Is Michael Jackson’s tax battle reaching $1.1bn?

By the time America’s Internal Revenue Service (IRS)’s court battle with the Michael Jackson estate – as to how much it should be paying in estate taxes – reaches court next year, the estate might be paying US $1.178 billion.

At least $200 million of this will be in late penalties. The estate, which is disputing the figure and says it is just $7 million, points out $100 million has already been paid.

In such a high profile case, reports range from the possibility of criminal tax evasion charges to the late singer’s children Prince (19), Paris (17) and Blanket (14) losing all or much of their inheritance when they turn 30.

Jackson earned $1.1 billion during his solo career. But he had a debt of nearly half a billion dollars when he died in June 2009 at the age of 50. His net assets were well under $1 billion, and most likely less than the $702 million tax bill that Uncle Sam claimed three years ago.

But it must be remembered that the IRS claims are related to estate tax, not income tax. In 2009 the maximum federal tax was 45% of net assets, which means the IRS believes the icon was worth $1.5 billion when he died.

For the first time ever, the IRS is pursuing estate taxes for name and likeness. The tax office is claiming that much of its original $702 million figure was what Jackson’s name and likeness were worth in 2009. The Jackson estate insists it was worth only $2015, destroyed by various child molestation charges, with no sponsorship endorsements since 1993 and a low public profile caused by his refusal to go on tour.

The IRS has a somewhat different figure, placing it at $434 million. It is reportedly asking for documents on the corporate sponsorship numbers behind the This Is It world tour that Jackson was rehearsing for when he died.

Uncle Sam also wants the value to be based on what Jackson is worth now.

Since 2007, his savvy executors John Branca and John McClain erased the debt to a profit with fresh earnings of $1 billion. According to Forbes magazine, he earned $115 million in 2014 alone. This has been done through albums and video games, the 2009 documentary This Is It which grossed $261 million and Cirque du Soleil tribute shows which continues to tour.

The taxes owed increase a further $100 million due to the recent sale of Jackson’s $750 million share in Sony/ATV Music Publishing. There were other entities, too, including his Mijac music catalogue, real estate and a massive art collection.

The IRS also claims it made a mistake in calculation, thinking he had half-owned some master tracks when he in fact owed 100% (which meant a worth of $91 million, compared to the $11 million reported on the Jackson estate tax return. There was also the Oscar for Gone With The Wind that Jackson purchased at auction for $1.54 million in 1999 and which has gone missing.

Jackson’s lead attorney Howard Weitzman broke silence on the case for the first time. He says Jackson earned no more than $50 million from the licensing of his name and image when the pop star was alive, even during the Thriller heyday. “It seems preposterous that the IRS would arrive at a value 10 times this amount,” he said. “This is bizarre.”

The Jackson tax case has implications for other dead celebrities. Many have ended up earning more after they died. With recent technology advances as holograms and CGI, dead entertainers could have a whole boost in earnings – and with Uncle Sam watching all this carefully.