Michael Jackson’s Estate Challenges IRS in Tax Dispute

[Petrarose]

^^Let's see:

1) says the issue is what the assets were worth in 09 before death & not what IRS says it is after the death.

2) For property, IRS can test the value based on events that happen after the death, But the estate has the right to value the property based on events prior to death in 09

3) For image after death, you use model where you do a forecast of money to be earned in the future, apply a capitalization rate and that gives you a present value (I guess that is the math part).

So to me he is saying image always involve a projection of monies to be earned in the future.

For property it goes either way--current or future: IRS could get a value by looking at what happened in the future, but the estate still has the right to go by what they knew in 09 before the death. To me, that means both are right in what they are doing, if it is true that the IRS is using factors after 09 to get a value. However, the IRS has not said that they are using factors after his death, so I will wait and see what unfolds in court.

It seems to me that being the IRS, if they can test using influences after the death, and realize that by doing that the person/estate will have to pay more money, then they will go by that method. Likewise, if the estate sees that using the current/09 situation will make them pay less taxes, then they will stand by their rights and use that method. However, what the IRS thinks Michael's value was in 09 vs what the estate thinks, is not the same. This is why I find the whole thing interesting.

Then, if image involves the future income projections why did the estate put such a low value to it?

 

[Vici]

So Neverland was valued by the estate at zero, compared with $1.7 million by the IRS???

Isnt even 1,7 million very low??

 

[marc_vivien]

Estate's numbers are in the second report managment (Partial inventories). Were approved by probate referee (Joseph BUA) appointed by the Court.

 

[Aquarius]

@Petra. So the estate can place the value at what it was at the time of death & the IRS can apply a value based on future events and both are right.

Then what I don't understand is if the estate knows the IRS can increase the value of the assets, why the estate value them so low? It is known that after an artist die his assets increase in value. I understood your explanation and thank you again, but I don't understand why the estate valued Michael's assets that low. I think there must be reason. That's a huge amount the IRS is estimating. Will see how all this ends.

 

[Petrarose]

Acquarius you are right that the estate did that for a reason. According to that guy's explanation ^^, the estate has a right to do that. They have a right to use the 09 circumstances. I think the estate knows that if they use the 09 circumstances they will have to pay less taxes, as I explained above. However, the IRS CAN take into account future effects, so if the IRS sees future will give more money, they will use it. I think that is why the estate is saying they are right, because they know they are using a method of calculation that is accurate & legal. That is why I was wondering whether the numbers/base number the estate started with before they applied the formula was too low and that is what the IRS is claiming. I mean I am not an accountant, but when we do our taxes, there is always a total amount, e.g., 3,000. Then the tax person subtracts X from line 51 amount where the 3,000 is and you get a lower figure. Then you do other computations with it depending on how complex your tax is. Now could it be that the estate began with a lower figure so where I have the 3,000 they would put 400, While the IRS will put 3,000? Once you apply a formula to that wouldn't you get very different numbers for taxes?

I know that a formula is applied to my total rent and then that lower number is what is put on my taxes. So if I say the rent is high I get a bigger deduction and I owe the IRS less. If I say the rent is low I get a lower deduction and I have to pay the IRS more money. I cannot change the formula, but the amount I give to the accountant for the rent can change. That is why I was wondering if the estate was doing the taxes in a way which would make them pay less taxes, which is something most people do as long as the method you use is legal.

Anyway I am just speculating. Who knows......

 

[ivy]

So Neverland was valued by the estate at zero, compared with $1.7 million by the IRS???

Isnt even 1,7 million very low??

I think Estate is doing valuations as market value minus liabilities/debt, hence the lower numbers.

 

[Petrarose]

^^Oh that is good to know, because I was wondering about the money amount they started with that would create such a big difference.

 

[StellaJackson]

So they're cooking the books. Not surprising at all.

 

[Petrarose]

So they're cooking the books. Not surprising at all.

Maybe they are doing something a lot of accountants do?

 

[ILoveHIStory]

Maybe off topic, but have you seen and read this?
What a comparison and a coincidence, ist´n it?

 

[Petrarose]

^^I did not get what you are pointing out? Is it about the IRS going after little guys or the Michael deal? I could not read the IRS article because it is too small, so I don't know if it is about Michael. If the IRS story is about the Michael deal then I can see the coincidence. I see the 2 red arrows, but I can't tell if the stories relate. Can you explain?

 

[ivy]

So they're cooking the books. Not surprising at all.

Maybe they are doing something a lot of accountants do?

I find this interesting. First of all tax value and market value are totally different things. For example in USA in some states the tax value of an house is 70% of the market value, so you show a lower value on your taxes but when you sell it you sell it from the actual value. So basically a lower valuation on taxes doesn't change the actual value of the asset in the market.

Second I don't get this. Does some fans want Estate to list the assets at high valuation and pay high amount of taxes? Estate tax is around 45% , so that's significant. Also have you ever considered what happens if IRS wins this case and Estate is ordered to pay $702 Million in taxes? Estate earned $145 Million gross in last accounting, after the allowances, expenses etc with the leftover money it would take Estate years and years to pay back that tax bill - which probably would mean Katherine won't see a dime in her lifetime and perhaps it would require Estate to sell some assets to pay that tax bill.

Is that what people want? Sometimes I feel some fans - I'm talking some people on twitter, not anyone here - does not really know or think what they are advocating for. Lowballing assets on tax forms doesn't affect their real values , and low valuation means low taxes and more and quicker distribution to the beneficiaries. I guess some people want Estate to be hit with a high tax bill because they hate Estate / Branca but that would only hurt the beneficiaries who would have to wait for that tax bill to be paid for years.

and no Branca or McClain won't be held responsible personally. They act in executor capacity, not on a personal capacity and these valuations are done by experts so I wouldn't expect any legal problems as long as there's a reasoning behind these calculations. and I don't see any grounds for the beneficiaries to get Executors removed, what will they argue? The evil Estate wanted to pay less taxes so that there would be more money left for the beneficiaries? How does that goes against the best interest of beneficiaries?

 

[Petrarose]

Ivy I agree^^

 

[marebear]

I hope they don't have to pay this. $700 million sounds absurd to be charged in taxes.

 

[Petrarose]

I hope they don't have to pay this. $700 million sounds absurd to be charged in taxes.

I doubt that would happen, but I just have a feeling that they might have to pay a little more than they did. Something I notice with the IRS is that if you owe them money, even if it was a math mistake that was not deliberate, that is, a boo boo, they will still charge you interest on the correct amount.

 

[StellaJackson]

I think we have to go with the IRS on this one. They are the experts on this and clearly they think something is not right.

 

[passy001]

I think we have to go with the IRS on this one. They are the experts on this and clearly they think something is not right.

You mean you have to go with the IRS since you are anti-estate for life.

It's rather odd to see a fan wanting the Estate to pay $700m in taxes. what that means the executors will be forced to sell part of the kids inheritance to fill the pocket of a delusional IRS.

 

[passy001]

------

 

[ivy]

I think we have to go with the IRS on this one. They are the experts on this and clearly they think something is not right.

why? if people operated on "if IRS said so they must be right", there would not be the concept of "tax dispute" and a "tax court". It's apparent that when IRS says "you owe me, give me more money", people do not just say "okay take my money", they fight it at court.

and let me give you an example

Valuation victory for taxpayer – irs loses most of its proposed estate and gift tax deficiencies

Estate of Mitchell v. Comm'r., T.C. Memo 2011-94 (4/28/2011)

This Tax Court Memo illustrates the benefits of good estate planning and valuations. The net result in this case was that the IRS lost most of its proposed $10 million estate and gift tax deficiencies.

James Mitchell, a widower, died a resident of California leaving substantial assets to his teenage sons in trust. This case involves disputes between the estate and the IRS on the valuation of two real property holdings and two paintings. The real property consisted of a beachfront residence and a ranch, both of which the decedent leased to third parties on a long term basis. The use of the relatively long-term leases for both properties was a method to insure keeping the properties in the family and having them be income producing. The paintings were by well known American western artists.

Six days before he died, the decedent gifted a 5% co-tenancy interest in the two real properties to his sons in trust. With respect to the beachfront residence, the estate took a 32% discount on the 5% gifted interest and 19% discount on the estate's 95% interest. With respect to the ranch, the estate took a 40% discount on the 5% gifted interest and a 35% discount on the estate's 95% interest. The Court reviewed the valuations of the real property and paintings and found in favor of the estate.

With respect to the real property valuations, the estate's appraiser used a standard “income capitalization” method (which estimates the present value of anticipated cash flows and the reversionary interest) while the IRS appraisers proposed a unique, never approved by the Courts, valuation approach called the “leased buyout” method (which takes the real property's fee simple value less the amount the landlord would have to pay to buyout a tenant). The Court accepted the estate's appraisals and pointed out that any property that generates income can be valued using the income capitalization approach. The Court rejected that leased buyout approach stating that it is “speculative at best”.

With respect to the painting valuations, the Court accepted the estate's values and determined that the estate's experts at trial were experienced, qualified and reasonable. Specifically, one of the estate's appraisers was well qualified to opine on American western art while the IRS experts had neither expertise nor extensive background in American western art. In addition, an IRS appraiser included private sales in his analysis together with the usual sales at public auctions. The use of private sales, presented without details of such sales, was rejected by the Court. The Tax Court accepted the estate's valuation of one painting at $1.2 million (valued by the IRS at $2.3 million) and the other painting at $750,000 (valued by the IRS at $2 million).

http://www.lexology.com/library/detail.aspx?g=22c8b5cb-6086-4387-81b3-50b4495df2e4

------------------

so look to the above example. IRS said your Estate taxes are wrong and you need to pay us 10 Million dollars. What happened in the end? IRS came up with a speculative way to determine the value of the houses and they used an appraiser who had no experience with art to value the paintings. Estate on the other hand had used standard calculation methods and hired experts knowledgeable in art. Therefore IRS's valuation was totally wrong and that Estate was correct.

So how can anyone go with IRS? It's not like they have a perfect track record of being right or fair in their valuations. What makes anyone so sure about IRS being right especially not knowing how they (or MJ Estate) came to any valuation? If we had calculations in front us and the logic behind them, we could have perhaps concluded who probably had the correct calculation. but without that information saying "IRS has to be correct because they are IRS" seems to be unfounded.

 

[Petrarose]

That's the IRS for you. The thing is big estates and companies fight, but small businesses and individuals often just send the IRS some money.

 

[passy001]

why? if people operated on "if IRS said so they must be right", there would not be the concept of "tax dispute" and a "tax court". It's apparent that when IRS says "you owe me, give me more money", people do not just say "okay take my money", they fight it at court.

and let me give you an example

Valuation victory for taxpayer – irs loses most of its proposed estate and gift tax deficiencies

Estate of Mitchell v. Comm'r., T.C. Memo 2011-94 (4/28/2011)

This Tax Court Memo illustrates the benefits of good estate planning and valuations. The net result in this case was that the IRS lost most of its proposed $10 million estate and gift tax deficiencies.

James Mitchell, a widower, died a resident of California leaving substantial assets to his teenage sons in trust. This case involves disputes between the estate and the IRS on the valuation of two real property holdings and two paintings. The real property consisted of a beachfront residence and a ranch, both of which the decedent leased to third parties on a long term basis. The use of the relatively long-term leases for both properties was a method to insure keeping the properties in the family and having them be income producing. The paintings were by well known American western artists.

Six days before he died, the decedent gifted a 5% co-tenancy interest in the two real properties to his sons in trust. With respect to the beachfront residence, the estate took a 32% discount on the 5% gifted interest and 19% discount on the estate's 95% interest. With respect to the ranch, the estate took a 40% discount on the 5% gifted interest and a 35% discount on the estate's 95% interest. The Court reviewed the valuations of the real property and paintings and found in favor of the estate.

With respect to the real property valuations, the estate's appraiser used a standard “income capitalization” method (which estimates the present value of anticipated cash flows and the reversionary interest) while the IRS appraisers proposed a unique, never approved by the Courts, valuation approach called the “leased buyout” method (which takes the real property's fee simple value less the amount the landlord would have to pay to buyout a tenant). The Court accepted the estate's appraisals and pointed out that any property that generates income can be valued using the income capitalization approach. The Court rejected that leased buyout approach stating that it is “speculative at best”.

With respect to the painting valuations, the Court accepted the estate's values and determined that the estate's experts at trial were experienced, qualified and reasonable. Specifically, one of the estate's appraisers was well qualified to opine on American western art while the IRS experts had neither expertise nor extensive background in American western art. In addition, an IRS appraiser included private sales in his analysis together with the usual sales at public auctions. The use of private sales, presented without details of such sales, was rejected by the Court. The Tax Court accepted the estate's valuation of one painting at $1.2 million (valued by the IRS at $2.3 million) and the other painting at $750,000 (valued by the IRS at $2 million).

http://www.lexology.com/library/detail.aspx?g=22c8b5cb-6086-4387-81b3-50b4495df2e4

------------------

so look to the above example. IRS said your Estate taxes are wrong and you need to pay us 10 Million dollars. What happened in the end? IRS came up with a speculative way to determine the value of the houses and they used an appraiser who had no experience with art to value the paintings. Estate on the other hand had used standard calculation methods and hired experts knowledgeable in art. Therefore IRS's valuation was totally wrong and that Estate was correct.

So how can anyone go with IRS? It's not like they have a perfect track record of being right or fair in their valuations. What makes anyone so sure about IRS being right especially not knowing how they (or MJ Estate) came to any valuation? If we had calculations in front us and the logic behind them, we could have perhaps concluded who probably had the correct calculation. but without that information saying "IRS has to be correct because they are IRS" seems to be unfounded.

Ivy, I think you're wasting your time explaining to the very people who want the estate destroyed at all costs due to the irrational hatred of John Branca. The very man who is turning the Estate into a prosperous business enterprise. This reminds me of the blind hatred Tom Sneddon had towards MJ. that man wanted MJ dead at all costs.

 

[StellaJackson]

Ivy, I think you're wasting your time explaining to the very people who want the estate destroyed at all costs due to the irrational hatred of John Branca. The very man who is turning the Estate into a prosperous business enterprise. This reminds me of the blind hatred Tom Sneddon had towards MJ. that man wanted MJ dead at all costs.

Actually, I like John Branca. I have met and spoken with him several times and have a lot of respect for him. I even have a pic of me and him saved in my phone. That doesn't mean I have to agree with everything the estate do and blindly support them either. There are many things they have done that I think are great and some that I don't, same with the family. I don't get all this family supporters vs estate supporters. I'm a Michael fan and support those who do well by him.

But comparing me to Tom Sneddon? Let me just say you are a very nasty, unpleasent person.

 

[ivy]

Ivy, I think you're wasting your time explaining to the very people who want the estate destroyed at all costs due to the irrational hatred of John Branca.

While I agree that there are people who hate Estate / Branca irrationally, I don't think Stella falls into that category. I know for a fact that he has an open mind and very very different from those people you are talking about.

I'm giving an explanation because not everyone lives in US or experienced taxes and IRS. In some other countries there might be the mindset of "if the government says they must be right". It's different in USA at least in regards to IRS. IRS faces many disputes with people in regards to taxes and IRS loses a lot of these cases. So they aren't perfect. We will see which side is correct over time.

That doesn't mean I have to agree with everything the estate do and blindly support them either. I'm a Michael fan and support those who do well by him.

I don't know how you define "do well by him" in regards to taxes but less taxes paid = more money left for beneficiaries. Some might say that less taxes is actually a good thing from the perspective of the Estate and Katherine and PPB.

so I truly don't get why anyone would want Estate to pay $702 Million in taxes? Do we want them to be in a position to sell assets or pay taxes for years that beneficiaries don't see a dime? who is that good for? only IRS in my opinion.

 

[Bubs]

so I truly don't get why anyone would want Estate to pay $702 Million in taxes? Do we want them to be in a position to sell assets or pay taxes for years that beneficiaries don't see a dime? who is that good for? only IRS in my opinion.

The estate has to put out quite a lot of albums out in order to get that $ 702 million. Yeah, I rather see them fighting in court against IRS than roll over and pay.
IRS = :evil:

 

[passy001]

Actually, I like John Branca. I have met and spoken with him several times and have a lot of respect for him. I even have a pic of me and him saved in my phone. That doesn't mean I have to agree with everything the estate do and blindly support them either. There are many things they have done that I think are great and some that I don't, same with the family. I don't get all this family supporters vs estate supporters. I'm a Michael fan and support those who do well by him.

You may not "blindly support" the estate, but you sure "blindly support" the IRS, even urging the fans for the same support. That's just disgusting. more so for a so-called fan of MJ who claims to "support those who do well by him".

The IRS is inflating MJ assets so it can collect more money from the Estate. the more money the IRS collects, the less money the beneficiaries will get. and that's precisely what the executors are trying to prevent, and in doing so are doing well by MJ.

But comparing me to Tom Sneddon? Let me just say you are a very nasty, unpleasent person.

I have a loving family and I'm blessed with awesome friends who clearly think otherwise.

 

[StellaJackson]

You may not "blindly support" the estate, but you sure "blindly support" the IRS, even urging the fans for the same support. That's just disgusting. more so for a so-called fan of MJ who claims to "support those who do well by him".

The IRS is inflating MJ assets so it can collect more money from the Estate. the more money the IRS collects, the less money the beneficiaries will get. and that's precisely what the executors are trying to prevent, and in doing so are doing well by MJ.



I have a loving family and I'm blessed with awesome friends who clearly think otherwise.

I don't blindly support the IRS. As Ivy said, we have a totally different system here. The Tax Office (UK) would never inflate assests to collect hundreds of millions of unjustified dollars. They wouldn't get away with it. It seems to be quite different in the US. I assumed it would be the same as it is here. That is, you don't question them.

I never encouraged other fans to do the same. I was just talking in general terms as I would assume the estate would just have to pay it no questions asked as they would here. There is nothing disgusting about that whatsoever.

And please stop calling me a so called fan. It is very offensive and you've already been edited for it once. You have no idea of anything about me. You however have shown yourself to be quite rude. I have never once questioned your fandom or attacked your opinion out of the blue so please try to show the same respect. It just looks bad on mjjc in general.

 

[passy001]

I don't blindly support the IRS.

Really?

Then why did you write this:

So they're cooking the books. Not surprising at all.

and then followed up with this post

I think we have to go with the IRS on this one. They are the experts on this and clearly they think something is not right.

These are not the posts of someone who is impartial at all. your posts show bias against the Estate (a tradition you've kept with since MJ passing) or shall I say bias towards the IRS. You already made up your mind, suggesting the executors were doing something nefarious/evil. so please spare us. just spare us...

 

[StellaJackson]

Really?

Then why did you write this:

and then followed up with this post



These are not the posts of someone who is impartial at all. your posts show bias against the Estate (a tradition you've kept with since MJ passing) or shall I say bias towards the IRS. You already made up your mind, suggesting the executors were doing something nefarious/evil. so please spare us. just spare us...

You do know that "cooking the books" is a joke phrase right? I tell my mum, who is an accountant, that she is cooking the books all the time.

And I already answered the other points in my previous post which you chose to ignore to continue giving me a hard time. Not quite sure why you have been jumping on my back over this. Perhaps you just struggle with people who have a different opinion. Either way, it's a bit weird.

 

[Ashtanga]

Let me just say you are a very nasty, unpleasent person.

Wow!

 

[ivy]

Indeed let's stop with the "so-called" fan use. As it has been addressed by both parties I'm leaving the posts untouched but from now on, any post with so called fan will be deleted.