Aretha Franklin Estate Settles with IRS

When Aretha Franklin passed away in 2018, her heirs were left with an estate estimated to be worth $80 million¹. Before any of them could access that money, however, the estate had to resolve Franklin’s longstanding debt to the Internal Revenue Service. In July, the estate announced that it had finally paid off the delinquent balance of $7.8 million.²

Franklin was the latest celebrity whose heirs were left to battle the IRS. Franklin failed to pay taxes owed for income she earned during her lifetime. While the Internal Revenue Service cannot collect delinquent taxes of a deceased taxpayer from heirs, it can collect from the decedent’s estate. In 2021, the IRS and the estate struck a deal that provided for an immediate $800,000 payment, as well as 45% of the estate’s quarterly income being used to pay down the remaining balance.³

Other celebrity estates that have faced off with IRS in recent years include the estates of Michael Jackson and Prince. In those cases, the dispute related to the value of the estate and the amount of estate tax owed. Section 2051 of the Internal Revenue Code defines the value of a taxable estate as the value of the gross estate minus deductions. The value of the gross estate includes “the value at the time of [the decedent’s] death of all property, real or personal, tangible or intangible, wherever situated.”⁴ As compared to individual tax returns, estate tax returns have a much greater likelihood of being audited.⁵

In both cases, the IRS assigned aggressively high values to the estate while the heirs claimed that the estates were worth much less. A significant dispute arose in the Jackson case regarding the value of his image and likeness. The IRS valued it at $161 million, but the estate argued it was worth only $3 million, largely due to Jackson’s tainted reputation.⁶ Ultimately, the U.S. Tax Court ruled largely in favor of the estate, valuing Jackson’s image and likeness at $4 million.

In the case of Prince, which was assigned to the same Tax Court judge as Jackson’s case, the IRS valued the estate at $163 million, approximately twice the value of the $82 million reported on the estate’s tax return. Based on this higher value, the IRS assessed additional taxes and penalties in the amount of $38.7 million. Ultimately, Prince’s estate and the IRS were able to reach a settlement before trial.

¹https://www.rollingstone.com/music/music-news/aretha-franklin-will-what-happens-718930/
²https://www.freep.com/story/entertainment/music/brian-mccollum/2022/07/11/aretha-franklins-8-million-tax-debt-paid-estate/10029299002/
³https://www.vibe.com/music/music-news/aretha-franklin-estate-irs-debt-1234677925/
⁴Sec. 2031(a).
⁵https://www.irs.gov/pub/irs-soi/21dbs03t17ex.xlsx9
⁶Jackson v. Commissioner, T.C. Memo. 2021-48.

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