Friday, January 29, 1999

Peters: IRS eyeing Kamehameha admission policy

He says Kamehameha has
been asked to justify its practice
of admitting only

By Rick Daysog


The Internal Revenue Service wants the Bishop Estate to justify its policy of admitting only Hawaiians to the estate-run Kamehameha Schools, according to trustee Henry Peters.

Peters said the IRS Western region office wants to eliminate the current admissions policy at the Kapalama Heights campus, which for more than 100 years has educated children of native Hawaiian ancestry.

But he said that the IRS' main office in Washington, D.C., has made no decision on the schools' admissions policy. Peters stressed that the outcome would be subject to negotiations between the estate and the federal government.

"They are saying 'no' at this juncture," Peters said. "We have to show cause why it should be maintained."

Peters' comments shed more light on statements he and fellow trustees Richard "Dickie" Wong and Lokelani Lindsey made in court filings last week.

The three majority trustees said they believed that the IRS may be targeting the Kamehameha Schools admissions policies, but they did not provide specific details of the IRS inquiry.

They vowed to defend the admissions policy, which they believe to be sacred to the legacy of the estate's founder, Princess Bernice Pauahi Bishop.

It is not clear what impact the admissions policy dispute could have on the estate's tax-exempt status. Generally, a school should have a nondiscriminatory admission policy to retain its nonprofit status.

The IRS previously ruled in a 1975 technical advice memorandum that the Kamehameha Schools' admissions policy was not racially discriminatory. The agency reinforced that decision with a private-letter ruling in 1986.

Peters yesterday said that if he were forced to chose between the tax-exempt status and the Kamehameha Schools admissions policy, he would side with the admissions policy.

The dispute over the admissions policy comes as the IRS is in the process of concluding its four-year audit of the multibillion-dollar charitable trust.

The federal agency reportedly is examining the estate's tax-exempt status, its lobbying practices as well as trustees' compensation and their perks.

The IRS has declined to confirm or deny its audit.

In a related matter, attorneys for the five trustees will debate in probate court today how the estate should proceed with the IRS audit.

Trustees Gerard Jervis and Oswald Stender believe that all five trustees should recuse themselves from the matter since they are in conflict. Jervis and Stender -- who have voluntarily recused themselves -- are asking probate Judge Kevin Chang to appoint a panel of three administrators to address the IRS audit.

But Peters, Wong and Lindsey have vowed not to recuse themselves. They believe that they should be involved in the process because the audit concerns issues central to the estate, such as the schools' admissions policy.

They have asked the probate court to appoint Mitch D'Olier, chief executive officer of Victoria Ward Ltd., and Richard Griffith, president of Queen's Health Systems, to an advisory panel that would help the board steer through any ethical conflicts that may arise with the IRS audit.

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