Prince’s Death Presents Dilemma for IRS

When Michael Jackson died in 2009, the superstar’s estate tax attorneys estimated the value of Jackson’s likeness and image at a mere $2,105. The IRS came back with what was most likely a more realistic estimate of Jackson’s image of a whopping $434 million. The difference is worth millions of dollars to Jackson’s estate and to the IRS, who can theoretically tax that asset at 40 percent.Jackson’s tax battle is due to commence in US tax court, in February, 2017.

Prince’s recent death presents similar problems for the IRS and the popstar’s estate tax lawyers.

“This could be very ground-breaking,” said Jonathan Blattmachr of the estate planning advisory group of Pioneer Wealth Partners. The way this is handled by the IRS could change the way big-name celebrities plan their estates, especially with regard to rights to their images.

Despite the several similar examples to learn from, there are still practically no rules to guide the IRS or taxpayers when it comes to taxing the worth of an image, likeness or name.  One solution suggested by Blattmachr would be to exempt the value of names and likenesses from estate taxes and instead tax future earnings from the image as ordinary income, not capital gains.

“Michael Jackson will be different from Prince who will be different from Madonna,” Mr. Blattmachr said. “It’s horribly speculative as to what the value is.”

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