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Following several complaints to the IRS, ALEC is apparently anticipating the loss of its IRS 501C3 status with plans for a new 501C4 wing.

The new non-profit, ALEC NOW, would be incorporated under Section 501C4 of the tax code, just like groups like Americans for Prosperity and Crossroads GPS that spent millions of dollars on the 2012 elections without disclosing their donors. The proposal for a new entity was revealed in a group of documents obtained by Bloomberg under the Freedom of Information Act.....

ALEC’s executive director, Ron Scheberle, said in an August memo that a 501C4 “operating fully prior to an IRS audit” could cause the agency to “look favorably” upon the group. “It is a possibility” that the IRS will tell ALEC that the new non-profit should take over some operations, Scheberle said.

This is potentially a big freaking deal.  Donations to 501C3 organizations are tax deductible, however there are limits on lobbying and banned from direct contributions to political candidates.  Donations to 501C4 organizations are not tax deductible, but may be used for political activity. This is not entirely foreign territory for ALEC, during the 1980s, the group maintained a PAC which donated to state level candidates. This apparently ended sometime before 2000, although a number of ALEC members have claimed their "scholarships" as campaign donations and reported them as such. This has been a legal gray area, and there's little doubt that ALEC's status as a 501C3 enabled them to avoid prohibitions on direct gifts from lobbyists to legislators that would otherwise have been an issue.

As the Center for Media and Democracy reported in the spring there have been a number of irregularities in statements made by the group to state ethics regulators and the IRS. In letters to state regulators they made a number of questionable claims.

*A statement that "[d]ecisions on how scholarships are awarded and in what amounts are made by ALEC staff." But in its 2010 filing with the IRS, ALEC declared "the State Chair retains the exclusive right to determine the expenditures" from the scholarship fund. The "State Chairs" are appointed Wisconsin legislators (currently Representatives Robin Vos and Scott Suder, and previously state Senator Scott Fitzgerald).

*Implying that the "scholarships" are disbursed from ALEC itself. But ALEC declared in its 2010 IRS filing that the scholarship funds "are not considered revenue and expenses of ALEC" and that the organization gives no scholarships -- instead, ALEC just holds an account that allows businesses employing lobbyists in the state to make deposits that are filtered to Wisconsin legislators. It makes little sense to prohibit corporate principals and lobbyists from offering anything of value to public officials, but to allow such giving if it is filtered through a trust account as part of the ALEC "scholarship fund." This shell game appears to violate Wisconsin ethics and lobbying laws prohibiting elected officials from accepting anything of value from lobbyists or corporations that employ lobbyists in the state.

*An assertion that, while lobbyists help raise money for the scholarship fund, "Wisconsin state legislators however, are not involved in these fundraising efforts." But according to ALEC's bylaws, the "Duties" of the State Chairs -- who are legislators -- include "working with the Private Enterprise Chairman [a lobbyist] to raise and oversee expenditures of legislative scholarship funds." Additionally, documents from 2010 obtained through open records requests to Senator Scott Fitzgerald (who was then the ALEC State Chair in Wisconsin) further suggests that legislators are involved with the fundraising process; those documents show that the ALEC legislative chair for the state and the ALEC corporate co-chair for the state are given information about which corporations are providing gifts to legislators via the scholarship fund. Further, information provided by Wisconsin Representative Mark Pocan shows that legislators attending ALEC conferences are bombarded with information about the corporations underwriting the events. This spending and fundraising could reasonably be expected to influence a legislator's judgment, or viewed as a reward for their official actions in support of the ALEC agenda, which violates Wisconsin ethics and lobbying laws.

The bottom line is that if ALEC loses its 501C3 status, it seems highly likely that many, if not most, states will shut down the "scholarships" that fund most legislators travel to conferences.  That is quite potentially a death blow to the organization, because it seems highly unlikely that legislators will be willing to pay out of their own pockets to attend these sessions.

Originally posted to ManfromMiddletown on Sun Dec 16, 2012 at 05:49 AM PST.

Also republished by American Legislative Transparency Project.

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Comment Preferences

  •  ALEC (8+ / 0-)

    always represented a massive abuse of the 501(c)(3) status.

  •  death blow? Not so fast. Plutocrats know tricks. (8+ / 0-)

    Thanks for the excellent diary and keeping ALEC in the spotlight.

    Nothing as simple as a tax issue will stop these guys.

    Heck, if money laundering is given a slap on the wrist for the plutocrats, they will figure out other loop holes to continue their attack on our system.

    The two tier justice system is used to keep the plutocrats in power.

    HSBC, too big to jail, is the new poster child for US two-tiered justice system
    DOJ officials unblinkingly insist that the banking giant is too powerful and important to subject to the rule of law

    That's not merely a dark day for the rule of law. It's a wholesale repudiation of it. The US government is expressly saying that banking giants reside outside of - above - the rule of law, that they will not be punished when they get caught red-handed committing criminal offenses for which ordinary people are imprisoned for decades. Aside from the grotesque injustice, the signal it sends is as clear as it is destructive: you are free to commit whatever crimes you want without fear of prosecution. And obviously, if the US government would not prosecute these banks on the ground that they're too big and important, it would - yet again, or rather still - never let them fail.
    Italics are in the original.
    •  the DOJ could have pursued (1+ / 0-)
      Recommended by:

      and spent years and untold dollars riding out HSBC's infinite appeals, or they get a settlement now, which is a tacit admission of guilt.  it's not the first time prosecution has made such a choice; it won't be the last.

      that said, they should nail the individual exec bastards to the wall.

      Please don't dominate the rap, Jack, if you got nothin' new to say - Grateful Dead

      by Cedwyn on Sun Dec 16, 2012 at 06:42:15 AM PST

      [ Parent ]

    •  Perhaps (3+ / 0-)

      but there is a great deal of variation in state laws that will make a difference. The bottom line is that even if the "scholarships" continue to flow, they will almost certainly have to be made in a form that creates public records.  That alone is a huge victory.

      A 501C4 is must likely going to face challenges if they attempt to challenge ALEC type "scholarships" through them. Moreover,this is highly dated, but the point still stands.  About half of states prohibit the use of campaign donations in such a way that they personally benefit a candidate. So in about half of states the money train is going to be shut off.

      by ManfromMiddletown on Sun Dec 16, 2012 at 06:55:40 AM PST

      [ Parent ]

  •  this is very strange (2+ / 0-)
    Recommended by:
    ManfromMiddletown, CroneWit
    This shell game appears to violate Wisconsin ethics and lobbying laws prohibiting elected officials from accepting anything of value from lobbyists or corporations that employ lobbyists in the state.
    Agreed, and I agree w/ CFMD's characterization.  Under the relevant ASC (accounting statement codification, nee FAS), if receipt of cash is held on the balance sheet and bypasses the P&L statement, then the organization is acting as a conduit.  

    That accounting treatment seems to do the exact opposite of what I'd expect ALEC to try to do: as you note, they seem to want to act as a blocker for corporate contributions to legislators, but the accounting treatment here obviously undercuts that.

    I'm guessing there's more info in the financial statements, but I can't find them online.  The 990 says it's available on request; do you know if anyone has them?

    •  (oops, I misread; it says the 1023 is available (0+ / 0-)

      on request, not the financial statements.  state law often requires financials be available for the public, so I'm off to poke around state regulatory junk)

      •  I haven't looked at the CMD (2+ / 0-)
        Recommended by:
        concernedamerican, CroneWit

        stuff that closely.  So I don't know for certain what you'll find. As for the 990s, they've been exceptionally hard to locate.  At least that's my understanding from the folks at CMD and Common Cause who went to look for them. The ones that I've read are pretty tame.  

        Revenue is reported at about $6 million annually. I couldn't find anything that looked to match the scholarships in the years I could get a hold of.  Figure $1,000 for each representative, 3 meetings annually with around 500 representatives at each?  That's $1.5 million annually in scholarships.  

        by ManfromMiddletown on Sun Dec 16, 2012 at 07:02:43 AM PST

        [ Parent ]

        •  990s are easy to find; they're just at guidestar. (2+ / 0-)
          Recommended by:
          concernedamerican, CroneWit

          financials for 2009, FWIW, are here.

          Their accounting is strange.  They claim balance sheet treatment because the state chair has full discretion (*variance power" in the accounting jargon) over the funds, but in the usual balance sheet transaction it's the donor that has the control.  If the state chair is wearing his ALEC hat while disbursing funds, then the funds are properly being controlled by ALEC.

          Very odd.  I have to take my son out for a walk, but I'll be looking at this much more closely when I get back.

        •  any idea what ALEC has to gain (1+ / 0-)
          Recommended by:

          by washing its hands of the scholarship transactions and effectively disclaiming ownership of the funds?  I see a lot that they lose (deductibility by the donor, lobbying compliance for both donor and donee, etc), but I don't see any benefit for anyone. I'm sure I'll figure it out, but if you already know it would save me from reinventing the wheel. (private benefit and inurement are my initial guess)

          •  I think (0+ / 0-)

            that the basic problem is that state ethics regulators want ALEC to be the one collecting and disbursing the funds.  That way they it avoids the appearance of a direct personal benefit to the legislative recipients. It's the only way that they can get away with it.  If the money was seen to come directly from corporations, and to be controlled by a legislator, it would run foul of state lobbying guidelines.

            But, my impression is that this creates problems for them with the IRS because of their IRS 501C3 status.


            by ManfromMiddletown on Sun Dec 16, 2012 at 09:15:44 AM PST

            [ Parent ]

  •  These ALEC fuckers should be banned from even (3+ / 0-)
    Recommended by:
    Lawrence, Tinfoil Hat, CroneWit

    existing in this nation. They are nothing more than an enemy to democracy and representative government. They have certainly proved it repeatedly.

    Homeland Security my ass. It saves us from everything except the enemies within.

    If you want to be elected a representative of the people, you should be required to write your own goddamned legislation, rather than cheating and getting it from ALEC.

    Hope has a hole in it when Republicans come, bringing shackles and sorrow; branding their greed on the backs of the poor. - Wendy Connors

    by Wendys Wink on Sun Dec 16, 2012 at 07:06:21 AM PST

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