The three-year legal battle between the Internal Revenue Service and a pro-Israel organization that says it was subject to discrimination continued on Friday, when a judge heard the government’s motion to dismiss at the federal district court in Washington, D.C.
Z Street filed suit against the IRS and then-commissioner Douglas Shulman in 2010 after its application for tax-exempt status was delayed and it was allegedly told by IRS officials that the agency had singled it out for special scrutiny because its pro-Israel positions conflicted with Obama administration policies.
Z Street says it wants the government to publicly disclose its policy for dealing with tax-exempt applications from Israel-advocacy organizations, as well as a court decision on whether the policy violates the First Amendment.
“There clearly is a policy—it’s just they haven’t had the chutzpah to say out loud what it is,” said Z Street attorney Jerome Marcus.
The IRS admitted in May that it had targeted conservative organizations applying for tax-exempt status. Agency documents obtained by congressional investigators in June indicated that the IRS had flagged “Applications [that] deal with disputed territories in the Middle East” for additional attention.
The government argued in court on Friday that Z Street should resolve its tax-exempt status, which is still in limbo, before any policy questions can be addressed.
“The review of the process can only take place if Z Street wanted to put its money on the line” and get a court or government ruling on its tax-exempt status, said U.S. attorney Andrew Strelka.
Judge Ketanji Brown Jackson seemed skeptical of the argument, saying that the government appeared to be mischaracterizing the remedy that Z Street was seeking.
“That’s not what they want,” Judge Jackson snapped at one point.
Z Street said the government was misrepresenting its position.
“We’re not seeking tax-exempt status in this case. We are seeking an untainted process,” said Marcus. “What is the policy that the IRS has been following since 2010, and is that process constitutional?”
Jackson asked whether the organization could wait until a conclusion was reached on the group’s tax-exempt status. Marcus said the group was entitled to a decision on the constitutionality of the IRS’ policy now, regardless of the resolution of its tax-exempt status application.
The judge said she would take the motion under advisement.
Reached after the hearing, Z Street’s president Lori Lowenthal Marcus said she was pleased with how it went.
“The judge totally understood what was going on,” she said. “You don’t tell somebody when there’s been a Constitutional violation that they should just wait because there might be another remedy.”