determined that the value of Mr. Jackson’s estate totaled $1.17 billion. This means his estate qualifies for the top rate of the estate tax – a staggering 40 percent, according to bankrate.com. Therefore, the total tax bill includes $525.6 million in taxes and $205.1 million in gross valuation misstatement and negligence penalties,according to Forbes.com.

Obviously, Mr. Jackson’s estate challenges the calculation of such a huge tax bill. The biggest disagreements focus on the value of Mr. Jackson’s intangible and intellectual property (e.g., the King of Pop’s name, likeness and his interests in music he wrote or performed), and two trusts established to borrow against Mr. Jackson’s assets along with the ability to transfer assets to his heirs at minimal tax cost during his life. This is a huge disagreement between the IRS and the Jackson estate. You could describe it as a chasm of difference. Mr. Jackson’s estate values the assets transferred through these trusts at around $2.2 million while the IRS places a $527.5 million value for tax purposes.

Another major dispute focuses on the value of Mr. Jackson’s image and likeness. Mr. Jackson’s estate only valued it at $2,105. Conversely, the IRS claims his image and likeness was worth roughly $434 million, according to Forbes.com.

Here’s a video breaking down the tax battle royal:
https://www.youtube.com/watch?v=0p7tVjQCPGQ

Will this dispute get resolved soon? Probably not. The difference in valuation between the two sides is so drastic that it may take months or years of litigation to reach a resolution.

While this type of dispute impacts very few individuals, it just stresses the importance of having a well drafted and maintained estate plan in place.