What's in a Name?


Back in 2009, executors for the King of Pop, Michael Jackson, filed an estate tax return reporting the value of his assets at his death. Jackson had been famously extravagant during his life, blowing through hundreds of millions in earnings and borrowing hundreds of millions more. His 2,600-acre "Neverland" ranch in Santa Barbara that included two railroads, a petting zoo, and a Ferris wheel reportedly cost $2.5 million per month to maintain. He spent millions more on travel, entertainment, antiques, and paintings. You would expect his estate to be pretty impressive, right? So, what was his "final score" as reported on Form 706 “United States Estate Tax Return"? A mere $7 million. What's even more incredible, the executors valued Jackson's name and likeness at just $2,105.

Now, that may not be as ridiculous as it first seems — Jackson was in major debt for much of his life, and he may have owed as much as $500 million at his death. But $7 million still seems a little light for an estate that earned $160 million in 2012 alone. Jackson's estate has actually earned more since his death than any living entertainer during that same time!

The IRS thought that valuation was a bit off. On July 26, they told Jackson's executors that their number was $1.1 billion, including a whopping $434 million for his name alone. The IRS promptly billed the estate for an additional $505.1 million in tax, and added a $196.9 million undervaluation penalty as well!

Not surprisingly, Jackson's estate spokesman said, the IRS's valuation was "based on speculative and erroneous assumptions unsupported by facts or law," and added that the estate had already paid over $100 million in income taxes. They decided to file a complaint in U.S. Tax Court:  Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. Commissioner of Internal Revenue.

This will be a fascinating case to follow in the years ahead.