Facing an Internal Revenue Service inquiry on tax fraud charges, the American Legislative Exchange Council (ALEC) is effectively acknowledging that its status as a charity may be a cover for its real work as a multi-million dollar lobby for some of the nation’s largest and richest corporations.

The Guardian newspaper, citing documents obtained from ALEC’s files, reports today that the group of state legislators and corporate leaders is forming a non-profit sister organization, the “Jeffersonian Project,” that will be classed by the IRS as a “social welfare” organization able to engage in unlimited lobbying.

As a social welfare group, the Jeffersonian Project will be exempt from federal taxes, as is ALEC. But the corporations which funded ALEC over the years, and deducted their ALEC contributions from their federal taxes, will not be able to deduct donations to the Jeffersonian Project.

Among the ALEC documents cited in the Guardian report is a memo written in June by Alan Dye, ALEC’s lawyer. “ALEC has been approached by donors who are willing to make sizable donations, but insist that the donations go to a section 501(c)(4) organization,” he wrote, referring to the social welfare classification.

While Dye argued in the memo that ALEC is not a lobby, he warned that “the IRS could disagree. If that is the case, it would be possible to resolve any such issue with the IRS by agreeing to transfer the activity in question from ALEC to the Jeffersonian Project.”

Common Cause has filed a tax “whistleblower” complaint against ALEC, seeking millions of dollars in back taxes and penalties from its corporate funders. The complaint includes thousands of pages of ALEC position papers, talking points and other materials documenting the group’s attempts to lobby state lawmakers on behalf of ALEC-backed “model” bills.

Other documents included in the Guardian story indicate that publicity about

ALEC’s work, including its championing of “stand your ground” laws like the one that figured prominently in the Trayvon Martin murder case, have taken a financial toll on ALEC.

The group’s revenue for the first half of 2013 was more than $1.1 million shy of its budget, the Guardian reported; the paper said ALEC has launched a “Prodigal Son Project” that will appeal to dozens of companies which have severed ties with it in recent years, asking them to return to the fold.

ALEC opened an annual conference in Washington on Tuesday. While reporters have been invited to attend some sessions, the task force meetings where ALEC’s member legislators and corporate representatives sit side-by-side and vote as equals on model legislation remain closed to public and press.