Thursday, July 29, 2004

Trustee seeks to cap
airline tax claim

Hawaiian Airlines trustee Joshua Gotbaum, who says that a $128.9 million Internal Revenue Service claim against the company is overstated, filed a motion yesterday seeking to have that amount capped at $23 million.

Gotbaum also asked the federal Bankruptcy Court to disallow a $40.5 million penalty against the airline.

"The IRS claim is substantially overstated and we have now explained why," Gotbaum said in a statement.

The IRS alarmed potential airline investors when it filed a priority claim against Hawaiian Airlines late last month seeking $88.4 million in federal excise and corporate income taxes for 2001, 2002 and part of 2003, including $4.3 million in interest. Hawaiian would have six years to pay back that amount, so potential investors would be liable to pay the IRS nearly $15 million a year to fulfill the obligation.

In addition, the IRS has assessed $40.5 million in penalties based on $23 million in unpaid aircraft fuel taxes, including interest, that the IRS said Hawaiian owed for its flights between Hawaii and the mainland.

On the advice of airline industry tax specialist Heffernan & Associates, Hawaiian claimed fuel tax credits on those routes for flying over international waters. The IRS disagreed with the credits. In yesterday's motion, Gotbaum said the airline thought the tax advice was sound at the time.

Hawaiian also took issue with the IRS' claim of $65.4 million for back income taxes. The airline said the IRS, based on the agency's own adjustments, made no attempt to determine what Hawaiian's actual tax liability would be. Hawaiian also disputed other IRS claims.

A hearing has been set for Aug. 27.

"Many of the claims are nothing more than estimates or guesses of what the IRS currently 'believes' is Hawaiian's maximum case potential income liability," the filing said.

In other developments yesterday:

» Bankruptcy Judge Robert Faris granted a one-month extension for filing reorganization plans to Aug. 30 and for amending them to Sept. 9. No firm dates were established for the disclosure statement deadline and confirmation hearings.

» The Hawaiian Investment Partners Group LLC, the Hawaiian Reorganization Committee and Hawaiian Airlines pilot Robert Konop jointly filed an amended reorganization plan for the airline that Konop said has a value of more than $300 million. In the plan, which is expected to be filed today, creditors will be paid in full; stockholders can swap their shares for stock of the new company; and approximately six million shares of new stock will be available to employees through a temporary salary reduction program.


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