LOS ANGELES — Attorneys for the late Michael Jackson won a major battle against the Internal Revenue Service on Tuesday as a U.S. tax court ruled the IRS inflated the value of the pop star’s estate at the time of his death, leading to a tax bill for his heirs that was too high.
In a 271-page opinion, Los Angeles Judge Mark Holmes ruled Monday that the IRS value of $482 million that it put on Jackson’s estate was too high, the Los Angeles Times reported. In his decision, Holmes placed the value at $111 million, which was close to the estate’s own figures.
The tax court ruled that the value of Jackson’s assets was reduced because the singer had passed the peak of his popularity, was heavily in debt and had a damaged reputation due to allegations of child molestation.
“We have to look for the value of each of Jackson’s assets,” Holmes said. “The value we put on them as of the day he died is, we acknowledge, much less than their value much later under the estate’s management.”
The estate’s executors applauded the ruling, which was a victory for Jackson’s mother and his three children.
“We’re pleased,” co-executor John Branca told The Associated Press on Tuesday. “We always try to do the right thing. We tried from the beginning to follow the IRS rules and regulations and relied on the best experts possible. It’s unfortunate that we were forced to litigate to protect ourselves.”
The ruling ends years of debate over the estate’s worth after the IRS audited its returns in 2013, the Times reported. That led to a $700 million tax bill; the IRS estimated that the estate had underestimated its taxes by more than $500 million and penalized it by adding nearly $200 million more, according to the newspaper.
The judge disagreed with the IRS over the value of Jackson’s image and likeness. The IRS placed it at $161 million, but Holmes ruled it was $4.15 million, the Times reported. Despite Jackson’s acquittal on all counts at his 2005 trial for child molestation, the allegations hampered his ability to find sponsors and merchandise partners for his tours. By the time of his death in 2009 at age 50, Jackson had not released new material or toured for a decade, Variety reported.
“The fact that he earned not a penny from his image and likeness in 2006, 2007, or 2008 shows the effect those allegations had, and continued to have, until his death,” Holmes wrote. “This cannot be a surprise -- allegations that a celebrity molested little boys might reasonably be thought to repel potential licensees in any society that has not become completely decadent.
“Those allegations had a dramatic effect on Jackson’s ability to win sponsorships and merchandising deals once they became public.”
A new tax bill will now be calculated using Holmes’ figures, and will include no penalties, the AP reported.
Also in dispute was Jackson’s 50% stake in Sony/ATV Music Publishing, a catalog that includes 175 Beatles songs, according to the AP. Also included in the ruling was Jackson’s interests in another catalog that includes the songs he wrote.
The IRS valued those assets at $320 million but Holmes ruled that with Jackson’s debts, both music catalogs were worth $107 million at the time of the singer’s death.