School operator Tanaka Ikueikai Educational Corp., wracked by a heated feud within its founding family, has been hit with orders to pay back taxes and other penalties over concealed income, sources said.

The Tokyo Regional Taxation Bureau found that a company subsidiary hid more than 600 million yen ($3.84 million) in income over the seven years ending in May 2024, the sources told The Asahi Shimbun.

The money was used by the husband of Makiko Ueshima, who was chair of Tanaka Ikueikai Educational before being ousted in a motion submitted by her sister in 2023.

Tanaka Ikueikai Educational, which operates Tokyo Kogakuin College, was cited for hiding about 50 million yen in income and other discrepancies after failing to report rental income from a property it owns in Hawaii, the sources said.

The bureau imposed back taxes of about 150 million yen, including heavy penalty surcharges, against the subsidiary, and around 20 million yen in corporate taxes against Tanaka Ikueikai Educational.

In response to inquiries from The Asahi Shimbun, Tanaka Ikueikai Educational said, “There is no one available to answer, so we will refrain from commenting.”

FAMILY AFFAIR

Ueshima’s husband appeared to have played a key role in the tax evasion, according to the sources.

Tanaka Ikueikai Educational entrusted its asset management to a wholly-owned subsidiary, Toko E&I, based in Tokyo’s Shibuya Ward.

The subsidiary in turn subcontracted the work to a U.S. asset management company run by Ueshima’s husband for about 90 million yen annually.

The tax bureau determined that the husband’s business was, in fact, a shell company and that the subcontract was fictitious.

It disallowed the 640 million yen paid from Toko E&I to the husband’s company over the seven years as an expense, deeming the amount executive compensation for the husband, the sources said.

U.S. CONNECTION

Tanaka Ikueikai Educational had bought a resort condominium unit near Waikiki Beach and listed it as a “Hawaii training center.” The bureau learned that the unit was being rented out and judged it to be a taxable profit-making business.

The bureau also found that Ueshima’s family was living in another residence in a high-end U.S. area but for low rent. It determined the rent constituted an “in-kind benefit” as executive compensation, and cited it as undeclared income.

Tanaka Ikueikai Educational was established in 1965 and operates Tokyo Kogakuin College, Tokyo Air Travel & Hotel College, and Tokyo Kogakuin Japanese Language School.

According to its website and other sources, 594 students out of a capacity of 880 were enrolled in Tanaka Ikueikai Educational departments, such as architecture, voice acting and tourism, as of May this year.

FOUNDING FAMILY FEUD

Since late October, Tanaka Ikueikai Educational has fallen into the unusual situation of having no board chair or directors.

The disarray started after an accountant who had been in charge of the company’s U.S. branch sent a “whistleblower letter” to the founding family’s home in July 2019.

Following seasonal greetings, the letter warned, “The content of this discussion will be quite severe.”

It pointed out tax issues related to Ueshima’s family, who lived inexpensively in multiple U.S. properties owned by the corporation.

When Ueshima’s younger sister, Kimiko Taki, a former director, tried to investigate, Ueshima and others resisted.

In March 2023, Taki brought a motion to dismiss Ueshima to the board of directors, which was passed.

Taki was appointed as the succeeding board chair.

The dispute, however, quickly escalated.

In April 2023, Ueshima filed a lawsuit to nullify the resolution for her dismissal as well as Taki’s appointment.

The plaintiff argued that video and audio of one director participating in the board meeting via web conference had been interrupted.

In its July 2024 ruling, the Tokyo District Court acknowledged a procedural error in the resolution and invalidated Ueshima’s dismissal. The Tokyo High Court upheld the ruling.

In October, the Supreme Court rejected Taki’s appeal, finalizing the judgment.

Before the top court’s decision, Taki, acting as board chair, established a committee of external lawyers and accountants to investigate allegations of fund misappropriation by Ueshima and others.

According to court records, the committee’s final report in June 2024 raised concerns about the fund transfers to the husband’s company and the family’s low-cost use of corporate properties.

The report concluded there was a high probability of “inappropriate management of funds and assets” due to family control, and that it was “extremely difficult to expect any internal self-purification."

In court, Ueshima and her husband denied any wrongdoing.

“It can only be described as a pretext to oust us,” they said. “We have never made a slush fund out of the assets of Tanaka Ikueikai Educational nor put the money in our own pockets.”

According to school officials, the terms of the directors at Tanaka Ikueikai Educational expired in late October, and a new board has not been appointed.

While the infighting has had no direct impact on the students, the leadership vacuum means the corporation cannot make official decisions on new and renewed contracts for faculty, staff and construction projects.

According to sources, the supervising Tokyo metropolitan government is demanding the submission of an improvement plan.

The Asahi Shimbun requested an interview with Ueshima through her family, but no response was received.

Taki replied, “I cannot answer in a personal capacity.”