Recipients of letters of solicitation from Rep. Joe Harrison (R-Gray) for donations to the American Legislative Exchange Council’s (ALEC) Louisiana Scholarship Fund might want to hold off a bit before writing that $1,000 check.
It may not be tax deductible much longer. In fact, ALEC’s Scholarship Fund itself might very well pose major problems for the organization – and for Harrison’s fundraising efforts.
Harrison, as ALEC’s state chairman and national board member, on July 2 mailed out an undetermined number of letters on state letterhead in which he asked for $1,000 donations to the scholarship fund to be used to help pay the expenses of “over thirty Louisiana legislators” to attend the ALEC national conference July 25-28 in Salt Lake City.
ALEC is a national organization supported by Koch Industries, pharmaceutical companies, power companies, private prison companies, energy companies and communications companies, and many banking and insurance concerns, among others.
The organization’s corporate members meet regularly with state legislators to draft “model legislation” for the lawmakers to take back to their home states for introduction and passage into law. Some examples include legislation calling for sweeping education reform, public employee pension reform, privatization of such services as state prisons, employee benefits, Medicaid and, some say, the eventual privatization of state colleges and universities.
Moreover, ALEC’s corporate logo is also prominently featured on the Louisiana Legislature’s state web page.
In his letter, Harrison noted that “All of these issues are import (sic) to the entire lobbying community.” ALEC, however, insists that it is not a lobbying organization.
Harrison asked in his letter that the $1,000 checks be sent to him at his state office at 5058 West Main St., Houma, meaning he not only solicited contributions for ALEC on state letterhead, but also asked that they be sent to a state office.
He also said that ALEC is a 501(c)(3) nonprofit educational organization as designated by the Internal Revenue Service, the implication being that any contributions would be tax-deductible.
Not so fast.
It seems a former IRS agent is calling for a revocation of ALEC’s tax-exempt status, according to the influential Washington, D.C., publication Roll Call.
And it’s not just any former IRS agent. Marcus Owens, former head of the IRS Exempt Organizations division for 10 years, directed the agency’s division responsible for approving the exempt status for organizations.
Owens is now an attorney in private practice.
Among other violations, he is now accusing ALEC of illegally lobbying state lawmakers.
“ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities,” he said in a recent letter to the IRS. He said that information he included with his letter “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.”
Under requirements of tax code 501(c)(3), ALEC and any other 501(c)(3) organization is barred from political activity. It may lobby, provided its attempts to influence legislation do not constitute a “substantial” part of its activities.
Though its stated mission is to bring corporations and lawmakers together to draft and promote legislation, the 30-year-old organization claims it does not lobby, a contention with which watchdog organizations like Common Cause have taken issue.
ALEC has consistently deflected such criticism but Owens’s experience in this particular area of tax law, along with his reputation at the IRS, is considered significant and new evidence that ALEC may have deliberately misled the agency on its annual federal filings could be critical to efforts to strip ALEC of its tax-exempt status.
Owens, in his complaint, notes that ALEC does not report any payments to state officials, even though tax forms filed by the organization specifically request that such amounts be reported. Such payments would constitute a “private benefit,” he said.
LouisianaVoice possesses documents from ALEC in which the organization promises to pay all expenses, including travel, registration, and hotel accommodations, for state legislators attending ALEC conferences.
Moreover, the Pharmaceutical Research and Manufacturers of America, a member of ALEC, reported a $350,000 grant to the ALEC Wisconsin Scholarship Fund in 2010.
Harrison, in his July 2 solicitation letter, said, “With over thirty Louisiana legislators serving on ALEC task forces, your support will allow the opportunity to attend conferences funded by the ALEC Scholarship Fund.
“These conferences are packed with educational speakers and presenters, and give the legislators a chance to interact with legislators from other states, including forums on Medicaid reform, sub-prime lending, online privacy, environmental education, pharmaceutical litigation, the crisis in state spending, global warming and financial services and information exchange.”
LouisianaVoice last week submitted two formal public records requests to Harrison. The first requests the identities of the Louisiana legislators who are members of ALEC and the second asks for the identities of all recipients of his solicitation letters. A similar request to Harrison several months ago for the identities of legislative members of ALEC was ignored.
“The fact that ALEC provides significant benefits to its donors and legislative members in incontrovertible,” Owens’s complaint said. “The benefits conferred on either group alone would be sufficient to jeopardize ALEC’s tax exempt status.”