Friday, January 12, 2001
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Posted on: Friday, January 12, 2001

IRS settlement helps Kamehameha's healing

At one level, the $29 million settlement between Kamehameha Schools and the IRS this week is simply the final accounting in a calculated business decision.

That is, the payment can be treated as a cost of doing business as Kamehameha Schools actively shifted various investments between its charitable and for-profit arms.

Such transfers are legal, but there are rules about when and how they can be made. The IRS originally was looking for something like $46 million in unpaid taxes; the settlement was for $29 million.

That is undoubtedly less than the savings realized by the trust when it moved losses from the not-for-profit to the for-profit side where a tax write-off could be made.

At another level, however, the settlement offers yet another glimpse at the high-risk game being played by the former trustees of the multibillion-dollar estate. By dancing down this thin line between what is proper and what is not for a charitable trust, they were putting the estate’s very tax-exempt status in danger.

Indeed, the IRS made it clear that that tax exemption might be yanked if the five former trustees were not replaced. Fortunately, they were.

Profits are important. And it is undoubtedly true that the trust is making far more money than it did in the sleepy days before it got into broad-spectrum investments and the global capital market.

But the final duty of this trust, and its trustees, is the education of the youngsters served by Kamehameha Schools. That primary duty got somewhat lost in the financial shuffle.

With this settlement, the Kamehameha Schools are that much closer to being back on the right track.

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