Will the IRS finally get its day in court?

Three years ago, long before this week's scandal broke, I reported that the IRS was holding up the registration of the pro-Israel group Z Street as a tax-exempt organization. Z Street sued the IRS, and in court it introduced a letter from the IRS asking whether it supported Israel. The next court date in that case is July 2, but in the meantime the IRS is facing a much larger scandal in which pro-Israel organizations may only be a small part (Hat Tip: Memeorandum).

In a conference call with reporters last week, the IRS official responsible for granting tax-exempt status said that it was a mistake to subject Tea Party groups to additional scrutiny based solely on the organization's name. But she said ideology played no part in the process.
"The selection of these cases where they used the names was not a partisan selection," said Lois Lerner, director of exempt organizations. She said progressive groups were also selected for greater scrutiny based on their names, but did not provide details. "I don't have them off the top of my head," she said.

The IRS did not respond to follow-up questions Tuesday.

Congressional critics say the IRS's actions suggest a political motives: "This administration seems to have a culture of politics above all else," said Rep. Bill Flores, R-Texas. "A lot of the actions they take have a political side first, and put government second."

Flores complained to the IRS last year after the Waco Tea Party's tax-exempt application was mired in red tape. The IRS asked the group for information that was "overreaching and impossible to comply with," Flores said: Transcripts of radio interviews, copies of social media posts and details on "close relationships" with political candidates.

When Flores complained last year -- asking pointed questions about the IRS treatment of Tea Party groups -- the IRS response didn't acknowledge that it had treated conservative groups differently. "They did more than sidestep the issue," he said. "They flipped me the finger."

Before the IRS started separating out Tea Party applications, getting tax-exempt status was routine -- even for conservative groups. The Champaign Tea Party's treasurer, Karen Olsen, said the process was smooth, with no follow-up questions from the IRS.

Politico suggests that pro-Israel groups were also targeted. 

The same Internal Revenue Service office that singled out Tea Party groups for extra scrutiny also challenged Israel-related organizations, at least one of which filed suit over the agency’s handling of its application for tax-exempt status.

The trouble for the Israel-focused groups seems to have had different origins than that experienced by conservative groups, but at times the effort seems to have been equally ham-handed.

...

Legal filings show that the problems for Z Street — and apparently for other Israel-related groups — stemmed from an obscure unit in the Cincinnati IRS office: the “Touch and Go Group.” One of the so-called TAG Group’s duties was to weed out applications that might be coming from organizations which might be used to fund terrorism.

In response to Z Street’s lawsuit, an IRS manager acknowledged that applications mentioning Israel were getting special attention.

“Israel is one of many Middle Eastern countries that have a ‘higher risk of terrorism,’” wrote Jon Waddell, manager of the IRS’s Exempt Organizations Determinations Group. “A referral to TAG is appropriate whenever an application mentions providing resources to organizations in a country with a higher risk of terrorism.”

However, Z Street and other groups reported getting unusual inquiries from the IRS. A Z Street lawyer was contacted by a Jewish religious group, which detailed inquiries from the IRS that the group’s leaders thought had treaded too far.

“Does your organization support the existence of the land of Israel? Describe your organization’s religious belief system towards the land of Israel,” the IRS asked in a letter sent to the religious group, which asked not to be named.

“If they’re asking that of that group, what else are they asking?” Lowenthal Marcus asked.
She said basing the review for terrorism on where an organization did business was strange and ineffective.

“If their policy was to look at any organization that had anything to do with a country where terrorism exists, I don’t see how that limits anything,” Lowenthal Marcus said. “There’s been terrorism in the United States, in the United Kingdom, in Canada, in Malaysia….and in Boston. Is that now going to be on the list?”

In court filings in the Z Street case, the Obama administration has denied that the IRS is discriminating against groups that disagree with Obama administration policies.

In court papers, the IRS denied that its personnel ever told Z Street that there was a special review for groups that might be at odds with Obama administration policy. The tax agency contended that the issue was whether the groups might violate “public policy” — a legal term of art for the notion that the government shouldn’t bestow a benefit on an individual or organization engaged in illegal activity like terrorism, or in an officially disfavored activity such as racial discrimination.

“The application was not transferred to TAG because of an ‘Israel special policy’ or because Z Street’s views on Israel contradict the Obama administration’s views on Israel,” the Justice Department wrote in a brief seeking dismissal of Z Street’s lawsuit.

TAG was originally set up by the Bush administration in 2005 to target terror funding. The Obama administration vowed to change TAG in 2009, but of course, Muslim groups are still claiming that it targets them as well.