IRS says Michael Jackson estate grossly undervalued, owes $702 million in taxes

If you recall, after pop singer Michael Jackson passed away in 2009 his estate executors placed the value of his estate at $7.2 million, including his likeness being valued at $2,105 and his sizable interest in the trust that owns his and The Beatles’ music catalog being worth zero. If those numbers seem a little low to you, you’re not alone. The Internal Revenue Service also believes the estimated valuations to be low — so low actually that they are not only going after hundreds of millions of dollars in back taxes, but they are doubling the additional penalties thanks to the rarely used “gross valuation misstatement penalty.”

According to documents filed with the U.S. Tax Court in Washington and obtained by the L.A. Times, the IRS estimates the value of Michael Jackson’s estate at the time of his death to be slightly more than $7.2 million — try $1.25 BILLION! (Yes, that is correct.)

The $1.178 billion difference equates to $505 million in taxes with an additional $197 million in penalties. (The IRS usually assesses a 20% penalty for underpayment, but as I mentioned above, they implemented the gross valuation misstatement penalty, which doubled the penalties to 40%.)

The IRS lists examples of some of what they have determined to be gross valuation misstatements, including Michael Jackson’s likeness — which they estimate to have been worth $434.264 million, obviously way more than the $2,105 claimed by Jackson’s executors. And what about Jackson’s ownership stake in his and The Beatles’ songs that was reportedly worth absolutely nothing? The IRS estimates his stake to be worth $469 million. (The L.A. Times points out that “a certified public accountant testified during the wrongful death suit last year that Jackson had taken a $320-million loan against the music catalog,” which I think would have been very difficult to do if the collateral was worth nothing!)

Other discrepancies cited by the IRS filing included Jackson’s ownership share of the Jackson 5 music catalog, valued at $11.193 million originally, with the IRS claiming it is worth nearly $45.5 million. In addition, “the tax court documents show that Jackson had three Rolls-Royces and a 2001 Bentley Arnage that the IRS said were worth $250,000, not the $91,600 the estate placed on them,” reports the L.A. Times, before adding, “The IRS also found other automobiles, saying, ‘Tangible personal property including vehicles not reported otherwise’ were worth $47.467 million instead of the $0 the estate reported.”

There has been no official statement from representatives for the Jackson estate, but they have reportedly hired Hochman, Salkin, Rettig, Toscher & Perez (one of the top tax litigators in California) so it appears as though they are not going down without a fight. In other words, “Ch’mon!!!”