Michael Jackson is back with yet another problem that threatens his legacy, namely an issue between the Internal Revenue Service and the King of Pop’s estate over the value of his fortune. After the agency reportedly found out that the late singer could be worth $1.125 billion and the executors of his fortune claimed a value of $7 million, the latter must pay over $700 million in back taxes and penalties.
Michael Jackson is back, but the reason is not a happy one; according to the Los Angeles Times, the Internal Revenue Service has communicated to the late singer’s executors that the estate must pay $505 million in taxes and $197 million in penalties because the net worth established by the estate, $7 million, is vastly different from the number the IRS came up with, namely $1.125 billion. One of the reasons could be the value of Jackson’s image, which cannot be properly evaluated.
Andrew Katzenstein, one of Proskauer Rose law firm’s estate tax experts, believes that no one can really say if the late singer was worth a couple thousand dollars, as the estate mentioned, or $400 million, because there is no other artist as big as Michael Jackson who can used as a comparison in order to put a price on the King of Pop’s image and wealth.
This predicament was best explained by Edward McCaffery, professor in USC’s Gould School of Law, who compared estate planning with a hot potato. In a situation in which the potato is represented by wealth, what people would want the least is to die holding the potato, which happened in Jackson’s case. It seems that the late singer’s image is not the only reason behind the feud, but also his interest in a trust which contains the rights to some unknown songs of the artist and most of the Beatles catalog. While the estate valued these belongings at $0, the IRS considered that these rights are worth $469 million, but experts take the latter’s side and mention that it is hard to believe that those rights are worth nothing.
After contacting Michael Jackson’s estate, TMZ found out that no change has been made to the initial statement, a sign that the executors are sure that the evaluation was right and that the approximation made by the agency is “not based on standard appraisal methodology.” They also called the findings of the IRS unproven and inaccurate “assumptions unsupported by the facts or law,” but they might still have to pay over $700 million to the agency.
Michael Jackson’s estate could argue that, before the singer’s death, he had not toured and a CD was out of the question because of the child molestation allegations that destroyed his image. Nonetheless, Forbes declared the late artist the highest-paid celebrity of 2013 thanks to earnings valued at $160 million. Other inconsistencies in the evaluation of the singer’s belongings were the worth of his three Rolls-Royce cars and a 2001 Bentley Arnage which, according to the estate, are worth $91,600 but the IRS considered the fair sum would be $250.000.
Federal estate tax is calculated by combining the assets which are also called gross estate, diminishing the debts owed by the deceased at his or her death and then writing off costs of the administration, provided they are within reason. It is also calculated based on a progressive rate, but reports show that in the artist’s case, the estate reported a taxable estate of about $9 million. As a result, the IRS issued a Notice of Deficiency to the executors asking for approximately $700 million.
Michael Jackson is back, but the news is not encouraging for the late singer’s fans who hoped that the drama surrounding his life and death is gone. It remains to be seen how the feud between the IRS and the artist’s estate will be settled, but if the former demonstrated that Jackson’s possessions are worth billions, the mistake could determine the executors to pay off taxes by selling assets or demanding the agency to allow a payment over 15 years.
By Gabriela Motroc