ALEC Lobbying Group Accused of Masquerading as a Charity to Avoid Taxes

Wednesday, November 06, 2013

The American Legislative Exchange Council (ALEC) is a corporate-funded, conservative political organization that abuses its status as a “charity” to host conferences for legislators where model legislation written by corporate lobbyists is pushed, according to detailed, scathing testimony before Congress by Lisa Graves, Executive Director of the Center for Media and Democracy (CMD), an investigative group with more than 150,000 supporters. ALEC’s business model, like that of the mostly conservative “dark money charities” that abused their charitable status to spend millions on the 2012 elections, thus rests on tax fraud, in Graves’ view.


Graves testified October 29 at a hearing on “Stand Your Ground” laws held by the Senate Judiciary Committee’s Subcommittee on the Constitution, Civil Rights, and Human Rights. Referring to “the deadly consequences of so-called ‘Stand Your Ground’ (SYG) laws that have proliferated in the states since 2005,” Graves blamed high-dollar lobbying by the National Rifle Association (NRA) and ALEC. But the focus of Graves’ testimony was not guns, but her argument that ALEC is engaged in an ongoing tax fraud that is subverting democracy by flooding the political system with tax-free cash that candidates can claim comes from a charity instead of a pro-business lobby.


Founded in the 1970s by legendary conservative Paul Weyrich, who also co-founded the Heritage Foundation, these days ALEC enjoys support from the deep-pocketed Koch brothers, two oil industry oligopolists who were recently rewarded with ALEC’s first-ever Adam Smith Free Enterprise Award.


ALEC registers itself with the Internal Revenue Service (IRS) as a 501(c)(3) non-profit organization or “charity.” ALEC thus gets several valuable benefits—including tax deductibility of donations made to it and being allowed to keep its donors’ names secret—in exchange for agreeing to behave like a charity, which means refraining from engaging in political activities like campaigning for candidates or lobbying for legislation. ALEC routinely tells the IRS that it engages in no lobbying whatsoever, regularly files tax returns claiming it does not lobby, and proclaims publicly that it spends not a single dollar on lobbying.


But those certifications are false, said Graves, whose CMD launched in July 2013 after a whistleblower leaked nearly 1,000 “model” bills voted on secretly by ALEC’s corporate lobbyists. Using those records and others, Graves testified that “numerous communications…show ALEC asking for legislation to be introduced, urging that specific legislation be adopted,” and that ALEC “routinely boasted to its corporate members that each year nearly 1,000 ALEC bills are introduced…and nearly 20% become law.” Regarding SYG, Graves noted that “ALEC and its agents have routinely bragged about getting SYG introduced and passed–the very definition of lobbying–while claiming to the IRS and the public that it” does not lobby.


The numbers tell the same story as the words, according to Graves. Examination of more than ten years’ worth of ALEC’s federal tax filings revealed that “more than 98% of its revenue comes from corporations and sources other than legislative dues,” which are a nominal $50 a year, while “corporations pay thousands of dollars a year to be part of ALEC and gain special access to legislators at resorts, up to three times a year.” And internal financial data showed that, contrary to ALEC’s IRS filings, ALEC funds lawmaker travel to its policy junkets to the tune of about $500,000 per year.  


Nor is Graves alone in her criticism. Several separate complaints have been filed with the IRS alleging in varying ways that ALEC is committing tax fraud by engaging in lobbying while registering as a nonprofit charity. Bob Sloan of the Voters’ Legislative Transparency Project has filed an IRS complaint based mostly on its scholarship program; Clergy Voice has complained about ALEC’s secret lobbying while benefitting corporate donors by misusing its charitable status; and Marcus Owens, the former chief of the IRS. division in charge of tax exemptions, filed a complaint charging that “ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities.”


Common Cause filed its complaint, which has been supplemented, with the IRS after CMD launched ALECexposed in July 2013, arguing that ALEC’s tax exempt status should be revoked due to “excess lobbying or, alternatively, because ALEC appears to operate primarily to further private business interests and not to advance a charitable purpose.”


Even The Wall Street Journal—which is generally supportive of ALEC and its conservative politics—published an op-ed by former Congressman Bob Edgar (D-Pennsylvania), stating that “taxpayers shouldn't be asked to subsidize anyone's lobbying by providing a tax break for the donations that support it. ALEC should be held to the same rules the law imposes on other lobbying organizations.” ALEC may even decide to change course, with one report suggesting that the organization might re-organize itself as a nonprofit under Section 501(c)(4) of the tax code, a scheme ridiculed by Nick Surgey of Common Cause as “a desperate attempt to find a ‘get out of jail free card’ before an inevitable full-scale IRS audit.”

-Matt Bewig


To Learn More:

CMD Submits Testimony to U.S. Senate on ALEC and “Stand Your Ground” (by Lisa Graves, PR Watch)

Billionaires are Bankrolling “Populist” Public Education “Reform” (by Ken Broder, AllGov)

ALEC Singled Out for Exemption from Lobbying Law in South Carolina (by Noel Brinkerhoff, AllGov)

Smart ALEC Models This Year’s Fashionable Conservatism for Lawmakers (by Noel Brinkerhoff and Ken Broder, AllGov)


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