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June 1, 2014 2:56 pm

Federal Court Denies Motion to Dismiss Lawsuit on IRS Review of Pro-Israel Groups

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The IRS building in Washington, DC. Photo: Joshua Doubek via Wikimedia Commons.

JNS.orgThe U.S. District Court for Washington, DC, last week denied an International Revenue Service (IRS) motion claiming that a lawsuit by the pro-Israel group Z Street is not appropriate for federal courts. Z Street alleges that it was subjected to more rigorous review procedures than other organizations applying for tax-exempt 501(c)(3) status.

The IRS sought to dismiss Z Street’s lawsuit under the Tax Anti-Injunction Act (AIA), whose stated purpose is to “permit the United States to assess and collect taxes alleged to be due without judicial intervention.” But Judge Ketanji Brown Jackson ruled that Z Street “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.”

Jackson wrote that the only matter at issue in the 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.”

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In its complaint, Z Street alleges that the IRS “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.”

“The remedy sought in this lawsuit has no direct effect on the public fisc, and certainly not one that would impact the [U.S. Department of the] Treasury or otherwise affect the agency’s assessment and collection,” Judge Jackson wrote on May 27.

Z Street applied for tax-exempt status in December 2009. The group’s founder, Lori Lowenthal Marcus, told, “Although it took four years, we were thrilled that Judge Jackson authoritatively told the IRS what we have been saying since our claim was filed: this lawsuit is about the government, in this case, the IRS, treating Z Street differently than other tax-exemption applicants because of our political viewpoint. That is a violation of our constitutional rights and the IRS can no longer hide behind obfuscatory and false legal defenses. The IRS will finally be forced to explain why and how it treated us differently because of our political viewpoint regarding Israel.”

“It is essential for people to understand that the government claimed for four years that Z Street was not permitted to sue it because of ‘sovereign immunity,'” Marcus added. “Any first-year law student knows that the Bill of Rights was passed specifically to protect citizens from constitutional violations by the government, which is precisely, as the judge pointed out emphatically, what our lawsuit is all about. It is an outrage that the IRS raised such a defense and every American should be offended.”

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