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ALEC and Its (Reluctantly) Newly-created Jeffersonian Project

January 20, 2014

The American Legislative Exchange Council (ALEC) has been in existence for over forty years– since 1973. In 1975, ALEC registered as a nonprofit organization. By the late 1980s, ALEC had begun to “actively solicit more input from private sector members” as the ALEC “task forces” became “model bill movers.”

Thus, by 1990, the current ALEC practice of involving corporate America in the drafting and promoting of legislation that suited corporate America– and having ALEC legislative members carry ALEC bills back to their respective statehouses– was in place.

In his December 2013 National Public Radio interview, reporter Ed Pilkington likens ALEC to a “dating service”:

ALEC is sort of almost a dating service between politicians at the state level, local elected politicians, and many of America’s biggest companies. It brings them together much as a dating service would do. It sits them in rooms behind closed doors where three times a year they come together to think about what should be the next wave of state-based legislation and they have presentations from the companies that say what they would like to see done legislatively in states right across America. Then they have a vote and the legislators begin. Hundreds of state legislators across America belong to ALEC and come to these meetings.

They begin to have a vote on what they’d like to do in the next state assembly session. And after the legislators have voted the companies get to vote and essentially they have a veto. If they don’t vote by at least 50 percent to approve a piece of legislation going forward, it doesn’t happen. If they think they do approve of it, it goes ahead and becomes a model bill, which is like a blueprint for a piece of legislation that ALEC wants to see spread across America. [Emphasis added.]

To “lobby” is “to seek to influence (a politician or public official) on an issue.”

Sounds to me like this “dating service” is a lobbying machine.

Nevertheless, ALEC is registered with the IRS as a 501(c)3 nonprofit. And according to the IRS, 501(c)3 (tax-exempt) nonprofits cannot engage in substantial lobbying:

In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying).  A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status. …

An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation. [Emphasis added.]

In its 2011 and 2012 returns, ALEC states that it lobbies (and according to the attached Schedules C, that such lobbying is minimal).

Hmmm….

However, the real problem for ALEC is on its 2001 through 2010 990s (2001 is as far back as I have access). In its 200120022003200420052006, and 2007 990s, on Schedule A, Part III, ALEC states that it has not “tried to influence national, state, or local legislation….”

In 2008, the 990 form changed, but ALEC did not. On its 2008 and 2009 990s (Part IV, question 4), ALEC states that it did not “engage in lobbying activities.”

In 2010, ALEC finally admits it “engaged in lobbying activities”; however, it did not complete the necessary Schedule C required in detailing its lobbying.

In 2011 and 2012, ALEC finally includes Schedule C. Nevertheless, the paltry amount it reports spending on lobbying directly contradicts ALEC’s core activities (see Pilkington’s NPR interview above).

In April 2012, the law firm of Phillips and Cohen filed an IRS Tax Whistleblower complaint against ALEC on behalf of the nonprofit citizens’ lobbying group, Common Cause. (The Phillips and Cohen link provides a cornucopia of sample documentation of ALEC’s lobbying activities.)

That ALEC lobbies is undeniable.

And yet, ALEC continues to deny its lobbying… even as it creates its own 501(c)4.

Creating a 501(c)4 is in and of itself not unusual for a 501(c)3. Many nonprofit organizations that advocate/lobby have both a 501(c)3 and 501(c)4. In short, the idea is that one can contribute a tax-deductible donation to the 501(c)3, and the 501(c)4 can perform the lobbying. (One could donate directly to the 501(c)4; however, the donation is not tax deductible since a 501(c)4 is considered an “action” organization.

What is noteworthy in ALEC’s case is that it has waited approximately 18 years before creating its 501(c)4– and only after it has had a formal complaint filed with the IRS alleging its abuse of its 501(c)3, tax exempt, status.

The new ALEC-related 501(c)4 is called The Jeffersonian Project. What amazes me is that it seems that ALEC believes the recent creation of a 501(c)4 will somehow “save” ALEC from any censure by the IRS for previous abuse of its 501(c)3 status:

…It is possible that at some point the Internal Revenue Service will audit ALEC. Though we do not believe that any activity carried on by ALEC is lobbying, the IRS could disagree. If that is the case, it would be possible to resolve any such issue with the IRS by agreeing to transfer the activity in question from ALEC to the Jeffersonian Project. [Emphasis added.]

Let’s get this straight: ALEC expects to “resolve” its “possible” IRS issues for lobbying using *tax free* contributions over the course of at least a decade by “agreeing to transfer” its lobbying to its 2013-created 501(c)4.

The ALEC minutes make no mention of “possible” IRS penalties and fines.

Denial, perhaps?

Since 2001, ALEC’s total assets have ranged from $1.29 million (2004) to $6.69 million (2011).

I’m thinking that the IRS is going to want some serious back taxes and penalties from the “we really aren’t lobbying but if you think we are, here’s our 501(c)4 just in case” ALEC.

And I’m thinking that the IRS might just be miffed enough to revoke ALEC’s nonprofit status altogether.

ALEC seems to be hanging onto its lie of “not lobbying” even as it writes the following:

ALEC will not lobby, but will communicate its positions like we did in the past, which may result in registering a few employees as lobbyists, because of the over expansive definitions of “lobbying” in some states. [Emphasis added.]

Well, go figure. ALEC “doesn’t lobby,” but it must register its “employees” as lobbyists “in some states.” Even more astounding is that ALEC– a group that is all about states’ rights— appears to be whining about being identified as lobbying in some states that it says (out of one side of its mouth) have the right to those “over expansive definitions” of lobbying.

In creating this “Jeffersonian Project,” I think ALEC knows that its days are numbered concerning that “possible” IRS audit.

My position that ALEC feels trapped into creating its 501(c)4 is reinforced by the tone of the August 6, 2013, meeting minutes. It appears that some ALEC members are skittish about creating another organization that could possibly elude ALEC control via a maverick board of directors:

The Jeffersonian Project is indirectly controlled by ALEC through a provision in its bylaws requiring that its board of directors be appointed (or removed) by ALEC. Though under District of Columbia law, the board of directors of the Jeffersonian Project manages its activities, the ability to remove and reappoint directors should give ALEC confidence that no future Jeffersonian Project board will cause the Jeffersonian Project to diverge from ALEC’s principles.

In order to ensure the Project’s alignment with ALEC’s principles, the board of directors of the Jeffersonian Project could adopt a resolution allowing it to take a position on an issue or legislation only if the position taken is consistent with ALEC model legislation or policies that have undergone ALEC’s rigorous adoption procedures. [Emphasis added.]

In other words, the “nonlobbying” ALEC will indisputably and forcefully control the “lobbying” Jeffersonian Project.

ALEC is afraid of its own Jeffersonian Project shadow.

Is there any better irony than ALEC’s fear that its lobbying front might run renegade?

Finally, there is another component to ALEC’s 501(c)4 “pros” list worth mentioning– for its apparent strangeness. It seems that one of the “selling points” of this Jeffersonian Project to ALEC members is the Jeffersonian Project’s supposed appeal to donors who prefer not to have the tax break associated with donating to a 501(c)3 nonprofit:

…ALEC has been approached by donors who are willing to make sizable donations, but insist that the donations go to a section 501(c)(4) organization.  Jeffersonian Project would provide a vehicle to accept such contributions.

Can ALEC be so dumb? Why would anyone” insist” upon ponying up a “sizable donation” to a 501(c)4? Such a donation is not tax deductible.

The payoff must rest elsewhere.

Assemble the puzzle pieces, kids.

ALEC is afraid of a renegade 501(c)4.

Perhaps that is exactly what those “sizable donors” want to create– an ALEC splinter.

Better watch out, ALEC. You have the IRS at the back door and potential splinter donors at the front.

I’m guessing that life was simpler prior to April 2012, in those decades when you were corrupting statehouses under the public exposure radar.

From → ALEC

3 Comments
  1. Hannah permalink

    Ya know… ALEC seems to function for businesses almost like a union does for teachers and trade laborers (a strong union that is). The purpose of a union is to protect the “little guy” from the big corporation… and ALEC seems to protect (and support) the big businesses. So at the same time as unions are being busted all over the United States, ALEC has grown and strengthened. ALEC is organized business “labor” that protects the big corporations while at the same time undercuts the unions that protect the “little guy” FROM big business.

  2. Laura h. Chapman permalink

    Brilliant research. You could have a second career as a lawyer, but your skill in teaching through this blog might be diluted. I have looked at IRS forms and registered lobby status for the Council of Chief State School Officers, but this multi-year analysis of ALEC is great. A whole bunch of ultraconservative think tanks were established in the 70s and 80s. Somewhere I have a note of this derived from information posted on the website “People for the American Way.” Can’t find it at the moment.

  3. Very interesting and informative. Thank you.

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