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Caplin&Orysdale
ATTOANfVS
Caplin
&:
Drysdale,CharteredOneThomasCircle,NW,Suite
11aD
Washington,DC
20005202-862·5000202·429-3301
Fax
www.caplindrysdale.com
202.862,5020Directmowens@capdale.com
June18,2012TheHonorableDouglasShulmanCommissionerInternalRevenueService1111ConstitutionAvenue,N.W.Washington,D.C.20224
RE:ViolationsoftheInternalRevenueLaws
by
TbeAmericanLegislativeExchangeCouncil(EIN:
52~0140979)
DearCommissionerShulman:Iamwritingonbehalfofmyclient,ClergyVOICE,agroupofChristianclergylocatedinOhio.ThemembersofClergyVOICEarecommittedtoprinciplesofsocialjusticeandbelievethatthedefenseoftheseprinciplesisacentraltenetoftheirfaith,Theygathertogetherasindividualclergyandnotasrepresentativesofanycongregation,judicatory,ordenomination.Amongthemarereligiousleadersfromwithinthefollowingreligioustraditions:theAmericanBaptistChurches/USA;theChristianChurch(DisciplesofChrist);theEpiscopalChurchintheUSA;theEvangelicalLutheranChurchinAmerica;theUnitedChurchofChrist;andtheUnitedMethodistChurch.ThemembersofClergyVOICEarequitetroubledbytheactivitiesoftheAmericanLegislativeExchangeCouncil("ALEC")thathavebeenbroughttothepublic'sattentioninnumerousmediareportsandwerethesubjectofarecentIRSwhistleblowercomplaintfiledbythenonprofitadvocacyorganization,CommonCause.TheinformationinthesematerialssuggeststhatALECissignificantlymisrepresentingitsactivitiestotheIRS,thestates,andthepublicinordertoadvancealegislativeagenda-anagendalargelycraftedbytheorganization'scorporatemembers-thatelevatescommercialgainforafewoverthewell-beingofsociety'Slessfortunate.Myclients'theologicalconcernswithALEC'sbehavioraresetforthmorefullyintheattachedletter.Iamwritingtodaytodiscusstheseriouslegalimplicationsofthatsamebehavior,Theinformationinthissubmission,agreatdealofwhichwasnotpresentedinpriorcomplaints,confirmsthatALEChasdeliberatelyandrepeatedlyfailedtocomplywithsomeofthemostfundamentalfederaltaxrequirementsapplicabletopubliccharities,Theinformationinthissubmissionalsosuggests,quitestrongly,thattheconductofALECandcertainofitsrepresentativesviolatesothercivilandcriminaltaxlawsandmayviolateotherfederalandstatecriminalstatutesaswell.Thus,ClergyVOICEurgestheServicetoinvestigateimmediatelyand,afterverifyingthis
 
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I.dh...1di.fALEC'intormation,toassesspenatICSanoterappropnatesanctrons=-incumgrevocation
0.~
stax-exemptstatus.Indeed,giventhevisibilityoftheorganization,thesignificantdollarsinvolved,andthecontinuingnatureofALEC'stroublingactivities,anyinactiononthepartoftheServicewouldunderminetheintegrityofthelawitself.
-2-
OVERVIEWOFKEYFINDINGS
•Apatternoflobbyingactivityfarbeyondthelimitssetbyfederaltaxlaw;•Excessiveprivatebenefittocorporatemembers,includingthepromotionoflegislationapplicabletoonlyoneorasmallnumberofcorporatemembers;•Excessiveprivatebenefittostatelegislators,includingunreportedtaxableincomeforpersonalexpenses,whichmayalsoimplicatestateethicslawsandfederalanti-briberylaws;•ExcessiveprivatebenefittotheRepublicanPartyinamannersimilartothatin
AmericanCampaignAcademy
v.
Commissioner,
92T.C.1053(1989);and
•ApatternoffilingmultipleinaccurateForms990-whichincludeaffirmativestatementsthatALECengagedinnolobbyingactivities(eveninyearswhenithadregisteredtwoofitsattorneysaslobbyistsfortheorganization),andaffirmativestatementsthatALECmadenopaymentstoorforthebenefitofgovernmentofficials(evenwhenitpaidtravelandentertainmentexpensesforstatelegislatorsandtheirfamilies)-indicatingbothcivilandcriminalviolationoffederaltaxlaws.
BACKGROUND
1.
OverviewofALEC'sMission,Governance,andActivities.Asyouknow,ALECisamembershiporganizationthatistax-exemptundersection501(c)(3)oftheInternalRevenueCode,asapublicly-supportedcharitydescribedinsection170(b)(1)(A)(vi).
I
Itsstatedmissionis"toadvancetheJeffersonianprinciplesoffreemarkets,limitedgovernment,federalism,andindividualliberty"througha"nonpartisanpublic-privatepartnershipbetweenAmerica'sstatelegislators,concernedmembersoftheprivatesector,thefederalgovernment,andthegeneralpublic.,,2ALECself-identifiesas"thenation'slargestnonpartisan,individualmembershipassociationofstatelegislators.v'suggestingthatitdifferslittlefromtheNationalConferenceofStateLegislaturesandsimilarnonprofitsthatprovideresearch,technicalassistance,andanopportunityforbipartisancollaborationamongstatelawmakers.Infact,ALECdiffersmarkedlyfromtheseorganizations.Forexample:
I
Unlessotherwisestated,sectionreferencesaretotheInternalRevenueCodeof1986,asamended(the"Code"or"I.R.C."),andallregulatoryreferencesaretotheTreasuryRegulationscurrentlyineffectundertheCode(the"Regulations"
Or
"Treas,Reg.").
2
ALEC,2010Form990,PartIII,line1(briefdescriptionoftheorganization'smission);
seealso
http://www.alec.org/AM/Template.cftn?Section=About("OurMission").
3
ALECLegislativeMembershipBrochure,availableathttp://www.alec.org/metnbership/legislative-membership/.
 
Lalliin
&0
rysdalB
-3-
[IIAIIIIIIIII
•ALEC'smembersincludenotonlystatelegislators("LegislativeMembers"),butalsorepresentativesfromprivatecorporations("PrivateSectorMembers").Asdescribedbelow,PrivateSectorMemberspaysteepfeesfortheprivilegeofmembership,whichgivesthemaccesstotheLegislativeMembersandavoiceinsettingALEC'slegislativeagenda.•WhileALECprofessestobenonpartisan,"thevastmajority[ofitsmembers]areRepublican.?"anditsgovernancestructurerevealsanevenmoreglaringpartisanimbalance.72ofALEC's74filledStateChairmanseatsareheldbyRepublicanlegislators.?16ofthe17statelegislatorsservingonALEC'sBoardofDirectorsareRepublican.AndeverylegislatorservingasanofficerofALECisRepublican,
6
•"[ALEC's]BoardofDirectors...isadvisedbyaPrivateEnterpriseBoard,representingmajorcorporateandfoundationsponsors."?AccordingtoALEC'sBylaws,the"PrivateEnterpriseBoardofDirectors"meetsjointlywithALEC'sBoardofDirectorsatleastonceperyear.
8
MembersofthePrivateEnterpriseBoardrepresenttobacco,pharmaceutical,alcoholicbeverage,oilandgas,andinsurancecompanies,aswellaslobbyingfirmsthatservetheseindustries.
9
ALEC'sPrivateSectorMemberspaysignificantsumstositdownatthetablewithitsLegislativeMembers.Whereaslegislatorspaymembershipfeesof$50peryear,1Oprivatecompaniespaybetween$7,000and$25,000,dependingonthemembershiptier.
II
BuyingintoamorecostlymembershiptiergivesthecorporationaccesstoagreaternumberofALECmeetings,policysummits,"VIPEvents,"andBoardofDirectorsreceptions'f=-andwiththisaccess,moreopportunitiesforthecorporation'srepresentative(which,weunderstand,isfrequentlyanin-houseattorneyorlobbyist)tointeractdirectlywithALEC'sLegislativeMembers.
4
See
ReportoftheAmericanAssociationforJustice,
ALEC:GhostwritingtheLawforCorporateAmerica,
(May2010)at6(hereinafter"AAJReport").
5
See
http://www.alec.org!about-alec/state-chairmen!(asofMay15,2012).OneisheldbyaDemocraticlegislator,oneisheldbyanonpartisanlegislator.Twoseatsarevacant.
6
See
listofALEC'sofficersanddirectors,
at
http://www.alec.org/about-alec/board-o_f-directors/(asofMay15,2012).
7
ALEC,
ProposingConstitutionalAmendmentsbyaConventionoftheStates:AHandbookforStateLawmakers,availableat
http://www.alec.org/publications/article-v-handbook/.Thereferenceto"foundationsponsors"isabitmisleading.WhilethePrivateEnterpriseBoardincludesarepresentativefromanindustry-focusedtradeassociation-theAmericanBailCoalition-noprivateorcompanyfoundationsarerepresented.
8
See
AmericanLegislativeExchangeCouncilBylaws(Rev.July10,2007)("Bylaws"),
alt.
V,§5.10;
seealso
id.
§
XV(describingtherole,composition,andresponsibilitiesofthePrivateEnterpriseBoard).
9
ALECPrivateEnterpriseBoard,
at
http://www.alec.orgla!?..9.ut-alec/private-enterprise-~)Q
!irdl
(asofMay15,20]2).
10
See
ALECLegislativeMembershipBrochure,
availableat
http://www.alec.org/membership!legislative-membership!;LauraSullivan,NationalPublicRadio,ShapingStateLawsWithLittleScrutiny(Oct.29,2010),
availableat
http://www.npr.org/templates/story!stol'y.pilp?storyld'''l30891396;
11
See
ALECPrivateSectorMembership,
at
ht1]:!!www.alec.orgLmembershjp/p'rivate-sectOl~-l11embership_{
12
See
ALECPrivateSectorMembershipBrochure,
availableat
http://www.alec.org/membership/private-sector-membership!.
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