After the death of Michael Jackson in 2009 at the age of 50, the executors of his estate began to consolidate the precarious finances of the former King of Pop, settle debts and close new business. entertainment and merchandising. In no time, the estate was in good shape, with reduced debts and millions of dollars in income.
But there was another issue that took over seven years to litigate: Jackson’s tax bill with the Internal Revenue Service, in which the government and the estate had very different views on what the name was worth and Jackson’s resemblance to his death.
The IRS thought they were worth $ 161 million. The estate valued him at just $ 2,105 – arguing that Jackson’s reputation was in tatters at the end of his life, after years of grim reporting on his eccentric lifestyle and a widely covered lawsuit over pedophilia charges, in which Jackson was acquitted.
On Monday, in a closely watched case that could have implications for other celebrity estates, U.S. Tax Court Judge Mark V. Holmes ruled that Jackson’s name and likeness was worth $ 4.2 million. dollars, dismissing many of the IRS’s arguments. The ruling will significantly reduce the estate tax burden upon the government’s first assessment.
The IRS believed the estate had underpaid its tax liability by just under $ 500 million and may owe an additional $ 200 million in penalties.
At the peak of his career, Jackson was one of the most famous people on the planet, with some of the most popular records ever released. And since his death, he’s been one of the highest paid celebrities in the world; Last year, according to Forbes, his estate made $ 48 million.
But the tax case turned on the value of Jackson’s public image at the time of his death. His reputation had been badly damaged, and since 1993, Judge Holmes noted, Jackson had no endorsements or merchandise contracts unrelated to a musical tour or album.
Still, the judge concluded that the estate’s estimate of $ 2,105 was simply too low and that the estate “valued the image and likeness of one of the world’s best-known celebrities – the King of Pop -” priced at a 20- year-old Honda Civic ”(with a footnote reference to a used car price guide).
In a 271-page ruling dotted with literary references to Hemingway and Plutarch, Judge Holmes – who is known for his clear and at times humorous writing style summarizing dense tax cases – summed up the vicissitudes of life, of public reputation and Jackson’s finances.
“We are not making any particular judgment on what Jackson did or would have done,” the judge wrote, “but we have to decide how what he did and is believed to have done affected the value of what he did. left behind. “
Judge Holmes also ruled on the value of two other assets: Jackson’s share of Sony / ATV Music Publishing, the company that controlled millions of copyrights to the songs – including the majority of the Beatles’ catalog – and Mijac Music, another catalog that contained Jackson’s own songs as well as others that Jackson had acquired.
The estate had argued that those assets, along with Jackson’s name and likeness, were worth a total of $ 5.3 million. Justice Holmes ruled that their total value was $ 111.5 million. (In 2016, Sony / ATV – now known as Sony Music Publishing – agreed to pay Jackson’s estate $ 750 million to buy back its share of this catalog.)
The Jackson case has come under scrutiny as a guide to how celebrity estates can be valued and their tax obligations. Among the major areas with significant tax problems even before the IRS are those of Prince and Aretha Franklin.
In a statement, John Branca and John McClain, co-executors of the Jackson estate, called the decision “a huge and unambiguous victory for the children of Michael Jackson.”
“For almost 12 years, Michael’s estate maintained that the government’s valuation of Michael’s assets on the day of his death was outrageous and unfair, which would have forced his heirs to pay an oppressive tax liability. over $ 700 million, ”Branca and McClain said. . “While we disagree with parts of the ruling, we believe it clearly shows how unreasonable the IRS assessment was and provides a way forward to finally resolve this case fairly. and fair. ”
The IRS did not immediately respond to a request for comment Monday night.