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Wielding New Evidence, Watchdogs Push IRS to Investigate ALEC for Tax Fraud

Watchdogs pressure IRS to crack down on right-wing policy group, ALEC, which claims it’s a charity.

People associated with the Occupy Wall Street movement meet on the steps of the Minnesota capitol building to protest the influence of corporate money in politics, March 12, 2012. The American Legislative Exchange Council serves as a major sphere of corporate influence. (Photo: Fibonacci Blue)

AT&T told an investor that its main focus within the American Legislative Exchange Council (ALEC) has been on “state legislation aimed at achieving a favorable business climate.”

A spokesman for BP said the company participates in ALEC “to help educate policy makers about energy and natural resource issues that affect our business.”

Pfizer said it continues its membership in ALEC because the company and its stakeholders “have benefited directly from the organization’s model legislation,” including efforts to protect drug patents and repeal a controversial physician advisory board set up by the Affordable Care Act.

With statements like these in hand, progressive watchdog groups are accusing ALEC of tax fraud and requesting that the IRS crack down on the right-wing policy group.

ALEC brings together about 200 state lawmakers, most of them Republicans, and a long list of wealthy corporations, trade groups and other members of the private sector to discuss public policy and draft model bills to be considered by state legislatures. In 2012, Common Cause and the Center for Media in Democracy filed a whistleblower complaint with the IRS, claiming that ALEC’s activities amount to lobbying on behalf of its corporate members, and therefore ALEC is ripping off taxpayers by filing as a tax-exempt charity group.

On Tuesday, Common Cause announced that it was submitting a new round of evidence to the IRS showing that ALEC does not qualify as a 501(c)3 nonprofit charity because, under federal law, “no substantial part” of such a charity’s activity can “be attempting to influence legislation.”

Common Cause President Miles Rapoport told reporters on Tuesday that his group has now gathered enough evidence to prove beyond a doubt that ALEC has always been a lobby group, not a charity.

“We have no objection to ALEC lobbying, or for corporations to lobby, but they should not do it as a 501(c)3 organization,” Rapoport said. “Corporations have the right to lobby, but it’s simply wrong for large, multinational corporations to do it under the table, through ALEC, and then stick taxpayers with the bill by claiming a tax write-off for their funding.”

Evidence in the group’s latest submission to the IRS includes statements by 20 corporations admitting that they maintained an ALEC membership to influence legislation and gain access to lawmakers, according to Common Cause.

An ALEC spokeswoman was not immediately available for comment and did not respond to an email from Truthout by the time this article was published.

The statements are drawn from letters and emails from top corporate officials that appear to be written in response to inquiries from shareholders and Common Cause researchers concerning ALEC’s positions on climate change and other policy areas. Many of the statements point out that, while corporate members don’t necessarily agree with all of ALEC’s conservative policy positions, their membership has helped them advance their political goals. Some of the statements, such as one from Anheuser-Busch, are brief and vague, however, and do not directly mention lawmakers or legislation.

Last year, environmental activists pressured businesses to distance themselves from ALEC because the group has alleged ties to climate change deniers and has produced model legislation aimed at blocking environmental regulations and the implementation of new federal carbon emission standards. In the wake of this call by advocacy groups, dozens of major companies including Google, Yelp, Microsoft and Facebook canceled their ALEC memberships.

In March, ALEC sent letters to Common Cause, CREDO and the League of Conservation Voters threatening legal action if the groups failed to retract statements implying that ALEC denies climate change. ALEC claims that it has recognized for years that human activity has impacts on the climate.

“This whistleblower supplement is unrelated to our dispute with ALEC on climate issues,” Rapoport said, referring to the new evidence supplementing the 2012 complaint. “But I hope that with today’s filing, ALEC gets the message that we will not be deterred from working to expose its activities.”

On its website, ALEC claims that its state legislators control the model legislation process, although all ALEC members from the public and private sectors are invited to share their views on public policy at meetings and conferences. ALEC’s critics, however, point out that a vast majority of the group’s funding comes in the form of donations from member corporations, trade groups and corporate foundations. Lawmakers have enjoyed posh accommodations at ALEC conferences and even “scholarships” that pay for lavish travel expenses such as cigar parties and professional sports games.

“Though ALEC claims that it is now a legislator-driven, bottom-up enterprise, our evidence shows that the corporations underwriting ALEC continue to drive its legislative priorities and do so to benefit their bottom lines,” said Lisa Graves, executive director of the Center for Media and Democracy. “ALEC operates for the private gain of its corporate funders like a trade group, offering them one-stop shopping for lawmakers nationwide.”

Since its critics began exposing its tax schemes, ALEC has made some changes on its most recent tax forms and taken responsibility for the “scholarship” fund used to pay for legislator travel, according to Common Cause. ALEC even formed its own official lobbying arm in 2013, called the Jeffersonian Project, which files separately under a different tax status. Common Cause, however, contends that this just proves ALEC has been lying to the IRS and the public for years while continuing to put “$0” on the line designating lobbying expenses when it files with the IRS.

The IRS, however, has not responded to any of Common Cause’s complaints, and it remains unclear if the agency has investigated ALEC or plans to in the future. An attorney for the group said that IRS policy prevents agency officials from providing those who file whistleblower complaints with status updates on any related investigations.

When asked if there is reason to believe that the IRS has remained silent for political reasons because the agency has taken fire for allegedly targeting conservative nonprofits in the past, Common Cause spokesman Dale Eisman told Truthout that the group does not want to speculate on the reasons for the “apparent delay.”

“We think they should have acted by now … but we’re not going to guess at the reasons for why it’s taking so long,” Eisman said.

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