The estate of Michael Jackson's win over the IRS in tax court is the topic of a Wall Street Journal news article. The Journal reports, " U.S. Tax Court Judge Mark Holmes found that the singer's name and likeness were worth $4 million when he died in 2009 at the age of 50, not the $161 million the government had claimed....the case came down to the question of how to value three main assets: Mr. Jackson's name and likeness and two entities tied to the music business."
Valuing a "name and likeness" as an asset for tax purposes raises some interesting questions for the wealth tax being pushed by Senators Warren and Sanders on Capitol Hill. The "Ultra-Millionaire Tax Act of 2021" is also sponsored by Senators Markey, Gillibrand, Whitehouse, Schatz, Merkley, and Hirono. Are the value of a "name and likeness" taxable for annual Warren wealth tax purposes as they are for estate tax purposes? The Jackson case shows that that value can vary widely over time as someone's reputation rises or falls, and that the government may be aggressive in seeking an unrealistically high valuation.
The Journal account doesn't say if there are any negative career repercussions for the IRS agents who set the unrealistically high valuation that the Tax Court rejected. If the IRS is anything like federal prosecutors, the tax collectors wear such losses as badges of honor, a sign that they weren't being overly cautious.
President Biden is proposing to give the IRS an additional $80 billion to spend over ten years. A New York Times article quotes Larry Summers estimating it would raise $1 trillion over that period in additional revenue. Could be. Or, if the Michael Jackson pattern holds, the IRS will try to collect $1 trillion, but by the time the Tax Court sorts out the reality of the situation, only an additional few billions of dollars will be collected. Along the way, tax lawyers and accountants—many of them former IRS officials—will have earned plenty of fees. We'd like to see Biden and Summers face an annual tax bill for the value of their "name and likeness" and then see them revisit their views of the IRS budget.
In the meantime, taxpayers can thank Michael Jackson's children, mother, and their estate lawyers for fighting the IRS rather than paying the inflated bill. They provided the whole country a valuable lesson in the rule of law, and in telling an overly greedy tax collector to, as Michael Jackson might put it, just beat it.
(Image source: White House Photo Office/Wikimedia Commons)