by Brendan Fischer — December 14, 2012 -
8:17am
The American Legislative Exchange Council
(ALEC) appears to be anticipating an Internal Revenue Service (IRS) audit,
after multiple complaints challenging the “corporate bill mill’s”
charitable status, based on documents recently obtained by Bloomberg News.
According to internal ALEC documents, the
organization has discussed forming a nonprofit organized under Section
501(c)(4) of the tax code, apparently in anticipation of the IRS revoking
ALEC’s current “charitable” status. Charities (which are organized
under Section 501(c)(3) of the tax code) as well as nonprofits are tax
exempt, but ALEC’s charitable status had allowed its corporate members to
write-off their ALEC membership dues and costs as tax-deductible charitable
contributions.
ALEC’s charitable status has been challenged
in multiple IRS complaints in the past year — and despite publicly
dismissing the allegations as “patently false” and “ignor[ing]
applicable law,” behind the scenes, ALEC’s leadership apparently
recognizes their vulnerability.
ALEC Executive Director Ron Scheberle
discussed forming a 501(c)(4) called “ALEC NOW” in an August memo,
claiming that if a 501(c)(4) were “operating fully prior to an IRS
audit,” the agency might allow the newly-formed (c)(4) to continue
operating and take over activities impermissible for a (c)(3) charity.
“ALEC is now grasping at straws,”
said Nick Surgey of Common Cause, which has challenged ALEC’s charitable
status. “This leaked memo exposes a desperate attempt to find a
“get out of jail free card” before an inevitable full-scale IRS
audit.”
IRS rules are clear that a charity which loses
its exemption for excessive lobbying cannot reorganize as a 501(c)(4). But
nonprofit law experts tell the Center for Media and Democracy that ALEC may
be able to get around this rule by forming the (c)(4) in advance of the
audit.
ALEC’s Charitable Status Challenged
ALEC is afforded a variety of
government-conferred benefits by virtue of its “charity” status –
not least of which is giving corporations a tax deduction for paying ALEC
membership dues — but in exchange for those benefits, ALEC is supposed to
engage in minimal lobbying and primarily serve public or charitable interests,
rather than private interests.
In April, Common Cause filed
a whistleblower complaint, backed by hundreds of pages of documents,
alleging ALEC violates its charitable status by engaging in substantial
lobbying through the development, promotion, and dissemination of
corporate-sponsored “model” bills.
In July, former IRS Exempt Organizations head
Marcus Owens (on behalf of a group called Clergy VOICE) filed
another complaint arguing ALEC exists for the private benefit of its
corporate members and had misrepresented itself in its tax filings. Owens filed
a followup complaint in October based on contradictory claims ALEC had
made to the IRS and Wisconsin’s Government Accountability Board about the
“scholarship” program that allows corporations to pay for
legislators’ flights and hotel rooms; those contradictory claims were initially
highlighted by the Center for Media and Democracy. The Voters Legislative
Transparency Project (VLTP) also filed a complaint.
“The evidence of ALEC’s abuse [of its
charitable status] is so extensive,” Surgey said, “that it is
difficult to think the IRS could be fooled by a non-profit law version of the
cup and ball magic trick,” where ALEC continues functioning after
revocation just by setting up a new nonprofit entity.
Rough Year for ALEC
The leaked memo caps a difficult year for ALEC
that has seen it shed over 40
major corporate members and the loss of more
than 70 legislative members
ALEC came under particularly intense criticism
starting in March 2012 for its national drive to promote the “Stand Your
Ground” gun law that initially shielded 17-year-old Trayvon Martin’s
killer from prosecution, and weathered additional criticism in the following
months over its role in advancing laws that make it harder to vote, that
criminalize immigrants, protect corporations from civil liability, thwart
environmental regulations, and cut holes in the social safety net — all
while enjoying tax-exempt “charitable” status.
Most recently, ALEC has been directly tied to
Michigan’s anti-union “right to work” push, with the language in
the Michigan law lifted verbatim from the ALEC model.
http://www.prwatch.org/news/2012/12/11907/running-scared-alec-anticipating-irs-audit
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