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IRS Commits Procedural Mistakes in Jackson Estate Case

The long-running dispute between Michael Jackson’s estate and the IRS has been closely watched by estate and tax attorneys.

Why?

The ultimate outcome of the case is expected to be important for how the estates of other deceased celebrities will be treated. The biggest issue is the value of Jackson’s image and likeness rights at the time of his death.

The estate maintains that the rights were worth very little at the time, because of a string of scandals in which Jackson had been involved. However, the IRS believes the rights were worth $434 million and that estate taxes need to be paid based on that amount.

The IRS cites as its evidence that shortly after Jackson passed away, the estate made millions off the rights and that Jackson himself had been planning a comeback.

If the IRS wins, the estate would need to pay a 40% penalty in addition to the amount of taxes owed. Nevertheless, Bloomberg reports that penalty may now be off the table in “Michael Jackson Estate May Avoid Penalties in IRS Dispute.”

It appears the IRS made some procedural errors earlier in the case.  The IRS did not properly submit all of its documentation. The agency asked the tax court to reopen the trial part of the case, so the problem could be fixed.

That request was denied.

This ruling makes Jackson’s estate happy.  However, other observers will still be monitoring the case to see who wins the underlying dispute. Future celebrity estates cannot count on the IRS making procedural mistakes, so they will need to know how to avoid the issue in the first place.

Reference: Bloomberg (Dec. 28, 2017) “Michael Jackson Estate May Avoid Penalties in IRS Dispute.”

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