The ruling by Judge Ketanje Brown Jackson, an Obama appointee, will force the IRS to disclose the procedures it used to target the pro-Israel organization, Z-Street.
The group filed for tax-exempt status in December 2009 but its application was subjected to excessively rigorous review. After more than a year of waiting in vain for a reply, Z-Street sued the IRS.
That was in 2010, years before the IRS scandal over its selective scrutiny of conservative groups hit the news, and before congress opened an investigation into alleged abuse of power by the federal agency. At the time, few grasped to what extent the IRS had become politicized under Obama.
The suit sprang from a conversation Z- Street’s counsel had with an IRS agent over why an answer to its tax-exempt application was so long in coming. The agent explained that the IRS gave “special scrutiny” to organizations connected to Israel and especially to those whose views “contradict those of the Obama administration.”
‘SPECIAL UNIT’ SET UP TO PROCESS APPLICATIONS FROM PRO-ISRAEL GROUPS
“These cases are being sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the administration’s public policies,” Agent Diane Gentry reportedly told Z-Street’s counsel, court papers said.
Z Street sued the government, arguing that its constitutional rights had been violated because of the “viewpoint discrimination” that the IRS agent had openly displayed.
The organization’s founder, Lori Lowenthal Marcus, spoke out in March 2013 about the harassment the pro-Israel group received from the IRS: “They told us terrorism happens in Israel. Therefore, they had to look into our organization because they thought we might be funding terrorism. We’re a purely educational entity. We didn’t fund anybody. We barely funded ourselves.”
Several months later, the IRS filed a motion to have the case dismissed on legal grounds, but did not provide an in-depth response to the allegations. Z Street then bolstered its case with a new set of documents, stating that Z-Street was approached by another Jewish group that claimed it had encountered similar problems with the IRS.
The documents contained a letter, apparently sent by the IRS to the unnamed group, in which the government asked, “Does your organization support the existence of the land of Israel? Describe your organization’s religious belief system toward the Land of Israel?”
Although lawsuits against the IRS rarely gain any traction and the general consensus was that the Z-Street case would be thrown out, the group’s leadership believed the case was too strong to brush aside.
JUDGE STRIPS AWAY EVERY LEGAL DEFENSE RAISED BY IRS
Last week a federal judge agreed, tossing out every legal defense the IRS raised to prevent the discovery phase of the lawsuit from going forward. She ordered the IRS to provide a substantive answer to Z Street’s complaint by June 26.
The government in its reply brief claimed special protections from the lawsuit such as the Anti-Injunction Act which shields the IRS from litigation that could interfere with its ability to collect taxes.
Judge Jackson rejected this argument. She criticized the IRS’s attempt to “thwart” Z Street’s case by trying to “transform a lawsuit that clearly challenges the constitutionality of the [tax-exempt] process . . . into a dispute over tax liability.”
Z-Street in its lawsuit is only asking for a constitutionally fair process, not demanding tax-exempt status, the judge’s ruling clarified. Judge Jackson held that Z Street is entitled to the IRS’s evidence on whether it was receiving such a process. Jackson also rejected the government’s argument that it is immune to lawsuits because the doctrine of “sovereign immunity” is not applicable when the plaintiff is alleging the government violated the Constitution.
After years of government-orchestrated delays, the IRS will finally have to participate in the discovery phase and defend itself from Z-Street’s lawsuit. It will be forced to open its books on the procedures it used to review Z-Street’s tax exempt application. As the case proceeds, a fuller picture of how and why other groups were similarly targeted may emerge.
Marcus, the group’s founder, applauded the ruling. “Although it took four years,” she said, “we were thrilled that Judge Jackson authoritatively told the IRS what we have been saying since our claim was filed: this lawsuit is about the IRS treating Z Street differently than other tax-exemption applicants because of our political viewpoint.”
“That is a violation of our constitutional rights, and the IRS can no longer hide behind false legal defenses. The IRS will finally be forced to explain why and how it treated us differently because of our political viewpoint regarding Israel.”
The suit is seeking a full-public disclosure of the IRS’s Israel policy, a reversal of that policy, and monetary compensation for Z Street’s legal costs.
IRS APOLOGIZED AFTER YEAR OF DENIALS
When the Internal Revenue Service apologized a year ago for singling out conservative nonprofits applying for tax exempt status for heightened scrutiny during the 2012 election, few were stunned at the admission.
Senate Minority Leader Mitch McConnell, R-Ky. had asked the White House when the allegations first broke to conduct a government-wide review to ensure “that these thuggish practices are not underway at the IRS or elsewhere in the administration against anyone, regardless of their political views.”
News media had been full of accusations about IRS abusing its power to sideline groups with viewpoints that ran counter to policies of the Obama Administration. But IRS chiefs denied there was any political motive to the seeming harassment.
Officials blamed the practice on poor management and denied it was part of a broader White House policy. They insisted the “errors of judgment” were the work of low-level officials in Cincinnati, and had nothing to do with the IRS leadership.
Only after sustained public outcry and escalating congressional pressure did the IRS drop its denials and admit it had indeed targeted conservative groups–and issue an apology.
“Despite their unwillingness to cooperate, more than a year later, the IRS has now admitted to what we long suspected – it was targeting tea party groups,” Rep. Charles Boustany, R-La. Said in 2013.
“The IRS’s ‘too little too late’ response is unacceptable, and I will continue to work to ensure there are protections in place so no American, regardless of political affiliation, has their right to free speech threatened by the IRS,” he said.
Documents disclosed in response to congressional investigation now reveal that the IRS created a special category for review of organizations engaged in “disputed territory advocacy.” What possible legitimate reason could the IRS have for creating such a category? Many other groups claiming the IRS violated their constitutional rights by subjecting them to excessive hassling and intense scrutiny are watching the Z-Street closely. The case may succeed in forcing the IRS to lift the veil shrouding its decisions regarding organizations deemed out of step with White House policies.
If borne out by the evidence, this form of discrimination would be a chilling violation of free speech rights.
As a Wall Street Journal op-ednoted, “If an IRS agent can reject or stall a pro-Israel group’s application on the grounds that ‘these cases are being sent to a special unit to determine whether the organization’s activities contradict the Administration’s public policies,’ then no group, no matter what its political orientation is safe from being subjected to a political litmus test… by any administration of either political party.” “The Z-Street case,” the WSJ article concluded, “may be the straw that breaks the camel’s back of the IRS’s politically prejudicial policies.”