A key appellate court has given Z Street a green light to sue the Internal Revenue Service, potentially exposing the IRS to more embarrassing disclosures.
In a unanimous decision issued Friday, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit rejected an IRS bid to dismiss the Jewish advocacy group’s suit.
The IRS wanted the suit dismissed for reasons including sovereign immunity and the Anti-Injunction Act, which prohibits suits to restrain the assessment or collection of any tax. A trial judge rejected the IRS’s reasoning, as did, on Friday, the D.C. Circuit.
“Z Street seeks not to restrain ‘the assessment or collection’ of a tax, but rather to obtain relief from unconstitutional delay, the effects of which it is now suffering.” Judge David Tatel observed.
Z Street devotes itself to “educating the public about Zionism” and “the facts relating to the Middle East.” It applied for a section 501(c)(3) tax exemption. Based on a conversation its lawyer had with an IRS agent, Z Street alleges 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 and longer processing times.
But even before reaching the merits, the IRS sought to kick the Z Street suit to the curb. Having lost that argument Friday, the Obama administration now must choose between asking for review by the full D.C. Circuit, going to the Supreme Court or preparing to endure the intrusive discovery process of ongoing litigation.