Bishop attorneys
ask judge to OK
IRS settlement

Ousted trustee Henry Peters,
however, says the deal would
violate Princess Bernice
Pauahi Bishop's will

By Rick Daysog
Star-Bulletin

Attorneys for the Bishop Estate have urged a state judge to approve a proposed settlement with the Internal Revenue Service.

But a lawyer for ousted Bishop Estate trustee Henry Peters said such an agreement would break the will of the estate's founder, Princess Bernice Pauahi Bishop, and force the trust to sell its valuable lands.

The two sides squared off in state Circuit Court yesterday, in a debate foreshadowing the upcoming Dec. 13 trial over the permanent removal of trustees Peters, Richard "Dickie" Wong and Lokelani Lindsey.

James Kawashima, an attorney for the Bishop Estate interim board, said the proposed deal with the IRS will save the trust tens of millions of dollars while preserving the estate's tax-exempt status.

Kawashima said the agreement calls for the trust to pay $9 million in back taxes and interest.

Previously, the IRS had proposed the estate pay $65 million to settle its tax claims. The IRS also has threatened to revoke the trust's tax-exempt status for the 1990-1996 period, in a development that could cost the estate as much as $750 million.

"This settlement is in the best interest" of Kamehameha Schools Bishop Estate, Kawashima said.

Renee Yuen, Peters' lawyer, disagreed, saying the agreement with the IRS would be a disaster for the estate. In the proposed deal, the estate's interim trustees agreed to spend 2 percent to 6 percent of the trust's assets for educational purposes.

That, she said, would force the estate to sell its lands if the trust's income doesn't appreciate as fast as the value of its assets.

"This poses a threat to the slow deterioration of the lands of KSBE," Yuen said.

Yuen also asked Chang for a full evidentiary hearing on the approval of the IRS closing agreement to examine the implications of the deal.

But Chang rejected the request, saying he will issue a written order on the proposed IRS deal shortly.

In a related matter, Chang rejected Peters' request to overturn his May 7 order temporarily removing four of the Bishop Estate's five trustees from their $1 million-a-year posts, saying the motion "lacked the legal or factual grounds."

Peters, whose appeal of Chang's interim removal order was rejected last month by the state Supreme Court, argued that the interim removal was tainted by the involvement of the trust's outside tax attorney and its general counsel, who had conflicts of interest.

Washington, D.C., tax consultant Mark McConaghy and trust lawyer Nathan Aipa, who played major roles in the interim removal of the trustees, were partly responsible for the actions for which the trustees were removed, according to Yuen.

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