Estate of Water Mogul Battles Higher Tax Bill
By JERRY MOSKAL
Balboa Island’s Nancy N. Craig amassed a fortune from water. Now the Internal Revenue Service wants to siphon off $3.6 million from her estate.
Craig’s estate has filed a petition in U.S. Tax Court in Washington, D.C., seeking to overturn an IRS ruling on the taxable value of her fortune.
Craig, who died in 1999, was a big owner of privately held United Resources Inc. of Whittier. The company owns San Gabriel Valley Water Co. in Whittier and the Arizona Water Co. of Phoenix. San Gabriel Valley Water also owns Fontana Water Co.
The Craig estate contends the IRS erred when it valued her stock in United $12.6 million higher than the $26.6 million that was reported. The higher valuation resulted in the IRS seeking the extra $3.6 million in taxes.
“We got our appraiser and the IRS has its appraiser, and they’re far apart,” said Paul Frederic Marx, a tax attorney with Costa Mesa-based Rutan & Tucker LLP who’s representing the Craig estate. “I’m sure (the case) will be settled, not litigated.”
“You try to pick their appraisal apart,” Marx said. “They try to pick your appraisal apart. In the end, you sit down and work things out because you know if you go to court the judge will just split the difference.”
According to the estate’s petition, the Nancy N. Craig Trust, which was created in 1990, owned 74,348 shares of United at the time of her death. The IRS ruled that the stock was worth $39.2 million, not the $26.6 million reported by the family.
When Craig died, the petition said, the trust’s stock amounted to less than half of United’s outstanding shares. The family contends the lack of a public market for the shares and Craig’s less than 50% stake lessened the value of the stock.
“The date of death fair market value of the shares of United Resources Inc. common stock owned by decedent and the trust … was based upon independent appraisal by a qualified appraiser who properly discounted such value for lack of control and lack of marketability,” the estate writes in its petition.
The petition and other documents did not disclose how much the estate discounted the stock.
Besides the trust’s stock, the petition said, Craig and her surviving husband owned 24 shares of United. The IRS ruled the 24 shares were worth $12,656 a share rather than the $8,605 the estate reported.
The IRS ruled that Craig’s gross estate was worth $43.8 million at the time of her death, instead of the $31.2 million the estate estimated. The IRS put the taxable value of her estate at $19.6 million rather than $13.2 million the estate reported.
The IRS notice was issued in May. The agency has until Sunday to file an answer to the estate’s Aug. 19 petition contesting the findings. If the IRS and estate fail to reach a settlement, the case could go to trial before a tax court judge.
Besides Whittier, San Gabriel Water has locations in South El Monte and La Puente. A spokeswoman said she wasn’t sure how many customers San Gabriel and Fontana serve but that it is in the thousands.
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
