The complaint, filed by Democracy 21 President Fred Wertheimer and Associate Legal Counsel Glen Shor of the Campaign Legal Center, asks the IRS to deny CFC an exemption from taxation under Section 501(c)(3) of the Internal Revenue Code, or revoke such exemption if it has already been granted. It also urges the IRS to "undertake other enforcement actions and impose penalties, as appropriate," against CFC, U.S. House Majority Leader Tom DeLay and any other responsible parties.

"Representative DeLay is using the nation's charity tax laws and the pretext of helping children as a cynical cover to raise and spend huge amounts of prohibited soft money to finance political activities and provide political benefits for himself and his Republican colleagues," said Democracy 21 President Fred Wertheimer. "It's a scandalous attempt to misuse IRS tax exemptions and a brazen scheme for circumventing the new ban on soft money," he said. "Representative DeLay needs to be treated by the IRS the same way it would treat any other citizen, in making a determination about whether the tax laws are being violated."

"The IRS must not allow the tax exemption for charities to serve as a shelter for a political operation," said Campaign Legal Center Associate Counsel Glen Shor. "If pseudo-charities like CFC are permitted to flourish, there will inevitably be a backlash against legitimate charities. The integrity of the tax laws needs to be preserved here, to prevent future efforts by lawmakers to set up soft money operations for their political benefit."

Wertheimer and Shor note in their complaint that "if the IRS allows this sham arrangement to go unchallenged, it will seriously undermine public confidence in the many legitimate Section 501(c)(3) organizations in operation and will serve as a dangerous precedent for future misuse of 501 (c)(3) organizations by officeholders for private political benefits."

The 15-page complaint to the IRS:

--describes the fundraising and political activities that CFC proposes to undertake during the Republican National Convention in 2004;

--places these in the context of similar political activities DeLay conducted during the 2000 Republican National Convention, using the vehicle of his political committees and financed by then-legal soft money; and

--details how these proposed activities constitute violations of law.

[A copy of the complaint may be viewed at this link. A copy of the CFC fundraising brochure also may be viewed at this link.]

DeLay Business As Usual: Luxury Suites, Yacht Cruises, Late-Night Parties

The complaint by Democracy 21 and the Campaign Legal Campaign Center refers to a number of recent published reports about DeLay and his new charity, including a November 14, 2003 article in The New York Times. According to the article, "[A]ides to Mr. DeLay, the House majority leader from Texas, acknowledged that part of the money [donated to CFC] would go to pay for late-night convention parties, a luxury suite during President Bush's speech at Madison Square Garden and yacht cruises."

The complaint notes that, "Any doubt about the tie between the CFC events being planned and the 2004 Republican convention is dispelled by the title of the brochure that is being used to raise money for the foundation to pay for the costs of these activities: 'Donor Packages for the 2004 Republican National Convention; New York City, August 30-Sept. 2, 2004.'

The 13-page CFC brochure lists a week-long schedule of parties, perks and benefits to be granted to the donors to CFC depending on the level of contribution they make, ranging from $10,000 to $500,000.

Among the activities described in the CFC fundraising brochure to which donors will be privy are:

--"A luxury suite for Members, Senators, Executive Branch and CFC Sponsors open before, during and after President Bush's Acceptance Speech"

--a "Late Night Party" promising to be "the hottest ticket at the GOP Convention" and "top the Blues Traveler and Lynyrd Skynyrd parties of 2000";

--a golf tournament at Bethpage Black Course, host of the 2002 and 2009 U.S. Opens; and

--other events throughout out the week, including Broadway tickets to top shows, yacht cruises, "[a]nd more!"

The brochure indicates that a donation of $500,000 will secure not only tickets to the previously mentioned events but also the following benefits:

--"Private dinner with Majority Leader and Mrs. DeLay (before convention)";

--"Private dinner for top donors w/Majority Leader Tom DeLay following convention"; and

--"Private yacht cruise w/TD"

The New York Times article points out that "[o]ther elected officials are welcome at all of these events." And a November 13, 2003 Roll Call story, also cited in the complaint, adds that "Members and staff will be allowed to attend events free of charge."

According to the complaint, the three "day-to-day managers" of the CFC, which reportedly has no record of any activities to date involving children, are DeLay's daughter, who has served as her father's campaign manager and political adviser; a Republican political operative; and a fundraiser for DeLay's re-election committee.

"It should be noted that in this thirteen-page brochure for donors," the complaint points out, "there is only one sentence that mentions supporting children, the alleged purpose of CFC. This statement simply indicates that the net proceeds of the organization will be dedicated to abused and neglected children. The rest of the brochure is devoted to the parties, perks and benefits that donors will receive at the Republican convention in return for their contributions."

According to the complaint:

It is not a new endeavor for Representative DeLay to provide luxury hospitality accommodations for Republican Members of Congress and big donors, organize lavish late-night parties featuring top-tier music talent, host golf tournaments for officeholders and donors, and sponsor other convention-related political events, as he plans to do at the 2004 Republican National Convention through the vehicle of CFC.

These were core components of Representative DeLay's convention operations in 2000, carried out through the vehicle of his political committees....

Through these activities, Representative DeLay cultivated Republican campaign donors, including corporations, corporate executives, lobbyists and others and also built and strengthened his political relationships with his House Republican colleagues (whose votes made him the current House Majority Leader and will be necessary should he choose at some point to run for House Speaker).

Violations of Law

In the complaint, Democracy 21 and the Campaign Legal Center charge that "the DeLay scheme violates Section 501(c)(3) of the Internal Revenue Code, which requires organizations seeking exemption from taxation under that provision to be organized and operated exclusively for charitable... purposes and forbids such organizations from participating or intervening in political campaigns."

Operating Exclusively for Exempt Purposes

The complaint notes that CFC's planned activities provide "numerous partisan and political benefits to Representative DeLay, to other Republican officeholders and candidates and to the Republican Party, as well as providing political benefits to the donors to CFC, who will have unfettered and extensive access to federal officeholders."

According to the complaint:

Representative DeLay, Republican officeholders and candidates and Republican party officials will receive systematic opportunities to meet and network with wealthy individuals, corporate officials, lobbyists and other donors in an inherently partisan political environment. (As noted earlier, according to Roll Call, 'Members and staff will be allowed to attend events free of charge.') They will have numerous opportunities during a partisan presidential nominating convention to cultivate and build relationships with big donors. They will also have opportunities to solicit contributions from these donors for the 2004 elections. Presidential nominating conventions traditionally have been used to solicit campaign contributions.

CFC's activities "also will serve as a vehicle for Representative DeLay to continue treating his Republican House colleagues 'as kings and queens,' an acknowledged component of his efforts to secure their loyalty and political support," according to the complaint.

The complaint notes that, "House Republican Deputy Whip Mark Foley said the perks and benefits that Representative DeLay provided to House Republicans at the 2000 Republican convention amount to a 'thank you' to lawmakers, according to a July 9, 2000 article in The Washington Post. According to the article, Foley likened Representative DeLay to 'a country club manager,' and said about DeLay, 'He makes sure every member's needs are met, and that's why we work hard for him.'"

The complaint observes that the "the perks and benefits being offered to CFC donors are of the same nature and kind that have been provided at past Republican conventions by Representative DeLay and Republican party officials to major campaign contributors, including corporations, corporate executives, lobbyists and other donors, many of whom seek to influence government decisions and actions that affect their interests."

The complaint states that "to qualify for exemption under Section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for the purposes described in the section, known as 'exempt purposes.'"

The complaint further states:

If an organization's activities benefit private interests more than incidentally, this constitutes the presence of impermissible private benefit, and the organization fails to operate exclusively for exempt purposes. GCM 39862 (Nov. 21, 1991) (citing GCM 37789 (Dec. 18, 1978)). As the record in this case clearly demonstrates, CFC's proposed activities will benefit private interests, namely the private political interests of Representative DeLay, his Republican colleagues, the Republican Party and big donors, more than incidentally.

The complaint describes as "instructive and relevant" two opinions -- the District Court's 1998 opinion in Fund for the Study of Economic Growth & Tax Reform v. IRS and the Tax Court's 1989 holding in American Campaign Academy v. Commissioner -- in considering whether CFC is operated exclusively for exempt purposes.

"In both cases, entities claiming exempt status under Section 501(c)(3) of the Internal Revenue Code were denied such status because they advanced substantial non-exempt purposes which were political in nature," the complaint notes.

Political Campaign Intervention

The complaint asserts that CFC's planned activities constitute proscribed "participat[ion]" or "intervent[ion]" in a "political campaign" on behalf of a candidate for public office.

The complaint notes that "a party presidential nominating convention is an important part of the political campaign of the presidential candidate being nominated at the convention, as well as of the electoral efforts of the political party and other candidates of the party that the nominee represents."

According to the complaint, "CFC's planned activities and the role to be played in these activities by Representative DeLay, his Republican officeholder colleagues, the Republican Party and big donors are to be conducted in connection with the Republican convention, an important campaign activity for the party's presidential nominee and other candidates for political office. They constitute 'participation or intervention' in a 'political campaign' on behalf of a candidate for public office."

The complaint notes that, according to the IRS, a "determination whether an organization has participated or intervened in a political campaign on behalf of a candidate is based upon all of the relevant facts." The complainants state that in interpreting this legal standard, the IRS "has indicated that a Section 501(c)(3) organization is prohibited from hosting events featuring candidates for public office in a manner that would show any indication of support for or opposition to the candidate by the organization."

The complaint states that:

In no instance does it appear that there will be any effort to structure CFC events involving candidates for public office in a manner consistent with the IRS guidance on such events, so as to avoid indications of CFC support for those candidates or opposition to their opponents. Presumably, there will be no similar opportunities provided at the events for opponents of these candidates.

Based upon all the relevant facts and circumstances, CFC's activities for the 2004 Republican National Convention would constitute intervention or participation in political campaigns on behalf of or in opposition to candidates for public office, in violation of Section 501(c)(3) of the Internal Revenue Code.

The complainants conclude the letter to the IRS, noting that "Since a request to obtain status as a Section 501(c)(3) organization may be currently pending for CFC, we would appreciate your expeditious attention to this matter."