The Internal Revenue Service stunned a panel of D.C. Circuit Court judges on Monday by implying that it could discriminate against certain groups seeking nonprofit status for up to 270 days, according to the Wall Street Journal.
The three-judge panel was hearing a case related to Z Street, a pro-Israel group that is suing the IRS for discrimination after its nonprofit application was held up by the agency. Last May, a federal judge tossed out the IRS’s motion to dismiss the suit, but the agency is appealing the decision.
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The IRS’s legal strategy has been to claim Z Street is suing to obtain non-profit status. According to government rules, a nonprofit applicant has grounds to sue the IRS if it doesn’t act on an application within 270 days—a waiting period the IRS says Z Street did not meet.
Z Street has repeatedly stated that it is suing the IRS for discrimination, not to obtain non-profit status. An IRS official reportedly told the group during its application process that the agency was singling the organization for extra scrutiny.
According to the Wall Street Journal, the judges were "incredulous" at the IRS’s legal argument, which implied that the agency could discriminate against groups for up to 270 days:
The suit should also be foreclosed, the government argued, because under Section 7428(b)(2) of the Internal Revenue Code groups may sue to obtain their tax-exempt status if no action has been taken for 270 days, and that should be an alternative to Z Street’s approach.
"You don’t really mean that, right? Because the next couple words would be the IRS is free to discriminate on the basis of viewpoint, religion, race [for 270 days]. You don’t actually think that?" Judge Garland said. "Imagine the IRS announces today a policy that says as follows: No application by a Jewish group or an African-American group will be considered until one day short of the period under the statute . . . Is it your view that that cannot be challenged?"
Chief Judge Merrick Garland also seemed baffled by the government’s appeal, noting that in previous similar cases "we have already decided every issue before us today, against you."
The Wall Street Journal pointed out that the appeal would buy the administration some time before it is forced to turn over potentially damaging information during the lawsuit’s discovery process.