Common Cause Seeks IRS Audit of Corporate/Legislative Group

A group uniting corporate leaders and conservative state legislators to draft "model" legislation and turn it into state laws appears to have under-reported its lobbying activity and should be investigated for possible federal tax law violations, Common Cause said today.

In a letter to the Internal Revenue Service, the nonprofit government watchdog group said the American Legislative Exchange Council (ALEC) may have filed false tax returns and put its tax-exempt, charitable status at risk. The council operates under Section 501(c)(3) of the Internal Revenue Code, which limits its lobbying activity and allows its corporate backers to deduct their contributions to ALEC from their taxable income.

"The American Legislative Exchange Council is the mechanism through which some of America's largest corporations are seeking to secure legislation designed to advance their bottom lines," said Common Cause President Bob Edgar. "They have every right to do so, but they appear to be evading lobbying disclosure laws and the tax breaks they're exploiting constitute a public subsidy for their profit-driven lobbying. That's not right."

Common Cause said that while ALEC has claimed in repeated IRS filings that it does no lobbying, its bylaws state that its goals include the dissemination of model legislation and the promotion of that legislation in Congress and state legislatures. ALEC's 2009 tax return, the letter added, reported an expenditure of more than $2.6 million for the work of the council's corporate/legislator task forces and an additional $1.9 million for a series of annual conferences at which bills are drafted and presented to legislators.

Based on the tax returns, ALEC publications, and correspondence exchanged by legislators and ALEC and obtained by Common Cause through freedom of information requests, "it seems incontrovertible that ALEC is substantially and indeed primarily engaged in attempting to influence legislation," the letter asserted. "All of its efforts are geared toward developing and promoting favored state legislation. These proposals are generated in a private process where the business interests of its corporate members are highlighted, then shared only with the organization's legislator members so they can take the proposals back to their states and introduce them as their own idea."

The Common Cause letter, submitted on the organization's behalf by Washington lawyer Elizabeth Kingsley of the firm of Harmon, Curran, Spielberg and Eisenberg, comes one day after release of a massive collection of ALEC-drafted and endorsed legislation obtained by the Wisconsin-based Center for Media and Democracy. The more than 800 bills and resolutions in the collection include proposals to disenfranchise thousands of voters, privatize public schools, and protect tobacco and pharmaceutical companies from lawsuits stemming from the use of their products.

"By claiming to be a charity and calling participating legislators `members,' ALEC attempts to evade disclosure of its lobbying, allows corporate members to deduct their payments as charitable contributions rather than non-deductible lobbying expenses, and does an end-run around state ethics laws intended to restrict the ability of businesses to buy access to legislators in order to promote their policy agendas," the Common Cause letter said. "The IRS should stop allowing the continuation of this charade."