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Thursday, August 26, 2010

Lawsuit: IRS Using Bob Jones University to Deny Tax-Exempt Status to Pro-Israel Charity

Politico, Pro-Israel Group Claims IRS Persecution:

A hawkish pro-Israel group today filed a lawsuit against the Commissioner of the IRS containing the explosive allegation that the IRS is devoting special scrutiny to pro-Israel groups whose policies conflict with that of the administration.

The group Z Street, intended as a conservative Zionist answer to the liberal J Street, says in its complaint that its counsel was informed that its status as a tax-exempt group was delayed, and could be denied, because of that scrutiny.

Agent Diane Gentry told the group's lawyer that the IRS is "carefully scrutinizing organizations that are in any way connected with Israel," the complaint, filed in federal district court in Pennsylvania, says. "Agent Gentry further stated to counsel for Z STREET: 'these cases are being sent to a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies.'"

The Jewish Daily Forward, Lawsuit Accuses IRS of Screening Israel-Related Charities:

As the Forward reported in January, some argue that the 1983 U.S. Supreme Court decision in the case of Bob Jones University v. United States could be interpreted to deny nonprofit status to organizations that oppose established American foreign policy. The Bob Jones decision, which found that “an institution seeking tax-exempt status must… not be contrary to established public policy,” was written to bar tax exempt groups from participating in racial discrimination.

Legal experts were split on the question of longstanding foreign policy, such as America’s opposition to Jewish settlements in the West Bank, could fall within the realm of “public policy” as described in Bob Jones. All agreed, however, that the IRS had never used Bob Jones to deny tax-exempt status to nonprofits that oppose American foreign policy.

The Weekly Standard, Is the IRS Discriminating Against a Pro-Israel Group?:

Z Street was told by an IRS agent that it might not be granted 501(c)(3) status, which would allow the group to be tax exempt, because its position toward Israel differs from the Obama administration's official policies. Z Street alleges that this is unconstitutional:

These statements by an IRS official that the IRS maintains special policies (hereinafter the “Israel Special Policy”) governing applications for tax-exempt status by organizations which deal with Israel, and which requires particularly intense scrutiny of such applications and an enhanced risk of denial if made by organizations which espouse or support positions inconsistent with the Obama administration’s Israel policies, constitute an explicit admission of the crudest form of viewpoint discrimination, and one which is both totally un-American and flatly unconstitutional under the First Amendment.

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Comments

I do not believe it. Most of my pro bono was tax-exempt organization formation and everyone is convinced that if you are delayed or if you get a bad answer on something from the state or IRS, it is a conspiracy against you.

So unless I get more proof than a plantiff's hearsay statement, I am inclined to deblieve it.

Posted by: Anthony | Aug 26, 2010 6:48:10 AM

Boy it seems like the Nixon years all over :)
The IRS has been used as a political club forever so am I surprised this heavy handed administration would do it also? Nah - remember if you oppose them you are a mindless racist and of course deserve what ever they do to you

Posted by: Rich | Aug 26, 2010 7:17:25 AM

I thought using the IRS to punish political opponents was finally dead after the Nixon administration, but it looks like I was wrong. There seems to be no limit to what this administration will resort to in perverting the rule of law to further their political ends.

Posted by: richard40 | Aug 26, 2010 7:19:05 AM

Perhaps I'm whistling past the graveyard, but I disbelieve this simply because I cannot believe that an IRS agent, particularly in the Obama administration, would honestly answer yes to this question.

Posted by: david | Aug 26, 2010 7:24:12 AM

This is an issue we will probably be hearing more of. It is understandable that the Government would become frustrated with charitable organizations that frustrate official US policy. But there's a real Pandora's Box here, everything from the Catholic Church's position on abortion and stem cell research to universities that hire marxist professors and everything else in between: applying the Bob Jones dictum in a literal sense would lead to an awful lot of controversy indeed. What's the colloquial expression: "Don't go there?"

Posted by: mike livingston | Aug 26, 2010 8:00:30 AM

Hmmmm.

@ Anthony

"So unless I get more proof than a plantiff's hearsay statement, I am inclined to deblieve it."

So what you are saying is that the plaintiffs legal counsel is playing with getting disbarred by lying to the court? Because that is pretty much the situation. Either the IRS agent actually did conduct the conversation as stated, starting at paragraph 14, or the legal counsel for "Z Street" is lying to the court in the filing.

Now it is possible the IRS agent was factually wrong about her understanding of official IRS policy. It is possible the IRS agent was lying about official IRS policy. There are all sorts of possibilities here. But as pointed out by the OP in actual examples the camel nose in the tent is usually followed by the camels rear end at some point.

Posted by: memomachine | Aug 26, 2010 9:19:36 AM

Well Anthony, according to the "quote" marks, IRS Agent Diane Gentry (note it appears to be a real name, not "Jane Doe") told the group's lawyer ....

So the lawyer is blatantly lying right out the gate in a lawsuit against the IRS?

It is easier to believe the Obama IRS is meddling than the lawyer has a death wish.

Posted by: JAL | Aug 26, 2010 9:20:37 AM

But of course, 'Islamic charities' are just fine.

Posted by: luagha | Aug 26, 2010 10:32:29 AM

According to the linked articles and the lawsuit itself on zstreet.org, Z street applied to be a 501(c)(3). 501(c)(3) organizations are limited in what lobbying they can do:

http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html

The first news article says: "The group Z Street, intended as a conservative Zionist answer to the liberal J Street". However J street says it is not registered as a 501(c)(3), but a 501(c)(4) lobbying organization, with a separate subsidiary registered as a 501(c)(3) that does no lobbying, and presumably keeps separate financial records:

http://jstreet.org/about/about-us

501(c)(4) are less limited in the political lobbying they can do, but my understanding is that donors generally do not get as many tax breaks. Note that zstreet itself says in its filing that it will be primarily an educational organization, educating people about the benefits of Israeli settlement activity etc.

Is it not possible to interpret Agent Diane Gentry's reported comments as meaning that the group was singled out for scrutiny when it applied for 501(c)(3), not because of the nature of their political opinions, but because groups formed to lobby for particular political policies are not supposed to file under that section, and the IRS was concerned that this may be in fact a lobby group?

I am not a tax lawyer so I don't know exactly where the dividing line is between educational part (3) activities and lobbying part (4) activities is, and I don't know the merits or otherwise of zstreet's application for 501(c)(3) status. However it seems at least reasonable for the IRS to be concerned about people stretching the rules in this area to get the better tax breaks for (3) organizations.

Posted by: MH | Aug 26, 2010 2:13:02 PM

Your anti-Semitic administration at work.

Posted by: PTL | Aug 26, 2010 4:01:55 PM

How did the IRS treat 501(c)(3)s opposed to official US policy during the Bush years? For example, antiwar organizations? Is Moveon.org a 501(c)(3)? They ran the "General Betrayus" ad.

Posted by: Yehudit | Aug 26, 2010 4:37:33 PM

MH -- that is a good point also and probably the answer.

Yehudit -- Move On is a 501(c)(4). It also has a PAC and used to have a 527 organization also.

I think there is nothing here.

Posted by: anthony | Aug 26, 2010 10:46:18 PM