Whitney Houston Estate Settles with IRS over Right of Publicity Valuation

By Jennifer E. Rothman
January 5, 2018

The Whitney Houston estate and the IRS have settled their dispute over the value of the Grammy award-winner’s estate. The more than $11 million dollar disagreement in the amount of taxes owed centered on the valuation of Houston’s intellectual property rights, and particularly the value of her postmortem right of publicity. The estate had claimed that Houston’s right of publicity was worth just under $200,000, while the IRS claimed that it was worth more than $11.7 million. A staggering difference.

The IRS and the estate ultimately settled with the estate agreeing to pay $2 million. The IRS had initially sought more than $11 million in taxes and penalties from the estate. The stipulation entered on December 26th did not specify what Houston’s right of publicity was ultimately valued at.

The stipulation and settlement yet again avoided a court determination of whether the right of publicity should be part of the estate in the first place. Like the Michael Jackson estate, the Houston estate did not contest the inclusion of the right of publicity in the estate’s property―something I think estates should more actively start doing.

The Michael Jackson estate's active litigation with the IRS involves a much greater disparity over the valuation of a dead celebrity's (or deleb's) name and likeness.  The Jackson estate claimed that the rights to the pop star's name and likeness (including rights under copyright and trademark laws) were only worth about $2,000. This unbelievable figure raised a red flag with the IRS, which claims the value is more than $400 million. The ongoing Jackson estate tax dispute is on my list of right of publicity cases to watch for 2018.

The IRS is unquestionably ramping up its efforts to collect taxes on the basis of the right of publicity from the estates of dead celebrities. This more aggressive approach raises concerns over the forced commercialization of the deceased against the wishes of both the dead and the surviving family members. Valuations of property in an estate are made with the understanding that property will be put to its “highest and best us”―something which for tax purposes means that the property will be fully commercialized. This leaves estates with little choice but to commercialize the dead. If estates do not have a lot of cash on hand, then they will be forced to sell merchandise and authorize other uses of the deceased’s name and likeness to pay off the debt to the IRS.

This concern led the heirs of pop star Prince to back away from advocating a postmortem right in Minnesota. It also led Robin Williams to create a unique trust instrument that prohibited commercial exploitation of his identity and publicity rights for 25 years after his death, and placed rights in his name, likeness, and identity in a nonprofit company.

As I have written about in my forthcoming book and a prior article, The Inalienable Right of Publicity, there are good reasons not to include the right of publicity as property of an estate. Heirs should not be forced to commercialize their loved ones, and if they ultimately do want to commercialize the person, the income made would still be taxable even if not taxed initially as property of the estate.

In addition, it is difficult to make valuations of postmortem rights. It is uncertain whether death will increase or decrease someone’s popularity and value in the marketplace. The right of publicity is also difficult, perhaps impossible, to value because it is more a legal claim than a parcel of property. It is limited by First Amendment defenses and copyright law making it challenging to evaluate an overall post-death worth of such a right, especially given the uncertainty in these areas of law, as well as overlapping copyrights and trademarks often held by the estates.

The wide variability across state laws with regard to whether the right of publicity survives death and whether only those who died domiciled in a particular state can bring claims further complicates the valuation process and creates many inequities across states and estates. This state of affairs contrasts with more easily valued and harmonized copyrighted works and patented inventions that may be held by an estate.

Despite all these complexities, one thing is clear from the Houston estate’s settlement with the IRS, and the IRS’s ongoing dispute with the Jackson estate: The IRS is getting more aggressive in including publicity rights as part of an estate―at least when someone famous dies.

This means that it would be wise for celebrities to make smart advance testamentary plans―as Robin Williams did―if they want to avoid big tax bills and forced commercialization. Estates should also either be prepared to challenge the inclusion of the right of publicity in the estate as an initial matter, or to fight over the amount they claim it is worth. States and the federal government should also protect heirs from being forced to commercialize their loved ones after death to pay off their estate tax bill.

Given the raised estate tax exemption to $11 million, only the truly famous and wealthy will face this issue. But it is a very real danger for estates of celebrities who have little cash on hand or other property (or at least property that they would not want to sell). Some might not feel too bad for those heirs who may stand to receive a windfall from a deceased relative, but that suggests that other changes to postmortem rights should be made. 

Whatever one's take on whether such rights should continue after death, there should be agreement that survivors should not be forced by the IRS to make coasters, t-shirts and bobble-head dolls with their loved one's face on them―at least not if they don't want to.

Petition by Houston Estate

Stipulation and Order in Estate of Houston v. Commissioner (Dec. 26, 2017)