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).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.
*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.