Kamehameha to settle IRS claims for $72M

By Curtis Lum
Advertiser Staff Writer

Kamehameha Schools and its subsidiaries have agreed to pay more than $72 million in taxes and interest to settle claims with the Internal Revenue Service.

The agreement announced yesterday ends a lengthy investigation by the IRS into allegations that former trustees of the then-Bishop Estate were mismanaging assets. Kamehameha Activities Association, the school's nonprofit investment arm, will pay $17 million in interest, and the for-profit subsidiary, Pauahi Holdings Corp., will pay $55.5 million in taxes, according to the settlement

"These should be the final agreements we will need to make with the IRS to bring closure to all of the tax issues raised regarding the trust's management in the late 1990s," said Kamehameha Schools chief executive officer Hamilton McCubbin.

The settlement covers the 1998, 1999 and 2000 tax years and involved millions of dollars in profits from Kamehameha Schools' investment in Goldman Sachs. The Goldman Sachs' stock was held in Kamehameha Activities Association, which sold 20 million shares for about $1.5 billion.

As part of the state attorney general's investigation into allegations of wrongdoing by the five former trustees in 1999, the state and IRS questioned the transfer of assets from Pauahi Holdings to the nonprofit subsidiary. The attorney general alleged that the move was part of a scheme by the former trustees to hide or shift assets away from the control of the trust.

McCubbin called the closing agreements a "fair resolution" to the tax issues.

The former trustees — Henry Peters, Oswald Stender, Richard "Dickie" Wong, Lokelani Lindsey and Gerard Jervis — were ousted in May 1999 following allegations of mismanagement of the trust.

None of the former trustees has been convicted of any wrongdoing related to their work with the trust.