On Friday, June 19, the Internal Revenue Service lost an important lawsuit in the D.C. Circuit Court of Appeals, and they lost it in a very decisive manner. Z Street, a pro-Israel NGO, accused the IRS of violating the First Amendment by putting pro-Israel organizations that apply for tax-exempt status to a more stringent review than other organizations, thereby violating their first amendment rights.
Z Street opposes Israeli withdrawals, compromises with terrorists and supports Jewish rights over Judea, Samaria and Gaza. In December 2009, Pennsylvania-based Z Street applied for 501(c)(3) status to pursue its pro-Israel educational mission. They reported that on July 19, 2010, an IRS agent assigned to their case told them that the IRS gives “special scrutiny” to groups connected to Israel, especially those with views that “contradict those of the administration‘s.” The group was given to understand that such cases are sent to a special IRS unit.
The Wall Street Journal reported that Z Street sued the IRS for viewpoint discrimination (Z Street v. Koskinen), and in May 2014 a federal district judge rejected the IRS’s motion to dismiss because the Anti-Injunction Act bars litigation about “the assessment or collection of tax.” The judge ruled that Z Street wasn’t suing for its tax-exempt status but, rather, it was suing on grounds that the IRS can’t discriminate based on point of view.
Judge Sentelle admonished government lawyer Teresa McLaughlin: “They are not in court seeking to restrain the assessment or collection of a tax, they are in court seeking a constitutionally fair process.”
It would seem that the IRS was trying to justify a policy of delaying applications for tax-free status in a discriminatory manner for 270 days, and then tried to reason to the court that after 270 days, the group can sue to obtain their tax free status. WSJ described the judges’ reaction as “incredulous”, before they rejected it.
In a formal Opinion released Friday, the court ruled that unanimously that Z Street’s application was a legitimate claim, not just a means of evading taxes; that the IRS is not entitled to Sovereign Immunity; and that this case falls under injunctions preventing the IRS from discriminating against specific viewpoints or organizations.
The decision was so unequivocal that it may mean the government will risk censure if it seeks a rehearing.
One of the more anticipated aspects of the case is discovery, in which the special policy, which is a clear violation of the constitution, will be investigated, backed by the full powers of the court.
This is not the first time the IRS has been accused of discriminatory practices under the Obama administration. The IRS was accused of singling out Tea-Party and conservative groups as far back as 2010. Individuals who have criticized President Obama, such as James Dobson, have also charged discriminatory practices by the IRS, in cases similar to the one involving Z Street. Congressional efforts to investigate these charges have been stymied, so it will be especially compelling to see what comes out of this case. Judge Ketanji Brown Jackson of the US District Court for the District of Columbia threw out every legal and ordered the IRS to provide a substantive answer to Z Street’s complaint by June 26.