Let's start with what the tax bill is. The tax bill is for estate taxes (commonly called inheritance tax or death tax). The definition by the IRS of estate tax is "a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death." Keeping this definition in mind, please remember that these taxes have nothing to do with income that has been earned/generated since Michael's death; it is a tax for what Michael's assets were worth in 2009 at the date of death. In 2009, the year that Michael died, any estate worth over $3.5 million was subjected to a 45% estate tax. So any claim that Michael's will and trust were not planned properly are false. There is no avoidance of an estate tax in 2009 for any estate over $3.5 million; it's a law that cannot be ignored.
The IRS sent out a bill for $702 million and the Estate is disputing it. Why? Wouldn't they just pay it if they were honorable men who represent Michael's ethics? The reasons why are because the Estate does not agree with the IRS values on Michael's assets, etc. Let's take a look at those aspects a little bit closer.
The IRS clearly states that debt can be deducted from the estate tax. (It also states charitable deductions which we'll talk about next.)
The Estate has used a valuation method that allows for a deduction of Michael's debt. Below is an image from the IRS bill, which states that the Estate valuated MIJAC at $70,860,000 plus $3,500,000 in cash and subtracted the liability (debt) of $72,152,649 for a total of $2,207,351. The IRS agreed with the liability, but not with the value. So the point here is that obviously the debt is higher than $28 million. MIJAC's liability alone is $72 million.
Michael Jackson's assets were at the breaking point of debt at the time of his death. At the time of death, Michael's debt to SONY was $300 million. (See image below of court doc)
As mentioned above, Michael took loans out against his own catalog, MIJAC. Michael owed $5 million for the Encino compound, Hayvenhurst and another $5 million for a condo he owned. Michael also owed in the vicinity of $40 million to AEG Live for productions costs (unfortunately). Why this debt is not listed on Schedule K of the IRS doc is not clear. What is clear is that Michael's debt was much higher than $28 million.
2. CREDITORS CLAIMS
As you can see from the image below, creditor's claims are allowed as a deduction from an estate tax bill. However, the IRS did not allow the Estate's claim of $17 million in paid creditor's claims, and reduced the deduction to $0.
3. CHARITABLE DEDUCTIONS
Michael's will and trust left 20% of his estate to charity. The IRS bill states "this will provides for a 20% charitable deduction of the gross estate. No charitable deduction has been allowed here because the valuation issues are not agreed." Therefore, once the values are agreed upon between the IRS and the Estate, a deduction of 20% of the total gross estate will be granted.
4. ERRONEOUS ERRORS
The IRS has added on $17 million to the bill due to Lloyd's of London's insurance on Michael at the date of death. However, to this very day, Lloyd's of London has not paid one dime of insurance money to the Estate.
Last but not least, the image/likeness of Michael Jackson was valued by the Estate at a mere $2105.00; a very difficult number for any fan to see. I cannot defend this valuation. I assume that it was done in the same method that the Estate valued other assets; fair market value - debt = tax value.
This blog is a very general overview of the IRS bill and I hope that it cleared up some of the misconceptions being circulated in the fan base.