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King-size estate-tax dispute, part 2: the issue of valuation

In the first part of this post, we began discussing the outsize dispute between the IRS and Michael Jackson's executors over the value of Jackson's estate.

As we noted in our February 12 post, the IRS and the executors are light years apart in their respective views of how much the estate left behind by the King of Pop was actually worth.

In this part of the post, let's look at how the two parties could have come to such divergent positions.

The crux of the dispute concerns how much value to assign to two key pieces of the estate. One is Michael Jackson's image or likeness. The other is song rights to several iconic songs - not only some of Jackson's, but also a number of notable Beetles songs.

In the estate tax filing that is under dispute, the executors of Jackson's estate put the value of his image at only a couple of thousand dollars. The IRS, by contrast, pegged it at more than $434 million.

How could the value of Jackson's image have been put so low? It may be that the executors were acutely conscious of the damage that his image had suffered in recent years due to child abuse allegations. He had also been absent for a considerable time from the concert scene.

There is a similarly incongruous valuation differential between the estate and the IRS regarding Jackson's music holdings. Those holdings are in the form of a trust in which Jackson's estate has an interest.

Commentators speculated that Michael Jackson may have sought to pass his interest in the music holdings along to his children, but was prevented from doing so by the IRS.

In any case, the dispute over the value of Jackson's estate highlights the difficulties that can occur in estate valuation for tax purposes. When there is fundamental disagreement over how an estate should be valued, it is small wonder that the result is tax litigation.

Source: Los Angeles Times, "Michael Jackson estate embroiled in tax fight with IRS," Jeff Gotlieb, Feb. 7, 2014

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