Prince’s Estate Settles IRS Tax Case

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The Prince’s Estate has settled its tax dispute with the IRS over the value of his estate upon Starr’s death. prince died without a will in 2016, and it closed several legal proceedings. He had no spouse or children, but had half-brothers and half-sisters who were inherited. Because he had no will or trust, the case had to be investigated with all the extra fees, delays and publicity. There were several legal claims, including a Wrongful death case that was eventually dismissed, Yet the biggest legal dispute of all was with the IRS, and it was not directly related to whether he had a will or not. Everyone pays income tax during life and, depending on their wealth, estate tax upon death. Currently, the exemption is $11.7M if per person, or $23.4M for a married couple. But beyond that, estates face a federal estate tax of 40%. A federal estate tax return must be filed, and unlike income tax audits which are rare, nearly every major estate is audited by the IRS. Prince’s estate reported a taxable value of $82 million to the IRS. However, the IRS claimed that the taxable value of the property was actually $163 million. The case had some similarities to Michael Jackson’s estate tax case, which also involved a major assessment battle with the tax agency. And both cases were decided by the same Tax Court judge, Mark Holmes.

The IRS wanted an additional $38.7 million in taxes and penalties from the estate. The IRS disputes the value of a vast array of assets, from real estate to image rights to interests in companies. For nearly every property, the Prince Estate receives an appraisal to substantiate the reported value. However, the IRS had its own appraisers who said it was all worth too much. As is often true with property tax matters, much of it is about valuation, as was the case with Michael Jackson’s tax fight over image rights. In Prince’s case, the IRS didn’t want the tax and interest alone. They also wanted penalties, $32.4 million in estate taxes and $6.4 million in penalties. The agency argued that Singer, who died in April 2016, left an estate with a taxable value of $163 million, not the $82 million reported on his tax return.

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Assessment disputes arise in many different types of tax matters, including income tax matters. For example, when you donate land to charity, how big a deduction can you claim? The bigger the valuation, the bigger the deduction. But for gift and estate tax purposes, the larger the value, the greater the tax. Valuation disputes are perhaps the most classic of property tax matters, especially on complex or unusual property. This was certainly true in the Michael Jackson estate tax case. And while the Prince’s estate tax case had some tough assets, most of it was about real estate and more common property. The Prince had real estate interests in undeveloped land, an industrial building and residential lots. Paisley Park Enterprises Inc. And he had an interest in NPG Records, as well as the rights to musical compositions and promotions.

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