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IRS Whistleblower Letter on ALEC  

Submission to the Internal Revenue Service under the Tax Whistleblower Act, 26 U.S.c. § 7623(b) regarding underreporting of lobbying and operation in furtherance of private corporate interests in contravention of 26 U.S.c. § 501(c)(3) tax-exempt charitable status . . .

INTRODUCTION

This submission is made pursuant to the whistleblower provisions of 26 U.S.C. 7623 et seq. (the "Tax Whistleblower Act"). This matter concerns the massive underreporting of lobbying by the American Legislative Exchange Council ("ALEC"). While ostensibly a nonprofit organization under Section 501(c)(3) of the Internal Revenue Code, ALEC's primary purpose is to provide a vehicle for its corporate members to lobby state legislators and to deduct the costs of such efforts as charitable contributions. ALEC drafts "model" legislation provided by its corporate and legislative members, and lobbies for the adoption of that legislation. These goals are fundamentally inconsistent with ALEC's claimed tax-exempt status as a charitable organization under 26 U.S.C. § 501(c)(3), because (i) "no substantial part" of a charity's activity can be "attempting to influence legislation," and (ii) ALEC's activities do not qualify under any of the enumerated purposes of Section 501(c)(3).

This scheme causes harm to taxpayers in two distinct ways. First, ALEC's activities constitute an abuse of its 501(c)(3) tax exemption, which is reserved for organizations "operated exclusively " for a limited number of purposes, such as "religious, charitable, scientific ... or educational purposes ...." 26 U.S.C. § 501(c)(3). Second, ALEC's corporate members improperly deduct from their taxable income the dues and other contributions made to ALEC; such expenditures are non-deductible lobbying expenses under Section 162(e). In fact, because ALEC solicits very few contributions from individuals, its false claims of tax-exempt status appear driven by the desire of ALEC corporate members to deduct lobbying expenses as charitable contributions. . . .

Conferences are attended by both ALEC's public and private sector members. The agenda consists of large plenary sessions, Task Force meetings, evening events and receptions. Private sector members co-organize numerous sponsored events with ALEC staff, including the National Rifle Association's annual clay pigeon shooting event. Other events at the 2011 ALEC Annual Meeting included a Cigar Reception sponsored by Reynolds Tobacco and the Cigar Association of America, and an evening of dancing with food and refreshments sponsored by Cox. [Exhibit 17] These events are promoted ahead of the conference by ALEC staff via email to legislators. It is likely that the corporations that pay for such lavish lobbying junkets deduct the expenses as charitable contributions to a 501(c)(3) organization.

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• ALEC attacks shareholders  

Should shareholders have a say in how much money corporations give to candidates, super PACs and dark money groups? The American Legislative Exchange Committee, or ALEC, doesn’t think so.

ALEC is best known for giving moneyed special interests a hand in crafting “model legislation,” including the NRA-backed “stand your ground” laws that have touched off a furor in the wake of the Trayvon Martin shooting. But a trove of internal documents obtained by the advocacy group Common Cause shows that the group’s activities are far more varied than was previously known; it does everything from issuing boilerplate press releases to flagging how lawmakers should vote on given pieces of legislation.

It also lobbies actively to scuttle shareholders’ rights – specifically to limit their ability to weigh in on political giving. Last year, for instance, New York state lawmakers introduced a pair of bills requiring corporations to get shareholder approval before making donations to politicians or outside groups, such as super PACs. Backers argue the measure would provide crucial safeguards for investors. “Giving shareholders a voice ensures that their money isn’t used for political purposes they don’t agree with or that are detrimental to the corporation,” explains Adam Skaggs, a senior counsel with the Brennan Center for Justice at New York University law school.

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• From Tootsie Rolls to tobacco: What's in your CPP fund  

Tootsie Roll Industries, Tim Hortons Inc. and H.J. Heinz Company are just a few of the hundreds of companies Canadians have a stake in as part of their Canada Pension Plan fund.

The fund, managed by the Toronto-based CPP Investment Board (CPPIB), was set up in 1997 by the federal government and provinces to invest the contributions not needed to pay for current benefits to the CPP. . . .

The fund has also been criticized for some of its holdings, which include oil companies like Haliburton, tobacco companies like Imperial Tobacco and Philip Morris and munitions manufacturers like Lockheed Martin and BAE Systems.

But the fund has a strict "investment only" mandate and, by law, cannot take political or moral considerations into account when choosing investments.

"We have essentially said we will invest in anything that would be legal or a business that would be legal if carried on in Canada," Raymond said.

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• GLANTZ: Prop 29 opponents California Taxpayers Assn and California Hispanic Chambers of Commerce have financial ties to Philip Morris  

The California Taxpayers Association (CalTax) and the California Hispanic Chambers of Commerce, which signed the "No on 29" ballot arguments have long histories of working with the cigarette companies, including "donations" from Philip Morris over the years.

You can see the documents in the Legacy Tobacco Documents Library on them by clicking on these links for CalTax and California Hispanic Chambers of Commerce.

Without much looking, I found payments totaling $30,000 to CalTax from Philip Morris in 2000 and 2001 and totaling $35,000 to the California Hispanic Chambers of Commerce in 1998 and 1999. My guess is with a little more looking one could find lots more.

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• Independent and Principled? Behind the Cato Myth 

Fact: The Cato Institute is one of the leading manufacturers of toxic corporate propaganda, cynically undermining science and scholarship to serve the interests of tobacco companies, oil and gas, chemicals, health insurance, financial industry and other Cato donors.

Cato chairman Robert Levy, who today accuses the Kochs of turning Cato into “a mouthpiece of special interests,” once faithfully served the tobacco industry as a leading tobacco-death denialist. In his article, “Lies, Damn Lies & 400,000 Smoking-Related Deaths”, Levy claimed, “children do not die of tobacco-related diseases” and “there is no credible evidence that 400,000 deaths per year—or any number remotely close to 400,000—are caused by tobacco.” (In fact, tobacco use kills more than 5 million people a year worldwide.) . . .

Philip Morris listed Cato VP David Boaz as one of its “National Allies” in a 2000 memo.

In 2001, a British-American Tobacco executive sent a thank-you letterto Levy and the Cato Institute, noting: “I was also pleased to learn after our meeting that our subsidiary company, Brown & Williamson, provided the Cato Institute with funding in 2000.”

So there you have it: a brief look at the Cato Institute’s factual record, which reads nothing at all like the heroic fairytales spun by Cato and its allies about its principled opposition to the Bush Administration’s imperial presidency, or its opposition to the Republican Party, or whatever else Cato’s minions tell us to win our hearts rather than our minds.

In fact, it’s hard to know what, if anything, to believe about Cato —PR and spin are so ingrained in their thinking and their breathing, one wonders if Cato’s own flaks can tell the difference themselves between reality and spin. Lately, they seem to have a hard time keeping track of their numerous and rather careless flip-flops, particularly when it comes to how they characterize their longtime benefactors, the Brothers Koch. Most of the same libertarians who attacked the Kochs as unprincipled GOP usurpers of the Cato Institute only yesterday defended the same Kochs as principled patrons of purist libertarian scholarship. What started as a rather arcane legal dispute between the Koch brothers and their longtime lieutenant, Cato president Ed Crane, quickly transformed into a PR-manufactured Washington melodrama: The famed and revered (in some quarters) Cato Institute has turned against its Dr. Frankenstein, Charles Koch, attacking its maker with the full range of PR-weaponry that has served Cato effectively over these past four decades. The same pundits who only yesterday fell over themselves defending the billionaire Koch brothers as principled libertarians now denounce their benefactors as venal Republican Party warmongers out to crush the Cato Institute’s “nonpartisan” “independent” “scholarship” for the crime of being, yes, principled libertarians.

It would all be good for a laugh, if the spin hadn’t succeeded in conning the media and confusing the public, even roping in some well-meaning progressives like Common Cause, who defended Cato’s “independence.”

But in order for progressives and others to make an honest and practical assessment about the Cato Institute and its battle with the Kochs, we need to first set the record straight about some of the claims being spun.

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• PEARSON: Big Tobacco wins again  

Even in the face of close scrutiny and harsh criticism, a Senate committee has seen to it that cities in Oklahoma will not be able to enact stronger tobacco controls than allowed by state law. That means the tobacco industry can continue to concentrate all its plentiful lobbying resources in one place - the state Legislature - rather than have to deal with dozens of local governments that might care more about their own constituents than some well-compensated lobbyists. (Goodness knows the industry has the money to spend; according to one estimate, Big Tobacco spends a million dollars an hour to market its products.) . . .

In summary, the surgeon general concluded that the "establishment of smoke-free public and workplace environments; and statewide, community-wide and school-based programs and policies are effective in reducing the initiation, prevalence and intensity of smoking among youth and young adults."

So in other words, if Oklahoma leaders would pave the way for stronger tobacco-control policies at the local level - which has been done in 48 other states - then there's a very good change lots of Oklahoma teens would never take up the deadly habit, and would live much longer, healthier, happier lives.

Lawmakers still have the ability to resurrect a local-control measure. But rather than look out for the future of Oklahoma's young people, some lawmakers appear to be looking out for the future of the tobacco industry. You have to wonder why.

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Why Coke and Others Cut Ties with Conservative Group ALEC 

Last week, Coca-Cola, Kraft and accounting-software giant Intuit announced they were ending their membership in a conservative nonprofit group called the American Legislative Exchange Council (ALEC). The news sent reporters scrambling to explain what exactly the 39-year-old organization does, why it matters and how its role in spreading laws — governing everything from voter ID requirements to anti-illegal-immigration efforts — came to be a problem for some of America’s foremost corporate citizens. . . .

Giants from almost every major American industry comprise the highest echelon of ALEC’s corporate participants. Retail (Walmart), tobacco (R.J. Reynolds, Altria né Philip Morris), pharmaceuticals (GlaxoSmithKline, Pfizer, Bayer, Johnson & Johnson), telecommunications (AT&T), beverages (Diageo), oil (Koch Co., ExxonMobil), coal (Peabody Energy), utilities (Energy Future Holdings, Salt River Project), publishing (Reed Elsevier), insurance (State Farm), shipping (UPS) and umbrella lobbying groups like PhRMA and Centerpoint360 are all represented on ALEC’s Private Enterprise Board, which advises the organization on the needs of their industries. Until last week, Coca-Cola and Kraft also had seats on the board. . . .

Founded in 1973 by conservative lawmakers and activists — most notably Paul Weyrich, who also set up the flagship conservative think tank the Heritage Foundation that same year — ALEC was designed to further small-government and private-sector interests at the local level.

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• BOISVERT: La responsabilité morale des avocats  

Difficult to know exactly what role did Mr. Potter, but there are two letters from him talking about destruction of a series of documents. At the time, no charges were brought against Imperial Tobacco, and no legal obligations forced the company to provide these documents. According to the parent, BAT, the original documents at the registered office was in England.

Apparently nothing illegal, therefore, to orchestrate a household documents. As there is nothing illegal to undertake all kinds of procedures that have resulted in this lawsuit is heard 14 years after registration.

But lawyers do not they have a moral responsibility towards justice that transcends the interests of their client? Is it normal to participate in the destruction of incriminating documents that, in all probability, could be overwhelming evidence tomorrow?

For full of lawyers, it was infinitely normal and natural. After all, the operation was not it covered with an exquisite legality?

Sad chapter for this honorable profession, Judge Kessler said in 2006.

Sad and dirty, if you ask me.

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• BOISVERT: La responsabilité morale des avocats 

As there is nothing illegal to undertake all kinds of procedures that have resulted in this lawsuit is heard 14 years after registration.

But lawyers do not they have a moral responsibility towards justice that transcends the interests of their client? Is it normal to participate in the destruction of incriminating documents that, in all probability, could be overwhelming evidence tomorrow?

For full of lawyers, it was infinitely normal and natural. After all, the operation was not it covered with an exquisite legality?

Sad chapter for this honorable profession, Judge Kessler said in 2006.

Sad and dirty, if you ask me.

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• South Korea: ‘KT&G Sangsang Univ.’ employs education for marketing [FREE FULL TEXT] 

Ever since Korea opened its market to the transnational tobacco companies in 1988, KT&G (Korea Tomorrow & Global), the now-privatised state tobacco monopoly, has steadily lost market share. Using aggressive and creative marketing tactics, the transnational tobacco companies have increased their market share in Korea from 2.9% in 1988 to 41.7% in 2009.1 Korea restricts cigarette advertising and marketing, prohibiting outdoor signage, free sampling outdoors, and advertisements on TV and radio and in newspapers, while allowing cigarette promotions in cigarette retail shops and magazines (except magazines directed at women or youth) and sponsorship of social, cultural, musical, athletic and other specific events (except events directed at women or youth).2

In 2003, KT&G created ‘KT&G Sangsang Univ.’ (KT&G 상상 Univ.). The word ‘Sangsang’ (상상) means ‘imagination’. Although it is called a ‘Univ.’, KT&G Sangsang Univ. is not a university; it appears to be a part of KT&G. There is no official information available from KT&G and KT&G Sangsang Univ. about the formal business relationship between the two bodies. We telephoned KT&G Sangsang Univ. to ask what their specific business relationship with KT&G was, but they refused to answer the question. Hence, we investigated the telephone numbers and location of KT&G Sangsang Univ. and found that it is located in KT&G's Seoul office building and its fax number is in the range of KT&G's telephone numbers, 02-3404-4XXX.

KT&G Sangsang Univ. reinforces KT&G's corporate social responsibility (CSR) activities.3 However, its primary function is to serve as a marketing tool to approach Korean college students aged 19–27 years who belong to the group with the highest smoking rate. (The smoking rate of young Korean adults aged 20–29 years is 53% in men and 11.6% in women.4) Historically, this population group was intensively targeted by the tobacco industry worldwide.5 Since 1988, young Korean adults, in particular, women, have also been targeted by the industry.6

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CHEESEMAN: Does a Tobacco Company’s Environmental Effort Really Matter? 

The British American Tobacco (BAT) recently released its 2011 Sustainability Report. The report shows that BAT met its targets for energy, water and waste ahead of schedule. . . .

Given the myriad of health effects caused by the use of smoking, I argue that the importance of BAT meeting its environmental goals is not terribly important. I am an ardent environmentalist, so I am not in any way minimizing the importance of environmental stewardship. However, I think it is disingenuous at best for a tobacco company, a merchant of death, to brag about its efforts to help the environment.

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British American Tobacco (LON:BATS) publishes Sustainability Report 2011 

British American Tobacco's 2011 Sustainability Report continues to focus on the five areas of their sustainability agenda - harm reduction, marketplace, environment, supply chain and people and culture - and demonstrates how sustainable business practice is at the heart of the Group's strategy.

The 32-page printed summary includes the Group's vision for sustainability; key activities and performance in each area of the sustainability agenda, including what the future could look like and how the business is preparing for it; as well as progress made on last year's goals.

The full online Report at www.bat.com/sustainability, contains further information including a video and viewpoints from employees around the business; sustainability performance for the Group's four regions and nine key markets; and how stakeholder dialogue is being used to deliver sustainability.

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British American Tobacco Biodiversity Partnership 

Our mission is to act as a catalyst, bringing together the knowledge, skills and resources of the Partners to leverage positive change in understanding and behaviour among stakeholders.

Biodiversity

Biodiversity is the variety of life on Earth. It underpins ecosystem functioning and the ecosystem services that are essential for human well-being.

Projects

The Partnership works in tobacco-growing and mixed agricultural landscapes, as well as the wider ecosystems on which they depend, to address biodiversity and ecosystem impacts.

About the Partners

The Partnership consists of Fauna & Flora International, Earthwatch Institute, the Tropical Biology Association and British American Tobacco.

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Supporters 

The Global Trees Campaign is a partnership between Fauna & Flora International (FFI) and Botanic Gardens Conservation International (BGCI) . . .

SUPPORTERS

British American Tobacco Biodiversity Partnership

www.batbiodiversity.org

The primary objective of the Partnership is to contribute to the conservation of global biodiversity by building a portfolio of activities that assist countries in meeting their obligations under the Convention on Biological Diversity.

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• Sustainability Summary 2011: SUMMARY: (PDF) 

Growth

Our strategy to deliver our vision begins with growth and our aim to increase our global market share, with a focus on our Global Drive Brands and our other international brands.

Productivity

We target continuous improvements in our cost base that will provide resources to invest in our brands, helping us to grow market share and achieve higher returns for shareholders.

Winning organisation

By being a winning organisation we can ensure that we attract, develop and retain the best people we need to deliver our strategy for growth.

Responsibility

Our companies and people are required to act responsibly at all times and we seek to reduce the harm caused by our products and our environmental footprint. . . .

Chief Executive’s overview

Q What is your vision for a sustainable tobacco company?

A A Many people ask me whether the cigarette business can be sustainable in the long term and whether people will keep on smoking? The fact is that despite an increase in smoking restrictions and the introduction of further tobacco control measures, many people continue to smoke and use tobacco products and will probably do so for the foreseeable future. So in 20 years’ time, I see the bulk of our business still being in conventional cigarettes.

Naturally, I want us to be able to help to reduce the impact of tobacco use on public health. This is something that should be of benefit to society as well as our shareholders since it will contribute to long-term business sustainability. However, the challenge should not be underestimated: policy makers are not all in agreement when it comes to how to approach tobacco related harm reduction, the science is complex and to resolve these issues requires a collaborative approach between the private and public sectors.

Because science is such an important topic for us I decided recently to create a new Management Board position of Group Scientific Director. This helps ensure that science is at the heart of our strategic planning and decision making.

So, as well as conventional cigarettes, we are driving our business to be able to offer consumers a choice of reduced toxicant cigarettes, as well as new categories such as low-toxicant smokeless tobacco and regulatory approved nicotine products. I like to describe this approach as the ‘responsible use of tobacco’ but I recognise that this is a contentious concept and that for good reasons stakeholders hold widely different views. Our commitment to this is the reason we have recently established a new company, Nicoventures.

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