WASHINGTON >> The Bishop Estate and the Internal Revenue Service have reached an agreement that will allow the estate to sell its residential leaseholds in Hawaii without having to pay taxes on the proceeds.

The agreement clears the way for the sale of some 13,000 residential leaseholds to comply with the intent of Hawaii’s 1975 Land Reform Act, which seeks to break up large private concentrations of leaseholds such as the 3,192 acres held by the Bishop Estate.

The state law was passed to bring relief to homeowners who built on leasehold land, only to see their rents later skyrocket beyond their ability to pay. Estate trustees had been reluctant to sell the land to lessees without an agreement with the IRS, for fear that the estate would lose its tax-exempt status and be forced to pay up to $350 million in taxes on the proceeds from the sales.

A complex round of negotiations between the trustees and lessees will be needed before any lots are actually sold.

The trustees are reportedly seeking another agreement with the IRS that would permit them to waive their commissions on the leasehold sales, which could amount to more than $1 million for each of the five trustees if the bulk of the leaseholds are sold.

The waiver is reportedly being sought to avoid the massive public outcry that would be certain to follow such an enormous personal profit by the trustees. The agreement with IRS would reportedly guarantee that the forfeited commissions would remain with the estate, with no tax disadvantages to the trust occurring as a result.

Trustee commissions are based on a percentage of the sale price of the property. The percentage figures range from 10 percent of the first $1,000 through 5 percent of the next $10,000, down to 2 percent of anything over $250,000 on each transaction.

Bishop Estate trustee Frank Midkiff pointed out … that sales of leasehold lots are expected to stretch out over a period of 20 years or more.

It’s difficult to estimate how much additional revenues would accrue to the estate from the forfeited commissions, he said, because it would depend on the sale prices of lots negotiated with various tracts over the years.