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The Honolulu Advertiser
Posted on: Sunday, August 25, 2002

Tax case shows developer faced abuse charges

By Jim Dooley
Advertiser Staff Writer

Waikiki businessman-developer William K.H. Mau is involved in a multimillion-dollar tax fight with the IRS that is airing allegations of physical and emotional abuse, sexual harassment and hush-money payments to a former business associate who is also his sister-in-law.

The dispute comes to light in court papers filed recently in Washington, D.C., by Mau-controlled companies whose holdings include some of the most valuable real estate in Waikiki.

Three companies that own the multi-level Waikiki Shopping Plaza and related assets filed the paperwork to defend tax deductions taken on $18 million paid since 1995 to former executive Patricia L. Chang.

Chang, 79, is the sister-in-law of Mau, 89. She began working for the family companies in 1953 as a restaurant cashier, rose to head of restaurant operations and then served as an officer and director of various companies in the family empire, according to the U.S. Tax Court filings.

The shopping plaza owners claimed $16.8 million of the payments to Chang were tax-deductible business expenses, including $6 million to compensate her for "mental and emotional distress and for damages for physical injury suffered during her years of employment. The companies argued that just $1.2 million was a taxable capital expense to purchase Chang's ownership interests in the shopping plaza and related businesses.

The Internal Revenue Service doesn't see it that way. It argues that $14 million was the true price of the Chang buy-out, and the companies owe taxes on that amount.

The remaining $4 million "payment of damages" to Chang was a legitimate tax-deductible business expense, the IRS said.

The agency does not specify in the Tax Court paperwork how much it is seeking in back taxes, penalties and interest, but the figure is believed to be in the millions of dollars.

Nor do the papers say whether IRS reclassification of the payments will have tax consequences for Chang.

The companies had asked the Tax Court to rule that their tax returns were accurate and all appropriate taxes had been paid.

The ownership companies — Waikiki Shopping Plaza Inc., Waikiki Shopping Plaza Ltd., and Top of Waikiki Inc. — said Chang threatened to sue in 1995 for claims including "retirement pay, damages for sexual harassment and negligent and intentional physical and emotional injury."

She also threatened to disclose information that would damage the businesses, the companies said in their Tax Court petitions.

Chang initially wanted $50 million to settle her claims, but eventually settled for $18 million.

The companies acknowledged in its petitions that "Mr. Mau was abusive to Mrs. Chang" while she worked for the Mau group.

Chang agreed in the settlement not to disclose "confidential information" about the businesses and acknowledged that the "injuries she had suffered were not intentionally caused."

The IRS also is disputing $1.6 million in payments to William Mau in 1995-96, which the companies said were tax-deductible bonuses for services rendered. The IRS says they are nondeductible distributions of partnership profits.

Steven Rinesmith, a Honolulu attorney representing the companies and Mau, declined to comment. Leighton Mau, son of Bill and chief operating officer of Waikiki Shopping Plaza, did not return calls. Patricia Chang could not be reached.

Bill Mau is a rags-to-riches success story. One of seven children born to a Chinese immigrant and his Island wife, he grew up in a Waikiki shanty that bordered the land he later purchased and developed into the Waikiki Shopping Plaza and Waikiki Business Plaza. He also built the Ambassador Hotel and owned the old Aloha Motors site before selling it to make way for the Hawai'i Convention Center.

After graduating from McKinley High School in 1932, Mau worked as an elevator operator, married his wife, Jean, in 1936, then began building a fortune from a hot dog-hamburger stand on Kuhio Beach.

He bought into Tropical Enterprises Ltd., owner of the Lau Yee Chai Restaurant and 60,000 square feet of fee-simple land at Kuhio and Kalakaua avenues. After developing that property, he branched into banking, becoming chief executive officer of American Security Bank.

Reach Jim Dooley at jdooley@honoluluadvertiser.com or 535-2447.