May 24, 2010



Lois G. Lerner

Director Exempt Organizations Division

Internal Revenue Service

1100 Commerce Street

MC 4900 DAL

Dallas, Texas  75242


            Re:       National Labor Union Political Activity


Dear Ms. Lerner:


            Recent media reports indicate that several large national labor organizations have announced that they will be spending millions of dollars during the 2010 Congressional elections as part of a “massive incumbent protection program.” (Exhibit 1, “Unions to spend $100M in 2010 campaign to save Dem majorities,” The Hill, May 21, 2010,  Each of the candidates targeted for protection are Democrats.


Landmark Legal Foundation (Landmark) respectfully requests that the Internal Revenue Service initiate an investigation to monitor carefully this unprecedented political activity to ensure that the American Federation of State, County, and Municipal Workers (AFSCME), the Service Employees International Union (SEIU), and the AFL-CIO comply fully with all tax and disclosure laws.  In addition, Landmark requests that the IRS initiate the collection of data and information during the primary process to ensure that all such data and information are not destroyed during an after-the-fact audit.


I.          Background


On May 21, 2010, The Hill reported that AFSCME and SEIU officials would be spending “close to $100 million on the 2010 election, with most of those funds going to protect incumbents.”  (Exhibit 1.)  AFSCME plans to spend more than $50 million and SEIU intends to spend $44 million during the 2010 midterm elections.  In addition, the AFL-CIO, which regularly fuels Democrat party candidates’ political campaigns with millions of dollars, is also pledging to be active in the midterm elections.  (Id.) 


            “’We have got to protect the incumbency in the House.  We have got to protect the incumbency in the Senate,’ (AFSCME President Gerry) McEntee said.  It is going to be hard.  Those tea-baggers are out there.  There is an anti-incumbency mood out there.” (Exhibit 1.)  According to the union, the $50 million in planned AFCSME expenditures is the largest expenditure the union will make in a midterm election.  (Id.)  SEIU, which spent $85 million during the 2008 campaign season, is also pledging an unprecedented effort on behalf of Democrat incumbents.  (Id.)  And the AFL-CIO and its state affiliates, particularly in Nevada and California, are gearing up for “’a very hard election year, maybe the hardest yet.’”  (Id.)


            AFSCME indicates that it will be focused on the union’s “top tier of eight Senate seats and 34 House members.”  (Id.)  SEIU has designated 15 “top priority” House district races including John Boccieri (D-Ohio), Bill Foster (D-Ill), Betsy Markey (D-Colo.), Tom Perriello (D-Va.), Gary Peters (D-Mich.),  Mary Jo Kilroy (D-Ohio), Steve Driehaus (D-Ohio), Debbie Halvorson (D-Ill.) and Dina Titus (D-Nev.).   In addition to Perriello and Foster, the AFL-CIO has identified for protection California Democrat Representatives Dennis Cardoza, Jim Costa and Jerry McNerney, and Virginia Democrats Gerry Connolly and Rick Boucher.


            Nevada Democrat Senator Harry Reid and California Senator Barbara Boxer are also top electoral priorities for the “incumbent protection program.”  “It’s our single focus.  Harry Reid has done more for the state – more than anyone in history.”  (Exhibit 1, quoting Nevada AFL-CIO executive secretary-treasurer Danny Thompson.)  A California Labor Federation spokesman stated that “[w]e are going to devote more resources to the 2010 campaign than we have ever done in any prior campaign.”  (Id., quoting communications director Steve Smith.)


II.        Legal Analysis


Labor organizations are generally exempt from paying income taxes to the federal government.  26 U.SC. 501(a) and (c)(5).  This exception does not apply, however, to funds a labor organization spends on political activity.  Political activity, or “exempt function” activity, is defined as:


[T]he function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed.  26 U.S.C. 527 (2006).


            When a labor organization engages in political activity (exempt function expenditures), it must report such activity as an itemized expenditure on its Form 990 income tax return.  Moreover, it must pay ordinary income taxes on the revenues expended for its political activities.  To illustrate, when a labor organization receives a dollar in dues from one of its members, and places that dollar in its general treasury, then it does not owe the IRS any tax.  However, if the labor organization then takes the dollar and uses it for political activity, then that dollar becomes taxable income and the expenditure must be reported.  26 U.S.C. Section 527(f)(1).


            In order to properly engage in tax exempt political activities, a labor union must establish a separate segregated fund pursuant to 26 U.S.C. Section 527.  A “527 organization” is treated as a separate entity distinct from the labor union.  26 U.S.C. Section 527(f)(3).  A labor union may use general treasury funds without incurring a tax liability for the limited purpose of paying for its 527 organization’s indirect expenses.  26 C.F.R. Section 1.527-2(c)(2).


III.       Conclusion


            Each of the labor unions referenced in this inquiry have 527 organizations, which have reported extensive political contributions in years past.  However, as Landmark has demonstrated through various complaints in recent years, the extent to which these organizations appear to be blurring the line between legitimately exempt activity and taxable political activities is growing more and more troublesome.   Accordingly, Landmark requests that the IRS begin immediately a thorough examination of these labor unions’ political activities and that the IRS commence without delay the collection of all relevant information and data.  Finally, Landmark requests that the IRS inform the unions of the necessity of maintaining all records of expenditures and in kind activities for post election audit purposes.






                                                                        Mark R. Levin





                                                                                                            EXHIBIT 1



Unions to spend $100M in 2010 campaign to save Dem majorities

By Kevin Bogardus and Sean J. Miller - 05/21/10 06:00 AM ET

At least two influential unions will spend close to $100 million on the 2010 election, with most of those funds going to protect incumbents.

Union officials told The Hill they plan to help endangered members — particularly freshmen — who made politically difficult votes in a year during which an anti-incumbent mood has filled the country.

And the number will be even higher since the AFL-CIO declined to give its figures.

While the labor movement has displayed an aggressive tack in Democratic primaries, including supporting some challengers over incumbents, it remains concerned about the party retaining its congressional majorities.

As a result, it plans an enormous spending spree to help ensure Democratic control of Congress.

The American Federation of State, County and Municipal Employees (AFSCME) plans to spend in excess of $50 million during the 2010 campaign, part of which will fund “a massive incumbent protection program,” according to Gerry McEntee, president of the union.

AFSCME spent roughly $67 million on its political activities in 2008. But the $50 million slated for the 2010 elections is the largest expenditure the union will make in a midterm election, according to union officials. The money will go to help defend the union’s top tier of eight Senate seats and 34 House members.

“We have got to protect the incumbency in the House. We have got to protect the incumbency in the Senate,” McEntee said. “It is going to be hard. Those tea-baggers are out there. There is an anti-incumbency mood out there.”

After the top tier, there will be a second tier of House candidates AFSCME will be monitoring and will step in to help defend if they become endangered by GOP challengers.

“We are not out there looking for new seats. We have our hands full the way it is,” said McEntee, who has been a key voice in pushing labor to play in Democratic primaries.

The Service Employees International Union (SEIU) plans to spend $44 million in total on its 2010 election program. The union spent $85 million on its 2008 campaign, according to union officials.

SEIU has a list of 15 top-priority House districts across the country that it plans to campaign in to protect members who voted for the healthcare reform bill. Among those who will see support from the national union are Reps. John Boccieri (D-Ohio), Bill Foster (D-Ill.), Betsy Markey (D-Colo.), Tom Perriello (D-Va.), Gary Peters (D-Mich.) and Dina Titus (D-Nev.).

“In the past, we have not paid as much attention to incumbent protection as we have this year,” said Jon Youngdahl, national political director for the SEIU. “In the past, decisions were made on electoral opportunities and this year decisions are being made on the healthcare reform accountability.”

For the SEIU, the 2010 campaign began in the fall of 2009 during the House’s first healthcare reform vote. The union has already spent $3 million on three rounds of television ads thanking members for backing the legislation.

A third labor group said it plans to spend big in 2010 but wouldn’t get into specific numbers.

Karen Ackerman, the AFL-CIO’s political director, told reporters on Wednesday that the labor federation will be active in 18 states, will campaign in gubernatorial and Senate races and will likely have a role in 60 to 70 House races this election.

She declined to give a dollar amount.

“The field is very large, maybe even more races than there was in 2008,” Ackerman said. The AFL-CIO official said the labor movement sees 2010 as “a very hard election, maybe the hardest yet” and wants to see the “many, many good progressive members of Congress” return to Capitol Hill.

Senate Majority Leader Harry Reid (D-Nev.) will be the most important test of labor’s efforts to save incumbent lawmakers. Based in a state with high unemployment and a high home foreclosure rate, Reid is facing a tough reelection race this year. Consequentially, unions are revving up their general-election campaigns three months earlier than usual, as soon as Reid’s Republican challenger is picked in the June 8 primary.

“It’s our single focus. Harry Reid has done more for the state — more than anyone in history,” said Danny Thompson, executive secretary-treasurer of the Nevada State AFL-CIO, which has more than 200,000 members.

The state labor federation has a three-pronged program in place: a worksite initiative, from construction sites to casinos, where workers will lobby other workers to vote for Reid, target union members for door-to-door campaigning and then direct-mail pieces paid for by the national union.

Thompson said he believes the labor vote will be key to Reid’s reelection, estimating it makes up to 32 to 34 percent of the vote in Nevada. “We are right now putting everything in place. The people who will be running the campaign are in place. The structure is in place. We are ready to go,” Thompson said.

Another senator who will have stout labor backing is Barbara Boxer (D-Calif.).

“We are going to devote more resources to the 2010 campaign than we have ever done in any prior campaign,” said Steve Smith, communications director of the California Labor Federation.

Electing California Attorney General Jerry Brown (D) as governor and reelecting Boxer to the Senate are the state federation’s two highest priorities. But the labor group is also looking to protect a trio of House members based in the Central Valley region who took tough votes in favor of healthcare reform.

California Reps. Dennis Cardoza (D), Jim Costa (D) and Jerry McNerney (D) could be facing stiff GOP opposition this November. Smith said the 2.1 million member-strong union has been preparing for months, microtargeting non-union members in the region who share the same priorities with labor to find more votes for the Democrats.

“Given where they are, it’s never an easy proposition. We are going to make sure that we stand up and they are reelected and sent back to Congress,” Smith said.

Unions are aware that some of the most endangered incumbents in 2010 are the freshmen who voted for the healthcare reform bill.

In Virginia, labor groups are moving to protect freshman Reps. Gerry Connolly (D) and Perriello.

“Definitely, Tom Perriello will have priority with us,” said Doris Crouse-Mays, the secretary-treasurer of the Virginia AFL-CIO. “Along with Gerry Connolly, they will definitely get protection for the healthcare vote.”

The union has some 15,000 members in Connolly’s district and 2,500 in Perriello’s whom it plans to mobilize ahead of November.

Crouse-Mays said the union would also support Rep. Rick Boucher (D-Va.), a 14-term incumbent who didn’t vote for the healthcare bill. “He’s still a 28-year incumbent who’s been there for working families in the past,” she said.

In Illinois, unions are working to protect Foster and Rep. Debbie Halvorson (D), two freshman members who voted for the healthcare bill.

“The action is going to be in Halvorson and Foster, so we’re going to put a lot of effort there,” said Jerry Morrison, executive director of the SEIU’s state council. “That would always be our first [priority], especially in the off-year, to protect our incumbent allies. There’s going to be a lot of activity at the federal level this year.”

The union plans to focus on voter registration, early voting and then get-out-the-vote efforts, Morrison said. “Debbie’s district, the first time she ran, I think we registered 18,000 new voters in high-Democratic-performing precincts, which helped her.”

Foster will have more difficulty this cycle because his district, which was formerly held by GOP Speaker Dennis Hastert, is more Republican. “It’s just a tough district,” Morrison said. “But Foster’s been very good — he’s taken some really tough votes and I think people are really energized to get out there and go work for him.”

The SEIU is also targeting the state’s open Senate seat and the House seat vacated by Rep. Mark Kirk (R-Ill.).

A similar strategy is being used in Ohio by the state’s branch of the SEIU. “We have already made contributions to candidates who supported working families in Ohio,” said Anthony Caldwell, a union spokesman.

Caldwell noted that freshman Reps. Boccieri, Mary Jo Kilroy (D) and Steve Driehaus (D), who voted for healthcare reform, are all expected to have tough reelection races. “We want to make sure those folks return to Congress come January,” he said.

One member who won’t be getting support: Rep. Zack Space (D-Ohio). He angered labor groups by voting against the healthcare bill and will have to go without their help in his reelection bid.