Michael Jackson’s image was worth just $4 million at the time of his death in 2009, a U.S. tax court judge ruled on Monday, far below the $161 million valuation sought by the IRS.
The ruling will dramatically reduce the estate tax bill incurred by Jackson’s heirs — his mother and children.
In a ruling that ran to 271 pages, Judge Mark Holmes sketched Jackson’s rise to stardom and the long period after the peak of his career when his debts mounted, his income dried up and he was dogged by allegations of child molestation.
By the time of his death, at age 50 in 2009, Jackson had not released new material or toured in nearly a decade. His “comeback” tour, “This Is It,” could not land a sponsor due to Jackson’s image problems. In fact, the judge noted that Jackson had earned nothing from licensing his name and likeness in the years preceding his death.
“This cannot be a surprise — allegations that a celebrity molested little boys might reasonably be thought to repel potential licensees in any society that has not become completely decadent,” Holmes wrote. “Those allegations had a dramatic effect on Jackson’s ability to win sponsorships and merchandising deals once they became public.”
The Jackson estate filled out a tax return in which it pegged the value of his image at $2,105 — roughly the same, the judge noted, as a “heavily used 20-year-old Honda Civic.” The valuation expert who arrived at the figure, Owen Dahl, testified at trial that Jackson was “a deeply flawed person with serious significant issues when it came to the issue of licensing image and likeness in a non-music setting.”
The IRS had initially pegged the value of Jackson’s estate at more than $1.1 billion, including $434 million alone for Jackson’s image and likeness. The IRS initially found that the estate had underpaid its estate taxes by $500 million and added nearly $200 million in penalties.
By the time of the trial, the IRS had come down considerably from its early estimates. It had also narrowed the disputed asset values to three: Jackson’s image and likeness, the trust that held Jackson’s stake in Sony/ATV and a trust that held music copyrights. The latter two were used to secure debts, diminishing their value at the time of Jackson’s death.
The estate and the IRS differed by orders of magnitude on the value of those assets. By the time of trial, the estate argued they were worth $5.3 million, while the IRS claimed they were worth $482 million.
The judge sided with the government on the value of the music catalog, pegging it at $107 million, just $7 million less than the IRS estimate. But on the other two assets, he agreed with the Jackson estate, valuing Jackson’s image at $4 million and the Sony/ATV stake at zero.
The Jackson estate applauded the ruling.
“This thoughtful ruling by the U.S. Tax Court is a huge, unambiguous victory for Michael Jackson’s children,” co-executors John Branca and John McClain said in a statement. “For nearly 12 years Michael’s Estate has maintained that the government’s valuation of Michael’s assets on the day he passed away was outrageous and unfair, one that would have saddled his heirs with an oppressive tax liability of more than $700 million. While we disagree with some portions of the decision, we believe it clearly exposes how unreasonable the IRS valuation was and provides a path forward to finally resolve this case in a fair and just manner.”
Holmes’ ruling includes a number of florid touches, as when he noted that Jackson’s death effectively sidelined the hapless advisers who had been in his inner circle.
“It was to the considerable benefit of the Estate that (Jackson) was no longer able to get in the way of the rational profit maximizers who were now in control,” the judge wrote.
He also concluded on a poignant note, finding that the King of Pop will one day fade from collective memory.
“Popular culture always moves on,” he wrote. “There will come a time when Captain EO joins Monte Brewster and Terry Forbes as names that without googling sort of sound familiar, but only to people of a certain age or to students of entertainment history. And just as the grave will swallow Jackson’s fame, time will erode the Estate’s income… The value of what it has left, no matter how well managed, will now dwindle as Jackson’s copyrights expire and his image and likeness shuffle first into irrelevance and then into the public domain.”
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