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ALEC Taking Cover from Federal, State Tax Laws

The Guardian’s deep dive this week into a trove of American Legislative Exchange Council (ALEC) records shows the organization’s understanding that its operations may violate charitable tax laws.  How do we know?  Because ALEC is creating a separate, sister organization – “The Jeffersonian Project” – organized under laws that permit it to engage in unlimited lobbying.

The Jeffersonian Project will “provide[] better legal protection” and “remove[] questions of ethical violations made by our critics and state ethics boards,” according to internal documents prepared for an ALEC board meeting. The new lobbying arm “would be required to register as a lobbyist in some … states, but ALEC would not,” ALEC lawyer Alan Dye wrote in a memo obtained by The Guardian.

ALEC’s tax status is at the heart of a “whistleblower” complaint Common Cause filed against the organization last year, along with the efforts of a broad array of other political advocacy, labor and civil rights organizations.

Common Cause’s formal submission to the IRS’s Whistleblower Office argues that “ALEC is a corporate lobbying group masquerading as a public charity.” The organization’s core mission is to bring corporations and state legislators together to draft and vote on “model” legislation that ALEC can then push in statehouses across the country.  ALEC brags on its website that about 1,000 bills based on its corporate-backed models are introduced in statehouses every year, with 20% becoming law.

ALEC uses all the tools of the lobbying trade – as the New York Times reported — acting in “stealth.” The thousands of pages of documents Common Cause sent to the IRS to support our claim demonstrate ALEC’s efforts to influence legislation. They include “Issue Alert” memoranda to state lawmakers urging support or opposition for specific legislation, fill-in-the-blank model press releases that assist lawmakers with their public relations, and personal emails in which ALEC staffers offer “to provide support” to lawmakers who introduce its model bills.

The problem is that ALEC is organized as a 501(c)(3) public charity, which allows its corporate backers to take hefty tax write-offs for their donations. The law specifies that as a charity, “no substantial part” of ALEC’s activities can be “attempting to influence legislation.”

But far from being “no substantial part” of its activities – influencing legislation is ALEC’s sole objective. As we said in our complaint, “ALEC has reported for years to the IRS that it has not spent a single penny on lobbying or attempting to influence legislation. [Its] tax returns are patently false. … [T]axpayers have been damaged not only by ALEC’s abuse of a narrow tax exemption intended to facilitate the work of genuinely charitable organizations, but also by the loss of tax revenues from ALEC’s private corporate members, who are the primary if not exclusive beneficiaries of ALEC’s improper business scheme.”

ALEC appears to know its ways of doing business are vulnerable to legal challenge. Its lawyer warned in a legal memo the Guardian obtained and published that “though we do not believe that any activity carried on by ALEC is lobbying, the IRS could disagree. … ALEC has been approached by donors who are willing to make sizable donations, but insist that the donations go to a 501(c)(4) organization” [which can lobby in unlimited amounts, but not accept tax-deductible donations]. The legal memo says that “there are states which use a definition of lobbying for purposes of their lobbying registration statutes that is far broader than the definition used by the IRS. In those states, some communications that would not be considered lobbying by the IRS are considered lobbying for purposes of state law and require registration of the lobbyist with the state. ALEC does not wish to be perceived as a lobbying organization, and therefore does not wish to register as a lobbyist in any state. The Jeffersonian Project can be used to distribute communications in states that have broad lobbying definitions. The Project would be required to register as a lobbyist in some of these states, but ALEC would not[emphasis added].

To be clear, the Project is wholly affiliated with ALEC. Its board documents state that the Jeffersonian Project is “created and controlled by ALEC as an organization; all of the Jeffersonian Project’s Board members will be chosen by ALEC’s Board of Directors, [and ]all of the Jeffersonian Project’s staff will also be ALEC staff.”

ALEC’s penchant for deception extends beyond its dealings with the IRS. As the Center for Media and Democracy’s Brendan Fischer reported on Wednesday, ALEC created the Jeffersonian Project, just eight days after one of its spokespeople told Bloomberg News that “we have no current plans to operate a 501(c)(4) in the near future.”

The Internal Revenue Service will continue to evaluate Common Cause’s complaint for its years of claiming to be a charity. The public interest requires it – as do the whistleblower office’s rules. But at least ALEC is hearing demands that it be held accountable for its decades of peddling its corporate influence over our democracy.

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About Stephen Spaulding

Find Stephen Spaulding on Twitter at @SpauldingCC.

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