It’s Not Right But It’s Okay

The estate of Whitney Houston settled its dispute with the IRS over outstanding estate taxes.  The IRS had contended that the valuation of Houston’s back catalog and image and likeness was undervalued by $22 million resulting in $11 million of additional taxes.  The settlement was for $2 million.  Oddly, or perhaps not given the state of journalism in 2017, the focus of most articles was on the value of her image and likeness but the IRS and the estate differed on that valuation by only $200K.

A few small points:

1.  Since the death of Michael Jackson, the IRS has been taxing the image and likeness of dead celebrities with the value based on expected licensing revenues in the future.

2.  Cool fact - Robin Williams said that his likeness cannot be used for 40 years after his death rendering its value worthless.

3.  In the age of streaming music, the longer the estate held out the less valuable the back catalog of albums became.

4.  This was purely a principled, but unemotional, victory for the estate.  Houston’s daughter died nearly 3 years ago and Houston was divorced.  Any estate tax savings will benefit her mother and her brothers.

Photo Credit: Asterio Tecson/Flickr and Wikimedia Commons
License:  Fair Use/Education

Rules Are For the Little People

In an unusual moment of sanity, the federal government announced on Friday that it would stop seizing the tax refunds of taxpayers whose parents owed money to Social Security from years ago.  This has been governmental policy since late 2008.  In typical bureaucratic efficiency, the IRS would send letters to addresses that had not been used in 40 years or would inexplicably be unable to contact someone who had lived at the same address for 40 years.  In its defense, the IRS does not pass these inane laws, it merely enforces what Congress has passed.

Three quick points:

1.  Typically debts die with a person and the heirs of an individual are not liable for his debts.  This is an exception. 

2.  If you want to point fingers for this law punishing innocent taxpayers for the alleged sins of their parents, point to Todd Platts, a former Republican Congressman; a Democratic House and Senate in 2008; and a legislative process that allows crap like this to get inserted into a Farm Bill.

3.  It is nice of the WaPo to take a breath from its anti-Trump obsession and to focus on the injustice caused by this process.  

Photo Credit:  Evelyn Hockstein for the Washington Post
License:  Fair Use/Education

Simon Says This Is Not a Gift

Mel Simon owned the Indiana Pacers with his brother, Herb, for 16 years. After the Malice in the Palace in 2004, the Pacers started losing money and Simon became disenchanted with his ownership of the team. He sold his interest to his brother in a very quiet deal that was two years in the making. The terms included being released from various personal guarantees. Simon died shortly thereafter of pancreatic cancer. The IRS determined that the deal was so favorable to his brother that his estate owes a gift tax of $21 million. His widow has sued the IRS for a refund of the gift tax paid.

Several quick points:

1. An individual may give away $5.45 million during his life before he has to start paying gift tax.

2. The gift tax rate is 40%.

3. The donor is the person responsible for paying the gift tax.

4. This deal between brothers sounds complicated. It is doubtful that one brother would intentionally give the other $83 million.

5. The widow can afford the tax bill - Simon's estate was valued at $2 billion because of his pioneering development of shopping malls.

6. Ironic that Simon's loss of interest in basketball ownership is tied to the Malice in the Palace. Ron Artest - the gift that keeps on giving.

News You Can Use - Estate Tax Exemption for 2015

The IRS announced that the estate tax exemption for 2015 will increase from $5.34 million to $5.43 million.  This is the amount that can be left estate tax free to heirs.  Those taxpayers suffering from dyslexia will see little difference.

Illegal Eagles

Now for something complicated and fun (at least within the parameters of estate planning).  An art collector died owning an art work which contained a stuffed eagle.  The art was on display at the MoMA under an agreement after the federal wildlife service tried to confiscate it in the 80s.  

Because the sale of dead eagles is prohibited by federal law, the estate appraisers valued the art at $0 because there is no market for it.  The IRS said it was worth $15 million.  When the estate rejected that valuation, the IRS  played hardball and said it was worth $60 million and levied penalties for undervaluing it plus interest.   The estate tax alone on this art would have been $27 million.  The estate and IRS finally settled the matter when the estate donated the piece to MoMA and the IRS dropped the estate tax issue.  

Couple of points:

1.  The family had not benefited from this art for 20 years due to the previous agreement to keep it on display.

2.  I do not agree with the assessment that art with no market is worth $15 million.   Assets are worth what a willing buyer and willing seller agree upon.  If there are no buyers, there is no value.  

3.  The collector's estate had paid $470 million in estate taxes already and had sold $600 million of art to do so.

4.  The author is wrong about the charitable deduction.  The estate did receive a charitable deduction for the value of the art work which is why ultimately there was no tax on it.

5.  Never pick up an eagle feather.  It is illegal to do so and subject to a $25,000 fine.  Unless you are a Native American or a member of the Screaming Eagle division of the US Army.