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Complaint filed against BWHA claims settlement missing in tax returns

By Aaron Blevins, 1/10/2013

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The Beverly-Wilshire Homes Association (BWHA) has been suing developers for hundreds of thousands of dollars and not reporting the settlements on their taxes, which is legally required as a 501(c)4 organization, according to a complaint filed against the organization.

The confidential complaint, filed on July 22, 2011, by a local law firm that requested to remain anonymous, was submitted to the California Franchise Tax Board, the California Attorney General’s Office and the IRS.

It alleges that BWHA has engaged in prohibited transactions, misrepresented its tax-exempt status and failed to report revenue to the IRS without reasonable cause from 1993 to 2011. The complaint was filed on behalf of clients not named in the document.

According to the association’s tax returns from 2008 — the most recent returns the IRS could provide — the association reported $27,815 in total assets at the beginning of the year, with that figure at $8,032 by year’s end. However, it excludes a $62,000 settlement from the developer of the Beverly Connection from June 30, 2008.

According to the settlement agreement, BWHA sued Bevcon I LLC, a Delaware limited liability corporation, in Los Angeles County Superior Court over the Beverly Connection project due to violations of Los Angeles Municipal Code and state laws, including the California Environmental Quality Act.

The agreement states that the Beverly Connection project included the redevelopment of a mixed-use project with 360,000 square feet of commercial space, one four-story 150-unit senior assisted living facility and one six-story 52-unit residential condominium building at La Cienega and West 3rd Street. The project was approved by the city of Los Angeles, which gave the project a zone and height district change, in 2006.

However, as part of the agreement, the developer revised the project into a two-story retail shopping center with 370,000 square feet of commercial area and 5,000 square feet of office space. If the revised project was approved, the developer was to pay BWHA an additional $78,000.

Vornado Realty Trust, which operates the Beverly Connection, declined to comment on the settlement, citing a company policy that disallows comment on litigation or litigation-related matters.

While the settlement agreement is dated for June 30, 2008, the court awarded judgment and a writ of mandate in favor of BWHA in June 2007 and awarded attorney’s fees to BWHA in September 2007. BWHA’s 2007 tax return reported no assets at the beginning of the year and $5,347 at the end of 2007.

According to the complaint, the association received $140,000 from Bevcon I LLC, but did not report the settlement on its taxes.

Additionally, BWHA has been telling donors that its donations to the association are tax-deductible. The complaint cites an August 2010 BWHA newsletter that states, “additional tax-deductible donations welcome.” The association’s most recent newsletter has similar wording. According to the IRS, donations to 501(c)4 organizations, such as homeowners associations, are not tax-deductible — unless they are a trade or business expense.

The complaint also alleges that the association’s directors have been diverting BWHA funds to people closely connected with the organization.

“Of greater significance, however, is where or to whom the payments received by the organization [from 1993 to 2011] have gone,” the complaint reads. It names BWHA’s president, Diana Plotkin, as the individual with control over the association’s assets, income and expenses.

The law firm asked the government entities for a full review of BWHA, though it is unclear what actions are being taken by the respective agencies. According to the complaint, the Franchise Tax Board could suspend BWHA’s corporate privileges, revoke its exemption or impose penalties.

The Internal Revenue Service could not specify if and when the organization has been audited.

The association is also being sued by a former member, Stan Brent, for allegedly giving favorable recommendations to businesses seeking variances, licenses and permits from the city of Los Angeles in exchange for financial support. Like the complaint, the suit alleges that such donations were used for the personal benefit of the association’s directors.

Brent said the lawsuit was the result of the association refusing to accept his membership check because of his views on certain issues. He said he requested BWHA’s bylaws to see if the refusal was legal, and his information request was never processed.

“That’s what really started this whole thing,” Brent said, adding that he has been a member of the association for approximately 25 years. “Obviously, there was no information coming from that organization. Furthermore, they wouldn’t even let me continue my membership.”

Brent said his attorney advised him to not discuss other allegations in the lawsuit, but said he has a “body of evidence” that goes back several years. As the former chairman of the Mid-City West Community Council’s Land Use Committee, applicants expressed concerns to him regarding bullying and coercion from BWHA, he said.

“These problems were very real for applicants who came before my committee,” he added. “We hope that what I believe are illegal activities cease, and that future applicants, on Third Street particularly, or anywhere else in our neighborhood, are not bullied or coerced. This needs to be exposed. People need to know what’s going on.”

Brent said additional defendants will be added to the lawsuit prior to the April trial.

The IRS could not comment on the complaint, and attorney general’s office did not respond to a request for comment by deadline — nor did Plotkin, the association’s president. The Franchise Tax Board did not confirm receipt of the complaint by deadline, but said the association is active, current and in good standing with the board.

 

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