By Hannah Karp
When pop star Michael Jackson died in 2009, weeks before a planned comeback tour, how much was the man in the mirror worth? The answer is far from black and white.
After coming to agreements on the value of some of the King of Pop's more concrete assets in a legal fight that began four years ago, the estate's executors are facing off with the Internal Revenue Service in U.S. Tax Court on Monday, primarily over the valuation of the singer's name and likeness rights at the time of his death.
Depending on the outcome of the case, the estate could be on the hook for more than $500 million in taxes and $200 million in penalties, according to the IRS's notice to the estate of its deficiency.
The estate put the value ofhis name and image at $2,105, at a time when Mr. Jackson's reputation was sullied by child-abuse allegations and his strange public behavior. After releasing his last studio album in 2001, he was accused in 2003 -- and later acquitted -- of molesting children at his Neverland ranch in Southern California. Numerous other incidents, including dangling his baby son from a hotel room window in 2002, also hurt his public image.
Even after Mr. Jackson had sold out the 50 shows at London's O2 arena that he had planned for the "This Is It" tour in the summer of 2009, he was unable to find a tour sponsor, said Howard Weitzman, the attorney representing the estate in the trial.
But the IRS argues that the pop star's name and likeness should have been valued at $161 million; that would be down from 2013, when it valued those rights at $434 million.
"No celebrity's name and likeness rights have sold for anywhere near that much -- not Elvis, not Marilyn, not Ali. And Michael did not make that much from his name and likeness -- as opposed to his music -- in his lifetime," said Mr. Weitzman, noting that he only earned about $50 million from those rights while he was alive. "They are trying to take what Michael's estate created for his children after death and extract an unreasonable and excessive tax."
The IRS didn't respond to a request for comment.
The gaping discrepancy highlights the difficulty of putting a price on a music star's name and image, as distinct from what his or her music is worth. Doing so requires guessing what the celebrity would have earned in licensing deals. Future licensing opportunities can also be hard to predict as technology evolves, with holograms and virtual reality now presenting new revenue opportunities for dead stars, for example.
Running the estate since Mr. Jackson's death have been entertainment attorney John Branca -- who started representing Mr. Jackson in the 80s -- and veteran music executive John McClain.
Since 2009, the two executors have helped the estate net about $1 billion, thanks to endeavors including music sales, a Cirque du Soleil tribute show and the posthumous release of the documentary "This Is It," which followed Mr. Jackson as he prepared for his comeback tour.
The biggest payout came last year when they sold the estate's approximately 50% stake in the world's biggest music publishing company, Sony/ATV Music Publishing, to Sony Corp., netting about $750 million. As a result, the $500 million in debt Mr. Jackson died with has been transformed into about the same amount in cash for the performer's mother and children.
The executors first brought the fight to U.S. Tax Court in 2013 when they filed a petition challenging a notice from IRS that had adjusted the estate's total value to more than $1.3 billion, from $7 million. The right to Mr. Jackson's image and likeness was among the IRS's biggest adjustments.
A trial slated for 2014 was postponed as the two camps began reaching settlements on the values of some interests such as the star's recordings and California property.
Los Angeles entertainment attorney Mitra Ahouraian said that if the IRS prevails, it is likely to pursue other celebrity estates for additional taxes on their name and likeness rights.
Write to Hannah Karp at email@example.com
(END) Dow Jones Newswires
February 05, 2017 14:06 ET (19:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.