US TAX COURT US TAX COURT RECEIVED eFILED PA FEB 1 2017 FEB 1 2017 8:05 PM ESTATE OF MICHAEL J. JACKSON, DECEASED, JOHN G. BRANCA, CO-EXECUTOR AND JOHN MCCLAIN, CO-EXECUTOR, Petitioners, ELECTRONICALLY FILED v. Docket No. 17152-13 COMMISSIONER OF INTERNAL REVENUE, Respondent RESPONDENT'S PRETRIAL MEMORANDUM SERVED Feb 01 2017Trial Calendar: Los Angeles, California Date: February 6, 2017 PRETRIAL MEMORANDUM FOR RESPONDENT NAME OF CASE DOCKET No. Estate of Michael J. Jackson, 17152-13 Deceased, John G. Branca, Co- Executor and John McClain, Co- Filed electronically Executor ATTORNEYS: Petitioner: Avram Salkin (310) 281-3200 Steven R. Toscher (310) 281-3200 Robert $. Horwitz (310) 281-3200 Jeryll S. Cohen (320) 470-6010 Howard L. Weitzman (310) 566-9811 AMOUNTS IN DISPUTE: AMOUNTS IN DISPUTE Date of Death June 25, 2009 ee * Deficiency and penalt: Deficiency $525,609,426" $205,103, 832 Respondent : Donna F. Herbert (805) 367-0079 R. Malone Camp (805) 367-0078 Sebastian voth (949) 360-2670 Jordan 8, Musen (805) 367-0099 Denise Larson (425) 898-8708 'Y amounts include increases per the Amended Answer filed on July 21, 2014 of $20,466,532 tax and $8,193,522 penalty. Th were computed prior to ¢ deficiency and penalty amounts in total the concessions made by both parties, asDocket No. 17152-13 -2- STATUS OF CASE: Probable Settlement Probable Trial__ Definite Trial x CURRENT ESTIMATE OF TRIAL TIME: 1 SERN ESTIMATE OF TRIAL TIME, MOTIONS RESPONDENT EXPECTS TO MAKE: SSERONS RESPONDENT EXPECTS TO MAKE. 9 days None anticipated. Completed In Process _x diecast was the fair market value of Michael Jackson's name and likeness as of the date of death? 2. What was the fair market value of Michael Jackson's interest in New Horizon Trust II as of the date of death? 3; {that was the fair market value of Michael Jackson's interest in New Horizon Trust III as of the date of deaths co cmether petitioner is liable for the gross valuation misstatement penalty of 40 percent under I.R.C. § 6662(h). 5, Alternatively, whether the petitioner is liable for the accuracy related penalty under I.R.C. § 6662 (a). The ‘xenaining issues raised in the statutory notice of deficiency have been settled between the parties, Pursuant to the ‘Stipulations of Settled Issues filed with the tax Court on Scrober 20, 2014, April 27, 2015, and December 11, 2015," tn addition, the amount of Petitioner’s charitable contribution geduction, claims and administrative expenses and locece allowable under Sections 2053, 2054 and 2055 of the Internal Revenue Code, will be deferred until entry of the decision in fhis matter, Such matters will be determined by agreement of the parties oz in @ supplemental proceeding. detailed herein.Docket No. 17152-13 WITNESS (ES) RESPONDENT EXPECTS TO CALL. Weston Anson Tom Bennett John Branca Frank Cooper IIT Expert witness for respondent. Mr. Anson is expected to Provide expert testimony concerning the fair market value of the Decedent's Name and Likeness, New Horizon Trust II, and New Horizon Trust 117 as of the date of death, Respondent intends to introduce Mr. Anson’s reports, rebuttal reports, and supplemental report as his direct testimony, and will call him as a rebuttal witness if permitted by the court. Former CEO of Bravado International Group Merchandising Services, Inc, (Bravado), to discuss All aspects of Bravado’s merchandising arrangements. negotiations and agreements with AEG, Michael Jackson, and the Estate of Michael Jackson. Co-Executor, Estate of Michael Jackson regarding all aspects of his business and personal relationship with Michael Jackson, his business dealings with Michael Jackson and Estate business and administration Former Pepsi Executive to discuss all aspects of Pepsi's deal with the Estate to reunite Michael Jackson with Pepsi and Use Michael Jackson's name and likeness; as well as Pepsi's general considerations as to whether to partner or enterDocket No. 17152-13 Owen Dahl Denis Dekovic Matt Forger Marvin Hills Quincy Jones Michael Kane Karen Langford a into agreements with Michael Jackson. Appraiser for petitioner and author of Michael Jackson's Name and Likeness appraisal for Estate tax return and New Horizon Trust III appraisals to discuss valuation methodology, general factual underpinnings for appraisals and appraisal process and facts supporting accuracy-related penalties Former Designer for Nike to discuss all aspects of the business arrangements regarding Moonwalker products. Michael Jackson's former Recording Engineer to discuss unreleased outtakes, demos, and songs at the time of his death Estate tax return preparer to discuss preparation of Estate tax return and facts supporting accuracy-related penalties, Business partner with Michael Jackson, to discuss information related to Decedent's name and likeness, legacy, unreleased music, and his lawsuit against the Estate. Business Manager for Michael Jackson to discuss pre- and post-death Michael Jackson business matters and Preparation of the Estate tax return. Paralegal for John Branca, withDocket No. 17152-13 Mark Miner James Nederlander Michael Durham Prince (AKA Michael Rubin) Randy Phillips Felix Sebacious Rob Stringer 5 Ziffren Brittenham LLP., regarding pre- and post-death income; Michael Jackson's music and licensing; and information provided for the preparation of the Estate tax return. Former Designer for Nike to discuss all aspects of the business arrangements regarding Moonwalker products, President, The Nederlander Organization, to discuss all aspects of the Broadway musical agreements regarding “Thriller.” All aspects of Michael Jackson's unreleased outtakes, demos and songs at the time of death. Former AEG Executive, to discuss facts surrounding the “This Is It" concert series, contracts with the Decedent and his Estate, and contracts, agreements and communications post-death, All aspects of Bravado’s merchandising arrangements and agreements with AEG, Michael Jackson and the Estate of Michael Jackson. All aspects of Michael Jackson’s unreleased outtakes, demos, and songs at the time of his death,Docket No. 17152-13 oe Tohme Tohme Former Business Manager for Michael Jackson to discuss all aspects of his representation of Michael Jackson, all aspects to revitalize Michael Jackson's career, and all business deals, agreements and proposals relating to Michael Jackson, Shawn Trell All aspects of the concert series “This Is It” and the film “Michael Jackson's This Is It." Joseph Zimring Attorney, California state Attorney General’s office to testify regarding probate documents. Respondent reserves the right to call any witnesses listed by Petitioner and to call any witnesses for purposes of rebuttal or impeachment. Respondent reserves the right to call any witness whose restimony becomes relevant as a result of documents produced or togtimony provided on behalf of petitioner after the date of che trial memorandum. SUMMARY OF FACTS Michael Jackson died on June 25, 2009 in Los Angeles, California, Mr. Jackson was survived by his three minor children. John Branca and John McClain were appointed as Co- Executors of the Estate, Petitioner filed an Estate tax return (Form 706) with a Gate of death valuation date of June 25, 2009. Petitioner xeported a total gross estate of $57,203,929 on the Forn 706 with deductions of $57,203,929, which resulted in a taxable estate of $0.00. Respondent issued a statutory notice of deficiency on May 33, 2013. In the notice, respondent increased the values of various assets reported on the Form 706. Petitioner filed a petition on July 26, 2013. Respondent filed Amendments toDocket No. 17152-13 ea Answer on July 21, 2014 and June 10, 2016. Several items listed on the notice of deficiency were resolved pursuant to Stipulations of Settled Issues filed on October 20, 2014, April 27, 2015, and December 11, 2015. The unresolved issues are the values of: 1) the decedent’s name and likeness; 2) the decedent’s interest in New Horizon Trust II (sometimes referred to as “Sony/ATV"); 3) New Horizon Trust III (sometimes referred to as “Mijac"); and 4) associated penalties under I.R.C. § 6662. On the estate tax return, the Estate valued the decedent’s name and likeness at $2,105.00. Owen Dahl of Moss Adams, LLP, prepared an appraisal dated September 24, 2010, which was attached to the Form 706. The Estate valued the decedent's anterest in New Horizon Trust II at $0.00. The Salter Group prepared an appraisal dated September 23, 2010, which was attached to the Form 706. The Estate valued the decedent's interest in New Horizon Trust III at $2,207,351. Owen Dahl of Moss Adams, LLP, prepared an appraisal dated September 24, 2010, which was attached to the Form 706. Respondent's expert opined that, as of the date of death, the value of decedent's name and likeness was $161,307,0457 the value of decedent’s interest in New Horizon Trust II was $206, 295,934; and the value of decedent’s interest in New Horizon Trust III was $114,263,615. Michael Joseph Jackson Michael Jackson was born on August 29, 1958, into a musical family in Gary, Indiana to Katherine and Joe Jackson. In 1963, at the age of five, Michael Jackson began singing with his brothers Tito, Jackie, Jermaine, and Marlon. The Jackson brothers performed as "The Jackson 5." Over the next decade, the Jackson 5 signed with Motown Records and topped the charts with #1 hits such as “I Want You Back,” “ABC,” “The Love You Save," and “I'll Be There.” Michael Jackson started his solo career in 1971 and topped the charts with “Got to Be There.” In 1978, Michael Jackson starred in the movie “The Wiz.” In 1979, noe the Wall" was released, earning Michael Jackson a Grammy Award and several American Music Awards. To date, “Off The Wall” is certified éx multi-platinum by the Recording Industry Association of America. In 1980, Michael Jackson released an album with hisDocket No. 17152-13 -8- brothers called “Triumph.” On November 30, 1982, Michael Jackson's “Thriller” was released. The album was produced by Quincy Jones. “Thriller” was the number one record album in the United States based on the Billboard Top 200 Chart for an unprecedented thirty-seven weeks and remained in the top ten albums for eighty weeks. Songs on this album include “Thriller,” “Beat It," and “Billie Jean.” Michael Jackson's performance of “Billie Jean” at the ‘Motown 25: Yesterday, Today and Forever" NBC television special included his initial iconie performance of the “moonwalk,” wearing a rhinestone-studded glove and glittery white socks. ‘Motown 25" aired on May 16, 1983, to an estimated audience of 33.9 million viewers. On February 28, 1984, Michael Jackson won a record-tying eight Grammy Awards, seven of which were for “Thriller.” In July 1984, the Jacksons embarked on the Victory Tour. The tour was sponsored by Pepsi-Cola Company, which paid the Jacksons’ five million dollars to sponsor the tour. Pepsi's logo was on concert tickets and its signage was prominently featured at each concert. In connection with its sponsorship of the tour, Pepsi released a special edition Pepsi can featuring the signatures of all six Jackson brothers. In 1985, Michael Jackson and Lionel Richie co-wrote “We are the World,” a song written for charity to support famine relief in Africa. In May 1985, Michael Jackson purchased the ATV Music Publishing Catalog for $47.5 million. The catalog consisted of @ number of songs, including at least 175 Beatles songs written by Paul McCartney and John Lennon. In September 1986, “Captain FO,” a seventeen-minute “4p” science fiction movie starring Michael Jackson, premiered at Disney Epcot Center. A new album “Bad” was released in 1987 which had five consecutive singles in the number 1 spot on the charts. Jackson embarked on his first solo tour following the album's release. The “Bad” tour grossed $125 million on 123 shows, drawing 4.4 million fans - the most of any tour to that point in time, On April 20, 1988, Michael Jackson’s autobiography “Moonwalk” was released. The autobiography reached #1 on the New York Times bestseller list. In 1988, John Branca negotiated the purchase of the Sycamore Valley Ranch for Michael Jackson. Sycamore Valley Ranch later became known as Neverland Ranch.Docket No. 17152-13 -9- In 1989, Michael Jackson was named the “artist of the Decade” by Entertainment: Tonight, Vanity Fair, the American Cinema Awards, the Soul Train Awards, Music Connection Magazine, and the British TV Industry Awards. In 1990, Michael Jackson signed an agreement with LA Gear to design and endorse a line of co-branded sneakers. Michael Jackson received $4.5 million cash and $3 million in L.A. Gear stock up front. On November 26, 1991, Michael Jackson's “Dangerous” album was released. The album debuted at number 1 on the Billboard Top 200 album chart. It would remain in the top ten for more than a year and has sold over 30 million units worldwide. In 1991, a new contract was signed by Michael Jackson and sony which included six additional albums. In 1992, Michael Jackson won three Billboard Music Awards: “No. 1 World Album,” ‘No. 1 World Single,” and a special award commemorating the 10th Anniversary of “Thriller.” In June 1992, Michael Jackson began the Dangerous World Tour, which was Sponsored by Pepsi. On January 31, 1993, Michael Jackson performed at the halftime show of Super Bowl XXVII. The Super Bowl ratings were the best since 1987. In February 1993, Michael Jackson appeared on The Oprah Winfrey show for his first televised interview in fourteen years. The live show had the highest ratings of any interview in history. In 1995, Michael Jackson released the album “HIStory: Past, Present and Future Book I.” The album sold 20 million copies making it the bestselling double-disc set of all time, and the corresponding tour grossed $165 million. in November 1995, Michael Jackson entered into an agreement with Sony Music Publishing Company and its affiliates to form Sony/ATV Music Publishing Company, LLC. In 1996, Michael Jackson won his 13° Grammy Award, In 1997, Jackson released the Blood On the Dance Floor: History in the Mix, which included eight remixed tracks from his prior album and five new songs. The album sold more than 11 million copies worldwide - making it the most successful remix album of all time.Docket No. 17152-13 = 10 - 3m 2000, “Billie Jean,” "Rock with You," “I Want you Back,” and “Beat It" made Rolling Stone magazine's list of the 100 greatest songs of all time. In 2001, Michael Jackson was inducted into the Rock and Roll Hall of Fame, The album ‘invincible” was released in 2001 just prior to the September 21, 2001 attacks. The “Invincible” tour was postponed and then Cancelled by Sony. In 2002, at the American Music Awards, Michael Jackson was named “Artist of The Century. in 2004, Michael Jackson reportedly fired Leonard Muhammad, son-in-law of Louis Farrakhan of the Nation of Islam, as his business manager. In 2005, Michael Jackson was accused and prosecuted for child molestation. He pleaded not guilty and was tater acquitted on all counts. After his acquittal, he took his three young children out of the country and visited with sheikh Abdullah in the Kingdom of Bahrain, tn 2006, Michael Jackson fired his business managers and hired a New York based firm to manage his business affairs, It was reported that Michael Jackson was planning public appearances and would begin performing again. He then moved to queland for about six months before returning to Las Vegas, Nevada, with his family at the end of the year. jp 2008, Michael Jackson was in default on his mortgage for Neverland Ranch. His brother Jermaine Jackson recruited the assistance of an acquaintance, Los Angeles based businessman Tohme Tohme ("“Tohme”) . Jermaine Jackson introduced Michael Jackson to Tohme. After meeting with Michael Jackson in Las Vegas, Tohme agreed to help. in May 2008, shortly before Neverland was scheduled to be auctioned, Tohme brokered a deal with Tom Barrack, the billionaire founder of private equity fund Colony Capital, as part of the deal, Barrack agreed to defer Jackson's loan payments and to finance the refurbishment of the ranch. The deal with Colony Capital was only a temporary solution. Jackson only had until 2011 to fix his finances, or he stood to lose Tore than just Neverland. Thrilled to avoid foreclosure, Michael Jackson asked Tohme to stay on as his full time manager, and ‘Tohme continued to work with Michael at least until April 2009.Docket No. 17152-13 - ar - Also during 2008, Jackson, with the help of Tohme, focused on building businesses that could replace the physically grueling process of touring as a major income stream in the next phase of his career. Michael discussed a few ideas with Barrack, including 3-D films and holograms Michael's relationship with Tom Barrack provided another Conpection to Las Vegas based entertainment. Barrack’s Colony Capital owned the Las Vegas Hilton, the same hotel where Elvis staged his 1969 comeback. Colony also held a 75% stake in the Station Casinos that dominate the locals market in Las Vegas. in February of 2008, “Thriller 25" was released in commemoration of the 25‘" anniversary of “Thriller.” Tt was the second highest selling album in the first week of its release Michael Jackson began planning to revitalize his career in 2008. His plans included concerts, films, Broadway shows and video games. In October 2008, Michael Jackson entered into 4 written agreement with Nederlander Presentations, Inc. to develop a musical stage play. In 2009, Michael Jackson was engaged in negotiations with Cirque du soleil, the Canadian entertainment company, to do a Michael Jackson themed show in January 2009, Michael Jackson entered into an agreement with AEG Live, LLC dba Concerts West ("AEG") to develop three motion pictures. Also in January of 2009, Michael Jackson entered into a contract with AEG to perform ten concerts at the 2 Arena in London. Bravado International Merchandising Services, Inc. ("Bravado") was selected as the exclusive merchandiser for the “This Is It" concert series. Michael Jackson helped Bravado develop merchandise for the “This Is rt” concert series. In March of 2009, Michael Jackson announced the “This Is Tt" concert series at the 02 in London. There was an glectrifying response to the announcement of the concert series. The number of shows to be performed by Michael Jackson was increased from 10 to 50. The internet traffic was so great, the Singer's official website crashed and Ticketmaster experienced complications due to the high volume of internet orders. Tickets to all 50 "This Is It” performances sold out within four hours of going on sale, and were in such demand they wereDocket No. 17152-13 -12- reportedly offered for sale on eBay for up to $14,000 each. The pre-sale tickets sold out to all 50 performances within pours of going on sale. 360,000 tickets sold in 18 hours during the pre-sale which is 20,000 tickets per hour, 333 tickets per minute. The rehearsals that Michael Jackson was engaged in as he prepared for the “This Is It” concert series were recorded as they took place. The recordings were later put together to create a film about Michael Jackson entitled “This Is It.” In April, 2009, Frank Dileo was rehired as Michael Jackson’s manager. On June 17, 2009, Michael Jackson met with Yobn Branca. John Branca prepared notes for this meeting which contained plans to monetize Michael Jackson's name and likeness. Michael Jackson signed a letter that he was retaining John Branca of Ziffren Brittenham LLP as his attorney. On June 25, 2009, less than three weeks before the tour start date, and with all 50 shows sold out, Michael Jackson passed away at the age of 50. His death was later ruled « homicide by the Los Angeles County Coroner as a result of acute Propofol intoxication. Word of Michael Jackson's death spread quickly. ‘Tz was the first to report the news; when TMz’s website began to experience outages, users shifted to celebrity blogger Perez Hilton's site, which also buckled under the unprecedented virtual weight. Google confirmed that the spike in Jackson- xelated traffic initially prompted concern that the service was being hacked, causing Google News to default to an error page for any searches involving Jackson for more than 30 minutes. Twitter also saw its’ servers crash due to a surge of posta. Michael Jackson’s memorial service was held on July 7, 2009, at the Staples Center in Los Angeles, broadcast to a televised audience of 31.1 million Americans. Some estimates Put the worldwide viewership in the neighborhood of 1 billion. in mid-July, 2009, the Estate registered Michael Jackson's name and likeness with the California Secretary of State. As of July 27, 2009, AEG, Columbia, and the Estate of Michael J. Yackson had a term sheet that set forth the principal terms of agreement regarding the use of the Footage to develop the filmDocket No. 17152-13 - 13 - “This Is It.” Sony paid the Estate of Michael Jackson an advance of equal to or greater than $60 million for the rights to the film "This Is It." In August 2009, Bravado became the exclusive manufacturer and distributor of Michael Jackson merchandise, on August 21, 2009, Sony announced the release of the film "This Ie seer aug Telease date of the film “This Is It” was originally scheduled for October 30, 2009, but was rescheduled to octobe. 28, 2009, due to a strong demand by Michael Jackson's fans. in 2009, John Branca entered into preliminary talks with Cirque du Soleil to develop a show based on Michael Jackson. juichael Jackson: The Immortal World Tour,” the Cirque du soleil Michael Jackson-themed touring show, premiered in october 2011. tMichael Jackson: The Immortal World Tour" was the top grossing touring show in the United States during 2011 and 2012. “Michael Jackson: The Immortal World Tour” received the Billboard Creative Content award as the most innovative and creative tour of 2012 and was ranked (with Bruce Springsteen, Wadonna and Roger Waters) as one of the top four touring shows in the world in 2012, The show played in 27 countries, 197 cities, was seen by more than 3.7 million fans, and grossed $371 million, making it one of the top-grossing tours of all time’ iMichael Jackson: ONE," a Michael Jackson-themed Cirque au Soleil show, permanently located at the Las Vegas Mandalay Bay xesort, opened in June 2013. “Michael Jackson: ONE” continues to be one of Las Vegas’s leading shows. in November 2009, the Estate of Michael Jackson signed a geal with Sony worth approximately $250 million to put out unreleased songs of Michael Jackson and anniversary editions of Michael Jackson's songs. The Sony Agreement included up to ten albums to be released between 2009 and 2016. in 2012, Pepsi announced a deal to use Michael Jackson's ‘mage on a reunion tour with the "King of Pop" for its global marketing push. Pepsi paid the Estate of Michael J. Jackson $6 million to put Michael Jackson's face on one billion Pepsi cans. in September 2012, Sony released “Bad 25,” a twenty-fifth anniversary edition of the album “Bad.” “Xscape,” an album of previously unreleased Michael JacksonDocket No. 17152-13 - 14s recordings, was released in 2014 and reached #1 in the charts of 52 countries, selling more than 2.5 million copies. “Love Never Felt So Good,” a single from “Xscape,” made numerous Best of 2014 lists, including NPR and Spin magazine. On March 14, 2016, Sony Music Holdings, Inc. and the Estate of Michael J. Jackson entered into a Binding Memorandum of Understanding for Sony to acquire the Estate of Michael J. Jackson's interest in Sony/ATV for $750 million. BRIEF SYNOPSIS OF LEGAL AUTHORITIES BRIEF SYNOPSIS OF LEGAL AUTHORITIES. There is a tax imposed on the transfer of the taxable estate of every decedent who is a United States citizen at the time of death. I.R.C. § 2001(a). I.R.C. § 2031(a) provides: “[t]he value of the gross estate of the decedent shall be determined by including to the extent provided for inn this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.” Inclusion in the gross estate is expansive. It incorporates all property interests owned by the decedent at death and described in I.R.C. §§ 2033 through 2044. Value is determined at the moment of death. Ahmanson Foundation v. United States, 674 F.2d 761, 767 (9th Cir. 1981). The property interests at issue in this case are: 1) the name and likeness of the decedent; 2) the decedent’s interest in New Horizon Trust II; 3) the decedent's interest in New Horizon Trust TIT. Treas. Reg. § 20.2031-1(b) defines fair market value as the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. United States v. Cartwright, 411 U.S. 546, 551 (1973) (quoting Treas. Reg. § 20.2031-1(b)); Collins v. Commissioner, 3 F.3d 625, 633 (2d Cir. 1993); Estate of Hall v Commissioner, 92 T.c. 312, 335 (1989). This objective test requires property to be valued from the viewpoint of a hypothetical buyer and seller, each of whom wouldDocket No. 17152-13 - 15 - seek to maximize his or her profit from any transaction involving the property. See Estate of Watts v. Commissioner, 823 F.2d 483, 486 (11th Cir. 1987); Estate of Bright v. United States, 658 F.2d 999, 1005-1006 (Sth Cir. 1981). The value of Property is a question of fact, and all relevant facts and circumstances are to be considered. See, e.g., Ahmanson Foundation v. United States, 674 F.2d at 769; Hamm v. Commissioner, 325 F.2d 934, 938 (sth Cir. 1963); Estate of Jung ¥. Commissioner, 101 T.c. 412, 423-424 (1993); Messing v. Commissioner, 48 T.C. 502, 512 (1967); Treas. Reg. § 20.2031- 1(b). Subsequent events, which are reasonably foreseeable as of the valuation date, may be considered because they would be foreseeable by a willing buyer and a willing seller and they therefore would affect the valuation of the property as of the Gate of death. Estate of Gimbel, T.C. Memo. 2006-270 (2006) ; Saltzman v. Commissioner, 131 F.3d 87,93 (2 Cir. 1997), revg. T.C. Memo. 1994-641; Trust Sers. Of Am. Inc. v. United States, 885 F.2d 561, 569 (9 Cir. 1989); Morris v. Commissioner, 761 F.2d 1195, 1201 (6 Cir. 1985), affg. T.C. Memo. 1982-508. An event occurring after a valuation date, even if unforeseeable as of the valuation date, may be probative of the earlier valuation to the extent that it is relevant to establishing the amount that a hypothetical willing buyer would have paid a hypothetical willing seller for the subject property as of the valuation date. Polack v. Commissioner, 366 F. 3d 608, 612 (8 Cir. 2004), affg. T.C. Memo. 2002-145; First National Bank v. United states, 763 F.2d 891, 893-894 (7 cir, 1985); Estate of Gilford v. Commissioner, 88 T.C. 38, 52-54; Estate of Jephson v. Commissioner, 81 T.C. 999, 1002-1003 (1983); Estate of Noble v. Commissioner, T.C, Memo. 2005-2. The petitioner has the burden of proof regarding the adjustments proposed by the respondent. Rule 142(a), Tax Court Rules of Practice and Procedure. Tax Affecting: Respondent's expert, in his application of the discounted cash flow (DCF) method, valued the projected income streams on a pre-tax basis. In other words, he did not “tax affect.”Docket No. 17152-13 - 16 - Petitioner’s experts, on the other hand, valued each property interest on an after-tax basis A necessary co-party to any sale is the seller. The definition of fair market value assumes that the seller is a hypothetical party and, like the hypothetical buyer, is fully informed and economically motivated. The seller is seeking the highest possible price, while the buyer is seeking the lowest possible price. It is the give and take in the market place between these hypothetical parties, through negotiating, that produces the fair market value In a series of opinions, the Tax Court has addressed tax- affecting in the context of valuing non-controlling interests in pass-through entities (PTE’s). The first five cases involved corporations that had elected to be treated as S Corporations. The sixth involved a limited partnership, and the seventh involved a limited liability company that had elected to be treated as an $ Corporation. In each case, the Court concluded on the record before it that in applying the DCF method to the earnings stream of the PTE, the proper entity level tax rate was ats actual tax rate, zero percent. See Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148, modified by T.C. Memo. 201i- 244 (limited liability company); Estate of Giustina v. Commissioner, T.C, Memo. 2011-141, aff’d on this issue, 586 Fed App’x 417 (9th Cir. 2014) (limited partnership); Dallas v T.C. Memo. 2006-212 (corporation) ; Estate of Adams ¥._Commissioner, T.C. Memo. 2002-80 (corporation); Estate of Heck v. Commissioner, T.C. Memo. 2002-34 (corporation); Wall v. Commissioner, T.C. Memo. 2001-75 (corporation); Gross Commissioner, T.C. Memo 1999-254, aff'd, 272 F.3d 333 (éth Cir 2001), cert. denied, 537 U.S. 827 (2002) (corporation) Gross _v. Commissioner, supra, considered *tax-affecting,” gr discounting projected cash flows in the context of valuing an S corporation using a discounted cash flow method. I.R.C. §§ 1361-79 allow certain small business corporations to elect S corporation status. When a qualified corporation elects to be treated as an S corporation, it generally pays no corporate income tax. Rather, the income of the § corporation flows through directly to its shareholders, who report and pay taxes on their pro rata shares of that income on their individual income tax returns. The effect is to provide the electing business with the benefits of the corporate form, such asDocket No. 17152-13 417 - iimited liability for the shareholders, without the disadvantages of corporate taxation, In Gross, the taxpayer argued that tax affecting was necessary to account for: 1) the possibility of insufficient distributions to cover a shareholder's flow-through income tax liability; 2) the risk that the corporation might lose its pass- through status; 3) the reduced ability of the entity to raise capital because C corporations and nonresident aliens cannot be shareholders’; 4) the reduction in capital available for investment resulting from the annual distribution of funds to pay shareholders’ taxes; and 5) the tax burden imposed on $ corporation shareholders. The Court noted that the “principal benefit” of S corporation status is the avoidance of corporate level taxes, and it found “no reason why those tax savings ought to be ignored” in valuing the corporation. The Court found however that it was not reasonable to assume that the shareholders would suffer any of the disadvantages that tax-affecting allegedly compensated for. For instance, the corporation had a strong growth record and a history of distributing cash to its shareholders, It was not reasonable to assume that it would fail to make sufficient distributions to cover its shareholders’ tax obligations. Similarly, there were no facts indicating that the $ status would likely be lost. Any disadvantage that an entity might face in raising capital is appropriately addressed in determining the cost of capital, and not through adjusting its earnings. While annual distributions to pay a shareholder's taxes do reduce the capital available for investment, that is also true for other entities, which must either distribute funds to pay taxes or, in the case of C corporations, use those funds to pay their own corporate level taxes. Finally, tax-affecting does not account for fact that the tax burden of a flow-through entity is placed on its owners. As the Court explained, He (Dr. Bajaj, the Commissioner’s expert] made no explicit adjustment for any shareholder level taxes, although, undoubtedly, he knew such taxes would be due. Dr. Bajaj did net, however, ignore shareholder level taxes He simply disregarded them both in projecting G & J's ? Unlike $ corporations, partnerships and LLC’s have no restrictions on membership.Docket No. 17152-13 - 18 - available cash and in determining the appropriate discount Hate. The present value of any future (deferred) cash-flow is a function of three variables: (1) the amount of the cash-flow, (2) the discount rate, and (3) the period of deferral. The discount rate reflects the return, over time, to the investor on the amount invested (commonly expressed as a rate of interest). If, in determining the present value of any future payment, the discount rate is assumed to be an after-shareholder-tax rate of return, then the cash-flow should be reduced ("tax affected”) to an after-shareholder-tax amount. If, on the other hand, a preshareholder-tax discount rate is applied, no adjustment for taxes should be made to the cash-flow. [Emphasis added, footnotes omitted.) Gross v. Commissioner, T.C, Memo. 1999-254. Stated another way, the application of a pre-tax discount rate to after-tax cash flow is a fundamental misapplication of present value analysis. See Gross_v. Commissioner, supra, fn. 12, demonstrating that when present value analysis is consistently applied, i.e., pre- tax discount rates are applied to pre-tax cash flows, or after- tax discount rates are applied to after-tax cash flows, the values reached in each scenario will be the same. See also Estate of Adams v. Commissioner, T.C. Memo. 2002-80; Estate of Dallas _v. Commissioner, T.C. Memo. 2006-212; Jack Bogdanski, FEDERAL TAX VALUATION 6.03[6] (e] (i), (Warren Gorham & Lamont 2009). As indicated by respondent’s expert: The pool of Rational Investors that would be interested in the assets in question include mutual funds, private equity finds, $ corporations, ¢ corporations, and LLCs. Since a mixed universe of Rational Investors exists, it is the Rational Investor that does not suffer entity level taxation that will drive the ultimate transaction price. In addition to not knowing the structure of the entity involved in the acquisition, there is no basis for knowing in which part of the world the entity would be registered. Since the entity could be registered in virtually any country in the world, it is illogical to apply an arbitrary tax rate. Instead,Docket No. 17152-13 - 19 - in the business world, assets are typically valued on @ pre-tax basis thereby providing a level basis of evaluation for any Rational Investor When conducting a discounted cash flow analysis. earnings before interest, taxes, depreciation, and amortization (“EBITDA”) are often used as a proxy for free cash flows ("FCF"). Aside from non-cash expenses (depreciation and amortization) the reason for this is it isolates the ongoing operations of a business See Supplemental Report of Weston Anson dated January 30, 2017, p. 18. Absent an analytical basis, tax-affecting renders a valuation unreliable. Where the earnings of an entity are reduced to account for taxes that will never be paid by the entity, the entity will be undervalued to that extent. see, e-g-, Wall v. Commissioner, T.C. Memo. 2001-75, fn. 19 Grouping for Valuation Purposes: The issue here is whether it is reasonable for an expert to took at what assets were included in the gross estate and attribute a “synergistic” value to properties that are complimentary, as was done, to an extent, by respondent’s expert in his Mijac and Name and Likeness valuations In Estate of Curry v. U.S., 706 F.2d 1424 (7th Cir 1983) the property to be valued was a 1,160 share block of stock which included 800 voting shares. ‘The 800 shares represented complete control of the corporation. The Court held as a matter of law that the stock could not be disaggregated for valuation Purposes. The court reasoned that the interest in the gross estate forms the only basis for valuation which rationally comports with the purpose of the tax at issue [tlo permit the hypothetical bifurcation of an otherwise integrated bundle of property for valuation Purposes would severely undermine the estate tax system and permit abusive manipulation by inviting an executor to invent elaborate scenarios of disaggregated disposition in order to minimize total value. For example, an estate in possession of allDocket No. 17152-13 - 20 - shares of a corporation, voting and non-voting could, under the regime urged by the estate here. arbitrarily slice the voting share block so thinly as to deny attribution of a control premium to any resulting block. at 1428, See also Estate of Fontana v Commissioner, 118 TC 318 (2002); Estate of Strangi v. Commissioner, 1is TC 478, 492 (2000), aff'd in part, rev'd in part on other grounds, 293 F.3d 279 (5th Cir. 2002). In Ahmanson Foundation v. United States, 674 F.2d 761 (9th Cir. 1981), the Ninth Circuit rejected a similar argument in the context of the charitable deduction, noting that the estate tax "is a tax on the privilege of passing on property, not a tax on the privilege of receiving property. . . . There is nothing in the statutes or in the case law that suggests that valuation of the gross estate should take into account that the assets will come to rest in several hands rather than one." Ahmanson, 674 F.2d at 768. As the Estate of Curry court noted, permitting the estate's hypothetical scenario of separate disposition of voting and non- voting shares to form the basis of a proposed valuation would also defy common sense and the requirements of the fair market value standard. The relevant Treasury regulations provide that "fair market value" is the "price at which the property would change hands between a willing buyer and a willing seller . . . both having reasonable knowledge of relevant facts." It is well established that the willing buyer-willing seller rule presumes that the potential transaction is to be analyzed from the viewpoint of a hypothetical buyer whose only goal is to maximize his advantage. See, e.g. Revenue Ruling 59-60, 1959-1 C.B. 237; Estate of Bright v. United States, 658 F.2d 999, 1006 (5th Cir. 1981). and it does not comport with common sense that a willing buyer would be likely to purchase non-voting shares in a small, family-held business, without concomitantly purchasing a controlling voting interest. Such a purchase would put the outside purchaser at the mercy of the voting insiders on matters such as dividendDocket No. 17152-13 > 21 - declaration and other important corporate policies, without affording, as in the case of most publicly- traded corporate stock, a ready "exit" remedy of disposing of the purchased stock, or the "voice" remedy of joining with voting non-insiders to protect the minority interest. In applying the willing buyer- willing seller rule, courts may not permit the positing of transactions which are unlikely and plainly contrary to the economic interest of a hypothetical buyer as a basis for the valuation. Thus, even apart from considerations of estate tax Policy, there is logical reason to reject the estate's Proposed separate fair market valuation of voting and non-voting stock. Bstate of Curry, 706 F.2d at 1428-1429, The particular characteristics of the hypothetical willing buyer and seller are not necessarily the same as those of any Specific individual or entity and are not necessarily the same as those of the actual buyer or the actual seller. Estate of Curry v. United States, 706 F.2d 1424, 1428-1429, 1431 (7th Cir, 1983); Estate of Bright v. United States, 658 F.2d 999, 1005- 2006 (Sth Cir. 1981); Bank One Corp. v. Commissioner, 120 Tc. 174, 305 (2003). Nor are these hypothetical persons considered to be compelled to buy or to sell the property in question. These hypothetical persons are considered to know all relevant facts involving the property. Bank One Corp. v. Commissioner, Supra at 304-306. Each of these hypothetical persons also is presumed to be aiming to achieve the maximum economic advantage (i.e., maximum profit) from the hypothetical sale of the Property. Estate of Watts v. Commissioner, 823 F.2d 483, 486 (lth Cir, 1987), affg. T.C. Memo. 1985-595; Estate of curry v._United States, supra at 1428; Estate of Davis v. Commissioner, 110 T.C. 530, 535 (1998); Estate of Newhouse v. Gommissioner, 94 T.c. 193, 218 (1990); Okerlund v~ United States, 53 Fed. Cl. 341, 345 (2002), affd., 365 F.3a 1044 (Fed. Cir. 2004), The case law holds explicitly that the hypothetical willing seller is assumed to hold assets in order to maximize profits, not minimize them. If you hold all of the pieces of a song, recordings, compositions and exploitation rights - then you have free marketability of the asset. You don’t have to assume thatDocket No. 17152-13 - 22 - each would be sold separately ~ that is not rational. Issue #1: Name Name and likeness encompasses the distinguishing characteristic of an individual including their name, voice, signature, photograph, or likeness. Right of publicity is the inherent right of every human being to control the commercial use of his or her identity. Name and likeness is encompassed by an amalgam of legal rights (e.g., Lanham Act). It is undisputed that the property to be valued in the gross estate as of the date of death is the name and likeness that passed on decedent’ death as a probate asset within the meaning of section I.R.c. § 2033. History The decedent's name and likeness should be valued as a bundle of rights. The valuation of this property right is governed by several areas of law. The laws regarding the right of publicity arose due to celebrities’ desire to protect the name, likeness and unique characteristics they have built as public figures. This right has been afforded important protections and provides value to the celebrities, limited primarily by First Amendment free speech challenges (which are far from effective as discussed infra). The right of publicity developed in the United states during the twentieth century as an offshoot of the right to privacy. The first case which used the phrase ‘right of publicity” was Haelan Laboratories., Inc. v. Topps Chewing Gum, inc. 202 F.2d 866 (2d Cir. 1953). The Haelan Laboratories Inc. Curt coined the term “right of publicity,” though it was Protected in several distinct forms well before Haclan. The Court stated, *(wle think that, in addition to and independent of that right of privacy (which New York derives from statute), @ man has a right in the publicity value of his photograph, i.¢, the right to grant the exclusive privilege of publishing his * Portions of this section are adopted from Professor Nimmer’s yeport on the post-mortem right of publicity and allied rights in the nature of “name and likeness” belonging to Michael Jackson as of the date of the famed entertainer’s death on June 25, 2009.Docket No. 17152-13 - 23 - picture, and that such a grant may validly be made ‘in gross,’ i.e. without an accompanying transfer of business.or anything else...." Haelan recognized the commercial value of an image, distinct from the right of privacy. The Supreme Court in Zacchini v. Scripps-Howard Broadcasting Co, 433 U.S. 562 (1977), decided its only right of Publicity case to date. A “human cannonball” objected to his entire 15-second performance being shown on the evening news. The Court considered whether the clip was protected by the First Amendment but ultimately found for the plaintiff because the unauthorized news broadcast appropriated the performer's entire act, and thus posed a substantial threat to the value of his performance in the market. The Court wanted to encourage economic incentive to perform without fear of losing commercial value to others who might attempt to also profit from the performance. Other courts have likewise applied the right of publicity to hold stage plays based on the life of deceased public figures to infringe the right of publicity as enshrined in the laws of different states. Indeed, a district court in New York entered summary judgment on right-of-publicity claims against the producers of the musical play A Day in Hollywood/A Night In the Ukraine, incorporating “the unique appearance, style and mannerisms of the Marx Brothers.” Groucho Marx Prods., Inc. v. Day & Night Go., $23 F. Supp. 485, 486 (S.D.N.Y. 1981). (The decision was reversed on appeal based on the court’s application of the wrong state's law. 689 F.2d 317 (2d Cir. 1982). Likewise, a district court in New Jersey similarly granted a preliminary injunction to the estate of Elvis Presley against advertisements and promotions of an Elvis Presley tribute show. See Estate of Presley v.Russen, 513 F. Supp. 1339 (D.N.J. 1981), Finally, the record-breaking award for a right-of-publicity case likewise unfolded in this domain: The California Superior Court shut down the show Beatlemania and awarded over $7.5 million in damages to the aggrieved plaintiffs. Apple Corps Ltd. v. Leber, No. € 299149, 1986 WL 215081 (Cal. Super. Ct. June 3, 1986). Established Legal Doctrine Today, the right of publicity is an established legalDocket No. 17152-13 ~ 24 - doctrine. It is accepted by a majority of states at common law and many states have statutes specifically setting out statutory rights of publicity. Generally, all of the statutes protect individuals from the appropriation of their identities by others without consent. California’s post-mortem right of publicity statute, California Civil Code §3344 and predecessor, was created to protect an individual’s legacy - as evidenced by its legislative history. The legislative history of the first statute stated: “The bill is intended to address circumstances in which (a) commercial gain is had through the exploitation of the name, voice, signature, photograph, or likeness of a celebrity or public figure in the marketing of goods or services or (b) a celebrity or public figure is subjected to abuse or ridicule in the form of a marketed product.” Astaire v. Best Film & Video Coxp., 116 F.3d 1297 (1997). Gal. Civ. Code §3344.1(a) (1) creates the right of a person to protect a “deceased personality’s name, voice, signature, Photograph, or likeness in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of products, merchandise, goods, or services without prior consent.” Exceptions are created in 3344.1(a) (2), which states: “a play, book, magazine, newspaper, musical composition, audiovisual work, radio or television program, single and original work of art, work of political or newsworthy value, or an advertisement or commercial announcement for any of these works, shall not be considered a Product, article of merchandise, good, or service if it is fictional or nonfictional entertainment, or a dramatic, literary, or musical work." However, there is an exception to the exception. Under Ca. Civ. Code §3344.1(a) (3), the use is not exempt if it appears within a use or work that qualifies in the above categories if the use is in connection with goods or services and the plaintiff proves that the use is so directly connected with goods or services as to constitute an advertisement or solicitation of those goods or services by the deceased personality. For example, in one case involving use of a name and photograph of a member of the Doors band in connection with a musical work, “the use constituted an act of advertising Performances by appellants’ band.” Densmore v. Manzarek, No.Docket No. 17152-13 ~ 25 - B186036, 2008 WL 2209993, *28 (Cal. Ct. App. May 29, 2008) The right of publicity under the California Statute was specifically written as a property right. Under §3344.1(b) the rights are “property rights, freely transferable or deacendible, in whole or in part, by contract or by means of any trust or any other testamentary instrument, executed before or after January 3, 1985." The rights established in this section expire 70 years after the death of the decedent. Cal. Civ. Code §3344.1(g). The rights under this statute are specifically written to be cumulative with other remedies and “shall be in addition to any others provided for by law.” Cal. Civ. Code §3344.1(m). The rights of publicity may be registered with the California Secretary of State. Cal. Civ. Code §3344.1(£) (2). Additional protections for the post-mortem right of publicity The right of publicity bundle of rights can also include trademarks which are registered and protected under the Lanham Act and State common law. There are many cases which combine the two types of protection for celebrities. They both cover areas of unfair competition and misappropriation. False endorsement claims are actionable under the Lanham Act. For example, in the film Michael Jackson’s This is It, its initial crawl states that the work is offered to the public “With the permission of the Michael Jackson Estate” and the opening credits before the title state that it is presented “In Association with the Michael Jackson Company and AEG Live.” Absent any permission from an entity affiliated with Michael Jackson or his estate, those statements would be false and, hence, actionable under the Lanham Act as a false endorsement claim: “False endorsement by a person fits within Lanham Act § 43(a) as a false or misleading representation of fact which comes under either [Lanham Act] § 43(a)(1)(A) as likely to cause confusion as to sponsorship or approval, or under Lanham Act § 43(a) (1) (B) as a form of false advertising about a characteristic of the goods or services." J. THOMAS MCCARTHY, RIGHTS OF PUBLICITY AND PRIVACY § 5:32 at 451-55 (citation omitted); see Cairns v. Franklin Mint Co., 24 P. Supp. 24 1013, 1031 (C.D. Cal. 1998). Most courts characterize false endorsement claims as arising under § 43(a) (1) (A), i.e., the trademark infringementDocket No. 17152-13 - 26 - prong. MCCARTHY § 6:11 (2016) at 452. Unlike the right of publicity-which identifies a human being’s persona—" [a] ‘trademark’ identifies and distinguishes a single commercial source of goods or services." Id. § 5:9 at 406. The key test for trademark infringement is a likelihood of confusion, mistake, or deception. Id. § 5:7 at 406. For example, absent any permission from the license holder of an individual’s name and likeness, an item that falsely suggests endorsement by the entities that now provide Michael Jackson entertainment services and related products, would create confusion among the consuming public as to the movie’s commercial source. See Cairns, 24 F. Supp. 2d at 1031 (plaintiff stated false endorsement claim under trademark infringement prong when defendants “us[ed] Princess Diana’s name and likeness, characterize[ed] purchase of Franklin Mint products as a way to commemorate Princess Diana, refer [ed] to Princess Diana’s charitable activities, and ma(de] misleading statements about the Franklin Mint’s charitable giving in tribute to Princess Diana"). Similarly, as to “Michael Jackson: ONE” by Cirque du Soleil, the Mandalay Bay hotel and casino that hosts the show uses Michael Jackson’s name and likeness throughout its facility: the casino features signs throughout its premises directing play-goers to the “Michael Jackson: ONE Theatre;” a “Michael Jackson: ONE” store adjacent to the theater sells every sort of Michael Jackson merchandise, most of which are labeled as being made “under license” from the Estate of Michael Jackson; when those items of merchandise are purchased, they are placed into bags imprinted with Michael Jackson's name and likeness; theater patrons are invited to pose in front of an image of Michael Jackson and then to pay for souvenir photos of themselves, on which his name is further superimposed; far from that theater, the customer service desk at the hotel is marked by a large sign divided into three segments—the right announcing “Concierge Services,” the left picturing golf and a concert, the center featuring Michael Jackson’s name and likeness; even farther from that theater, the hotel reception is located in a jobby dominated by a giant statue of Michael Jackson, playing video of him on all four sides, featuring his name, and proclaiming its authorization from the Estate of Michael Jackson. Absent any permission, the above extensive use of Jackson's name and likeness would be actionable as a false endorsementDocket No, 17152-13 - 27 = claim under the trademark infringement prong and under the false advertising prong (to the extent such uses are commercial advertising or promotion), inasmuch as those uses falsely imply that either Michael Jackson himself before his death or his estate thereafter endorses the show. See Bruce Lee Enters., LLC via No. 10 CIV. 2333 LTS, 2011 WL 1327137, at *5 (S.D.N.¥. Mar. 31, 2011) (plaintiff stated false endorsement claim under trademark infringement prong when defendants sold t- shirts with images of deceased actor Bruce Lee); see also Cairns, 24 F. Supp. 2d at 1036 (plaintiffs stated false advertising claim against advertisements implying plaintiffs’ endorsement, Princess Diana’s endorsement, or that defendants would donate sale proceeds to the Diana, Princess of Wales Memorial Fund). In addition to the considerations just set forth, the gross estate contains trademark registrations for Michael Jackson's name, signature, and initials, thus rendering the casino’s unauthorized use of those marks a potential infringement of the Estate's registered rights, if undertaken without permission. See Experience Hendrix, LLC. v. Elec. Hendrix, LLC., No. CO7- 0338 TSZ, 2008 WL 3243896, at *13-14 (W.D. Wash. Aug. 7, 2008) (granting summary judgment for plaintiffs, based on defendants’ infringement of plaintiffs’ registered trademarks in variations of Jimi Hendrix's name) . Also, trademarks that existed at the time of Michael Yackson’s death illuminate exploitations he made during his iifetime. But trademarks exist regardless of registration, so the businessperson must also consider the extent of Jackson's (now his estate’s) unregistered trademarks. For example, in Estate of Presley v. Russen, 513 F. Supp. 1339 (D.N.J. 1981) the Court found that an unregistered service mark existed in the likeness and image of Elvis Presley “dressed in one of his characteristic jumpsuits and holding a microphone in a singing pose.” 513 F. Supp. at 1364. Indeed, a party wishing to release a film or mount a show based on the life of Michal Jackson with no permission from his estate would need to face the specter that the estate could authorize a rival work to be released, during the same time period, bearing Michael Jackson’s name. Depending on how matters unfold, the two titles could be similar. At that point, the line of cases would rise to the fore dealing with disputesDocket No, 17152-13 - 28 - over two titles that use similar words. The Lanham Act imposes liability when the competing title “has no artistic relevance to the underlying work whatsoever, or, if it has some artistic relevance, . . . the [competing] title expressly misleads as to the source of the content of the work.” Rogers v. Grimaldi, 875 F.2d 994, 999 (2d Cir, 1989). Under this test, the businessperson must predict how a court will scrutinize both (1) the work, see Parks v. LaFace Records, 329 F.3d 437, 452-58 (6th Cir, 2003) (genuine issue of material fact on artistic relevance issue, where defendant’s song entitled Rosa Parks repeated the lyrics “move to the back of the bus"), and (2) the potentially misleading nature of the title, see Simon & Schuster, Inc. v. Dove Audio, Inc., 970 F. Supp. 279, 301 (S.D.N.¥. 1997) (finding defendant “deliberately gave its children’s story books confusingly similar titles in a blatant and ill-conceived effort to piggy-back on the goodwill associated with [plaintiff] ’s best-selling title”); Twin Peaks Prods., Inc. v. Publ’ns Int/1, Ltd., 996 F.2d 1366, 1379 (2d Cir. 1993) (finding that to determine whether title was explicitly misleading, lower court had to consider, inter alia, a questionable disclaimer and the wording and appearance of the title). Other trademark pitfalls exist of which a prudent businessperson must take cognizance, such as trademark dilution and cybersquatting. Unauthorized use of a famous trademark could result in an injunction against that use, “regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.” 15 U.S.C. § 1125(c) (1). Additionally, the businessperson must take care in registering any domain name, as the Anti-Cybersquatting Consumer Protection Act establishes civil liability when a domain name containing a protected mark (e.g., "Michael Jackson” or similar) is registered in "a bad faith intent to profit from that mark.” 15 U.S.C, § 1125(a). Likewise, absent a license, the use of Michael Jackson’s name and likeness in a video game also raises right of publicity pitfalls. The exemption available under California Civil Code § 3344.1(a) (2) does not specifically mention “video games.” Possibly, a video game would receive an exemption under the statute as an “audiovisual work,” but a defendant would have to convince the court of this reading, given that no published decision as of 2009 determined whether a video game counts as an audiovisual work under California’s post-mortem right ofDocket No. 17152-13 - 29 - publicity statute. Later published cases, unavailable for review in 2009, confirm the foregoing result. In one, defendant's use of band members’ avatars in a video game was held not transformative, and therefore not protected by the First Amendment, because the avatars “performled] rock songs, the same activity by which the band achieved and maintains its fame." No Doubt v. Activision Publishing, Inc., 192 Cal. App. 4th 1018, 1034-35 (2011); see also Davis v. Elec. Arts Inc., 775 F.3d 1172, 1178 (9th Cir. 2015) (where video game “replicates players’ physical characteristics and allows users to manipulate them in the performance of the same activity for which they are known in real life-playing football for an NFL team,” holding transformative use defense inapplicable); In re NCAA Student- Athlete Name & Likeness Licensing Litig., 724 F.3d 1268, 1264 (9th Cir. 2013) (“Under California’s transformative use defense, BA‘s use of the likenesses of college athletes like Samuel Keller in its video games is not, as a matter of law, protected by the First Amendment.”). On the other hand, sporadic later decisions have also inclined contrariwise. see Dillinger, LLC v. Elec. Arts Inc., 795 F. Supp. 2d 829, 835-36 (S.D. Ind. 2011) (positing, where defendant's video game referenced deceased Indiana gangster, that Indiana courts would interpret Indiana's right of publicity statutory exemption for “literary works” to encompass videogames) . Once again, far from drawing comfort from the legal landscape, a video game producer in 2009 who wished to incorporate a singing character named Michael Jackson could have no confidence, in the abstract, that the resulting product would find shelter under California Civil Code § 3344.1(a) (2). Also, as shown by the above discussion, the rights afforded to celebrities regarding name and likeness are multi-faceted. The laws in some states, like California, afford strong protections to Rights of Publicity. Other states have less protection or different protections. It would be important to assess how those laws would affect the use of any rights in different state jurisdictions. Would the rights-holder be able to bring a successful suit alleging the infringement of his xights of publicity in any or all jurisdictions? For any project using an individual’s name and likeness, itDocket No. 17152-13 - 30 - would also be important to consider laws protecting rights of publicity in international jurisdictions. The protections provided by statutory and common law rights of publicity vary from jurisdiction to jurisdiction, from state to state and country to country. The owner of the right of publicity can bring suit under any and all of the aforementioned legal theories and potentially in a number of jurisdictions. These lawsuits could be brought in any state where the right of publicity violation may occur. Thus, the risk to one infringing on such rights is large. Unfortunately for uniformity, universal agreement is absent. “In the case of multistate distribution, determining what state’s law will apply is no easy matter. Choice of law rules range all over the map.” MCCARTHY § 11:7 at 677. Although some states do follow the law of the domicile, others do not. In particular, Indiana, Hawaii, Nevada, and Washington all have enacted statutes that recognize a post- mortem right of publicity for a person whose domicile at death was another state. See Ind. Code Ann. §§ 32-36-1-1(a), - 8(a) (3); Haw. Rev. Stat. Ann. §§ 482P-1, P-2, P-4; Nev. Rev. Stat. Ann. §§ 597.780, 800; Wash. Rev. Code Ann. § 63.60.010. Even those various approaches fail to exhaust this domain, It is possible for the law of multiple states to apply: One state’s law may determine whether a post-mortem right of publicity exists, whereas a second state’s law could decide whether infringement occurred. This principle of dépecage (see MCCARTHY § 11:16 at 705-07) is illustrated by a case that found California law applied to determine whether a post-mortem right existed, whereas Florida law applied to the infringement analysis. See Acme Circus Operating Co. v. Kuperstock, 711 F.2d 1538, 1541-46 (11th Cir. 1983). Pitfalls soon multiply under this construction. “A case in which the law of several states is separately applied quickly becomes unmanageable . . . .” MCCARTHY § 11:18 at 708. A savvy distributor or impresario may reasonably choose to, preclude those eventualities by taking out a judicious license at the outset. In addition to disagreements about the applicable law, the distributor or impresario faces uncertainty as to where it willDocket No. 17152-13 -31- be sued (assuming it is amenable to personal jurisdiction and venue is proper). Rights holders have an incentive to shop for a hospitable forum in order to bring suit there, given the choice-of-law issues outlined above. See Vick & Jassy, 28 COMM. LAWYER at 14, 16 (discussing lawsuits against non-Indiana defendants brought by heirs in “plaintiff-friendly” Indiana). As the standard treatise in the field observes, “When infringement takes place in several states, plaintiff has the option for forum shopping by selecting the state in which defendant sells, which has the best law for plaintiff... ." MCCARTHY § 11:13 at 691-92. Compounding the nightmare, ‘A few courts have looked to the law of each state in which the infringing sale or publication took place... ." Id. at 692 (resulting in “the fantastically complicated exercise of applying the law of several different states in cases of multistate infringement”). ‘For example, the estate of a person who died domiciled in New York (which does not recognize a post- mortem right) could sue in Indiana or Washington, each of which does recognize a post-mortem right, and in that one lawsuit plaintiff could perhaps obtain an injunction and damages as to the entire nation.” Id. § 11:15 at 704. It should be clarified that the application of numerous state laws does not inexorably mean that a product will be held culpable. Investigation of the domestic law of the state in question may reveal that a defense exists on the books, comparable to California Civil Code § 3344.1(a)(2). At that point, the further inquiry would arise as to how courts actually applied that provision. The point is that there is no easy way to ascertain this status, absent an intensive investigation into the law of every jurisdiction potentially implicated. At times, taking out a license may be a cost-beneficial expedient to avoid that laborious exercise. The solution to the problems of jurisdiction, law and damages raised above is to license the use of the rights of publicity from the owner. This solution would be known to a hypothetical buyer or seller of the name and likeness of Michael Jackson. The following foreseeable post-death events corroborate respondent's expert's conclusion of value of Michael Jackson's name and likeness: within days of Michael Jackson's death,Docket No, 17152-13 - 32 - agreements were reached and contracts were signed specifically allowing use of the Michael Jackson name, likeness and trademarks. Immediate authorized uses of his name and likeness consisted of a movie, a traveling show, merchandising and exhibitions. Uses which were Estate-sponsored were allowed and the Estate was compensated. Any unauthorized use was met with cease and desist letters and lawsuits by the Estate. In August 2009, John Branca reached out to Cirque du Soleil to do a Michael Jackson themed show. Cirque du Soleil's subsequent presentation materials to the Estate of Michael Jackson were based on the business principles of The Beatles LOVE show by Cirque du Soleil. It was foreseeable at the time of Michael Jackson’s death that a Cirque du Soleil Michael Jackson themed show would eventually occur. Petitioner’s own actions further corroborate respondent's view. Petitioner actually licensed Michael Jackson's name and likeness for use in Cirque du Soleil shows and a videogame. Yet petitioner seeks to make a scholarly argument about the purported scope of legal rights involved with these “exempt” categories. | All known and foreseeable facts should be considered in valuing Michael Jackson’s image and likeness rights. Copyright Preemption is not an effective defense At the outset, it should be clarified that copyright preemption prevents an actor who duly agreed to appear in a motion picture from seeking to hold its release actionable under color of the right of publicity. See Fleet'v. CBS, Inc., 50 Cal. App. 4th 1911 (1996) (citing 1 NIMMER ON COPYRIGHT § 1.01(B] [1] [c] to conclude that employee of production company which made “White Dragon” could not use right of publicity to complain about copyright owner's subsequent exploitation of its film). That construction arises as a constitutional matter, given the supremacy of federal law; it therefore applies equally to the inter vivos and post-mortem rights of publicity, regardless of any difference between how a given state’s law may craft statutes embodying those two entitlements. On the strength of Fleet as applied to Michael Jackson, his agreement to act in “The Wiz,” for example, allows the copyright owner of that film to continue to exploit it. It may do soDocket No. 17152-13 - 33 - during his lifetime with no additional permission needed from him; it may equally do so after his death, with no need to license the right of publicity from his estate. Nonetheless, a later case limited Fleet to its facts holding it had no application to a right of publicity action brought against someone other than the copyright owner of the work in which complainants appeared. See KNB Enters. v. Matthews, 78 Cal. App. 4th 362 (2000). That case rejected the Proposition that copyright law preempts models from pursuing a xight-of-publicity cause of action under California Civil Code § 3344, Id. at 374 (quoting “passage from Nimmer relied upon by the court in Fleet” to conclude: “The actual language of Nimmer's treatise, however, leads us to a different conclusion”) . Earlier, a court ruled that the unauthorized dissemination of a videotape, shown for its entertainment value rather than to sell products, constituted a violation of the right of publicity under California Civil Code § 3344 of the famous actors depicted therein. See Michaels v. Internet Entm’t Group, Inc., 5 F Supp. 2d 823, 837 (C.D. Cal. 1998) (Bret Michaels and Pamela Anderson Lee). That videotape depicted private conduct undertaken for their own personal enjoyment (a “sex tape”) as opposed to acting in a movie intended for general distribution such as “The Wiz" or “White Dragon.” In that regard, it in some measure resembles the footage underlying “Michael Jackson's This is It," which the initial crawl characterizes as consisting in large part of “footage captured during the rehearsal period . intended for Michael's personal library... .” The photographs at issue in KNB Enterprises and the videotape at issue in Michaels both constitute copyrightable subject matter. See 17 U.S.C. § 102(a)(5), (6). In each instance, the plaintiff complained that those works were exploited for their entertainment value, rather than as advertisements. Nonetheless, neither case adopted the position advanced by the taxpayer in this case that the right of publicity under California law is inapplicable to entertainment products. Indeed, “[u]nder the majority rule, there is no federal copyright preemption of the state law right of publicity because the right of publicity protects human identity, which is notDocket No, 17152-13 - 34 - subject matter covered by federal copyright law.” MCCARTHY § 11:50 at 842. In that vein, the Third Circuit has held that a male sports announcer’s voice was not subject matter covered by copyright law. Facenda v. NFL Films, Inc., 542 F.3d 1007, 1027- 28 (3d Cir. 2008). For the reasons already explored, that ruling and the others set forth above apply with equal force to both the inter vivos and post-mortem rights of publicity. First Amendment is not an effective defense The task of applying this constitutional provision is itself fraught with innumerable legal twists. Lower courts apply at least three balancing tests to evaluate a First Amendment defense. See MCCARTHY § 8:23. Specifically, (1) the Missouri predominant use test “asks whether the accused use predominantly exploits the commercial value of an individual's identity." Id. at 128. The Third Circuit has called this test “subjective at best, arbitrary at worst.” Id. at 129 & n.3 (quoting Hart v. Elec. Arts, Inc., 717 F.3d 141, 154 (3d Cir. 2013)). Other courts endorse (2) the test based on Rogers Grimaldi. But the Third Circuit again disagrees, even though that test has been used by the Sixth Circuit: “The Rogers test is used to balance free speech rights against falsity based claims such as trademark infringement and false endorsement.” Id. at 129 & n.6, Last, most courts utilize (3) a “transformative” balancing test: “if the accused use in an expressive work (such as a work of art or a video game) ‘transforms’ the plaintiff's identity to a sufficient degree, then it is likely to be immunized from liability for right of publicity infringement.” Id. at 130. The California Supreme Court explicitly adopted the “transformative test” in the context of artworks, asking “whether the celebrity likeness is one of the ‘raw materials’ from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question.” Comedy IIT Prods., I Gary Saderup, Inc., 25 Cal. 4th 387, 406 (2001). ‘There, the court opined that Andy Warhol’s reproductions of celebrity Portraits may be sufficiently transformative, Id. at 408-09, but defendant’s “lithographs and T-shirts bearing a likeness of ‘The Three Stooges reproduced from a charcoal drawing he had made” Id. at 393, were not, and thus publicity rights prevailed over the First Amendment. Indeed, the court seemingly stepped intoDocket No. 17152-13 - 35 - the role of an art critic when it opined, ‘Warhol was able to convey a message that went beyond the commercial exploitation of celebrity images and became a form of ironic social comment on the dehumanization of celebrity itself.” Id. at 409. This example highlights the subjective nature of the transformative test, which creates further uncertainty for the businessperson tasked with evaluating the First Amendment defense. Given that the various tests sketched above incorporate different requirements, which could lead to different results, the businessperson’s task of evaluating the defense is anything but simple. suffice it to say that each and every one of the cases discussed above arose against the backdrop of the First Amendment. The Supreme Court explicitly rebuffed that defense when a 15-second performance was at issue in Zacchini, and the largest right-of-publicity case on record equally rejected a First Amendment defense (the Beatlemania case discussed above) . Accordingly, important as the First Amendment may be, it fails fo qualify as a get-out-of-jail-free card for a businessperson facing a decision as to how to proceed in this domain. Issue #2: New Horizon Trust II (Sony/ATV) — oe nzon Trust II (Sony/ATV) New Horizon Trust II consisted of Michael Jackson's 50% anterest in Sony/ATV, as well as cash and approximately §300 million in debt as of the date of death. Sony/ATV is a Delaware limited liability company formed effective October 1, 1995, by decedent and Sony Music Publishing. Sony/ATV is taxable as a partnership for income tax Purposes. As of the date of death, Sony/ATV held or administered 750,000 song copyrights covering every era and genre of popular music. The amount of cash and debt is not in dispute. The property to be valued in the gross estate as of the date of death is the decedent's 50 percent Sony/ATV membership interest. At the time of Michael Jackson’s death, Sony/ATV was the second largest music publisher in the United States, with an estimated 750,000 controlled compositions. In addition to the Beatles catalog, Sony/ATV included songs by a variety of Prominent artists including Bob Dylan, Neil Diamond, Taylor Swift, Lady Gaga, the Jonas Brothers, and Ruben Studdard.Docket No, 17152-13 - 36 - The decedent shared the 50% control with Sony Music Publishing Co. ("Sony"). His 50% share gave him rights to appoint an equal number of directors as Sony and vote on major decisions. The Sony/ATV Operating Agreement included buy/sell provisions. Both members’ interests were subject to the buy/sell agreement. Under Sony's purchase option clause, if Michael Jackson's half was sold while still encumbered by debt, Sony was given a specific option price to acquire 25% of the company (half of Mr. Jackson’s half) at the “option price." The value of the purchase option price for 25% was calculated by Mr. Anson to be $242,075,000. Mr. Anson valued decedent's remaining 25% interest using the discounted cash flow analysis. Mr. Anson's valuation of one-half of the decedent's interest in Sony/ATV at the option price was a conservative valuation of this half of the asset, because the option price would only apply if the debt remained at the time of a hypothetical sale. Under any other scenario, the full 50 percent interest would be valued as one, and would therefore result in a higher price. This is illustrated in mr. anson’s report. (He calculates the fair market value with and without the use of the option price.) The buy/sell process could be initiated by either Michael Jackson or Sony. This process provided a right for either 50% owner to dispose of their interest for full undiscounted value and/or to obtain ownership of the entire company. Indeed, Sony would ultimately exercise this provision and acquire petitioner’s interest in 2016. The key differences between respondent's and petitioner's experts concern whether, under the income approach, it is more appropriate to use NPS or EBITDA; the discount rate to be applied to the discounted cash flow analysis; whether discounts for lack of control and lack of marketability are appropriate; and whether the income stream should be tax affected. Discounts Petitioner’s expert applied discounts for lack of marketability (25%) and minority interest (20%) to the decedent’s interest in Sony/ATV, Respondent’s expert has opined that it is not appropriate to apply such discounts for theDocket No. 17152-13 - 37 - xeasons set forth in his report, rebuttal report and supplemental report. The hypothetical buyer and seller are presumed to be aiming to achieve the maximum economic advantage (i.e., maximum profit) from the hypothetical sale of the property. Noble v. Commissioner, T.C. Memo 2005-2. This is realized when the Buy- Sell provision is invoked as per Section 7.8 of the Operating Agreement. The provision essentially provides for either an internal sale (section 7.8(d) (i) or (iii)) or an external sale (Section 7.8(d) (ii))of all interests. In either scenario, the ultimate hypothetical buyer will control a 100% interest in the entity. This results in a controlling, marketable position, making it inappropriate to deduct any discounts in determining the fair market value of the 100% interest. The operating agreement at Section 7.8(b) explicitly provides that no discounts apply in arriving at a Fair Value for the company when computing the selling price under the buy/sell Provisions of the operating agreement. Fair Value is used to value the “whole” Company in determining value in the event there is an internal purchase of the interests. In the event there is an external sale of the interests, the hypothetical transaction of the entire interest in Sony/ATV is assumed to occur in a hypothetical market. Sony/ATV’s primary asset is a song catalog, containing over 750,000 songs, as of the valuation date. Included within the catalog are song rights from such highly successful groups and artists as “The Beatles” and other well-known artists. According to xespondent’s expert, the hypothetical market for the interest in Sony/ATV would be intense and create a buyer bidding war. As a vesult, a market adjustment (i.e. premium price) would result to reflect the high demand for these music publishing assets and the premium nature of the catalog, thus offsetting any potential discounts. Issue #3: New Horizon Trust III (Mijac) issue #3: New Horizon Trust III (Mijac) New Horizon Trust III consisted of the decedent’s interest in Mijac Music, $72,152,649 in liabilities, and cash. This is the property interest to be valued. As the amount of cash and debt is not in dispute, the onlyDocket No. 17152-13 - 38 - issue is the value of Mijac (see discussion above concerning legal authorities for valuation standards). Mijac is a catalog comprised of the publishing rights associated with 527 compositions written by a variety of song writers. The catalog includes songs written by Michael Jackson, as well as songs written by other writers which were later acquired by Michael Jackson, Moss Adams LLP ("Moss Adams”), which was retained by the Estate to value Mijac Music, identified 167 songs written by Michael Jackson, and 327 songs written by other writers, which were income producing in the five years prior to Michael Jackson's death. The catalog is held in MJ Music Publishing LLC, a single member LLC whose sole member is New Horizon Trust IIq. The key differences between respondent's and petitioner's experts concern identifying the correct number of songs, inconsistencies in how historical royalties are calculated and Presented; the extent of the post-death spike; whether tax affecting is appropriate; the discount rate to be applied; and the extent and value of the unpublished songs. The petitioner produced a number of valuation reports since 2010, with each report identifying a different number of songs. For example, in the category of Songs written by Michael Jackson, the report filed with the Estate tax return, prepared by Owen Dahl, indicated 13@ songs. In a subsequent report dated March 31, 2014, prepared by Owen Dahl, the number of such songs increased to 167. Finally, in petitioner expert's report dated October 17, 2016, the number decreased to 117. Petitioner failed to provide any explanation for the inconsistencies. In determining the post-death spike in sales, the petitioner's expert inappropriately relied on a study published in 2014, five years after the valuation date, and which included artists from different genres and segments of music, many of whom were not readily comparable to Michael Jackson. Revenue Ruling 59-60 provides for “both parties having reasonable knowledge of relevant facts". Since the study was published in 2015, it would not have been known or knowable by either party as of the valuation date. The petitioner’s expert tax affected the cash flows and discount rate, while respondent's expert did not. A discussionDocket No, 17152-13 - 39 - on the appropriateness of tax affecting was previously presented. The petitioner’s expert also assigned a $1,143,581 value to unpublished songs, but failed to include this value in its concluded value. Conversely, the respondent's expert determined that the unpublished songs had a fair market value of $22,204,296. The Internal Revenue Code imposes a penalty equal to 20% of the portion of a tax underpayment attributable to certain items that are not accurately reported on the return. I,R.C. § 6662 (a). The penalty applies to underpayments due to the substantial understatement of value for estate and gift tax Purposes. I.R.C, § 6662(b) (5). It also applies to negligence or disregard of the rules or regulations. I.R.C. § 6662 (b) 1). Substantial undervaluation for estate and gift tax Purposes occurs when the value of any property claimed on any return is 65% or less of the amount determined to be the correct valuation. I.R.C. § 6662(g) (1). Negligence is defined as any failure to make a reasonable attempt to comply with the tax laws. Disregard for the rules and regulations can be careless, reckless or intentional disregard. I.R.C. § 6662(c). The accuracy-related penalty increases to 40% of the tax underpayment in cases of gross valuation misstatements. I.R.C. § 6662(h). A gross valuation misstatement occurs when the value of any property claimed on any return is 40% or less of the amount determined to be the correct valuation. I.R.C, $ 6662 (h) (2). The penalty is inapplicable, however, if the taxpayer shows that there was reasonable cause for the underpayment and that he or she acted in good faith. I.R.C. § 6664(c) (1). The determination of whether the taxpayer acted withDocket No. 17152-13 - 40 - reasonable cause and in good faith depends on the pertinent facts and circumstances. The most important factor is the extent of the taxpayer’s effort to assess the proper tax liability for that year. Treas. Reg. § 1.6664-4 (b) (1). Reliance on the advice of a professional tax advisor or appraiser does not necessarily demonstrate reasonable cause and good faith, if under all circumstances, such reliance was unreasonable. Reasonable cause and good faith ordinarily is not indicated by the mere fact that there is an appraisal of the value of property. Other factors include the methodology and assumptions underlying the appraisal, the appraised value, the xelationship between the appraised value and purchase price, the circumstances under which the appraisal was obtained, and the appraiser’s relationship to the taxpayer or to the activity in which the property is used. Id. Respondent has the burden of production in any court Proceeding with respect to any penalty imposed by the Internal Revenue Code. I.R.C. § 7491(c). In order to meet that burden, the Commissioner must offer sufficient evidence to indicate that it is appropriate to impose the penalty. See, Higbee v. Commissioner, 116 7.C. 438, 446 (2001). However, once respondent meets this burden of production, the taxpayer bears the burden of proving error in the determination to impose a penalty, including proving reasonable cause, substantial authority, or other exculpatory factors. Id. at 446-447. Petitioner valued decedent’s name and likeness on the Form 706 at $2,105. Petitioner valued decedent’s interest in New Horizon Trust II at $0.00. Petitioner valued decedent's interest in New Horizon Trust III at $2,207,351. Each of these values is significantly less than 40% of the actual fair market values of these assets within the meaning of I.R.C. § 6662(h). Therefore, the gross valuation misstatement penalty applies. Alternatively, each of these values is significantly less than 65% of the actual fair market values of these assets within the meaning of I.R.C. § 6662(g). Therefore, the substantial valuation misstatement penalty applies. Regarding negligence, petitioner did not make a reasonable attempt to correctly value the assets at issue herein.Docket No. 17152-13 - 41 EVIDENTIARY PROBLEMS: None anticipated. Dat Donna Z NebeX DONNA F. HERBERT Senior Counsel (Thousand Oaks) (small Business/Self-Employed) Tax Court Bar No, HD0170 950 Hampshire Road East Pavilion Thousand Oaks, CA 91361-2819 Telephone: (805) 367-0079 /) R. MALONE CAMP Attorney (Small Business/Self- Employed) Tax Court Bar No. CR1027 950 Hampshire Road East Pavilion Thousand Oaks, California 91361 Telephone: (805) 367-0078 aoe SEBASTIAN VOTH General Attorney (Small Business/Self- Employed) Tax Court Bar No. vS0062 24000 Avila Road, Suite 4404 Chet Holifield Building Mail Stop 8800 Laguna Niguel, CA 92677 Telephone: (949) 575-6556Docket No. 17152-13 a 8. MUSEN Associate Area Counsel (Small Business/self- Employed) Tax Court Bar No. MJ1957 950 Hampshire Road East Pavilion Thousand Oaks, CA 91361-2819 Telephone: (805) 367-0099 DENISE LARSON Attorney Tax Court Bar No.LD0500 Telephone: 425-898-8708