By Sally Apgar
Advertiser Staff Writer

Kamehameha Schools announced today it has agreed to pay $29 million to the Internal Revenue Service to settle claims the tax agency had against the charitable trust’s for-profit businesses through June 1998.

Last year, the $6 billion charitable trust agreed to pay the IRS $13.8 million to settle claims arising from the agency’s extensive eight-year investigation into the financial dealings of the trust and its former trustees. The $13.8 million settlement preserved the estate’s crucial tax-exempt status but covered tax issues related solely to its non-profit operations.

Initially, the IRS had demanded $165 million in back taxes and penalties stemming from the estate’s for-profit operations. The for-profit arm of the trust, which many experts said held the estate’s worst tax problems, operated a variety of investments from shopping centers to a southern California bank to a Virginia golf course and a Christmas tree ornament company. The settlement covered issues related to tax losses that were claimed for bad investments that the IRS later did not allow.

Experts said that the $165 million demand was a starting point for negotiations between the trust and such demands are expected to be lowered. The same was true of negotiations covering the estate’s non-profit operations. Initially, the IRS had demanded $65 million to settle issues related to the non-profit operations.

Kamehameha Schools, formerly known as Bishop Estate, was established by the 1884 will of Princess Bernice Pauahi Bishop who directed that her wealth of royal lands be used solely to establish and operate schools to educate children of Hawaii.