Or at least that's what the IRS is trying to claim: that Michael Jackson's estate owes $702 million in taxes. The dispute is over the valuations of the components of the estate at the time of his death:
At issue is the wide difference between what the estate said Jackson's legacy was worth versus what the IRS determined was its taxable value. An IRS spokesman and lawyers for the estate declined to comment. Jackson died on June 25, 2009, the date of the estate tax return. His estate's beneficiaries are Jackson's mother, Katherine, his three children and charities. The estate's 2009 tax filing said the total Jackson estate had a $7 million taxable value. In May, the IRS issued the estate a tax deficiency notice for $505.1 million in taxes and $196.9 million in penalties, according to Tax Court documents dated Tuesday.
The claim that the estate was only worth $7 million at the time of his death does look like they're over straining for a low value there. His royalty income (songwriting royalties persist for 70 years after the composer's death, sound recording royalties for 70 years after the date of recording) would have had a net present value of more than that. In fact, it wouldn't really surprise me that only his radio play royalties would be worth more than that $7 million number.
However, it's also known that Jackson had a lot of debt at the time of his death. The difficult thing to work out is how much of that was secured on assets and how much of it was unsecured. Secured debt will obviously reduce the value of the assets that it's secured against.
There's one more difficulty here. That estate has made vast sums since his death: sales of old recordings went through the roof and so on. This could be used to argue that the IRS is correct: after all, the value of an asset is the future income that that asset can pull in. If the estate was able to generate huge sums then clearly the estate had a high asset value. Except, except, it doesn't quite work that way. For the value of the estate for tax purposes is the value on that date of death. Not what happens subsequently. It's supposed to be valued with the information that was available on that day: and given that Jackson was near bankrupt at his death therefore the estate should have a low value.
My best guess is that they're both massaging the figures a bit. The IRS upwards and the trustees of the estate downwards. And my prediction, for what little that's worth, will be a settlement somewhere in the middle.