Michael Jackson Estate embroiled in major tax-cheating scandal: IRS slams executors with $702 MILLION bill
Legal documents show executors of Michael Jackson's estate valued the singers net worth at $7 million after he died in June 2009
The IRS now says the net worth was actually $1.125 billion
The estate has subsequently been hit with $505 million in taxes and an additional $197 million for 'gross valuation misstatement penalty'
Among the disputed values, the estate said a trust that holds interest from some of Jackson's music and most of the Beatles catalog was worth $0
The IRS said it was worth $469 million It's a case that, according to the IRS, is very black and white.
The Michael Jackson Estate is accused of cheating taxpayers out of millions of dollars by allegedly undervaluing the wealth of the late pop great - and has been hit with a penalty of more than $702 million.
New legal documents filed with the U.S. Tax Court in Washington, which were obtained by the L.A. Times, say that after Jackson died in June 2009, the executors of his estate valued the singers net worth at around $7 million.
However the IRS are disputing the figure and claim MJ is actually worth $1.125 billion.
As a result the agency has told executors that the estate owes $505 million in taxes and an additional $197 million in fines.
Jackson's return was so inaccurate, the IRS said, that it qualified for a gross valuation misstatement penalty, which would allow the government to double the usual 20 per cent penalty for underpayment.
Most of the dispute is centered around the value of Jackson's image, such as branded T-shirts, merchandise and using his likeness in television commercials.
It also looks at the interest of a trust that includes the rights to some of his music and most of the Beatles catalogue, such as songs Yesterday, Sgt Pepper's Lonely Hearts Club Band and Get Back.
The estate valued Jackson's likeness at just $2,105.
But, stunningly, the IRS put it at $434.264 million.
The estate put the value of the pop star's interest in the trust that owns the Beatles' and Jackson's songs at zero.
The IRS put it at $469 million.
The IRS also said Jackson's interest in another trust was worth $60.6 million, not $2.2 million, as the estate claimed.
Tax experts said the Jackson estate would have hired appraisers to determine how much his assets were worth at the time of his death, including his likeness.
However, with few estates valuable enough to have to file with the IRS, Jackson's worth is generally hard to measure.
'This is something unusual,' Andrew Katzenstein, an estate tax expert at the law firm Proskauer Rose, told the L.A. Times.
'He was one of the premier entertainers of our time. So there are really no comparables, and it leaves the valuation question open to a huge range of possibilities.'
The Jackson estate would like have argued that, before he died, the singer had neither toured nor released a CD for several years, and his public image had been severely damaged by allegations of child molestation.
This would have had a major effect on endorsement deals and whether companies would have waned to be aligned with the Jackson brand.
But since his death, Jackson's music has had a renaissance.
The estate had earned $475 million, according to a court filing in July 2012.
Forbes magazine reported in October 2013 that Jackson was the highest-paid celebrity that year — dead or alive — earning $160 million.
Much of the money, according to Forbes, came from two Cirque du Soleil shows based on Jackson's music, one at Mandalay Bay Hotel and Casino in Las Vegas and another that tours the world.
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.
The IRS also found other automobiles, saying that 'tangible personal property including vehicles not reported otherwise' were worth $47.467 million, instead of the $0 the estate reported.
As the case unfolds in court, the Jackson estate may pay off its taxes by selling assets or asking the IRS if it could pay over 15 years.
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