The media carnival that surrounded Michael Jackson in life has not stopped spinning more than four years after his death.
His estate has been embroiled in several controversies in that time, including wrangling over his will and efforts to replace executors. Now Fullerton-area media reports that another battle is underway, this time between the Internal Revenue Service and the singer’s estate.
The IRS has reportedly presented a whopping bill to the estate, claiming it owes just over a half-billion dollars in taxes and another $197 million in penalties. It all adds up to a tab of more than $702 million.
At the time of his 2009 death, his estate’s executors filed tax documents pegging his net worth at just over $7 million.
The IRS offered a starkly different appraisal of the estate, valuing it at more than $1.125 billion.
The agency said the Jackson estate claim was so wildly understated that it met the criteria for a gross valuation misstatement that would enable the government to collect twice the standard 20 percent penalty for underpayment.
The Los Angeles Times noted that few disputes between the IRS and estates wind up in Tax Court.
A professor of law at USC characterized estate planning as a game of hot potato in which “the potato is wealth.”
He said “you don’t want to die with the potato in your hands.” It’s better to pass assets on beforehand to children or other heirs or to establish trusts.
In the Jackson estate case, the heart of the dispute is over two things: the value of the entertainer’s image and his portion of a trust that includes royalty rights to some of his music and much of the music of the Beatles.
The estate valued Jackson’s interest in the trust at zero dollars. The IRS said it’s worth $469 million.
The estate valued Jackson’s likeness at $2,105. The IRS said it’s worth $434 million.
As you can see, the differences between the estate and the IRS are deep and wide.
It’s clear that more careful estate planning could have avoided much of the ongoing wrangling. That can certainly be true for not only the wealthy and famous, but for the rest of us all well; people who want peaceful transitions and smooth disbursements of assets.
They should discuss their plans with an attorney experienced with wills, trusts and other estate planning tools.
Source: Los Angeles Times, “Michael Jackson estate embroiled in tax fight with IRS,” Jeff Gottlieb, Feb. 7, 2014