Estate Tries Not to Take a Tax ‘Bawth’

She is Eloise. She is 6. She is a city child. She lives at the Plaza.

And the Internal Revenue Service wants a bigger piece of her.

The precocious star of the endearing “Eloise” children’s books who roams New York’s Plaza Hotel is causing more mischief, this time in U.S. Tax Court as IRS officials battle the estate of author Kay Thompson.

The IRS argues that the estate undervalued by about $1.7 million how much the “Eloise” book and film franchise was worth to heirs at the time of Thompson’s death in 1998, according to court documents. That translates into nearly $504,000 in back taxes, by the government’s count.

Thompson’s estate, administered by her niece and nephew, disagrees and is appealing. Neither side would discuss the case.

The dispute comes amid a burgeoning round of “Eloise” fever. The TV movie “Eloise at the Plaza,” starring Julie Andrews as the nanny, is slated to air April 27 on ABC’s “The Wonderful World of Disney” during the important sweeps period.

Another film starring Andrews, “Eloise at Christmastime,” is scheduled to air on Walt Disney Co.-owned ABC during the holidays. Ten-year-old Sofia Vassilieva plays the title role in both movies.

In addition, the long-dormant “Eloise Takes a Bawth,” a book that gathered dust for decades while Thompson was alive, was resuscitated and published last October by Viacom Inc.’s Simon & Schuster. It’s been on the children’s bestseller list since then, with an initial printing of 200,000 copies.

According to a Publisher’s Weekly survey last year, the 48-year-old “Eloise” ranks 77th among children’s books, with 1.5 million copies sold -- an accomplishment considering that some 6,000 children’s books are published every year. “Eloise” has appeared only in hardcover and has never been mass marketed.

“With the number of books published, the fact it sticks around really says something,” said Tracy van Straaten, director of publicity for Simon & Schuster Children’s Publishing.

All told, the original and three sequels published during the 1950s -- “Eloise at Christmastime,” “Eloise in Paris” and “Eloise in Moscow” -- have sold 3.5 million copies. A collection of quotes, “Eloise’s Guide to Life,” was published in 2000.

Eccentric and reclusive in her later years, Thompson fiercely protected “Eloise.” She insisted the initial book be referred to as “Kay Thompson’s Eloise.” For years she nixed proposals to reissue the three sequels, which were out of print for about 35 years. Other than sanctioning a 1956 “Playhouse 90” version of “Eloise” that featured Thompson, she spurned Hollywood’s overtures to buy the film rights.

As a young woman, Thompson was a singer, songwriter and actress. Playing fashion editor Maggie Prescott, Thompson advised women to “Think Pink!” in a memorable musical number in the movie “Funny Face,” starring Fred Astaire and Audrey Hepburn.

Thompson and lyricist Ira Gershwin were godparents to friend Judy Garland’s daughter Liza Minnelli, who housed Thompson in a Manhattan apartment during the author’s final years. According to an IRS ruling, Minnelli has the right to make a $500,000 claim against the estate.

Complemented by the now-beloved illustrations of Hilary Knight, “Eloise” became an instant bestseller, with fans now spanning three generations. Imitating her English nanny, Eloise used words like “rawther,” “bawth” and “cawnt,” and introduced herself with “This is me, Eloise.”

Knight, who has been drawing Eloise for new versions and appears in a cameo as a street artist in the TV movie, declined through his agent to comment.

Thompson’s death at age 95 freed up potential “Eloise” projects. With no children of her own, Thompson passed the rights on to her sister, Blanch Hurd of Woodland Hills, who died last year. Hurd’s children, Julie Szende of Woodland Hills and John Hurd of Portola Valley, Calif., now administer the estate.

Just how to value the new franchise is at the center of the IRS dispute, with arcane appraisals attempting to value assets that don’t lend themselves easily to exact science.

The estate argues that of the four “Eloise” books published during Thompson’s life, only the first was commercially successful. According to its appraiser, that means the estate’s royalty interest in all of the books was worth only $200,000.

But an appraiser retained by the IRS put it at double that amount, valuing the works that had been out of print at an additional $200,000.

Also at issue is the value to the estate of “Eloise” film rights at the time of Thompson’s death. The estate’s appraisal valued its share at $1.85 million, while the IRS put it at $3.3 million, basing that on the average profit it estimates for films shown commercially during the year of Thompson’s death.

The estate sold the film rights in 1999, after a heated bidding war, for a $3.5-million advance against royalty payments to the Itsy Bitsy Entertainment Co., best known for “Teletubbies.” Itsy Bitsy subsequently sold the rights to Handmade Films, which worked with producer Denise Di Novi (“What a Girl Wants”) to get the films made for ABC.

According to court papers, the estate was entitled to two-thirds of 85% of the advance, or $1.98 million. A long-standing arrangement gives Simon & Schuster 15% off the top. Knight, the illustrator, then gets one-third of what’s left, with Thompson’s estate getting the rest.

Thompson’s estate argues in court papers that the IRS appraiser improperly valued the rights as equal to a movie that already had been made and returned a profit. That wasn’t the case when Thompson died, it said.

So far, no hearing date has been scheduled, and such tax cases often settle before going to court. No doubt Eloise’s caretakers would “rawther” not have this headache.