Michael Jackson’s Bentley Valued at $250,000 by IRS: Taxes
How much would you pay for a Bentley Arnage driven by pop icon Michael Jackson? The IRS says the car is worth $250,000.
The Internal Revenue Service is seeking more than $700 million in tax penalties from Jackson’s estate, and after a U.S. Tax Court challenge last month from the estate, the government has now released valuations on everything from the car to his business interests and property.
The IRS valued his estate at more than $1.1 billion and said executors significantly undervalued his property, resulting in a tax deficiency of more than $505 million and additions to tax of more than $196 million, Bloomberg BNA reported.
The estate filed a petition July 26 challenging the deficiencies and penalties, and the specific dollar amounts were redacted. The IRS response last week included a non-redacted copy of the government’s deficiency notice.
A publicist for Jackson’s estate disputed the IRS’s positions and questioned the appraisal methodology the IRS used. In a statement, Howard Weitzman, an attorney for the estate, said the executors are “disappointed the IRS continues to overreach in this matter but firmly believes all issues will be resolved in favor of the Estate and the beneficiaries.”
Of particular note is the different valuation of Jackson’s “image and likeness.” While the estate claimed a value of a mere $2,105, the IRS determined a value of more than $434 million.
Attorney Adam Streisand, head of Loeb & Loeb LLP’s trusts and estate litigation department in Los Angeles, told BNA the issue is what the estate’s assets were worth at the time Jackson died, not what the IRS says they are worth after his death.
“There is really no debate” that Jackson’s death positively impacted the value of his image and likeness, Streisand said. “Michael’s name and image had a commercial value after and because of his death that it did not have during life.”
While the IRS does test the value based upon subsequent events, the executor is entitled to value the property based on what was known on the valuation date, not on circumstances that one might speculate might exist in the future, Streisand said.
The general method for valuing a person’s image and likeness when they die is to use an income-stream model where the executor “forecasts the income streams to be earned in the future and applies a capitalization rate to reach a present value,” he said.
In addition to the questions about the value of Jackson’s image and likeness, the singer’s estate and the IRS had very different takes on the value of two trust accounts -- New Horizon Trust II and New Horizon Trust III. While the estate claimed Jackson’s interests in those trusts to be zero and $2.2 million respectively, the IRS valued them at $469 million and $60.68 million.
Among the other notable assets that the IRS said the estate has undervalued are: real property located in Encino, California, valued by the estate at $4.1 million, compared with $5.5 million by the IRS; Jackson’s ownership interest in MJJ Ventures Inc., valued by the estate at $13.7 million compared with $81.1 million by the IRS; and Jackson’s ownership interest in Sycamore Valley Ranch Co., valued by the estate at zero, compared with $1.7 million by the IRS.
They also include a 2001 Bentley Arnage valued by the estate at $91,600, compared with $250,000 by the IRS; Jackson’s “share of artist mechanical rights related to Jackson 5 master recordings,” valued by the estate at $11.19 million, compared with $45.49 million by the IRS; tangible personal property valued by the estate at zero, compared with $47.46 million by the IRS; and a contingency non-appearance and cancellation policy issued by Lloyd’s of London, valued by the estate at zero, compared with $17.5 million by the IRS.
The IRS also disallowed $17 million claimed as debts to “other creditors.”
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