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Michael Jackson's Heirs Just Got a Big Win in Tax Court

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Steward Financial
on
5/16/2021
Michael Jackson's Heirs Just Got a Big Win in Tax Court

More than ten years after Michael Jackson's death, a U.S. tax court has resolved a dispute between the singer's heirs and the IRS. The fight was over the value of Jackson's estate, and Judge Mark Holmes agreed with Jackson's mother and three children that the tax agency had assigned a tax bill that wildly inflated the value of his assets and image at the time of his death.

Though Jackson was widely known as the “King of Pop,” his reputation suffered significant damage following his 2005 trial for child molestation. This was reflected in the estimate his estate put forward in 2009, but the IRS argued that his worth was about $482 million. After careful consideration, the judge assessed the estate's value at $111 million, which was very close to the figure the estate had claimed. 

In statements to The Associated Press, co-executor John Branca claimed victory on behalf of Jackson's children in the case. “We're pleased,” he said. “We always try to do the right thing. We tried from the beginning to follow the IRS rules and regulations and relied on the best experts possible. It's unfortunate that we were forced to litigate to protect ourselves.”

There were three major areas of contention that divided the two sides. The first focused on the value of Jackson's image and likeness, which the IRS assessed at $161 million despite knowing that allegations of inappropriate behavior with children had severely affected his marketability and appeal. In setting the value at just $4.15 million, Holmes noted that Jackson was unable to find a sponsor for an upcoming concert date or a company to merchandise products with his likeness before his death. In his 271-page decision he wrote, “The fact that he earned not a penny from his image and likeness in 2006, 2007, or 2008 shows the effect those allegations had, and continued to have, until his death.” Though Holmes denied the inflated $161 million figure, he was also incredulous at the $2,000 evaluation initially offered by the estate, comparing the figure to “the price of a heavily used 20-year-old Honda Civic.”

Another disputed area involved the values of a catalog containing some songs that he wrote and of Sony/ATV Music Publishing, a catalog of 175 Beatles songs that Jackson held a 50% stake in.  The judge reviewed the IRS expert's appraisal and combined it with the debts Jackson carried, arriving at a figure at the time of Jackson's death on June 25, 2009 of only $107 million.

In summarizing his decision in the years' long court battle, Judge Holmes concluded that the IRS had failed to appraise the estate's value at the time of Jackson's death, when he had spent recklessly and suffered the effects of declining public appeal and questionable management. Instead, they based the estate's value on the shows, concert films and asset sales that took place after his death when his image became more valuable. That resulted in an estate tax bill of $700 million including a $200 million underpayment penalty.

Following the judge's decision, a new tax bill without penalties will be calculated, bringing nearly twelve years of legal battles to a close.

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Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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