Pro-Israel Group Sues IRS for Discrimination

Z Street, a pro-Israel nonprofit organization, has filed a lawsuit in federal court charging that the IRS violated its First Amendment rights by delaying its application for tax-exempt status because the IRS allegedly needs to consider whether a group’s views on Israel differ from those of the current presidential administration.

“Not only is it patently un-American, but it is also a clear violation of the First Amendment for a government agency to penalize an organization because of its political position on Israel or anything else,” said Z Street president Lori Lowenthal Marcus, a former First Amendment lawyer, in a statement. “This situation is the same as if the government denied a driver’s license to people because they were Republicans or Democrats. It goes against everything for which our country stands.”

Z Street filed for tax-exempt status in January of this year, but the application has been stalled. The group claims that an IRS agent told Z Street’s lawyers that the application was delayed because of a “special Israel policy” that requires greater scrutiny of organizations that have to do with Israel, in part to determine whether they espouse positions on Israel contrary to those of the current administration.

In its complaint, Z Street said it was informed explicitly by an IRS agent on July 19, 2010, that approval of Z Street’s application for tax-exempt status has been at least delayed, and may be denied, because of a special IRS policy in place regarding organizations in any way connected with Israel, and further that the applications of many such Israel-related organizations have been assigned to “a special unit in the D.C. office to determine whether the organization’s activities contradict the administration’s public policies.”

An IRS spokesman noted that the IRS is prohibited by law from commenting on specific organizations. “The IRS, by law, cannot comment on specific charities or even confirm whether a specific exemption request exists,” he said in an e-mailed statement. “When any organization applies for tax exempt status, it is the responsibility of the IRS to ensure that the organization’s funds will be used to accomplish charitable purposes. When a domestic charity is conducting or funding activities in the United States or overseas, we routinely ask questions about the nature of the charitable activities and the controls and oversight over the use of charitable funds. Depending on the facts and circumstances surrounding the organization and its activities, the agency may need to ask follow-up questions to further clarify the nature of the situation and to ensure that the final determination is consistent with federal tax law.”

Z Street is a Zionist organization that supports Israel’s right to refuse to negotiate with, make concessions to, or appease terrorists. The group’s positions on Israel and, in particular, on the Middle East “peace process” differ significantly from those espoused by the Obama administration. The group also differs from a progressive pro-Israel group with a similar name, J Street, which favors a two-state solution to the Israeli-Palestinian conflict.

Z Street argued that if it had tax-exempt status, its donors would be able to deduct contributions from their taxable income. It claimed that the IRS’s refusal to grant it tax-exempt status thus far has inhibited the organization’s fundraising efforts, and impeded its ability to speak and to educate the public regarding the issues that are the organization’s focus and purpose.

The lawsuit, Z Street v. Shulman, Commissioner of Internal Revenue, was filed Wednesday in the U.S. District Court for the Eastern District of Pennsylvania.