Hawaiian Air owes
$129M, IRS claimsThe airline's bill for more than
two years of underpayments
includes $40.5 million in penalties
The Internal Revenue Service is seeking nearly $129 million from Hawaiian Airlines for the underpayment of federal excise and corporate income taxes over more than two years.
The IRS claim, filed in federal Bankruptcy Court, seeks $84.1 million in taxes, $4.3 million in interest and $40.5 million in penalties. The airline industry excise taxes, which cover such areas as fuel and transportation, are for 2001 and 2002 and the first two quarters of 2003. The corporate income tax claims are for $43.1 million in 2001 and $19.7 million in 2002.
Most of the claim covers time before the airline's Chapter 11 reorganization filing on March 21, 2003, when John Adams was chairman and chief executive of the company. He was removed two months later by Bankruptcy Court Judge Robert Faris for financial decisions he made involving the airline's $25 million stock tender offer in 2002.
Hawaiian Airlines had been aware that the federal agency was conducting an audit for 2001 and 2002, but airline trustee Joshua Gotbaum, who took over the company in July 2003, called the magnitude of the claim "unjustified."
"We believe the estimate is substantially overstated and expect the claim will be greatly reduced by the bankruptcy court," Gotbaum said. "Hawaiian Airlines has been providing detailed information and cooperating fully with the IRS over the past year."
The state Department of Taxation also has filed a claim with Bankruptcy Court but lists the amount it is seeking as "unknown."
State Tax Director Kurt Kawafuchi said he does not know how much the state might seek from the airline in back taxes.
"We definitely will follow up on it and will do whatever we can to protect the state's interest," Kawafuchi said. "We need to look into what the IRS was making as claims to see if we have parallel state adjustments, and if we do, we'll do whatever steps we can to protect the state's rights."
Hawaiian Airlines, which expects to emerge from bankruptcy this fall, has received claims in excess of $500 million since filing for reorganization. Insiders connected with the case expect the number of legitimate claims to end up around $300 million.
The IRS claim is the largest so far in the case, just ahead of a $110 million claim by aircraft lessor Ansett Worldwide.
Insiders say the amount that Hawaiian ultimately pays likely will be considerably less than what the IRS is seeking.
For example, the IRS initially sought $138 million from bankrupt Hawaii retailer Liberty House but ended up settling $103 million of that claim for $4.2 million and capped the remainder at $14 million.
Carol Muranaka, special assistant U.S. attorney, said the two cases cannot be compared because they are different taxpayers. She declined to discuss any details about the Hawaiian Airlines case due to privacy issues.
"The government always tries to determine the correct amount of tax," Muranaka said. "We filed the proof of claim because we believe we have determined the correct amount of tax that is due."