Michael Jackson’s death on June 25th 2009 shocked the world. And the legal drama that followed shocked many tax attorneys. At the time of his death, Jackson was clearly worth millions, but the exact value of his estate was unclear. The matter eventually ended up in court with a ruling that Michael Jackson’s image and likeness, at the time of his death, were worth considerably less than the IRS estimated. How this happened, and what it means for other estates, became a big question mark in the tax world. 

Calculating the value of someone’s intellectual property at the time of their death is a complex process. Why was Michael Jackson’s image and likeness valued so much lower than the IRS estimated?

On today’s episode of the Taxgirl podcast, Kelly is joined by Scott Weingust and Aaron Stumpf from Stout to talk about intellectual property and estate valuation upon death. Stout is a global investment bank and advisory firm specializing in corporate finance, valuation, financial disputes, and investigations. Scott is the leader of Intellectual Property Valuation Practice at Stout; he has over 20 years of experience providing consulting services to corporations, law firms, universities, and investment firms. Aaron is a Managing Director in the Valuation Advisory Group. Aaron co-leads Stout’s trust and estate valuation practice.

Listen to Kelly, Scott, and Aaron talk about intellectual property and taxes:

• Why did the IRS take their infamous position on Michael Jackson’s estate after his death, and why has it become such a notorious case in the tax world?
• When it comes to valuation, it’s perfectly normal to see some disagreements. But how can there be such huge gaps in valuation expectations in the case of Michael Jackson, and what factors may have played into those discrepancies?
• From the perspective of the IRS, how much of a factor does timing play in valuation?
• In the tax world, how does one value an image of a person, and the right to use someone’s likeness? How do Scott and Aaron describe the “cash flow model?”
• What kinds of factors go into the valuation of image and likeness?
• Looking at this kind of image and likeness valuation (in the example of Michael Jackson and promotional opportunities), are professionals more interested in analyzing the value over time or the present value of that individual’s image and likeness? Where does that number come from as of the date of an individual’s death?
• What’s the difference between valuing the asset that actually existed upon date-of-death versus valuing the projected opportunity or monetization of what’s possible for a given image and likeness going forward?
• What kind of evidence or modeling would carry a lot of weight in court in the case of valuation? How did those items impact Michael Jackson’s estate case?
• When looking at valuation of known factors, like stocks, for example, there are very specific rules about timing as far as averages and formulas go. Would you have a similar conversation about a person’s image regarding current events that may affect their estate or image?
• How similar are these conversations when it comes to sports and athlete’s reputations or performances? How often are professional athletes’ valuations revisited?
• What happens when it comes to art or manuscripts or other intellectual property; how are unique assets valued and which specialists are called in for the job? What words of advice do Scott and Aaron have for tax professionals to help find those experts when needed?
• Where do estate valuation cases intersect with inheritances? Do these issues get sticky when it comes to unique assets like unreleased assets or family heirlooms like gems or art?

More about Kelly Phillips Erb:

Kelly is the creator and host of the Taxgirl podcast series. Kelly is a practicing tax attorney with considerable experience and knowledge. She works with taxpayers like you every day. One of the things that she does is help folks out of tax jams, and hopefully, keep others from getting into them.

Links mentioned:

Kelly’s Website – Taxgirl

Aaron’s Bio -- Stout

Scott’s Bio -- Stout