The Michael Jackson Estate vs IRS trial update

Our premise regarding the dispute between the Michael Jackson Estate and IRS is that nobody’s win in this judgment case (although some fans and people see it as a win-lose battle). The point is that the executors of the Michael Jackson Estate “screwed up” big time and went under IRS scrutiny for incorrectly implementing values to some assets completely out of the real market. And it must be clear that this trial happened after the Estate tried to strike the report of experts Mr. Anson and Mr. Nimmer, rejecting the adjusted values the IRS proposed after documents evaluation. The Estate challenge has been answered by calling them on trial for Feb 6, 2017.


We are not going to summarize the depositions which have been already very well reported and transcripts by 

We are going to make a short recap of the figures discussed and still in discussion, taking into account that penalties are the huge issue due to the original Estate tax return.

Actually, the original notice of deficiency did not change at the opening of the trial, although various adjustments have been applied to the value of the taxable asset during the last 3 years.

The original notice of deficiency was of $505, 142,894.00 million in taxes and $196.910,310.00 million in penalties for an overall Estate evaluation of about a 1’170’000’000.00.

The penalties are based on the taxes due, so if the tax charges go down, the penalties go with it. In 2009, the year Michael Jackson died, the exemption amount was $3,500,000 and assets in excess of that amount are taxed at up to 45 %. The Michael Jackson Estate will pay a 45 % rate once the valuation dispute is resolved, even though from 2010 the estate’s tax rate is 40 %.  For estate tax purposes, only net value – assets minus liabilities – is subject to tax. A simple example: if an estate includes an asset worth $100 million but there are $50 million of debt, only $50 million is taxed. The presence and details of debts are the variables key for estates. This is the case of MJ that had many high-value assets but many large debts too. Beyond the rule about debts, specific assets must be valued. MJ owned a 50 percent share in Sony/ATV, his own music catalog, real estate, and art pieces. Due to the Estate slow delivery of documents, it took 3 years of back and forth – and legal expenses on the Estate‘s heirs shoulders – for IRS to look at all the papers and revise the value of the three main assets that still remain in dispute.



The proposed new values of the IRS are as follows:

Name and Likeness

In the Notice of deficiency, IRS valued MJ name and likeness at     434,264,000.00 Usd.

Then revised the value as of the date of death at                                   161,307,045.00 Usd.


In the Notice of deficiency, IRS valued MJ interest in Sony/ATV at     469.005,086.00 Usd.

Then revised the value as of the date of death at                                     206,295,934.00 Usd.


In the Notice of deficiency, IRS valued MJ interest in MIJAC Music at  60,685,944.00 Usd.

On July 8, 2016, the Court granted IRS to increase the value of MIJAC to    114,263,615.00 Usd.

IRS explained that its new asserted value is based on a valuation by expert Mr. Anson and Mr. Nimmer and increased the Estate tax deficiency of the value of this asset.

IRS’s total valuation has decreased by $482,088,436, from the initial notice of deficiency. However, the Estate did not accept these figures. And for this reason, everything got on hold and went on trial. As we already mentioned in the previous blog, there are some items, like Encino, few cars, and Neverland that have been adjusted, and although both real Estates and cars have had an increase in value, the relevant penalties were lifted. But the difference in the amounts was within the IRS penalties parameters.

Which is as follows:

  • A negligence penalty of 20% is imposed for any underpayment of tax as the result of intentional disregard of rules and regulations where no fraud was intended. The 20% penalty applies only to the portion attributable to negligence.
  • Accuracy-related penalties are assessed on misstatements due to the taxpayer’s negligence and underreporting income, overstating deductions, and undervaluing assets. Accuracy-related penalties amount to 20% of the portion of the tax underpayment which is attributable to one of the following infractions:
  • Negligence or disregard of rules and regulations
  • Substantial understatement of tax liability or taxable assets
  • Substantial overstatement of deductions
  • Failure to keep adequate records.
  • Accuracy-related penalties only apply if the taxpayer fails to show a reasonable basis for the position taken. In regard to the accuracy-related penalty, negligence includes any failure to make a reasonable attempt to comply with the provisions of the tax law or to any disregard of rules and regulations. The negligence penalty may be waived if the taxpayer had a reasonable basis for the interpretation of the code and has disclosed the disputed position on Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement to support a position that is contrary to Treasury regulations.
  • There is a substantial understatement of tax liability penalty for higher-income taxpayers who play the audit lottery. A substantial understatement of the tax liability occurs when the understatement exceeds the larger of 10% of the tax due or $5,000 for an individual or $10,000 for a Corporation. The penalty only applies to the difference between the amount of tax assessed and the amount of tax actually shown on the return.
  • The penalty can be avoided if any of the following are true:
  • The taxpayer has substantial authority for the treatment that resulted in the substantial understatement and the relevant facts were adequately disclosed on the return by attaching Form 8275.
  • The taxpayer had a reasonable basis for taking the disputed position.
  • There is also a penalty for a devaluation of property to reduce wealth transfer taxes that is equal to 20% of the additional transfer tax assessed, but only if the reappraised value is 65% or less than the amount claimed. The penalty is doubled to 40% if the reported valuation was 40% or less of the reappraised value. The penalty only applies if the additional transfer tax liability exceeds $5,000.
  • Civil fraud penalties may also be imposed, which is generally defined as a deliberate action by the taxpayer to evade taxes. The civil fraud penalty is assessed on any underpayment of tax due to fraud, which includes:
  • Manipulation of accounting records
  • Substantial omissions from income
  • Erroneous deductions.
  • The civil fraud penalty is 75% on any underpayment of tax. The IRS must show by a preponderance of the evidence that the taxpayer had specifically intended to evade the tax. However once established, then the taxpayer bears the burden to show by the preponderance of the evidence that the portion of the underpayment is not attributable to fraud. If the underpayment of tax is attributable to both negligence and fraud, then the fraud penalty applies first.
  • Criminal penalties are assessed on any person who willfully attempts to evade or defeat any tax. In addition to other penalties, the convicted tax evader will be guilty of a felony and fined not more than $100,000, or $500,000 in the case of a corporation, or imprisoned not more than 5 years or both together with costs of prosecution. However, the IRS has the burden of proof to show willful evasion beyond a shadow of any reasonable doubt. Hence, the main difference between the fraud penalty and the criminal penalty for the IRS is the amount of evidence that they need for a conviction.

Let’s assume the judge is going to accept the revised IRS values and the Estate would pay taxes over these new IRS revised values, MJ Estate still have a huge problem with the penalties.

Here below why:

  • MIJAC –  actual value by IRS is 114,263,615.00 Usd.  and we have $2,207,351.00 for MJ Estate
  • Sony/ATV – actual value by IRS is 206,295,934 Usd. by IRS and 0 Usd. for  MJ Estate. They put 0 value of the catalog after their original expert reported  a negative balance of 30’113,600.00 Usd. and after that, a new expert valued a negative balance of 139’200,000.00.


  • Image and likeliness – actual value by IRS is 161,307,045.00 Usd.  and 2’150.00 Usd. for MJ Estate (MJ Estate then revised their valuation up, from 2’150.00 to 3 million).

In short, no matter how the taxable values of the assets will be decreased and adjusted, the penalties percentages are still at the maximum.

To have penalties deleted the Judge should decide that the value of the 3 main assets should be around the original Estate valuation, considering that households and some cars are not taxable.

To us, it sounds pretty impossible!

It seems that there are some pre-2009 charities deductions to be added in tax return: something related to donations that Michael Jackson made he was alive. However, due to all the pending issues, No charitable deductions have been allowed. There is a stipulation regarding this subject that you can see here:


These charity deductions have nothing to do with the 20% to be donated to charities organization as per the Will. Being the Estate still in probate, nothing related to the Will have ever been executed for the time being. The Estate never donate money to charity entities.

Certainly, IRS has no intention to put the Estate into bankruptcy proceedings in order to get his taxes. The Estate of Michael Jackson is an excellent source of revenues and it will be so for years to come and considering the pompous reviews of the media anytime a deal closed, the Estate should have enough money to pay the 2009 taxes.

What is sure is that this trial was a financial detriment to the heirs of the Estate, leading three years of unnecessary compliance costs (legal fees, accountants, expert, reports etc). This money would have been otherwise spent in more useful ways than in fighting the IRS. All money was thrown out of the window just because the executors – “irresponsibly” – have filled a tax return absolutely out of any plausible reality.

Let’s not forget that in June 2009 the executors estimated MJ net worth to be $7 million. IRS states that the estate owes 100 times the amount of its estimated net worth in taxes and it took 3 years to have the relevant documents to actually check and make the due revision.

The first error of the executors was not realizing the high potential for an IRS audit. There are some numbers of estates that are valuable enough to be required to file with the IRS. Since the value of these estates is relatively high, they have a very high probability of being audited, but few actually end up in Tax Court.

The second error was  the highly suspected valuation of many items in Michael Jackson’s estate:

  • The value of  MJ interest in the trust that owned Sony/ATV at zero.
  • His own publishing catalog at abt 2 million
  • His likeness at the price of an expensive bottle of champagne….

And the third error, which fans don’t forgive, is the disgusting way they attempted to defend their fraudulent 2009 tax return: once again tainting the memory of Michael Jackson, lying about the procedure of the operating agreement relating to “buy out” clause Sony / ATV and supporting their falsehood over Michael Jackson with stinking old MEDIA reports considered “hearsay” by IRS and the Court.

The Michael Jackson Estate executors did not handle MJ business properly. They never did when he was alive, they are not going to change their habits now.


Special thanks to Marco Balletta for giving me the opportunity to analyze the documents in his possession.

6 thoughts on “The Michael Jackson Estate vs IRS trial update

  1. What Branca Sony and Estate have done to Michael Jacksons memory, trying to defame him and saying his likeness is worth nothing, when they are there to protect his name, his likeness, and his legacy is nothing short of criminal. Branca and his lap dogs should be sent to prison and the keys thrown away.

    Liked by 3 people

  2. Something needs to be done and ASAP Prince and Paris are both 19 and 18 they should be able to get Branca and Co fired or even MJ’s Mom they have the money to hire good Lawyers why aren’t they?

    Liked by 1 person

  3. But what they do with their allowance is their business they don’t have to go through the Estate. they can put money together and hire a good Lawyer who will fight them.

    Liked by 1 person

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