Tax-status loss
By Rick Daysog
would cost estate
Star-BulletinRevocation of the Bishop Estate's tax-exempt status could result in significant back taxes owed to the federal government, force the estate to pay new state and county taxes and force the estate to run up millions of dollars in legal and other fees.
Losing the tax-exempt status would make it hard for the trust to finance educational programs at the Kamehameha Schools.
Those are some of the conclusions of the estate's court-appointed master Colbert Matsumoto in an April 29 report that prompted Probate Judge Kevin Chang's historic decision to temporarily remove the trustees of the Bishop Estate on Friday.
Matsumoto's 24-page report, which was filed under seal April 29, was ordered public by Chang on Friday. While his recommendation on removing trustees was reported by the local media last week, the court document revealed new details on the IRS' threats to revoke the estate's nonprofit status and consequences.
Many observers have argued that revocation of the 114-year-old estate's tax-exempt status would cost tens of millions of dollars each year. One former trustee, Oswald Stender, estimated that as much as half of the trust's $300 million in annual pre-tax income would end up going to taxes if the nonprofit status were lost.
Matsumoto -- who declined comment on his report -- said in his filing that he could not estimate the potential damage in actual dollars. But he believes that the loss of the tax-exempt status would result not only in significant back taxes owed to the IRS but would force the Bishop Estate to pay state income taxes, state general excise taxes and county real property taxes that it previously was exempt from.
"The uncertainty surrounding the trust estate's financial status would impair its ability to implement expansion plans for education programs," Matsumoto said.
Release of Matsumoto's report coincided with the IRS' negotiations with a five-member panel of interim replacement trustees appointed by Chang on Friday.
In a confidential April 27 report, the replacement trustees disclosed to Chang that the IRS had threatened to revoke the estate's tax-exempt status if the past trustees -- Richard "Dickie" Wong, Oswald Stender, Henry Peters, Lokelani Lindsey and Gerard Jervis -- did not step down.
The replacement trustees also disclosed that the IRS was pushing for tighter controls on the compensation of future trustees and trust executives and was calling for a new method of selecting replacement trustees.
Chang yesterday approved appointment of a panel to determine reasonable compensation for future trustees. The panel includes Matsumoto, attorney Allen Hoe and resident Michael Rawlins.
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