ALEC Thought of Non-Profit — Then Thought Not

It’s been a rough year for ALEC.

The American Legislative Exchange Council, a public-policy group that saw an exodus of corporate members after championing self-defense and voter-identification laws, looked at setting up a non-profit arm following allegations of violating its charitable status by lobbying on issues.

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.

Common Cause, a Washington-based watchdog group, accused ALEC in an Internal Revenue Service complaint last April of violating its current tax status by lobbying state legislators.

ALEC is incorporated as a charity under Section 501c3, meaning donations to the group are tax-deductible.

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.

The new non-profit would “educate the public on the past, current and future impact of ALEC’s model legislation” and would not lobby nor engage in political activities, Scheberle said in the memo.

ALEC hasn’t set up the affiliate, according to Kaitlyn Buss, a spokeswoman.

“While the American Legislative Exchange Council remains a 501c3 focused on the exchange of practical, state-level public policy issues among its members, we are always open to operational changes that will make us more effective,” Buss said. “However, we have no current plans to operate a 501c4 in the near future.”

Doug Clopp, an attorney for Common Cause, said the discussion of an affiliate is an indication that the group knows it is not a charitable organization.

“It looks like ALEC is covering its tracks,” Clopp said. “These folks are not a charity, they’re not the soup kitchen, they’re not the YMCA. They are, and always have been, aware that their activities are straight-up lobbying.”

Based in Washington, ALEC allows representatives of corporations and interest groups to help draft legislation with state lawmakers, who then try to enact those bills in their home states. Companies pay dues of as much as $25,000 a year.

ALEC this week released its 2013 state legislative priorities and proposed legislation to accomplish them, including ending traditional pensions for newly hired public employees, repealing requirements that utilities buy electricity from environmentally friendly sources, using taxpayer dollars for religious schools, and limiting lawsuits by consumers injured by faulty products.

More than three dozen companies, including General Electric Co., Coca-Cola Co., and Johnson & Johnson, dropped their ALEC memberships earlier this year.

Ben Elgin contributed to this report. 


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