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D.C. Court Affirms pro-Israel Z Street Case against IRS

Today, the DC Circuit Court of Appeals ruled in favor of pro-Israel group Z STREET on the grounds of viewpoint discrimination by the IRS violating the First Amendment.  The Opinion of the DC Circuit Court clears the way for Z STREET to proceed with discovery in its case against the IRS.

The Power Line Blog noted these comments of Z STREET:

Z STREET looks forward to the discovery phase of litigation in which it will seek to learn the nature and origin of the “Israel Special Policy” which the IRS applied to Z STREET’s tax exemption application. Z STREET will seek to learn how such a policy was created, who created it, who approved it, to whom it was applied, as well as all other information regarding this policy.

A series of IRS documents called “Be On the LookOut” lists, which were released by Congress in June, 2013, pursuant to the TIGTA investigation, have already established that, as Z STREET alleges, while Z STREET’s application for tax exempt status was pending, the IRS did indeed create a special category of review for organizations seeking such status, if they were engaged in what the IRS called “occupied territory advocacy.”

Z STREET looks forward to using the discovery process to learn more about the precise nature, origin and effect of this policy, which the DC Circuit has now made clear is a violation of essential Constitutional rights.

In a May 7th , 2015  Iconoclast post on the arguments before the DC Circuit, it was clear that the Circuit Judges were displeased with brief filed by the IRS Counsel.   We wrote about the background for today’s important ruling:

It’s hard enough being a Zionist in the US, given a passive Jewish community supine under the sway of Obama Administration isolating Israel. Z STREET, where I am a member of its board, has fought a special process by the IRS sidelining its application for 501 ( c) (3) status because- get this- it advocates for an ally where terrorism occurs against it. Call that ultimate chutzpah, and you might come close it what it is.   That is absurd. However, that is at the heart of the viewpoint discrimination issue under the First Amendment successfully argued in the filing made by Z STREET’s counsel. The IRS had unsuccessfully fought in the DC Federal District court to dismiss the Z STREET case  in  May 2014. The lower Court  granted  discovery to Z STREET on the grounds of viewpoint discrimination.  The  IRS appeal  of the lower court ruling granting discovery was heard at a D.C.  Circuit Court  of Appeals  oral arguments proceeding  on May 4, 2015.  The three judge Appellate panel virtually raked over the coals the IRS counsel and leadership of the federal tax agency, several  of whom were in court witnessing  their upbraiding .    A May 7, 2015  Wall Street Journal  editorial lambasted the IRS and  the Justice Department for violating the First Amendment rights of Z STREET , “The IRS Goes to Court”.  The tag line says it all: “The agency suggests it can discriminate for 270 days. Judges gasp.”

In an opinion filed today on the matter of Z Street v Koskinen. Commissioner of Internal Revenue Service, DC Circuit Judge David Tatel affirmed the arguments presented by  Z Street’s  Counsel,  Jerome Marcus.  Below is  a summary of  the Opinion filed by Judge Tatel:

USCA Case #15-5010 Document #1558566    6-19-2015

Before: GARLAND, Chief Judge, TATEL, Circuit Judge, and SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by

Circuit Judge TATEL:

Z Street, a nonprofit organization devoted to educating the public about Zionism” and “the facts relating to the Middle East,”applied for a section 501 (c )(3) tax exemption. Based on a conversation its lawyer had with an IRS agent, Z Street alleges that the agency has an “Israel Special Policy” under which applications from  organizations holding “political views inconsistent with those espoused by the Obama administration” receive increased “scrutiny[y]” that results in such applications “tak[ing] longer to process than those made by organizations without that characteristic”.

”Z Street sued the Commissioner, alleging that the “Israel Special Policy” violates the First Amendment. The Commissioner moved to dismiss, arguing that the action is barred by the Anti Injunction Act, which prohibits suits to “restrain[] the assessment or collection of any tax.” The district court, assuming the truth of Z Street’s allegations—as it must at this stage of the litigation—denied the motion explaining that Z Street was not seeking to restrain the “assessment or collection” of a tax, but rather to prevent the IRS from delaying consideration of its application in violation of the First Amendment. We affirm.

Consider this the lengths to which the Administration will go to deny pro-Zionist views  opposing groups like J Street , Jewish Voices for Peace, Peace Now; all with IRC 501 (c ) (3)  tax exemptions. The irony is that these groups are pursuing BDS, delegitimization and demonization of the Jewish nation of Israel, America’s only democratic ally in the Middle East.

EDITORS NOTE: This column originally appeared in the New English Review.

Judgement Day: Pro-Israel Z-Street trial “Will Force the IRS to Open its Books”

In the August 2013 New English Review (NER) we interviewed Lori Lowenthal Marcus, national correspondent for The Jewish Press and co-founder of Z Street- the Zionist antidote to anti-Israel J Street.  It was about the July 19, 2013 hearing held before Judge Ketanji Brown of the DC Federal  Court in the matter of Z Street v IRS. The case had been filed in the Eastern District in Pennsylvania and then transferred  to the DC Federal court as this was a federal government matter. The original Z Street matter was based on a First Amendment issue, “viewpoint discrimination”. In our NER interview article we noted what the basis of the original filing was about:

news release by Z STREET, issued  just prior to the DC court proceeding cited the June 24, 2013 House Ways and Means release of acting IRS Commissioner Danny Werfel’s responses to a letter from Ranking  Member, Sander Levin (D-MI). Z STREET’s supplementary filing revealed that there were no “progressive” groups scrutinized by the IRS “Touch and Go” Group (TAG) in Washington, DC. Instead due diligence of the IRS documents revealed that Z STREET was the sole subject by the TAG review because of “Israel-connected” views of the group in its original 501 (c ) (3) application.   

We further noted the contretemps at the July 19, 2013 DC federal court hearing:

Alana Goodman of The Washington Free Beacon who attended the DC Federal Court hearing noted in her report the IRS argument and the reaction of Judge Brown:

The government argued in court on Friday that Z STREET should resolve its tax-exempt status, which is still in limbo, before any policy questions can be addressed.

Judge Ketanji Brown Jackson seemed skeptical of the argument, saying that the government appeared to be mischaracterizing the remedy that Z Street was seeking.

“That’s not what they want,” Judge Jackson snapped at one point.

Z STREET said the government was misrepresenting its position.

“We’re not seeking tax-exempt status in this case. We are seeking an untainted process,” said Counsel Jerome Marcus. “What is the policy that the IRS has been following since 2010, and is that process constitutional?”

Is the Z Street case against the IRS evidence of bureaucratic ineptitude or something else? If discovery is granted by the DC Court ruling we may find who and why an unconstitutional act of viewpoint discrimination was perpetrated against STREET.

Today’s Wall Street Journal reported Judge Katanji Brown ruling effectively granting discovery to Z Street, “IRS Judgment Day: The un-talkative agency comes under scrutiny from a federal judge”:

In August 2010, Z Street sued the IRS on grounds that the position amounts to viewpoint discrimination and violates the First Amendment. The IRS responded by claiming special protections, including the Anti-Injunction Act, a law written to protect the IRS from litigation that could interfere with its ability to collect revenue.

But Washington, D.C. federal district Judge Ketanji Brown Jackson ruled that the Anti-Injunction Act has not been interpreted by the courts as preventing constitutional claims. In its attempt to “thwart” the action, she wrote in denying the IRS motion to dismiss, the IRS tries to “transform a lawsuit that clearly challenges the constitutionality of the process . . . into a dispute over tax liability.”

The IRS also tried to duck out under the sovereign immunity doctrine, which was designed to deter lawsuits against the feds. But that claim fails, Judge Jackson writes, because the Administrative Procedures Act “waives sovereign immunity with respect to suits for nonmonetary damages that allege wrongful action by an agency or its officers or employees, and the instant lawsuit fits precisely those criteria.”

This ruling will force the IRS to open its books on the procedures it used and decisions it made reviewing Z Street’s tax-exempt application, procedures it has tried to keep shrouded. As the case proceeds, Z Street’s attorneys can seek depositions from many who have been part of the larger attempt to sit on similar applications by other conservative groups.

It will be fascinating to see which names— Lois Lerner, former head of IRS tax-exempt scrutiny?—show up in the internal email traffic. The Administration may have a harder time evading accountability now that a judge will be supervising the testimony.

In our NER interview with Ms. Marcus, we asked her what the best outcome that might emerge with Judge Ketanji’s ruling.  Here is the exchange:

Gordon:  What do you believe would be the best outcome of the D.C. Federal Court after its review of the various filings in terms of handing down a ruling in this case?

Marcus:  Naturally, I think the court should sign the proposed Order that we submitted and provide us with access to what is called discovery. Meaning we are permitted to seek information about how the IRS set about creating this policy, who formulated it, who approved it, who knew about it, who had to apply it, to whom was it applied. That is what we need to find out in order to learn how the IRS came to create policies that are not just inappropriate, not just mismanagement, but which constitute violations of the U.S. Constitution. We need to find out because unless we do, there are going to be greater and greater restrictions on fundamental freedoms.

Way to go Judge Brown.  Now the IRS has no shield against discovery by Z Street. This could an interesting turn of events vis a vis the original viewpoint discrimination issue raised in the Z Street Federal court filling.  Whatever names emerge on the BOTL emails might cause  a flood of filings from other possible social welfare filers. As baseball great Yogi Berra might opine, “It ain’t over till it’s over”.  Congratulations to Lori Lowenthal Marcus and her counsel, her husband Jerome, for undertaking this landmark case for Z Street and all Americans. Let’s see how the IRS counsel  responds  to Judge Brown’s ruling.

As a Z Street board member this federal court ruling has justified the four year wait for justice to be done in the matter. To paraphrase Justice Brandeis Judge Brown’s ruling is good “disinfectant”.

EDITORS NOTE: This column originally appeared on The New English Review.