Estate of Water Mogul Wins Out in Tax Fight
By JERRY MOSKAL
As parched Southern California searches to quench its thirst, former water company owner Nancy Craig’s estate found relief.
The Internal Revenue Service and Craig’s estate, a major owner of San Gabriel Water Co. in Whittier, agreed to settle a $3.6 million tax dispute for $243,603, less than 7 cents on the dollar. Craig died in 1999.
The dispute between the estate and the IRS arose after the agency ruled that Nancy Craig’s stock in the water supplier was worth $39.2 million, not the $26.6 million the estate had reported.
Paul Frederic Marx, a tax attorney with Costa Mesa-based Rutan & Tucker LLP who represented the estate, didn’t return calls for this story.
W. Michael Craig of Balboa Island, executor of his late wife’s estate, couldn’t be reached for comment.
“We don’t comment on decisions, court documents,” IRS spokesman Anthony Burke said. “Whatever our statement in the court record is, that’s our public comment. Litigation, decisions, that kind of thing, the record speaks for itself.”
The agreement became part of a two-page stipulated decision Judge David Laro signed in June, closing a case that began a year ago when the estate filed a petition appealing the IRS ruling.
At one time, the Craigs were major owners of United Resources Inc., which owns San Gabriel Water as well as Arizona Water Co. of Phoenix. A San Gabriel Water spokeswoman said she was unsure whether the family still had stock in El Monte-based United Resources.
The drought that has plagued Southern California is a major concern for the water supplier, the spokeswoman said. United Resources operates in Whittier and La Puente and also owns Fontana Water Co.
The various water companies are estimated to have thousands of customers in Southern California.
The estate’s petition said the Nancy N. Craig Trust, which was created in 1990, owned 74,348 shares of United Resources stock, which is not publicly traded. The petition said the trust’s stock amounted to less than half of the outstanding shares of United Resources.
According to the petition, the value of United Resources’ common stock Nancy Craig and the trust owned was determined on an “independent appraisal by a qualified appraiser who properly discounted such value for lack of control and lack of marketability.”
Besides the trust’s stock, the petition said, Craig and her husband together owned 24 shares of United Resources, which the IRS valued at $12,656 a share. The estate claimed the stock was worth $8,605 a share.
The IRS estimated Craig’s gross estate was worth $43.8 million at the time of her death, instead of $31.2 million that the estate reported.
The agency put the taxable value of her estate at $19.6 million, rather than $13.2 million that the estate reported.
When the estate filed the petition against the IRS ruling last year, lawyer Marx said he was confident that the two sides would be able to reach a settlement. At that time, he said he didn’t expect to go to trial before a tax court judge.
“You sit down and work things out because you know if you go to court, the judge will just split the difference,” Marx said at the time.
In a separate matter, San Gabriel Water found itself entangled in a legal confrontation over pollution of wells from which water is drawn for customers. One of the wells is owned by Monterey Park and the other well by Southern California Water Co.
The dispute began seven years ago when more than 1,000 San Gabriel Valley residents complained that contaminated drinking water was making them ill, causing some of them to come down with terminal diseases.
In 2002, the San Gabriel Valley Water Quality Authority announced that the three water suppliers worked out a $4.7 million settlement with the 13 polluters of groundwater in the South El Monte-Monterey Park area.
The three were to use $4.5 million to cover cleanup costs already undertaken or planned and $200,000 was to go to the authority to continue operation of a project to intercept contaminants flowing underground toward the Whittier Narrows.
The authority and others praised the deal for moving toward the goal of preserving one of Southern California’s most precious resources,water.
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
