Michael Jackson's Estate Faces Demand for Big Tax Payment
February 05 2017 - 2:21PM
Dow Jones News
By Hannah Karp
When pop star Michael Jackson died in 2009, weeks before a
planned comeback tour, how much was the man in the mirror worth?
The answer is far from black and white.
After coming to agreements on the value of some of the King of
Pop's more concrete assets in a legal fight that began four years
ago, the estate's executors are facing off with the Internal
Revenue Service in U.S. Tax Court on Monday, primarily over the
valuation of the singer's name and likeness rights at the time of
his death.
Depending on the outcome of the case, the estate could be on the
hook for more than $500 million in taxes and $200 million in
penalties, according to the IRS's notice to the estate of its
deficiency.
The estate put the value of his name and image at $2,105, at a
time when Mr. Jackson's reputation was sullied by child-abuse
allegations and his strange public behavior. After releasing his
last studio album in 2001, he was accused in 2003 -- and later
acquitted -- of molesting children at his Neverland ranch in
Southern California. Numerous other incidents, including dangling
his baby son from a hotel room window in 2002, also hurt his public
image.
Even after Mr. Jackson had sold out the 50 shows at London's O2
arena that he had planned for the "This Is It" tour in the summer
of 2009, he was unable to find a tour sponsor, said Howard
Weitzman, the attorney representing the estate in the trial.
But the IRS argues that the pop star's name and likeness should
have been valued at $161 million; that would be down from 2013,
when it valued those rights at $434 million.
"No celebrity's name and likeness rights have sold for anywhere
near that much -- not Elvis, not Marilyn, not Ali. And Michael did
not make that much from his name and likeness -- as opposed to his
music -- in his lifetime," said Mr. Weitzman, noting that he only
earned about $50 million from those rights while he was alive.
"They are trying to take what Michael's estate created for his
children after death and extract an unreasonable and excessive
tax."
The IRS didn't respond to a request for comment.
The gaping discrepancy highlights the difficulty of putting a
price on a music star's name and image, as distinct from what his
or her music is worth. Doing so requires guessing what the
celebrity would have earned in licensing deals. Future licensing
opportunities can also be hard to predict as technology evolves,
with holograms and virtual reality now presenting new revenue
opportunities for dead stars, for example.
Running the estate since Mr. Jackson's death have been
entertainment attorney John Branca -- who started representing Mr.
Jackson in the 80s -- and veteran music executive John McClain.
Since 2009, the two executors have helped the estate net about
$1 billion, thanks to endeavors including music sales, a Cirque du
Soleil tribute show and the posthumous release of the documentary
"This Is It," which followed Mr. Jackson as he prepared for his
comeback tour.
The biggest payout came last year when they sold the estate's
approximately 50% stake in the world's biggest music publishing
company, Sony/ATV Music Publishing, to Sony Corp., netting about
$750 million. As a result, the $500 million in debt Mr. Jackson
died with has been transformed into about the same amount in cash
for the performer's mother and children.
The executors first brought the fight to U.S. Tax Court in 2013
when they filed a petition challenging a notice from IRS that had
adjusted the estate's total value to more than $1.3 billion, from
$7 million. The right to Mr. Jackson's image and likeness was among
the IRS's biggest adjustments.
A trial slated for 2014 was postponed as the two camps began
reaching settlements on the values of some interests such as the
star's recordings and California property.
Los Angeles entertainment attorney Mitra Ahouraian said that if
the IRS prevails, it is likely to pursue other celebrity estates
for additional taxes on their name and likeness rights.
Write to Hannah Karp at hannah.karp@wsj.com
(END) Dow Jones Newswires
February 05, 2017 14:06 ET (19:06 GMT)
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