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What's Jacko's image worth? A $434 million question for IRS

Michael Jackson at a press conference in New York in 1992.
Steve Allen | Getty Images
Michael Jackson at a press conference in New York in 1992.

What's a face worth? Or a look? Or a dance move?

When it comes to Michael Jackson, there's a huge difference between how the government values his image and what his family thinks the likeness of the "Man in the Mirror" is worth.

About $434 million to be exact.

There's a big disparity over Jackson's image as well as his recording legacy. The estate said the taxable value of the singer's image and likeness was $2,105, while the IRS says it's more like $434 million. The estate's stake in Jackson's recording assets was valued at $469 million by the IRS, but was not even included in the 2009 estate filing.

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The Internal Revenue Service says that the Michael Jackson estate owes $702 million in federal taxes, plus penalties, according to charges the agency brought in U.S. Tax Court.

IRS representatives say the estate has undervalued the late King of Pop's assets by hundreds of millions of dollars, amounts they say were not disclosed in a court challenge the estate filed in July, as a response to a bill from the IRS.

Essentially, the estate is saying Jackson's legacy is worth considerably less than the tax agency believes it is.

"Every estate wants to lowball the value of assets," said Alex Raskolnikov, a professor at Columbia Law School, who specializes in tax law. "The amount of tax an estate has to pay is based on the value of the assets."

Raskolnikov told NBCNews.com that there is no magic formula the IRS uses to determine the value of assets. "When there is an audit and a valuation of substantial assets (over $50,000), they will use a panel of experts."

He said, for example, if artwork is involved, the tax authorities will consult the experts in the field to put a value on the assets.

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But, when it comes to a likeness or image of a celebrity, as opposed to physical assets, Raskolnikov said, "it is prone to disagreement.

"If they (Jackson estate) do not settle, the IRS will get its experts and the family will get theirs and there will be different valuations."

Then the case will probably go to federal tax court, he said, rather than district court, where taxes would have to be paid in advance.

"Given the valuations, I do not think the family will want to go to district court," Raskolnikov said. In tax court, the estate will not have to pay any taxes or penalties beforehand, and then, only if the court rules in favor of the IRS.

Jackson died on June 25, 2009, which is the date of the estate's tax return, and left his estate to his mother Katherine, his three children and various charities. The filing the estate submitted indicated that his estate was valued at $7 million, for tax purposes. But in May the IRS said that was deficient by $505.1 million, plus penalties of $196.9 million. Tax Court documents indicating the amounts were released Tuesday, said Reuters.

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A spokesperson for the Jackson estate disputed the IRS's appraisals, telling Reuters that they were "based on speculative and erroneous assumptions unsupported by the facts or law."

So far, the Jackson estate has paid $100 million in taxes, said the spokesperson.

—By NBC News' Steve James and Randee Dawn.

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