Wednesday, August 25, 1999

Preserving estate’s
tax-exempt status

Bullet The issue: The Internal Revenue Service had threatened to cancel the Bishop Estate's tax-exempt status.
Bullet Our view: The agreement with the IRS submitted by the interim trustees, despite its cost, is significant because it would preserve the estate's status.

THE interim trustees of the Bishop Estate appear to have succeeded in reaching agreement with the Internal Revenue Service on terms for preserving the estate's tax-exempt status. This has been the problem of greatest concern in the controversy over the conduct of the estate's affairs over the past two years. Loss of that tax status would be financially devastating. It would cost the estate $750 million, according to the interim trustees.

The formula for preservation of the tax-exempt status is spelled out in papers filed yesterday with the Probate Court along with a request for the permanent removal of the five former trustees, two of whom have resigned. Tuesday was the deadline set by Judge Kevin Chang for the filing of the request for permanent removal.

On May 7 Chang ordered the temporary removal of four trustees and accepted the resignation of the fifth, Oswald Stender. Lokelani Lindsey was permanently removed by Circuit Judge Bambi Weil in a separate proceeding. Last week Gerard Jervis resigned.

The agreement with the IRS calls for the payment of $9 million plus interest in back taxes. The settlement covers only the estate's trust operations. Its for-profit subsidiaries could be liable for considerably more. Whatever the total amount, however, the alternative -- loss of tax-exempt status -- would be far more costly.

The key to the agreement with the IRS is the permanent removal of the former trustees. Judge Chang's earlier order for their temporary removal appeared to indicate that the judge was disposed to complete the process with permanent removal.

However, Judge Chang will also have to consider a request to vacate his temporary removal order. One of the ousted trustees, Henry Peters, filed court papers claiming that estate tax consultant Mark McConaghy was responsible for much of the estate's troubles with the IRS. Peters charged that McConaghy, co-managing partner of Price Waterhouse Coopers' Washington National Tax Service, and other tax experts have undeclared conflicts of interest that tainted the removal order.

The contention that the trustees made mistakes because they were misled by their consultants because of such conflicts could be difficult to establish. Retired trustee Matsuo Takabuki, who hired McConaghy in the 1980s, denied that he had a conflict of interest and called him a person of high integrity.

Peters, Lindsey and Richard Wong could bring these proceedings to an early end by resigning as trustees rather than continuing what appears to be a hopeless fight for reinstatement. By letting the estate and Kamehameha Schools focus on repairing the damage they have wrought they could contribute at least to a modest degree to these efforts.


Pauline trial

Bullet The issue: a jury will begin deliberations in the first of three trials scheduled in the Dana Ireland murder case.
Bullet Our view: A scarcity of physical evidence will cause the jury to focus on the defendant's confessions although they were later recanted.

BIG Island jurors have been handed a formidable task in examining the evidence in the murder trial of Frank Pauline Jr. in the Christmas Eve 1991 death of Dana Ireland. Pauline began telling police, fellow prison inmates and news reporters in 1994 that he took part in the slaying but now says he lied as a ploy to get released from prison, where he was serving a sentence for another offense. Those conflicting statements have emerged as the key evidence in the absence of much else.

Before recanting his confessions, Pauline said he had struck Ireland on the head with a tire iron. He said brothers Albert Ian Schweitzer and Shawn Schweitzer raped Ireland after Ian ran her down with a car, but denied taking part in the rape.

A grand jury indicted Pauline in July 1997 and the Schweitzer brothers in October 1997 but withdrew the Schweitzer indictments a year later. The brothers were reindicted three months ago; Albert Ian is scheduled for trial in November, Shawn next March.

The hesitancy of authorities to go ahead with the trial is understandable. The remote location of the crime scene and the arrival of civilians at the scene before police could secure it may have caused difficulty in gathering physical evidence.

A T-shirt stained with Ireland's blood and found near Ireland's body was identified by Pauline's former girlfriend as having belonged to him. The defendant denied ownership and said the shirt size would have been too small for him in 1991, a conditional statement that relieved the court of having him try it on.

DNA tests of sperm recovered from a hospital sheet where the dying Ireland's body had lain did not match the DNA of Pauline or either of the Schweitzer brothers.

Police said they believe a fourth man was involved in the attack. The defense argument is that police have no choice but to invent such a scenario.

In view of the dearth of physical evidence, the jurors can be expected to focus on Pauline's confessions. If those statements included detailed information about the attack that he could have obtained only by having taken part in it, as the prosecution maintains, they rise in importance despite his subsequent retraction.

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