Jul 2, 2012
Violations of the Internal Revenue Laws by the American Legislative Exchange Council
This article is written by Marcus S. Owens, Director, Exempt Organizations Division, Internal Revenue Service, 1990-2000
Please click here to see Mr. Owens’ c.v. which establishes him incontrovertibly as an expert in this matter.
Now, let’s release Mr. Owens’ smoking gun report about ALEC’s 501(c)3 status, which Common Cause is challenging.
The information in this submission, a great deal of which was not presented in prior complaints, confirms that ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities. The information in this submission also suggests, quite strongly, that the conduct of ALEC and certain of its representatives violates other civil and criminal tax laws and may violate other federal and state criminal statutes as well. Thus, Clergy VOICE urges the Service to investigate immediately, and after verifying this information to assess penalties and other appropriate sanctions–including revocations of ALEC’s tax-exempt status. Indeed, given the visibility of the organization, any inaction on the part of the Service would undermine the integrity of the law itself.
OVERVIEW OF KEY FINDINGS
- A pattern of lobbying activity far beyond the limits set by Federal Tax Law;
- Excessive private benefit to corporate members, including the promotion of legislation applicable to only one or a small number of corporate members;
- Excessive private benefit to state legislators, including unreported taxable income for personal expenses, which may also implicate state ethics laws and federal anti-bribery laws;
- Excessive private benefit to the Republican Party in a manner similar to that in American Campaign Academy v. Commissioner
- A pattern of filing multiple inaccurate Forms 990–which include affirmative statements that ALEC engaged in no lobbying activities (even in years when it had registered two of its attorneys as lobbyists for the organization) and affirmative statements that ALEC made no payments to or for the benefit of government officials (even when it paid travel and entertainment expenses for state legislators and their families)–indicating both civil and Criminal violation of federal tax laws.
Wow! And he’s just getting warmed up.
- ALEC’s legislative activities are not limited to promoting “model legislation” that is drafted by and intended to advance the interests of its corporate members. The organization also mobilizes its Legislative Members to prevent the passage of legislation that threatens the interests of its corporate members. [sites examples from the NY Times]
- Incredibly ALEC reports on its annual information returns that the organization engages in no lobbying activity. a position that was recently affirmed by the organizations counsel. ALEC’s primary activity is to craft the “model legislation” for which it is famous and advocate for its passage nationwide. Indeed ALEC’s Bylaws state that its corporate purposes include “disseminat[ing] model legislation and promot[ing] the introduction of companion bills in Congress and state legislatures…
- A survey of ALEC’s model legislation reveals numerous examples of bills that were crafted by industry representatives to advance their business interests, including: The Drug Liability Act, The Hydraulic Fracturing Fluid Disclosure Composition Act, Stand Your Ground Legislation; Model Legislation to Limit Successor Asbestos-Related Liability for Crown Holdings; The No Sanctuary Cities for Illegal Immigrants Act; etc.–not the business of a charity.
- ALEC filed that it had registered lobbyists in North Dakota.
- South Carolina, Indiana, and Colorado have laws explicity stating that ALEC does not have to disclose its lobbying expenditures in their states.. If they weren’t lobbying, what was the purpose of these laws.
- ALEC failed to register as lobbyists in Minnesota when it hosted an event with lobbyists and state GOP lawmakers.
- ALEC national meetings. generally held in luxury resorts and hotels, include perks such as meals, recreational activities, and subsidized childcare for legislators and their families. Golf tournaments, open bar parties, baseball games–all subsidized directly or indirectly by ALEC’s corporate members.
- In 1999 and 2000 it appears that taxpayers paid at least $3 million in expenses claimed by lawmakers while they received industry-funded “legislative scholarships” from ALEC to cover their expenses.
- ALEC’s legislative scholarships are not merit awards as one would expect from the use of the word “scholarship: They are not even made for educational pursuit, ALEC Form 990s show that these are just payments made by ALEC to “reimburse [state legislators] for travel expenses incurred.
- A $3454 reimbursement to State Representative Seth Morgan in 2009 for “entertainment and childcare for his 3 children at ALEC’s “Kids Congress, his wife’s cost to attend the meeting, and travel expenses for the entire family
- Ohio’s Todd Snitchler likewise received a “scholarship” to cover entertainment, childcare, his wife’s costs to attend, and airfare.
- Ohio’s Kris Jordan and John Adams received “Scholarships” for their spouses to attend the Annual Meeting.
- And NONE of these legislators reported the payments for ramily travel and entertainment on their state disclosure forms. It bears emphasis that this practice appears to be replicated in other states.
- Yet ALEC takes the incredible position that the scholarships are neither revenues or expenses of ALEC. ALEC treats amounts related to spousal and family travel as compensation.
According to the law, upheld by the Supreme Court, “the presence of a single non-exempt purpose, if substantial in nature, will disqualify an organization from tax exempt status, even if the organization also conducts charitable activities…In other words, if ALEC is serving private interests other than incidentally, they do not qualify for 501(c)3 tax exempt status.
Based on the facts, ALEC appears to be operated to benefit the private interests of its corporate donors. It dedicates the bulk of its time, energy, and resources to formulating, disseminating and supporting its model legislation. Each piece of model legislation constitutes a legislative proposal that ALEC supports, and thus qualifies as “Special legislation under the law. Likewise the expenses incurred by ALEC in researching, drafting and promoting each piece of its model legislation are all lobbying expenditures.
The misstatements and omissions on ALEC’s Form 990 may expose the organization to far more than civil penalties, If the misstatements or omissionswere made knowingly or willfully, ALEC and those involved could be subject to criminal prosecution.
Under Federal Criminal Code, there are penalties for certain conduct relating to filing required or information returns with the IRS. DOJ has indicated a greater willingness to seek criminal prosecutions of individual [associated with charities] who falsify information.
But the actions of ALEC and its members may violate criminal laws in addition to civil and tax laws, especially if the courts consider ALEC’s violations of the Federal Criminal Codes to be tantamount to a Conspiracy to Defraud the United States Government. These include the Honest Services Fraud, “Pay-to-Play” prohibition, and RICO violations.
CONCLUSION
“This submission, together with the IRS complaint filed by Common Cause and media accounts regarding ALEC’s activities, raise a number of complicated and significant questions regarding the organizations continued qualification for exemption from tax. Given the influence wielded by ALEC and its members, the nature of he violations, and he fact that they are ongoing, we urge you to take immediate action to investigate ALEC and, if appropriate, assess penalties and other sanctions–including revocation–to ensure that these abuses do not continue to occur.”
There is a lot more to this article than I could summarize. A good understanding of the legal issues facing ALEC is important to understanding the way it does things. Please click here to read the entire report. Given the qualifications of Marcus S, Owens, this is an article to be taken seriously while learning about and understanding the tax code attacks on ALEC. Hey it was the IRS that took Al Capone down.
