ALEC Faces New Challenge to Tax-Exempt Status

By John Dunbar

NationofChange 

Monday, July 2, 2012

http://www.nationofchange.org/alec-faces-new-challenge-tax-exempt-status-1341243207. All rights are reserved.

A prominent tax attorney has accused an organization of
state lawmakers and corporations officials with
improperly claiming nonprofit status, alleging the
group's role is to benefit businesses, the Republican
Party, and legislators and not the public.

The American Legislative Exchange Council (ALEC)
"elevates commercial gain for a few over the well-being
of society's less fortunate," says a complaint penned
by Marcus Owens, the former chief of the Internal
Revenue Service's nonprofit corporations division, on
behalf of Clergy VOICE, a group of ministers from
progressive churches in Ohio.

ALEC has attracted attention recently for its model
"stand your ground" and voter ID laws which led major
corporate backers like Coca Cola and Kraft Foods Inc.
to drop their membership in the face of a threatened
boycott by activists. The Florida gun law became a hot
topic following the slaying of Trayvon Martin, an
unarmed teen, by a neighborhood watch volunteer in
February.

Until recently, ALEC has enjoyed a low profile, despite
its substantial influence over legislation in the
nation's statehouses. The group claims on its website
that it has helped craft close to 1,000 bills
introduced by state lawmakers and that "an average of
20 percent become law."

In its complaint, Clergy VOICE says ALEC has
"deliberately and repeatedly failed to comply with some
of the most fundamental federal tax requirements
applicable to public charities" and that evidence
"quite strongly" suggests that the group is violating
civil and criminal tax laws.

The clergy's complaint goes beyond allegations of
improper lobbying, claiming that ALEC exists for the
"private benefit" of its members rather than for
charitable, educational or other exempt purposes that
serve the public interest and deserve special tax
treatment.

The Center forwarded the complaint to ALEC's media
relations representative Tuesday via email but a call
was not returned. The Center forwarded the complaint
and questions Wednesday morning to the organization and
was told it had been passed along to "appropriate
parties" but did not receive a response.

The 30-page letter sent to the IRS on June 18 was
inspired by a separate, whistleblower claim lodged by
consumer group Common Cause in April, which alleged
ALEC is a corporate-funded lobbying group, which
violates IRS rules that govern 501(c)(3) nonprofit
corporations.

ALEC, formed in 1973, has consistently argued it is
bipartisan and educational in nature, because it
provides research and analysis for legislators. It pays
no income tax and donors to the organization, including
its corporate members, can deduct their contributions
from their taxable income, just as they would for a
charity.

The Internal Revenue Code says a 501(c)(3) organization
"may not attempt to influence legislation as a
substantial part of its activities and it may not
participate in any campaign activity for or against
political candidates." ALEC reports no lobbying on its
annual filings with the IRS, according to the
complaint, but state records in North Dakota show two
lobbyists registered to represent the organization in
2008 and 2009: Mark Behrens and Cory Shaecher.

ALEC was formed in Chicago by a group of state
legislators and the late Paul Weyrich, a pioneering
conservative activist and co-founder of the Heritage
Foundation. Based in Washington, D.C., the group says
its mission is to advance "free-market enterprise,
limited government and federalism at the state level
through a nonpartisan public-private partnership of
America's state legislators, members of the private
sector and the general public."

Its 23-member board of directors is made up of entirely
of state legislators. But it also has a "private
enterprise board" consisting of corporate
representatives, including GlaxoSmithKline, PhRMA,
Pfizer Inc. AT&T Inc., Koch Companies Public Sector,
LLC, Altria (formerly Philip Morris) Client Services,
ExxonMobil Corp. and State Farm Insurance Co.
Legislators join for $50 per year while private sector
members join for $7,000, $12,000 or $25,000 for the
top-tier "Jefferson Club."

The criticism of the group is focused mainly on its
"task forces," which bring legislators and corporate
members together to create model bills.

The complaint alleges that industry representatives
have "effective veto power" over the recommendations of
the task forces.

While ALEC describes the output of its task forces as
bipartisan analysis and research, the complaint said
the task force proposals "do not appear to contain 'a
sufficiently full and fair exposition' of the public
policy issue underlying the legislative proposal. To
the contrary, they promote the ideological views and
business interests of ALEC's Private Sector members --
the corporate funders."

Clergy VOICE consists of 18 religious leaders who have
come together in the past to challenge nonprofits. In
2004 and 2006, they filed complaints against two large
Ohio churches alleging they were promoting Republican
candidates.

They also challenged the tax-exempt status of a
Christian organization and its $1.8 million Washington,
D.C., townhouse that housed conservative Christian
members of Congress. The "C Street Center" made the
news as a refuge for three Republican politicians
tarnished by scandal.

The religious leaders do not represent their
congregations. Half are members of the United Church of
Christ, a Protestant denomination that has been
historically liberal on social issues. In a cover
letter to IRS Commissioner Douglas Shulman, they accuse
ALEC of compromising free and fair elections, weakening
union rights, degrading the environment and a host of
other offenses.

The organization singled out a handful of
corporate-influenced model bills, including a cap on
damages for asbestos claims, the "stand your ground"
legislation pushed by the National Rifle Association
and an immigration bill which reportedly served as the
basis for Arizona's law and was drafted with help from
a private prison company. The immigration law was
partially knocked down by the U.S. Supreme Court on
June 25.

The complaint also said ALEC had improperly provided a
benefit to lawmakers by creating "scholarships" under
the control of the national headquarters that paid for
the lawmakers' attendance at meetings "held in luxury
hotels, frequently in vacation-worthy destinations like
San Diego, New Orleans and Scottsdale." These include
"perks such as meals, recreational activities, and
subsidized childcare for legislators and their
families" that are often not reported by the lawmakers
on their state ethics disclosure forms, the complaint
said.

"Meeting agendas include events like golf tournaments,
open bar parties and baseball games -- all subsidized
directly or indirectly by ALEC's corporate members,"
the letter said, citing an estimate by ALEC that these
benefits cost $1 million to $2 million each year.

ALEC claims to be bipartisan, but all 23 legislative
members of its board listed on ALEC's 2010 tax return
are Republicans, according to a Center review. The
clergy complaint claims 72 of ALEC's 74 filled state
chairman seats are held by Republican legislators.

The group states ALEC faces potential civil penalties
for "a pattern of filing multiple inaccurate" tax
returns with the IRS, such as not reporting lobbying
activities and providing incorrect information about
its payments to legislators for travel and
entertainment.

It also says the group may face criminal tax penalties
if the misstatements or omissions were made "knowingly
or willfully."

Whether the IRS will pursue any action is difficult to
say. Complaints are typically answered with a "thank
you" letter acknowledging their receipt and the agency
does not release details about investigations or
audits.

Owens, who was director of the Exempt Organizations
Division of the IRS from 1990 to 2000, said he expects
a reaction.

"The legal analysis is done for them. They just have to
read it," he said. "I would be surprised if the IRS
took no action in response to this letter."

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