IRS dissects pro-Israel group


by Suzanne Pollak
Staff Writer

Add at least one Jewish nonprofit to the growing list of organizations apparently targeted for extra scrutiny by the Internal Revenue Service.

Z Street, a 501(c)(3) educational group dedicated to protecting the rights of Jewish people to live wherever they want and to combating what it calls deceptive Palestinian narratives is in a battle with the IRS, trying to obtain a tax exempt status.

“Finally! Two and a half years after filing a Complaint in federal court seeking relief from the Internal Revenue Service for viewpoint discrimination against our strongly pro-Israel organization, Z STREET has a hearing date,” the organization announced on its website.

The group will defend what it believes is its right to a tax exempt status on July 2 in the District of Columbia federal district court.

“We were told we were treated differently,” said Z Street founder and president Lori Lowenthal Marcus. Lowenthal Marcus said her group’s problem with the IRS was not the same as what appears to have happened to tea party groups. Those groups have 501(c)(4) status, and are permitted to lobby.

Religious and educational groups usually fall under the 501(c)(3) status while civic groups and social welfare organizations receive 501(c)(4) status.

“Ours is purely educational,” she said about Z Street. “A purely educational organization is entitled to tax-exempt status.”

“I do know other [Jewish] groups were singled out. I don’t know how many,” she said.

In its initial dealings with the IRS, Z Street was asked to “describe its religious belief system,” she said. It was also questioned about its support of Israel, and whether that support differs from policies of the United States government.

The IRS wants to treat Z Street as “an active organization,” meaning its goal can only be accomplished by legislation, Lowenthal Marcus said. She called that “ridiculous.”

In December 2010, an IRS official filed an affidavit, in which it is stated, “The application indicated that Z Street could be providing resources to organizations within Israel or facilitating the provision of resources to organizations within the state of Israel.”

Lowenthal Marcus called that untrue.

The affidavit, written by Jon Waddell, manager of Exempt Organizations Determinations Group, stated that “Israel is one of the many Middle Eastern countries that have a ‘higher risk of terrorism.’ ” He called his office’s review of the Z Street application “appropriate whenever an application mentions providing resources to organizations in a country with a higher risk of terrorism.”

Lowenthal Marcus strongly objected to that, noting, “Need I point out that terrorism happens to Israel, not from Israel.”

Also, she questioned, under that thinking, are groups from Boston or London to be singled out as they also have been targeted by terrorists?

In the introduction to its amended complaint to the IRS, it states “Z STREET was informed explicitly by an IRS agent 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.’ ”

In the introduction, Z Street further contends that according to the IRS, organizations supporting Israel are placed under “particularly intense scrutiny” and have “an enhanced risk of denial” if they “espouse or support positions inconsistent with the Obama administration’s Israel policies.”

It is Z Street’s belief that the First Amendment prohibits the government from deciding how intensively to investigate an application for tax exemption on the basis of political or religious views or whether those views are in line with the policy of the current administration.

However, the IRS has denied it told Z Street that it has a different review process for groups that don’t agree with the Obama administration’s policy.

According to a May 13 article in Politico, the tax agency stated that the problem is not whether Z Street agrees with current policy but rather if it violates public policy, for instance through terrorism or racial discrimination.

While not sure if there is any connection at all, she said her group’s tax troubles began around the time an article printed in The New York Times mentioned Jewish groups that fund activities beyond the Green Line, referring to boundaries established between Israel and surrounding countries after the 1948 Israeli War of Independence.

“But we don’t fund anything,” Lowenthal Marcus said, adding, “I can’t say. I have no way of knowing at this point,” if there is any connection between the article and her organization’s tax woes.

Because of its troubles with the IRS, Z Street has been “in legal limbo. We are in complete limbo,” she said. Without being able to accept donations, “It shut us down.”

But she has become optimistic lately, calling the news that the IRS has treated some groups differently “gratifying.”

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