Cortese Estate Appeals Demand for $2.15 Million

The estate of Leisure World developer Ross W. Cortese, fighting a claim that it undervalued his interests in three real estate companies, has appealed an IRS demand for an additional $2.15 million in taxes.

The executor for the estate of Cortese, who died in October 1991, asked the U.S. Tax Court in Washington two weeks ago to overturn the demand made in January by the Internal Revenue Service.

The executor, longtime Cortese friend William V. March, contends that the agency overvalued Cortese’s stakes in the three companies by $3.6 million and wrongly disallowed a deduction for guaranteeing part of a $21.75-million bank loan.

Cortese left property believed to be valued at up to $300 million. But he put the bulk of his estate in trusts before he died, leaving the taxable portion of his estate, including gifts, at nearly $11.6 million. Estate taxes amounted to $4.6 million, according to a tax return.

But the IRS, disputing the value given to three real estate companies, said that Cortese’s interest in the companies was worth $9.7 million at the time he died, not $6.1 million that the estate listed, and that it owed the additional taxes to the state and the federal governments.

A lawyer for the estate did not return telephone calls seeking comment, and the IRS would not discuss the pending case.

In court papers, though, March states that the values he used were based on independent appraisals. The court documents, however, do not provide any details about the deduction for the bank loan.

Cortese, a onetime fruit-stand peddler who began fixing up and reselling houses, had a vision of active communities for aging and retired people. That vision led to a nationwide series of planned communities that he called Leisure World.

At his death, 40,000 middle-aged and elderly people lived in the 24,000 retirement units he had built in Seal Beach and Laguna Hills and in Arizona, Florida, Maryland, New Jersey and elsewhere.

He also constructed business parks and other residential neighborhoods. One of his earliest projects, in the 1950s, was the walled community next to Los Alamitos that he called Rossmoor. He sold 3,800 units there in three years.

His idea of empowering residents, especially the elderly, to make decisions that affect their communities backfired shortly before his death. Residents of Leisure World Laguna Hills mobilized three times to block his efforts to develop a neighboring 173-acre plot into a huge industrial and commercial complex.

Cortese himself never lived in Leisure World. His lavish hilltop mansion in north Tustin’s Lemon Heights area was sold last year for about $5 million.