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Oct. 6 — A conservative nonprofit with links to ExxonMobil Corp. could face excessive lobbying and private benefit charges from the IRS if the agency decided to launch an investigation, tax professors and an attorney with experience in nonprofit law told Bloomberg BNA.
ExxonMobil has used the American Legislative Exchange Council (ALEC), a membership organization of state legislators that is exempt under tax code Section 501(c)(3), as “a key asset in its multi-billion dollar campaign to sow uncertainty about climate science,” the Center for Media and Democracy and Common Cause said in an Oct. 5 complaint accompanying 240 new examples of the relationship between ALEC and the oil giant. The allegations fit into an often politically charged debate about appropriate activity for 501(c)(3) organizations, which can engage in some lobbying but can't participate in political campaigns.
“The IRS has brought these types of cases, so it's not beyond imagination that they would look at this organization. They very well might, and probably should,” said Philip Hackney, an associate law professor at the Louisiana State University Law Center. Still, such complaints usually hold more weight as a political tool than something that pushes the Internal Revenue Service to enforce the tax code, he said. Hackney previously worked in the IRS Office of Chief Counsel, focusing on exempt organizations.
The complaint—the third supplement to one filed in 2012—paints a picture of an allegedly tight connection between the two organizations: ExxonMobil paid ALEC more than $1.7 million to fund its lobbying activity over a 17-year period; ExxonMobil agents have served on ALEC's corporate board; and ALEC took legislative positions that benefited ExxonMobil on topics such as hydraulic fracturing and the Keystone Pipeline.
“It has become painfully obvious over the past few years to the press and the public that ALEC is a corporate lobby front group masquerading as a charity—at taxpayer expense,” the groups said in an accompanying letter to IRS Commissioner John Koskinen. “If the laws governing nonprofits are to mean anything, the IRS needs to take action to enforce them in this case.”
ExxonMobil didn’t return a request for comment. An IRS spokeswoman declined to comment, citing federal law that prohibits the agency from commenting on individual taxpayers. The agency also doesn't typically announce or provide updates on audits.
ALEC hasn’t formally received a complaint or an investigation notice from the IRS, and it is unlikely that will happen, Bill Meierling, vice president of public affairs at ALEC, said in an Oct. 6 e-mail statement to Bloomberg BNA.
“The Common Cause and Center for Media and Democracy campaign serves their own fundraising purposes alone. These routine, frivolous complaints delivered to the media—and later to the IRS—seek only headlines where no wrongdoing has taken place,” Meierling said.
Organizations exempt under Section 501(c)(3) that engage in excessive lobbying could lose their exemption and face criminal and civil penalties for tax evasion, Eric Chaffee, a law professor at the University of Toledo College of Law, said in an e-mail. If ALEC has indeed “become a puppet for ExxonMobil’s lobbying activities,” as the watchdog groups allege, it could lose its tax-exempt status for all the years where lobbying for ExxonMobil made up the bulk of its activities, he said.
“Determining whether that is true will likely involve a lengthy investigatory process and substantial litigation,” Chaffee said, adding the IRS could also penalize ExxonMobil for tax evasion.
ALEC allegedly “has consistently and continuously” told the IRS it spends no money on lobbying, according to the complaint.
Charitable organizations are meant to benefit the general public, and are “not supposed to do things for the private interests of individuals,” a point the IRS could raise in an investigation if it thinks ALEC is operating to benefit ExxonMobil, Hackney said.
ExxonMobil also received private access to legislators after funding ALEC, Karen Hobert Flynn, president of Common Cause, told Bloomberg BNA.
“Exxon gets real benefits from engaging in and supporting ALEC,” she said. “They're not doing it just to throw it out there—they get results and it can make a difference.”
The IRS isn't likely to delve into an investigation against ALEC, given the current political climate and the agency's funding constraints, despite perhaps being able to make a persuasive case, said Bruce R. Hopkins, principal at Bruce R. Hopkins Law Firm LLC.
“Particularly on the House side, Congress seems ready to pounce on the IRS in the exempt area no matter what they do and don’t do. To take on big targets like Exxon, for example, is not likely to happen,” he said. “These complaints come in, and they acknowledge them and so forth, but they don’t really go anywhere.”
Some House Republicans have criticized the IRS after it improperly scrutinized groups applying for tax exemptions. The issue reached a boiling point in recent months with members of the House Freedom Caucus itching to impeach Koskinen and take the agency to task for the targeting. A House vote on the matter has been delayed until after the Nov. 8 elections (180 DTR G-4, 9/16/16).
Flynn acknowledged “a number of political forces at play” that may stand in the way of an investigation, though she added there is no way to know the status. Common Cause plans to continue to highlight ALEC's relationship with other corporate members, and will continue to update the complaint with additional documents, she said.
“We will continue to be looking at the kind of engagement and lobbying that has happened and continue to supplement that complaint in hopes this will raise the visibility of this and push the IRS to look at this complaint,” she said.
To contact the reporter on this story: Colleen Murphy in Washington at email@example.com
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
Text of the Center for Media and Democracy and Common Cause complaint is in TaxCore.
Text of the letter to Koskinen is at http://src.bna.com/jcR.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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