Lawsuit Alleging IRS Discrimination Against Pro-Israel Groups Moves Forward

Z Street filed suit in 2009

IRS headquarters in Washington, D.C. / AP
May 28, 2014

A lawsuit alleging that the IRS discriminates against pro-Israel groups will be allowed to move forward, a federal judge ruled this week in Washington, D.C.

The IRS has been fighting to quash the lawsuit filed in 2009 by pro-Israel group Z Street, claiming the court does not have jurisdiction to hear the matter.

However, Judge Ketanje Brown Jackson rejected the agency’s request to dismiss the case on Wednesday and ordered the IRS to respond to Z Street’s complaint within the next 30 days.

Z Street says its constitutional rights were violated by an IRS policy that allegedly singles pro-Israel groups out for stricter scrutiny when they apply for tax-exempt status.

According to the lawsuit, an IRS official told Z Street’s lawyer in 2009 that the group’s application for tax-exempt status would be "sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the administration’s public policies."

The IRS admitted last year that it had been targeting Tea Party and conservative non-profits for greater scrutiny when they applied for tax-exempt status. Officials blamed the practice on poor management and denied that it was part of any broader Obama administration policy.

Z Street’s complaint suggests that the IRS procedures for pro-Israel groups may have been politically motivated and based on Obama administration policy, and contends that the group’s first amendment rights were violated by the agency.

The IRS has argued for the case to be dismissed, claiming Z Street is seeking a determination of its tax-exempt status rather than a ruling on whether its constitutional rights were violated. But the judge rejected the agency’s argument in Wednesday’s ruling.

Judge Jackson wrote that the IRS’s arguments "rest on the characterization of Z Street’s claim as a complaint about tax liability, when it is not."

She added that the agency has been "struggl[ing] mightily to transform a lawsuit that clearly challenges the constitutionality of the [IRS tax exemption] process … into a dispute over tax liability."

Z Street president Lori Lowenthal Marcus applauded the ruling.

"We're thrilled that Judge Brown Jackson firmly informed the IRS's lawyers that the government is not immune from lawsuits for constitutional violations—that's what the Bill of Rights is about, after all—and that the IRS will finally be required to explain, in court, how it justified creating a different category of tax-exempt applicants based on political viewpoint," Marcus told the Washington Free Beacon.

"While it's a shame we have had to wait four years for the IRS to finally provide factual responses to Z Street’s complaint, we look forward to a complete explanation for its actions and why not only its lawyers, but IRS officials themselves, provided information and defenses to the court that they either knew or should have known were not accurate."

Published under: IRS