Teruya Brothers disputes IRS ruling
By Jerry Moskal
Special to The Advertiser
WASHINGTON — Teruya Brothers Ltd., the majority owner of Times Super Market, is appealing $4.14 million in taxes for selling an apartment and condominium to the grocery chain.
The Honolulu-based company claimed in a petition filed with the U.S. Tax Court that the Internal Revenue Service erred when it ruled that the sales of the Royal Towers apartments and Ocean Vista condominiums, both in Salt Lake, did not qualify as tax-free property exchanges.
The IRS based its decision on Teruya Brothers' 62.5 percent stock ownership of Times Super Market, Hawai'i's third-largest grocery chain with 13 O'ahu stores.
According to the IRS, the property transactions did not qualify for tax-free treatment. It said that additional 1996 taxes were owed.
The Teruya Brothers' petition asks the court to overturn the IRS determination. The company said Times was a separate operation.
Times, which had 950 employees, was sold to Quinn Supers Inc., of Stockton, Calif., more than 20 months ago. Quinn is an affiliate of PAQ Inc., which operates six Food4Less stores in Northern California and employs 650 workers.
"I'm not sure I should be commenting on this at this time," Christy Izuka, company comptroller, said Wednesday.
She and Wayne Teruya, the firm's vice president, referred questions about the case to Raymond Teruya, company president.
"He's the spokesman on this," Wayne Teruya said of his brother.
Stanley Y. Mukai, a Honolulu tax attorney for Raymond Teruya, did not return a half dozen phone calls over three days seeking comment.
An IRS spokesman said the agency is barred by law from commenting on pending tax cases.
In its ruling, the IRS said the company had to report a more than $12 million taxable capital gain on the sales of the Royal Towers and Ocean Vista. The gain would result in $4.14 million taxes.
In its petition, the Teruya Brothers cited letters sent between the company and the Ocean Vista condominium board in which the company said it would only dispose of its interest in the condo if it could "find an exchange property" and meet IRS tax-free exchange requirements.
In 1994, the petition added, Times issued a letter of intent under which Teruya Brothers would buy Times' Kupuohi II property in Royal Kunia at a price that would accomplish the tax-free property swap.
"From the outset, Teruya never intended to sell Ocean Vista for cash, but instead intended to exchange Ocean Vista for property of like kind," the petition said. "Teruya continues to own the replacement property, Kupuohi II, more than eight years after the exchange."
The petition denied that "the disposition of Ocean Vista had as one of its principal purposes the avoidance of federal income tax."
Times and Teruya Brothers also entered an agreement nine years ago under which Teruya Brothers would exchange its interest in the Royal Towers apartments for the Times' Kupuohi I in Royal Kunia and Kaahumanu properties in Pearl City.
The petition noted that Teruya Brothers still owns the Kupuohi I and Kaahumanu properties more than eight years after the Royal Towers transaction with Times.
Times Super Market, which was founded by brothers Wallace and Albert Teruya, opened its first store in 1949.
The store on South King Street near McCully Street had 6,000 square feet, and the business expanded from there.
Teruya Brothers began two years earlier when the brothers sold their first business venture, the Times Grill.
Teruya Brothers now owns the Ilima Hotel in Waikiki, Fastop Convenience Stores, Inc., Fastop Petroleum Marketing, TBL Realty, Inc., and various rental properties.
The IRS has 60 days or until late December to file an answer to the Teruya Brothers petition.
If the IRS and the company fail to negotiate a settlement, the case could go before a tax court judge.
Advertiser staff writer Andrew Gomes contributed to this report.
