MJWN 20th Anniversary

What The IRS Means For Celebrity Estate Planning

When Michael died, he left behind a convoluted legacy that has presented issues for fans and tax collectors alike. The legal repercussions are ongoing.

The circumstances of his death have heightened fans sympathy and because of this, Michael’s estate is embroiled in a legal dispute with the IRS over the value of his name and likeness.

In valuing Michael’s estate for estate tax purposes, executors John Branca and John McClain valued his name and likeness at just over two million dollars, citing his tarnished reputation. The IRS has taken issue with this low value, arguing that his name and likeness should be valued at $434 million and assessing more than $700 million in taxes and penalties against the estate.

Further complicating the valuation of Michael’s name and likeness is the post-mortem influx of revenue to his estate. As a result of the shrewd business decisions bu the executors, Michael’s estate has flourished. The ‘This Is It’ documentary grossed $290 million globally; Sony agreed to a $250 million deal to release ten albums; two Cirque du Soleil tribute shows have gained over $360 million in box-office revenue; and the Sony Corp.’s acquisition of Michael’s stake in Sony/ATV Music Publishing earned the estate $750 million.

The value of assets for estate tax purposes should be determined as of the date of death. The success of Michael’s estate, however, calls into question the estate’s low valuation of his name and likeness at that time. The IRS claims that each of the estate’s deals was foreseeable and should have been taken into account. Conversely, the estate argues that its success was a result of the business acumen of the executors.

The trial to determine whether Michael’s estate owes estate taxes and the resulting penalties concluded in February 2017. In December 2017, the Tax Court determined that the IRS was barred from seeking the full amount of penalties initially sought because of failure to comply with certain procedural requirements. It remains to be seen how the Tax Court will value the estate and penalties, though the conclusion of this trial could have significant repercussions for how celebrities plan their estates.

Source: Greensfelder Hemker & Gale PC & MJWN

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