After Michael Jackson’s death in 2009 at the age of 50, executors began propping up the once-King of Pop’s fluctuating finances, settling debts, and closing new entertainment and merchandising deals. It didn’t take long for the property to be in strong shape, with debt reduced and revenues running into the millions.
But there was another matter that took more than seven years to process: Jackson’s tax bill with the Internal Revenue Service, where the government and the estate had very different views on what Jackson’s name and likeness were worth when he died.
The IRS thought it was worth $ 161 million. The property put it at just $ 2,105 on the grounds that Jackson’s late-life reputation was in tatters after years of reporting on his eccentric lifestyle and a widespread child molestation lawsuit in which Jackson was acquitted.
On Monday, in a closely watched case that could affect other prominent estates, Judge Mark V. Holmes of the U.S. Treasury Court ruled that Jackson’s name and likeness were worth $ 4.2 million and dismissed many of the IRS’s arguments . The decision will significantly reduce the tax burden on the estate from the government’s initial assessment.
The IRS believed the estate had underpaid its tax liability by nearly $ 500 million and that it could owe additional fines of $ 200 million.
At the height of his career, Jackson was one of the most famous people in the world, with some of the most popular records ever released. And since his death, he’s been one of the world’s highest paid celebrities. Forbes estimated that his estate made $ 48 million in the past year.
But the tax case revolved around the value of Jackson’s public image at the time of his death. His reputation had been badly damaged, and since 1993, Judge Holmes said, Jackson had no endorsements or stores unrelated to a musical tour or album.
However, the judge found that the estate’s estimate of $ 2,105 was simply too low, and that the estate “captured the image and likeness of one of the world’s most famous celebrities – the King of Pop – for the price of a heavily used $ 20 -Prize appreciated. Year old Honda Civic ”(complete with a footnote to a used car price guide).
In a 271-page judgment of literary references to Hemingway and Plutarch, Judge Holmes – known for his clear and sometimes humorous writing style that summarizes dense tax cases – summed up the vicissitudes of Jackson’s life, public reputation, and finances.
“We do not make any special judgment about what Jackson did or should have done,” the judge wrote, “but we have to decide how what he did and is supposed 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 stake in Sony / ATV Music Publishing, the company that controlled millions of song copyrights – including most of the Beatles’ catalog – and Mijac Music, another catalog, owned by the Jacksons contained 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. Judge Holmes ruled that their total value was $ 111.5 million. (In 2016, Sony / ATV – now known as Sony Music Publishing – agreed to pay the Jackson estate $ 750 million to purchase its portion of this catalog.)
The Jackson case was closely watched to assess how celebrity real estate can be valued and what tax liabilities it has. Major tax issues ahead of the IRS include those of Prince and Aretha Franklin.
In a statement, John Branca and John McClain, co-executives of the Jackson estate, called the decision “a great, unequivocal victory for Michael Jackson’s children.”
“For nearly 12 years, Michael’s estate has claimed that the government’s valuation of Michael’s fortune on the day of his death was outrageous and unfair, which would have weighed on his heirs with an oppressive tax bill of more than $ 700 million,” said Branca and McClain . “While we disagree with some parts of the decision, we believe this illustrates how unreasonable the IRS assessment has been and provides a path forward to finally resolving this case in a fair and equitable manner.”
The IRS did not immediately respond to a request for comment on Monday evening.