A nonprofit housing organization has received a federal tax exemption retroactive to 2004 despite being linked to a corruption investigation into the Los Angeles labor union that founded it, according to Internal Revenue Service records and officials.
The charity had been operating without an exemption since the Service Employees International Union local launched it more than four years ago. It also has been suspended by California tax authorities for not filing all of its returns, officials said. And the SEIU has accused two former officers of the local of taking improper payments from the nonprofit.
An IRS spokeswoman confirmed that the retroactive exemption was awarded but declined to discuss the matter in detail, citing taxpayer privacy statutes.
Nonprofit watchdogs said the IRS should not have approved the retroactive exemption.
"The IRS really just hands out tax-exempt status like it's throwing around candy," said Sandra Miniutti, vice president of Charity Navigator, an online rating service. "There really is no oversight at the federal level."
Rep. Xavier Becerra (D-Los Angeles), who sits on a House subcommittee that oversees the IRS, said he did not know why the agency would approve an exemption for a group involved in a corruption scandal. But he noted that the agency has suffered staff cuts that reduced its ability to tackle complex matters.
Becerra said the case underscored the need for more policing of charities.
Marcus Owens, a former head of the IRS division for tax-exempt organizations, said an office of the agency might have issued the exemption letter without realizing an investigation was underway.
"It's something of an assembly line," he said.
The nonprofit's primary mission is to develop housing for the SEIU local's members, most of whom earn about $9 an hour caring for the elderly and infirm.
The SEIU's United Long-Term Care Workers, California's largest union local, is being investigated by the U.S. Labor Department, FBI and U.S. attorney's office, people familiar with the probe say.
Financial transactions involving the housing group are part of the investigation, they say.
Officials in Compton are investigating whether the charity and Tyrone Freeman, then president of the local, defrauded the city by accepting a donation of municipal land before the housing corporation was granted a tax exemption.
An attorney for the nonprofit, Dario Frommer, a former Assembly majority leader, said the charity is cooperating in that investigation. He declined to comment further.
The law firm for the charity said in August that an exemption sought in 2004 had been delayed because the IRS made a "routine" request for more information.
The IRS' master list of nonprofits shows that the agency made its ruling in August, but does not specify a date. It is unclear why the exemption letter was not issued until September.
A spokeswoman for the California Franchise Tax Board said Friday that the nonprofit does not have a state exemption and has been suspended. Denise Azimi said the charity has filed just one return, for 2005.
The state had lifted a similar suspension in August, according to the tax board.
The Times has reported that, in addition to lacking an exemption, the nonprofit listed the home of a union official as its administrative address and claimed to have a relationship with the prominent California Community Foundation, which said it never heard of the organization.
The SEIU has accused Freeman of taking about $2,400 a month in improper payments from the housing nonprofit from January through June of this year, in addition to a lump sum of $14,500. He has been removed from office.
Freeman's former chief of staff, Rickman Jackson, whose Bell Gardens home was listed as the charity's address, has been ousted as president of the SEIU's largest Michigan local because he received improper lease payments of $33,500 from the nonprofit, the union alleges.
Pringle is a Times staff writer.