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Michael Jackson's estate may get lucky break with taxes

Estate administrators take notice: It doesn't matter if you're handling the assets of a virtually anonymous citizen or that of a celebrity like Michael Jackson, the government wants its cut.

It generally doesn't pay to mess around with Internal Revenue Service agents. In this case, however, the administrators of the late pop singer's estate may have caught a lucky break.

A judge in the nation's Tax Court has prohibited the IRS from collecting a significant portion of the tax penalties it was seeking from the estate. The estate essentially benefited because agents failed to meet necessary procedural requirements and could not introduce the evidence necessary for a trial on the central issues. That will cost the IRS around 40 percent of what it could have collected in penalties alone.

In this case, the problem is that the late singer's executors seem to have vastly underestimated the value of Jackson's estate. Although it is unclear how low the total assets were undervalued, the number must be significant.

The IRS claims that the executors alleged that Jackson's name and likeness were nearly worthless -- valuing it at only a little over $2,000. Allegedly, the executors arrived at that figure after taking into account the various rumors and negative publicity about the late singer's life. The executors said that the singer's plastic surgeries, the controversy surrounding his skin color, allegations and trials over the sexual abuse of minors and just general oddities about his life on the Neverland Ranch ruined his marketability.

The IRS disagrees. They value the singer's name and likeness and the estate's ability to license out those things at around $434 million. It's not clear where the case goes from here, but this is far from the final chapter in a story that's been ongoing since the singer's death in 2009.

Cases like this illustrate not only how complicated a big estate can be, but how attempting to low-ball the asset valuation can result in ongoing estate tax drama. While the estate did get lucky with the judge's ruling, there's still going to be more money paid to the IRS in the end than the executors had hoped and the case is now far from settled.

Source: Bloomberg.com, "Michael Jackson Estate May Avoid Penalties in IRS Dispute," Edvard Pettersson, Dec. 28, 2017

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