They told him, “Don’t you ever come around here”

“Don’t wanna see your face, you better disappear”

The fire’s in their eyes and their words are really clear

So beat it,  just beat it.

The Beatles certainly had taxes on their minds when they wrote and sang “Taxman” in their seminal album Revolver in 1966, but does it strain belief  too much to think that the late Michael Jackson had the IRS in mind when he wrote the lyrics for his hit “Beat It” on the equally classic and seminal  Thriller album in 1982? After all, what comes to mind but the IRS when you encounter lyrics like “[t]he fire’s in their eyes and their words are really clear.”

The estate of Michael Jackson has long been in litigation with the IRS over issues related to the valuation of the late artist’s estate.  A person’s taxable estate is usually easy to measure because assets generally consist of easily valued properties. But what is an artist’s image and likeness worth? Reasonable minds may differ. Elvis Presley’s estate made more money in 2020 than the singer had in 1977, the year he died.

The IRS looks to maximize the estate tax liability by increasing the value of the assets while the estate looks to minimize it by downplaying the value of the same assets. “Experts” are retained by both sides to testify that what is up is down and what is down is up (depending upon which side they represent). The issues of valuation were particularly acute with Michael Jackson’s estate because of the troubled nature of his reputation at the end of his life and his efforts at making a comeback in what had been a long and brilliant career in music. As The New York Times reported:

But there was another matter that has taken more than seven years to litigate: Jackson’s tax bill with the Internal Revenue Service, in which the government and the estate held vastly different views about what Jackson’s name and likeness were worth when he died.

The I.R.S. thought they were worth $161 million . The estate put it at just $2,105 [yes, dear reader, there were “experts” ready, willing, and able to testify to those two extremes]— arguing that Jackson’s reputation was in tatters at the end of his life, after years of lurid reporting on his eccentric lifestyle and a widely covered trial on child molestation charges, in which Jackson was acquitted.

On Monday [May 3, 2021], in a closely watched case that may have implications for other celebrity estates, Judge Mark V. Holmes of United States Tax Court ruled that Jackson’s name and likeness were worth $4.2 million, rejecting many of the I.R.S.’s arguments. The decision will significantly lower the estate’s tax burden from the government’s first assessment. . .

The Jackson case has been watched closely as a guide for how celebrity estates may be valued, and for their tax liabilities. Among the major estates with large tax issues still before the I.R.S. are those of Prince and Aretha Franklin.[1]

Issues of valuation are rarely as large or as publicized as was the case with the late Mr. Jackson, but they remain a prime concern of the estate attorney when preparing or defending the estate tax return. The IRS initially valued Michael Jackson’s likeness and image as worth about $434 million at death (later graciously amended down to $161 million), while the estate said it was only worth about $2,000.

If you are interested in reading the judge’s decision (and it is a long but interesting  one), it is available at: Assets KPMG

By the way, what did the judge decide? He valued the asset at $4.1 million, a win for  the estate and some useful guidance for future valuation cases.

[1]  New York Times Michael Jackson Estate