Getting your numbers right on an estate tax return is an important thing to do. That makes sense of course. If you fail to report an estate’s assets accurately, the IRS will probably notice and come around asking about it. That is what is happening now with the estate of Michael Jackson, whose estate, according to the IRS, reported over $700 million less on its 2009 estate tax return than the IRS believes the estate should have paid.
Not that disputes with the IRS over the valuation of estate assets are uncommon. They do happen. The estate of former Minnesota Twins owner Carl Pohlad is currently disputing valuation of estate assets with the IRS, and there is a $121 million difference between the two. Still, $700 million is quite a bit of money, however you slice and dice up the valuation.
Federal estate tax is assessed on all assets that were under the control of the deceased person as of the date of his or her death. Estate tax is calculated based on either the value of the estate assets as of the date of death, or on what is called the Alternate Valuation Date, which falls six months after the date of death. One’s taxable estate is reached by deducting debts, reasonable costs of administration, and the personal exemption amount and any other adjustments from lifetime taxable gifts from one’s gross estate.
Sources say that the return for Jackson’s estate listed roughly $9 million in taxable estate, which is quite remarkable. Obviously, the IRS believes Jackson’s estate was worth a great deal more than the Jackson estate does or did.
Estate tax battles with the IRS can take time. Normally there is a certain amount of negotiation between an allegedly deficient estate and the agency. It will surely be interesting to see how things turn out with this case, and what kind of bill the Jackson estate will get hit with in the end.
Source: Forbes, “IRS To Michael Jackson’s Estate: Who’s Bad?,” Kelly Phillips, August 26, 2013.