Michael R. Morris is an attorney with Valensi Rose PLC and is based in Los Angeles, California. As a former trial lawyer for the IRS and a Certified Specialist in Taxation Law, Michael has the educational background and practical experience that enables him to provide insightful solutions to his clients’ complicated tax, estate and business transaction issues.
With all of the media focus on the recent decision in the Jackson family’s wrongful death suit against AEG, in which a jury found AEG not liable over Michael Jackson’s death, there is another court battle generating less press but which could cost hundreds of millions of dollars. This case pits the estate of Michael Jackson against the Internal Revenue Service, and centers on the $7 million taxable value of the estate’s assets which were reported to the IRS. There’s little doubt that the valuation of Michael Jackson’s name and likeness rights at a paltry $2,105 raised a few eyebrows at the IRS offices — the IRS’ valuation was greater than $434 million and, in all, valued Michael Jackson’s estate at more than $1.1 billion. The IRS has issued a notice of deficiency — a bill for debts owed — of estate taxes totaling more than $505 million. And because the IRS contends the executors significantly undervalued the estate’s property, it tacked on additions of $196 million for good measure!
In response to the IRS’ notice of deficiency, sent on on July 26, 2013, the Jackson estate filed a petition with the U.S. Tax Court, contending the valuations of the assets “were accurate and based upon qualified appraisals by qualified appraisers who had extensive experience valuing entertainment industry assets.” On August 20, 2013, the IRS filed its response to that assertion, which detailed all of the proposed IRS valuations of Michael Jackson’s assets, including his name and likeness. The disagreement has set the stage for a contentious valuation battle.
There’s little doubt that the IRS knows that the exploitation of dead celebrity names and likeness is big business. What makes the estate of Michael Jackson’s battle with the IRS of extreme interest is that, while the valuation of an estate’s assets for federal estate tax purposes is usually made when a person dies (there is an election of value estate assets as of six months after the date of death), any subsequent dispute with the IRS over the worth of celebrity “name and likeness” rights rarely become public.
Michael Jackson’s Recent History
The rights of a deceased celebrity’s estate to that celebrity’s name and likeness rights are governed by state, not federal, law. So unless a deceased celebrity died a resident of a state affording posthumous protection for rights of publicity, such rights literally go to the grave along with that celebrity. This happened in the hotly litigated cases involving Marilyn Monroe, where the ultimate determination of her status as a New York and not a California resident meant Monroe’s rights of publicity failed to survive her (since New York has no law protecting posthumous rights of publicity).
Conversely, California has for many years statutorily protected the rights of both living and dead celebrities in their names, voices, signatures, photographs and likenesses. In fact, these rights extend for 70 years after death, and, like most property rights, are licensable, transferable and descendible.
The holder of the deceased celebrity’s right of publicity must, however, register the claim with the California Secretary of State (a simple procedure), and until that is done, damages cannot be recovered for any use prior to such registration.
To come within this statutory protection, California law requires that a decendent’s right of publicity must have had “commercial value at the time of his or her death, or because of his or death.”
Determining the value of intellectual property based on projected future earnings and discounted to a present value is not an exact science. In the case of the King of Pop, his estate has generated hundreds of millions of post-mortem licensing dollars, which the IRS no doubt factored into its valuation. So now the IRS and the estate of Michael Jackson are locked in a hotly contested battle over just how valuable the future earnings power of Michael Jackson’s posthumous celebrity rights could be. While the Jackson case may settle prior to the Tax Court’s adjudicating what these rights are worth, the litigation between the IRS and the Michael Jackson’s estate could signal similar IRS scrutiny of other high-profile celebrities’ name and likeness rights. Accordingly, the administrators of such estates need to be aware of the necessity to engage both qualified appraisers to value such rights and experienced tax professionals to defend against the inevitable IRS audit.
bitty
Indeed.
marcob
#MJFam THIS is MJ’s likeability at the time of his death , which was NOT worth 2 thousands Pepsi Soda cans , but MJ ‘s likeability was the one of an Artist that SOLD OUT 50 Shows IN HOURS !!
Though this IRS VS Estate case could be about Valuation, because the law is about Estate taxation based on market value, hence the question in the case would be value of MJ’s likeness and image….. , to me, this is just looking at half of the problem, because the Estate got tax breaks using MJ’s liabilities too and they paid also less taxes under-evaluating MJ’s possessions(ie. catalogs).
I believe IRS should add more questions in the case. How about IRS doing a Federal Investigation to look into a possibility of a forced bankruptcy that brought in the end MJ into liabilities and MJ Estate into tax cuts. The forced bankruptcy may have had involved also under-evaluation of MJ’s assets ,along the years , until today,that brought also to pay less taxes to IRS.
IRS should look into when MJ reported $ being stolen from him from ppl working for him.
I bet MJ reported the case to the authorities at that time ….
For IRS, if liability are higher , they (IRS) get less $$ from the estate because the estate pay less taxes.
If the valuation of MJ’s properties are lower, the estate pay less taxes to IRS . It is in the interest of the IRS get to know , the real value of MJ’s properties and the real amount of MJ’s liabilities …. Will they do it ? Is their job to do it ? I am not sure , but if I were the government and I wished more $ from estates , I would look into the real value of Estate’s assets and the origin and real values of debts. If many artists were pushed to be broke , and their estates (same lawyers , business men and entities that were around them while alive) were behind that for getting tax cuts , while stealing for years money from artists , that would worth for IRS investigate because it would mean more $ for them (IRS)…. stupid IRS if they do not investigate and stupid me , USA tax payer , to not push IRS to do such, because Artist’s Estates are making me paying the taxes that they do NOT pay…. (I said “me paying”, because ppl that pay taxes, end up paying more taxes to cover the $ that governments do not get from fraudulent tax payers)
True that IRS would get more $ , and true that beneficiaries would pay more $ to IRS, but that also means that their loved one (artist) was ripped off for years , pushed to be broke and into debts and loans , earning nothing from their art because estates , lawyers , “business men” and banks were and are still living off their art …. And now they are living off their beneficiaries ….
A higher valuation of assets , means also higher revenues for the artist .. Where the higher revenues have gone ?
Where the tax cuts have gone?
Not in MJ’s pocket for sure …In some bank and lawyer and “business men” ‘s pocket … For sure…
ps: let’s NOT forget that Executors ARE LIABLE for their wrongdoings while running the Estate and beneficiaries can make Executors accountable and responsible to pay IRS for the damage created to the Estate, and demand removal of the executors……
Beat it, #MichaelJacksonEstate !
You Want It, You Earn It , With Dignity