In Shakespeare’s most recognized tragedy, the star-crossed lover Juliet asks “What’s in a name? That which we call a rose by any other name would smell as sweet.” Now, that may have been true back in Juliet’s day. But is it still true now in today’s era of celebrity branding?
Here’s the deal. Back in 2009, executors for the King of Pop, Michael Jackson, filed an estate tax return reporting the value of his assets at his death. Jackson had been famously extravagant during his life, blowing through hundreds of millions in earnings and borrowing hundreds of millions more. His 2,600-acre “Neverland” ranch in Santa Barbara that included two railroads, a petting zoo, and a Ferris wheel reportedly cost $2.5 million per month to maintain. He spent millions more on travel, entertainment, antiques, and paintings. And feeding “Bubbles,” his pet chimpanzee, couldn’t have been cheap, either.
You would expect his estate to be pretty impressive, right? So, what was his “final score” as reported on Form 706 “United States Estate (and Generation-Skipping Transfer) Tax Return”? A mere $7 million. What’s even more incredible, the executors valued Jackson’s name and likeness at just $2,105. (Where did the $5 come from, anyway? Why not $2,104, or $2,106?)
Now, that may not be as ridiculous as it first seems — “Jacko” was in debt up to his eyeballs for much of his life, and he may have owed as much as $500 million at his death. But $7 million still seems a little light for an estate that earned $160 million in 2012 alone. Jackson’s estate has actually earned more since his death than any living entertainer during that same time!
Our friends at the IRS thought that valuation was (wait for it . . .) bad. On July 26, they told Jackson’s executors that their number was $1.1 billion, including a whopping $434 million for his name alone. Since they don’t stop ’til they get enough, the IRS promptly billed the estate for an additional $505.1 million in tax, and added a $196.9 million undervaluation penalty as well!
Not surprisingly, Jackson’s estate told the IRS to beat it. A spokesman said the IRS’s valuation was “based on speculative and erroneous assumptions unsupported by facts or law,” and added that the estate had already paid over $100 million in income taxes. And now they wanna be starting something in the U.S. Tax Court. They’ve filed Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. Commissioner of Internal Revenue and set the stage for a legal thriller.
You may not have 26 American Music Awards, 13 number one singles, or the best-selling album of all time. But you’re probably even more interested than Michael Jackson in keeping what you make. The answer, of course, is planning.
But it’s nearly Christmas, and time is running out to save in 2013. So call us now to set up your appointment to get the savings you really want and we tax preparers of Chicago are here to help you out.