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Tax Court Denies IRS Request for More Evidence from Jackson Estate

MP900442211This could be a major victory for the estate of Michael Jackson, and a big loss for the IRS.

It appears that the pop icon’s estate may have dodged an expensive tax bullet.

Bloomberg reports in its article, “Michael Jackson Estate May Avoid Penalties in IRS Dispute,” that a federal tax court judge denied the IRS’s bid to provide additional evidence in a case that was tried in Los Angeles in early 2017. The agency failed to follow certain procedural requirements. As a result, it is barred from seeking as much as 40% of the allegedly understated tax in penalties.

“What happens if a party with the burden of production on an issue fails to introduce sufficient evidence at trial to meet that burden?” Judge Mark Holmes said in his December 2017 order. “Well, he loses.”

The executors of Jackson’s estate, lawyer John Branca and former music industry executive John McClain, have been monetizing the legacy of the singer for the benefit of his children. Jackson died in 2009.

“This Is It,” a documentary about Jackson’s preparations for his ill-fated 2009 tour, went on to be the highest-grossing concert movie of all time. It made $261.2 million in worldwide sales, according to researcher In 2016, the estate sold Jackson’s half of the Sony/ATV music publishing business to Sony for $750 million.

In 2013, the IRS pursued the estate with a “notice of deficiency,” claiming it had undervalued assets including real estate, a Bentley automobile and Jackson’s “image and likeness.”

The tax court ruling didn’t quantify how much the assets were allegedly undervalued, but Bloomberg Businessweek reported in February 2017 that the IRS claimed Jackson’s name and image should have been valued at $434 million.

The estate said that Jackson’s name and image was worth only $2,105. That estimate implied that his image had been rendered all but worthless by stories about skin bleaching, his obsession with plastic surgery, prescription drug abuse and allegations that he molested young boys who visited Neverland Ranch.

The lawyer representing the estate said that the court’s order was “well-reasoned” and felt that it might prevent the government from coming back at the estate looking for a penalty assessment. That would be good news for the estate and the family.

The IRS spokesperson said the agency does not comment on pending litigation.

Reference: Bloomberg (December 29, 2017) “Michael Jackson Estate May Avoid Penalties in IRS Dispute”

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