January 13, 2000 | Read Time: 2 minutes
Following a decision last month by two former trustees to stop fighting their dismissals, Hawaii’s wealthiest charity is redoubling its efforts to settle its remaining dispute with the Internal Revenue Service.
The court-appointed interim Board of Trustees of the Kamehameha Schools, which educates children of native Hawaiian descent, has already agreed to pay the federal government more than $9-million in lieu of taxes and penalties for various violations alleged to have been committed by the former trustees (The Chronicle, December 16). In return, the I.R.S. has agreed to let the institution retain its tax-exempt status, which it had previously threatened to revoke retroactive to 1990.
But the revenue service has also proposed that the Kamehameha Schools pay the government $165-million to resolve tax issues involving its for-profit subsidiaries from 1990 through 1996. The interim trustees are now trying to persuade the government to accept a lower figure.
The $6-billion charitable trust has created several for-profit entities for various purposes, including the management of some of its far-flung financial investments — from Honolulu shopping centers to Texas gas wells. Critics charge that the former trustees used the complex web of non-profit and for-profit organizations to manipulate the accounting of investment gains and losses to maximize the revenues on which their compensation was based.
In 1998, the former trustees awarded themselves more than $1-million apiece in annual compensation — a figure that both the I.R.S. and the Hawaii Attorney General’s Office have argued is much too high.
As part of its “closing agreement,” the service had required the permanent removal of all five of the former trustees who directed the charity’s affairs during more than two years of escalating turmoil. Those trustees have been out of office since last May, when a probate judge removed them temporarily and appointed interim trustees to replace them until he decides on a new method for selecting trustees.
Just before the scheduled start last month of the trial on their permanent removal, former trustees Henry Peters and Lokelani Lindsey submitted their resignations — while vigorously defending their actions as trustees.
All five former trustees are still expected to face state and federal lawsuits seeking to charge them for financial losses allegedly suffered by the charity during their tenure in office — including the excessive compensation and other perquisites they are alleged to have received.
Until this month, the trust was known formally as the Kamehameha Schools Bernice Pauahi Bishop Estate, named after the Hawaiian princess whose 1883 bequest established two schools (now merged into one) and left a large endowment. The charity has now dropped the name under which it gained such notoriety, however. Henceforth it is simply the Kamehameha Schools.
