The former head of the IRS’ Exempt Organizations division has asked the agency to revoke the tax-exempt status of the conservative nonprofit ALEC.
Marcus Owens, a lawyer at Caplin & Drysdale, who for a decade directed the division responsible for approving organizations’ charity status, accused the American Legislative Exchange Council of illegally lobbying state lawmakers among other violations of tax law in a letter to the IRS earlier this month, Roll Call has learned.
"ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities,” he wrote. "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."
The group, which has come under fire for its support of controversial “Stand your Ground” and voter identification laws, is organized under tax code 501(c)(3) and is barred from political activity. It can lobby, so long as attempts to influence legislation do not constitute a "substantial part" of its activities. Although its stated mission is to bring corporations and lawmakers together to craft and promote legislation, the 30-year-old group insists it does not lobby, prompting formal complaints from several government watchdog groups, including Common Cause.
But Owens’ experience with this body of tax law and reputation at the IRS combined with new evidence that ALEC may have deliberately misled the agency on its annual federal filings could deliver yet another blow to an organization already facing a public relations crisis.
The complaint, filed on behalf of Clergy Voice, a group of Christian clergy in Ohio, notes that ALEC denied engaging in lobbying activity in its federal tax filings covering the years 2008 and 2009. At the same time, two of its lawyers were registered to lobby in at least one state, North Dakota. False reporting on these forms has been found to be a criminal offense considered perjury in at least four recent cases, Owens said.
The complaint also notes that the group does not report any payments to state officials, although the tax form specifically requests that such amounts be reported. Such payments would constitute a “private benefit," he said.
But ALEC does manage industry-funded “legislative scholarships” to cover the expenses incurred by lawmakers traveling to its events. For example, the Pharmaceutical Research and Manufacturers of America reported a $350,000 grant to the Wisconsin “ALEC Scholarship Fund” in 2010, according to the complaint. These unreported corporate payments for lawmakers’ personal expenses are funneled through ALEC to lawmakers and in some states, including Ohio, would violate state ethics laws.
“The fact that ALEC provides significant benefit to its donors and Legislative Members is incontrovertible,” the complaint reads. “The benefits conferred on either group alone would alone be sufficient to jeopardize ALEC’s tax exempt status.”
The complaint comes at a tough time for the legislative advocacy group.
After months of pressure from liberal organizations — led by the Internet-based African-American advocacy Color of Change — at least 18 consumer-facing corporations including Walmart, the world’s No. 1 retailer, Yum Brands Inc., Amazon and Blue Cross Blue Shield, terminated their memberships with the group.
Despite its attempts to turn the increased scrutiny into an opportunity to self-promote, the future of the organization, less than a year ago considered one of the most influential public policy forces on the right, now seems in jeopardy.
A spokeswoman for ALEC did not return Roll Call’s request for comment Sunday, but ALEC officials have repeatedly insisted they are not breaking the law, thanks to an exception in the tax code for organizations engaging in “nonpartisan research and analysis.” The group’s lawyers maintain that ALEC simply provides independently produced, nonpartisan material to educate lawmakers.
ALEC’s treasurer, Georgia Senate Majority Leader Chip Rogers (R), told Roll Call in April that the complaints were ideologically driven.
“These type of legislative organizations are common and have been common for years,” he said. “The only thing that separates ALEC from the other ones is that ALEC is conservative.”
Owens, a registered Democrat, said he is not active in party politics.
“I refuse to make political contributions and don't otherwise participate in political party events,” Owens said.
Clarification: July 2, 2 p.m.
An earlier version of this article misstated the restrictions on lobbying for 501(c)(3) organizations.