The Estate of Michael Jackson’s trial began last week on February 6, 2017 over valuation issues in his estate.
The dispute centers on the Department of Treasury assertion that the Estate has understated the value of assets in the estate resulting in the Estate owing taxes of over $500 million more than was reported on the Estate Tax Return 706. The executors valued his name and likeness at only $2,105 at the time of his death, contending that the child molestation charges during Jackson’s lifetime depressed the value. After Jackson’s death, the executors negotiated the production of a documentary of his rehearsal videos and a Cirque du Soleil show using his music. The IRS position is that those post-death events were reasonably foreseeable, and initially valued the publicity rights at $434 million, later reduced to $161 million. Also at issue are the values of Jackson’s leveraged interests in two music production companies. All told, the IRS has assessed $731 million of unpaid tax and penalties!
The big problem from a fiduciary liability perspective is that if the Service’s values are correct, the estate’s fiduciaries’ decisions on valuation may consequently result in the application of the 40% penalty. Ouch.