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Open government group accuses ALEC of tax fraud

By Stephen C. Webster
Monday, April 23, 2012 14:35 EDT
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A man counts out piles of money. Photo: Shutterstock.com, all rights reserved.
 
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The American Legislative Exchange Council (ALEC), a conservative nonprofit that workshops legislation favored by its corporate members, was accused Monday of tax fraud by an open government group that’s seeking to trigger an Internal Revenue Service (IRS) audit into ALEC’s activities.

The group Common Cause leveled the allegations Monday morning, filing an official complaint with the IRS that accuses ALEC of masquerading as a charitable organization when its real purpose is to give corporations direct access to lawmakers in taxpayer-subsidized forums designed specifically for lobbying.

ALEC insists it does not lobby, but instead connects lawmakers with “job creators” in order to foster legislation that increases business competition. Federal law bans groups from claiming tax-exempt status if a “substantial” part of their activities are dedicated to “attempting to influence legislation.”

“It tells the IRS in its tax returns that it does no lobbying, yet it exists to pass legislation that serves the economic and partisan interests of its corporate members in states all over the country,” Common Cause President Bob Edgar said in a statement. “ALEC is not entitled to abuse its charitable tax status to lobby for private corporate interests, and stick taxpayers with the bill.”

“If Alec qualifies as a public charity, a 501(c)(3), then it may only engage in insubstantial lobbying say 1 or 2 per cent of [its] proceeds, unless it has made a 501(h) election,” Washington, D.C. attorney Kenneth A. Gross, who specializes in regulation of political activities, told Raw Story in an email exchange. “In that case it may spend up to 20 per cent but it is capped under a formula. Lobbying includes attempting to influence legislatures, both fed and state, and some executive branch activity. It also includes grassroots lobbying.”

ALEC has been under rhetorical fire from liberal groups since the killing of Florida teen Trayvon Martin by George Zimmerman, whose defense hinges upon a claim of self defense under the state’s “Stand Your Ground” law, which ALEC pushed in other states.

In response to the public outcry over ALEC’s support for the laws, the group said it had eliminated a task force that focused on non-economic issues, but it wasn’t enough to keep a number of corporate clients, like Coca-Cola, Pepsi, McDonald’s, Proctor & Gamble and Mars, Inc. from leaving.

ALEC has since called the backlash part of an “intimidation campaign” against its members. In a statement Monday, ALEC legal counsel Alan P. Dye called Common Cause a “liberal front group” attacking ALEC because of differences in “philosophical terms.”

“The current complaint mostly ignores applicable law and distorts what it does not ignore,” Dye said. “After three decades of counseling clients on nonprofit and federal disclosure requirements, it’s clear to me that this is a tired campaign to abuse the legal system, distort the facts and tarnish the reputation of ideological foes.”

The Common Cause complaint cites numerous internal ALEC documents, including so-called “talking points” delivered to lawmakers by ALEC workers, and comments by public officials who urged fellow lawmakers to heed the nonprofit group’s advice on matters pertaining to public policy.

Photo: Shutterstock.com, all rights reserved.

Updated with legal analysis.

Stephen C. Webster
Stephen C. Webster
Stephen C. Webster is the senior editor of Raw Story, and is based out of Austin, Texas. He previously worked as the associate editor of The Lone Star Iconoclast in Crawford, Texas, where he covered state politics and the peace movement’s resurgence at the start of the Iraq war. Webster has also contributed to publications such as True/Slant, Austin Monthly, The Dallas Business Journal, The Dallas Morning News, Fort Worth Weekly, The News Connection and others. Follow him on Twitter at @StephenCWebster.
 
 
 
 
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