Wednesday, May 12, 1999

IRS wants
ousters permanent

The removal of five trustees
last week is not negotiable if
the agency wants a settlement,
the interim board chair says

By Rick Daysog


Despite the temporary removal of the trustees of the Bishop Estate last week, the Internal Revenue Service is insisting on the permanent ouster of all five board members, according to the chairman of the newly installed board of trustees.

Retired Adm. Robert Kihune, head of the five-person board of interim trustees named by Probate Judge Kevin Chang on Friday, said the permanent ouster of former trustees Richard "Dickie" Wong, Henry Peters, Oswald Stender, Gerard Jervis and Lokelani Lindsey is not negotiable if the estate wants a settlement with the IRS.

The IRS, which has been conducting an exhaustive audit of the Bishop Estate since 1996, has threatened to seek the revocation of the estate's tax-exempt status if all five trustees were not removed.

Loss of the estate's tax-exempt status would cost the trust tens of millions of dollars each year.

The interim trustees yesterday completed two days of negotiations with IRS national and regional officials, saying they made progress in their attempt to preserve the multibillion-dollar trust's tax-exempt status.

Kihune said the IRS indicated that Chang's decision Friday to temporarily remove four trustees and accept the voluntary resignation of a fifth board member, Stender, gave a "clear signal" for them to proceed with further negotiations.

But he said the IRS is still insisting on their permanent removal.

Kihune believes that management reforms now being implemented at the estate will convince the IRS that the trust's tax-exempt status should no longer be questioned. He said that further meetings with the IRS have been scheduled.

"We feel we made genuine progress toward resolving the major governance issues concerning the IRS which has put KSBE's tax-exempt status at risk," said Kihune.

"We believe and expect that the changes being made in KSBE's governance under supervision of our probate court will convince the IRS that KSBE's tax-exempt status should no longer be questioned."

Chang last Friday appointed Kihune, retired Iolani School headmaster David Coon, former Honolulu Police Chief Francis Keala, Hawaiian Electric Industries Inc. Treasurer Constance Lau and attorney Ronald Libkuman as replacement trustees after he temporarily removed the incumbent trustees.

Estate guaranteed
Rubin’s holdings

Star-Bulletin staff


U.S. Treasury Secretary Robert Rubin, who announced today that he is stepping down, for years has had ties with Hawaii's Bishop Estate.

After Rubin left Goldman, Sachs & Co. in 1993 to join the Clinton administration, the estate, a major investor in Goldman, guaranteed Rubin's interest in the Wall Street firm in the unlikely event the company ever went under.

For the guarantee, Bishop was paid roughly $500,000 annually -- considered virtually risk-free investment income for the estate.

Although Rubin recused himself from Bishop Estate and Goldman matters while he headed Treasury, critics have noted that the estate for years got favorable tax rulings from the Internal Revenue Service, an arm of the Treasury.

More recently, however, the IRS was instrumental in the recent interim removal of the estate trustees. The agency had threatened to revoke the estate's tax-exempt status unless the trustees were ousted from the board.

Rubin is idolized on Wall Street for the policies many credit with spurring the record U.S. economic boom. President Clinton said he will nominate Rubin's deputy, Lawrence Summers, to succeed him.

Clinton, in a Rose Garden ceremony, said Rubin has been acclaimed as the most effective treasury secretary since Alexander Hamilton, the first man to hold the job. Clinton said that acclaim has been "well-deserved."

Rubin said it was hard for him to leave, because of his commitment to the administration. But he said his 6-1/2 years in Washington had been "all consuming" and that it was time to return to his home in New York. He said he would leave his job around July 4.

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