The Michael Jackson estate appears to have prevailed in its fight with the IRS. This month the US Tax Court determined that yes, the true taxable value was indeed much less than the government has been seeking. The result will be a $100 Million+ benefit to the estate and its beneficiaries.
Here’s what you need to know:
Problem
This is not much different from other celebrity deaths we’ve mentioned before, like Prince and Aretha. It’s natural for the IRS to look through a more optimistic lens than the beneficiaries when it comes to the true value of a decedent’s estate. In this case, the beneficiaries submitted a total valuation of about $111 million. All those optimists over at the IRS didn’t think that to be nearly enough, instead pegging the number over four times higher at a total value of $482 Million.
It’s not like the estate couldn’t have come up with the extra $160 Million or so that adds to the taxes due. In the years since his passing the Jackson estate has rebounded in both revenue and value. In 2009, however, who knew that would happen?
Solution
Judge Mark Holmes put that disagreement to rest this month when he ruled the overall value of Jackson’s assets was, in fact, reduced because the late pop icon had passed the peak of his popularity, was heavily in debt, and had a much worse reputation due to the scandalous allegations that had followed him later in life.
Essentially, this was a case where, had Jackson died at the peak of his career without scandal, the optimism exhibited by the IRS may very well have been correct. The court’s decision says it just wasn’t correct at the date of death, since Jackson’s allure on stage and in front of the cameras had all but faded. His comeback hadn’t come back yet, and might not have succeeded to the degree it has now done.
Outcome
This time the optimists didn’t win. The Jackson estate is substantially better off. Luckily, a skilled legal team was able to come in and save the day from what would have been hundreds of millions of dollars in tax liability. The outcome was positive, but at what cost?
The price of fixing a problem after it has occurred is always more expensive than what it would have cost to prepare in advance. Now this battle can finally be put to rest, and the family can move on with their lives. The next time a client balks at the cost of preventing a problem, remind them as Ben Franklin once said, “An ounce of prevention is worth a pound of cure.”
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The post Blog first appeared on Stratus Financial Partners.