Judge Rules Against Motion to Quash IRS Scandal Lawsuit

Along with Tea Party groups, the scandal surrounding the IRS revealed the targeting of faith-based groups. One such group, Z Street, which focuses on Israel advocacy, filed suit against the IRS after an agent said his direction was to "give special scrutiny to organizations connected to Israel,” and that the files of some of those "organizations were sent to a special unit in Washington, D.C. to determine whether the activities of the organization contradicted the public policies of the administration." 

After four year of IRS delay tactics, a U.S District Judge rejected the Obama administration efforts Tuesday to stop Z Street’s legal challenge, giving the organization a green light to go after the IRS.

Z Street was created as a non-profit organization with the purpose of “educating the public about Zionism; about the facts relating to the Middle East and to the existence of Israel as a Jewish State; and about Israel’s right to refuse to negotiate with, make concessions to, or appease terrorists.”

In the lawsuit, which was filed almost three years before the IRS Scandal broke, Z Street alleges that the IRS violated the First Amendment when it implemented a policy that subjected Israel-related organizations applying for tax-exempt status to more rigorous review procedures than other organizations applying for that same status. Z Street calls this viewpoint discrimination.

The organization says it filed the suit after being told by the agent to whom its file had been assigned that the IRS had to "give special scrutiny to organizations connected to Israel,” and that the files of some of those “organizations were sent to a special unit in Washington, D.C. to determine whether the activities of the organization contradicted the public policies of the administration."

In her ruling Judge Ketanje Brown Jackson wrote:

Z Street merely asks the Court to require the IRS to go about it[s] usual business of evaluating Section 501(c)(3) applications in a manner that comports with the Constitution. The only matter at issue in the instant lawsuit is whether, in addition to evaluating Z Street’s activities as it would any other organizations, the IRS may constitutionally apply a more stringent standard of review that is allegedly reserved for organizations whose activities relate to the promotion of Israel.

Judge Jackson ruled that the IRS must file a substantive response to Z STREET’s Complaint by June 26, 2014.

Z Street President Lori Lowenthal Marcus said they have not been able to raise money because of the IRS delay; thus, the group has curtailed its activities awaiting the outcome of the law suit:

We had to take the website down. We couldn't afford it anymore because the IRS has refused to process our 501(c)(3) application because we sued it, so we paid for maintaining the site (and everything else like insurance) as long as we could -- the vindictiveness of the IRS forced us into utter limbo.

Ironically Z Street's case received last summer when Democrats tried to defend the administration and prove the IRS was not just engaging in viewpoint discrimination against politically conservative groups. As part of its defense, the Democrats on the House Ways and Means Committee and Senator Sander Levin (D-MI)​ released IRS documents indicating the IRS created a category for review it labeled “progressive.”

Within that "progressive category" there was a subset labeled “occupied territory advocacy.” That particular subset had only one organization referred to it: Z Street. According to the documents, a notice to IRS inspectors to “be on the look out” (BOLO) for groups under this category was sent on August 10, 2010, just days after Z STREET’s file was reviewed, and a determination was made to send the file to the TAG Group, according to IRS statements. In other words, the IRS was indeed singling out applications for tax exempt status on the basis of a particular political viewpoint which is inconsistent with this administration’s.

A review of the other organizations in the "progressive" category revealed that no targeting was done with the organizations with that term in their title. The issue with those groups was that they had sought one kind of tax exempt status, but would be better served by seeking a different one, as the organizations were engaged in political activity.  Rather than delay their applications the IRS was streamlining them by asking for them to apply for a 501(c)(4) and not a 501(c)(3) designation.