Originally published on Forbes.com May 28th, 2014
Z Street is a non-profit corporation dedicated to educating the public about various issues related to Israel and the Middle East. The education is from a particular viewpoint:
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
The organization applied for exempt status as a 501(c)(3) organization on December 29, 2009. The lawsuit which names the IRS Commissioner as defendant is not about whether or not the organization qualifies. Rather it is about the process that the IRS has been using to grant or deny the exemption.
In a recent decision, Judge Ketanji Brown Jackson of the United States District Court For The District of Columbia has denied IRS motions to dismiss the suit. Judge Jackson was nominated by President Obama in 2012 and confirmed by the Senate in 2013.
What Is Z Street Complaining About?
The complaint alleges that the Internal Revenue Service (“IRS” or “Defendant”) violated the First Amendment when it implemented an internal review policy that subjected Israel-related organizations that are applying for tax-exempt status under Section 501(c)(3) of Title 26 of the U.S. Code to more rigorous review procedures than other organizations applying for that same status. Plaintiff maintains that this so-called “Israel Special Policy” represents impermissible viewpoint discrimination on the part of the federal government, and has requested declaratory and injunctive relief
Z Street apparently learned about the “Israel Special Policy” from IRS Agent Diane Gentry who was handling Z Streets exemption application. Agent Gentry was concerned that Z Street was planning to engage in “advocacy” activities that are not permitted under 501(c)(3). More significantly, Agent Gentry indicated that the IRS had “special concerns” about organizations whose activities related to Israel that held positions that contradicted the current policies of the US Government. According to Z Street, Agent Gentry indicated that
…these cases are being sent to a special unit in the DC office to determine whether the organization’s activities contradict the Administration’s public policies.
The Argument For Dismissal
The IRS arguments for dismissal are very lawyerly – the anti-injunction act, failure to state a claim, sovereign immunity. I would boil it down to the idea that the organization has a right to sue, in a couple of different ways, to get the IRS to grant it exempt status or override an IRS decision to not grant it, but that it does not have the right to sue about the specifics of what goes on in the IRS arriving at its decision.
To be fair, it is worth noting that sometime in 2010, Z Street could have sued to force the IRS hand in making a decision to grant exempt status.
It’s The Principle Of The Thing
Of course, none of that would get at the “viewpoint discrimination” in the IRS process which is a First Amendment issue. That is what Judge Jackson focused on.
The only matter at issue in the instant lawsuit is whether, in addition to evaluating Z Street’s activities as it would any other organization’s, 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. And because a negative answer to that question would not automatically ensure that Z Street (or any other Israel-related organization) will receive the tax-exempt status for which it has applied, the remedy sought in this lawsuit has no direct effect on the public fisc, and certainly not one that would impact the Treasury or otherwise affect the agency’s assessment and collection
Suit Will Proceed
Because this Court does not accept Defendant’s core contention that Z Street seeks a determination of whether or not it is entitled to Section 501(c)(3) tax status through this action-which underpins each of Defendant’s grounds for dismissal-the Court rejects Defendant’s assertions that the AIA, the DJA, or sovereign immunity bars Plaintiff’s request for equitable relief and that Plaintiff has an adequate remedy at law. Accordingly, Plaintiff is correct that it is permitted to press its constitutional claim in federal court, and Defendant’s motion to dismiss the complaint must be DENIED.
Let Them Collect Taxes
This lawsuit much like Teapartygate confirms me in my view, that the evaluation of whether an organization’s purposes should allow it exempt status is not something that the IRS should be doing. There are credits for historic buildings, but it is not the IRS that decides whether the buildings are historic. The same principle should apply here.
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