National Common Cause Files IRS Whistleblower Complaint Against ALEC

For release on April 24, 2012

For more information contact Janice Thompson 503-283-1922

National Common Cause Files IRS Whistleblower Complaint Against ALEC;

Common Cause Oregon Updates ALEC Report

Yesterday the national office of Common Cause filed a complaint against the American Legislative Exchange Council (ALEC) with the Internal Revenue Service (IRS) Whistleblower Office. The complaint charges misuse of charity laws, extensive underreporting of lobbying, and obtaining improper tax breaks for ALEC’s corporate funders.

The whistleblower law firm Phillips & Cohen is representing Common Cause pro bono on the complaint that seeks an IRS audit of ALEC and payment of back taxes and penalties. Eric Havian of Phillips & Cohen said “ALEC’s defense is that although it may look like lobbying, they also do nonpartisan research and analysis” but that “ALEC does not act as a nonpartisan group and is tax-subsidized through its status as a public charity.”

ALEC’s budget is estimated to be $7 million with the bulk of its support coming from its corporate members. There are approximately 2,000 legislator members of ALEC that pay $100 for a two-year membership. Companies pay between $7,000 and $25,000 for private sector memberships. The New York Times reported on April 22, 2012 that “some companies give much more, all of it tax-deductible: AT&T, Pfizer and Reynolds American each contributed $130,000 to $398,000.”

One of the harms to taxpayers identified in Common Cause’s whistleblower submission is that “ALEC’s corporate members improperly deduct from their taxable income the dues and other contributions made to ALEC.In fact, because ALEC solicits very few contributions from individuals, its false claims of tax-exempt status appear driven by the desire of ALEC corporate members to deduct lobbying expenses as charitable contributions.” See the submission here:

“ALEC is a corporate lobby front group masquerading as a public charity,” said Common Cause President Bob Edgar. “ALEC is not entitled to abuse its charitable tax status to lobby for private corporate interests, and stick taxpayers with the bill.” The Common Cause submission to the IRS includes several thousand pages of ALEC records that document extensive efforts to influence a wide range of state legislation. “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,” concludes Edgar.

Phillips & Cohen is a prominent whistleblower law firm that has recovered more than $7 billion in fines and settlements. “Our firm has a reputation,” said Eric Havian, “we would have nothing to do with this case if we didn’t think it had very strong merit. We’re not a very ideological law firm; we’re lawyers.”

Common Cause Oregon updated its report, American Legislative Exchange Council in Oregon: Campaign Contributions and Legislators, with information about the IRS whistleblower complaint and companies leaving ALEC, primarily due to ALEC’s advocacy of voter ID legislation and “stand your ground” laws implicated in the Trayvon Martin killing in Florida. The report documents legislators in our state with ALEC affiliations. The report also analyzes $18.9 million to Oregon candidates, ballot measures, leadership and other political committees from ALEC affiliated corporations. (Download updated report here.)

“Oregon has a robust community of political nonprofits that play by the rules,” said Thompson. “A notable exception is Bill Sizemore’s fraudulent operation of several groups. Oregon doesn’t need any more sham nonprofits, so IRS scrutiny of allegations about ALEC is very important.”