Michael Jackson´s Estate Court Case
After Michael Jackson’s death in 2009, his likeness and image were under trial to determine their value and the tax impact it would have on Jackson’s heirs. After years of trial disputes, the judge decided that the IRS valuation was heavily overpriced due to misappreciations, and instead sided closer to the estate’s expert valuation at $4.125 million vs. a $161 million valuation from the IRS. Here is a summary of what happened:
- Initially, the IRS valued Jackson’s image at $434 million vs. the valuation of the estate expert at $2.1 (a massive difference), both based heavily on weighting an income approach. However, the valuation from the estate expert considered the hits on Jackson’s image and that little to no income was generated from it in the years leading up to him passing away.
- The IRS heavily weighted “foreseeable opportunities”, which included future expected income from events such as themed attractions, branded merchandise, and income from a Cirque du Soleil show. It’s necessary to consider that Michael Jackson was the highest-paid celebrity, either dead or alive, in 2013 due to a Cirque du Soleil show inspired by his life.
- The tax liability that would have resulted from the initial IRS valuation of Jackson’s entire estate could have meant $700 million to his heirs. This amount included $200 million in fines.
- However, the judge appointed the foreseeable opportunities from the IRS valuation of Jackson’s image as “unreliable and unpersuasive”, as the Cirque du Soleil show was in 2013 and the valuation date was 2009, among other factors.
- At the time of the trial’s commencement, the IRS and estate experts re-evaluated Jackson’s image as being worth $163 million and $3 million, respectively. The valuation included a market approach based on posthumous earnings from other celebrities, such as Marilyn Monroe, Princess Diana, and Elvis Presley from the estate’s valuation expert.
- The IRS considered earnings from celebrities such as Tony Hawk, Paris Hilton, Regis Philbin, Jennifer Lopez, and Tyra Banks (based on different reports). During the trial, the IRS had a mishappening with one of its expert witnesses for alleged perjury.
- Finally, based on a ruling that ran 271 pages long, the appointed judge’s valuation of Jackson’s image concluded at $4.125 million, which meant a valuation from the IRS in excess of $150 million.
Business valuation can be more of an art than a science, in which different considerations can heavily impact a conclusion of value, as we can see in the case of Jackson’s image. Institutional experts can make mistakes or assumptions that lead to hefty tax liabilities. For this reason, finding the appropriate, trusted appraiser is critical, as is the need for a second opinion.
What are your thoughts on this big win from Jackson’s estate expert and for his heirs?