Common Cause files Whistleblower Complaint Against ALEC

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  • Dale Eisman

Charges include misuse of charity laws, massive underreporting of lobbying, and obtaining improper tax breaks for corporate funders at taxpayer expense

Thousands of pages of ALEC documents offered as evidence

The American Legislative Exchange Council (ALEC) is flouting federal tax laws by posing as a tax-exempt charity while spending millions of dollars to lobby for hundreds of bills each year in state legislatures across the country, Common Cause charged today.

In a formal submission to the Internal Revenue Service Tax Whistleblower Office, Common Cause argued that ALEC’s primary purpose is to serve as a vehicle for corporations to do taxpayer-subsidized lobbying. The filing includes thousands of pages of documents obtained by Common Cause that show extensive ALEC efforts to lobby state lawmakers and influence a wide range of legislation, clearly violating the terms of its tax-exempt status. The documents include ALEC talking points, “issue alerts,” tracking documents and invitations to elected officials to gatherings paid for and attended by ALEC’s corporate members.

The prominent whistleblower law firm Phillips & Cohen LLP is representing Common Cause pro bono on the IRS complaint. Phillips & Cohen has recovered more than $7 billion in fines and settlements for governments as a result of its whistleblower cases. The complaint seeks an IRS audit of ALEC and the payment of back taxes and penalties.

“ALEC is a corporate lobby front group masquerading as a public charity,” Common Cause President Bob Edgar said Monday in announcing the complaint. “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. ALEC is not entitled to abuse its charitable tax status to lobby for private corporate interests, and stick taxpayers with the bill.”

In recent weeks, ALEC has faced scrutiny for its role in the spreading “Stand Your Ground” laws like the one that for weeks shielded the killer of Florida teenager Trayvon Martin from prosecution. Since then, at least a dozen major companies, including McDonald’s, Wendy’s Kraft Foods, Mars Inc., and Coca-Cola, have abandoned ALEC.

The Common Cause submission under the Tax Relief and Health Care Act of 2006 is supported by more than 4,000 pages of ALEC records, and was prepared by Phillips & Cohen attorneys Eric R. Havian and Erika A. Kelton.

The IRS classifies ALEC as a 501 (C)(3) organization, which means that it is tax exempt and that donations to it are tax deductible. The law limits lobbying by groups with that designation, specifying that “no substantial part” of their activity can be devoted to influencing legislation.

ALEC has declared under oath in several tax returns that it does no lobbying. Evidence in the Common Cause filing shreds that claim; it includes several thousand pages of ALEC records, detailing extensive efforts to influence a wide range of state legislation. Among them:

– A May 2011 memo in which Ohio state Sen. Bill Seitz describes “considered advice from our friends at ALEC” in opposition to a bill to help the state collect damages on false claims. “We should at least consider their sage advice,” Seitz wrote to a colleague.

– Hundreds of ALEC “Issue Alerts,” emailed to ALEC-aligned lawmakers in advance of hearings and scheduled votes and including summaries and arguments in support of ALEC-endorsed bills. An Indiana ALEC alert last February urged passage of a bill designed to impede the Obama administration’s health care reform plan. A February 2011 alert to New York lawmakers urged the defeat of bills to give shareholders a larger voice in corporate decisions about political spending.

– Talking points distributed by ALEC staffers to help lawmakers argue to reporters and their legislative colleagues on behalf of ALEC-backed bills and about ALEC itself. Included was a set of talking points titled “[Insert Legislator] Commends ObamaCare Repeal:”Vows To Finish The Job” With Health Care Freedom Act.”

– Legislative tracking documents distributed by ALEC to its member legislators to help them track the progress of ALEC-backed and opposed legislation. ALEC has acknowledged its support for hundreds of “model” bills each year, but the tracking documents indicate the group also works hard to block hundreds of bills outside its portfolio.

– An article in ALEC’s 1995 “scorecard” sent to private sector members, celebrating the group’s success in passing 23 percent of the 973 ALEC model bills introduced that year. “With our success rate at more than 20 percent, I would say that ALEC is a good investment,” ALEC director Samuel Brunelli assured corporate backers. “Nowhere else can you get a return that high.”

– Invitations from ALEC to state legislators to attend corporate-hosted receptions and other exclusive events at ALEC conferences, coordinated by ALEC staff. These include an annual NRA sponsored clay pigeon shooting event and barbeque, and a “cigar reception” sponsored by Reynolds Tobacco.

While legislators pay $100 each for a two-year membership in ALEC, the complaint notes that most of the group’s budget – estimated at $7 million – comes from its corporate sponsors. Companies pay $7,000 to $25,000 each for their ALEC memberships, gaining enhanced access to ALEC-member legislators as their payments increase. ALEC uses the corporate payments to host expense-paid seminars for lawmakers, generally at resort hotels and always closed to the press and public.

“ALEC has told the IRS that it does not spend a penny on lobbying, but the activities documented in the records we’ve given the IRS show that lobbying is its primary mission,” Edgar said. “ALEC’s own bylaws declare that its purpose is to ‘[d]isseminate model legislation and promote the introduction of companion bills in Congress and state legislatures’ and ‘[f]ormulate legislative action programs.’ Reduced to its essence, that’s lobbying.”

Edgar noted that ALEC has operated largely in secret. “No one challenges the right of a corporation or any group to hire lobbyists to advocate on their behalf,” Edgar said. “But the American public deserves to know who’s writing the laws being passed in state houses. ALEC needs to operate in the sunshine.”

“ALEC and its members prefer to stay in the shadows however. They write legislation tailored to serve their interests and peddle it to our elected officials in private meetings at resort hotels; they keep out of sight while lobbying for that legislation in our statehouses and celebrate among themselves and take credit when it’s passed. And then they lie about what they’ve done to exploit the tax code and get the rest of us to subsidize their work.”

“For years, ALEC has obtained improper tax deductions for its corporate members while quietly wielding tremendous influence over our state governments. The IRS should force ALEC to clean up its act. Now.”