The Segerstrom family empire partly owned by Nellie Ruth Segerstrom may be worth more than her estate said it was.
That’s what the Internal Revenue Service determined in demanding $18.2 million in additional taxes from her estate, administered by son Henry T. Segerstrom and sister Ruth Ann Moriarity. The estate has filed a petition asking the U.S. Tax Court in Washington, D.C., to overturn the IRS ruling. Nellie Segerstrom died in 1997 and held stakes in C.J. Segerstrom & Sons and Segerstrom Properties.
“We differ with respect to the value of the various properties,” said John W. Porter, a Houston tax attorney representing the Segerstroms. “We feel very confident in our position. We intend to prevail.”
An IRS spokesman said the agency does not comment on pending tax cases.
The estate’s petition claimed the IRS erred when it ruled Nellie Segerstrom’s 7% interest in C.J. Segerstrom & Sons was worth $11.7 million rather than $4.68 million. It also claims the tax agency got it wrong when it put her 98.4% ownership of Segerstrom Properties at $36.6 million, instead of $10.6 million.
The petition also challenged the IRS finding that Nellie Segerstrom’s taxable estate was $58.1 million instead of the $25 million the estate estimated. The IRS also ruled that her gross estate was worth $60.3 million, rather than $27.2 million as the family contends.
The petition charges the IRS was in error since a portion of the estate tax levied was on property instead of on the transfer of assets. The petition contends that is unconstitutional.
Valuation questions are common in estate tax issues, according to Rick Weiner, an attorney with The Busch Firm in Irvine, which specializes in estate planning. The family’s constitutional contention, however, faces long odds, he said.
“No one has ever prevailed on this argument,” Weiner said.
The IRS notice of deficiency was issued Feb. 28, and the agency has 60 days to respond to the estate’s March 16 petition. If the IRS and estate fail to negotiate a settlement, the case could go to trial before a tax court judge.
The privately held Segerstrom companies count about $200 million in annual sales. Henry Segerstrom and his cousin’s wife, Jeanette Segerstrom, are managing partners of C.J. Segerstrom & Sons. n
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
