IRS fails to evade discovery in targeting of pro-Israel group litigation

A federal judge ruled last week that discovery in a lawsuit challenging the IRS’s scrutiny of the pro-Israel group Z Street may proceed. The judge in question is Ketanji Brown Jackson, an Obama appointee. Judge Brown Jackson is, from all I can tell, a down-the-line liberal. But she rejected in no uncertain terms the government’s attempts to short-circuit this lawsuit against the IRS.

Z Street alleges that the IRS gave extra scrutiny to its application for tax-exempt status because it was concerned that Z Street’s advocacy is contrary to positions taken by the Obama administration. In doing so, says Z Street, the government violated the organization’s First Amendment right to freedom of speech.

Z Street’s allegations seem as substantial as they are unsurprising. According to its complaint, an IRS agent told the organization that applications for tax-exempt status from Israel-related entities are sent to a special unit in Washington to determine whether such organizations’ activities contradict the Obama administration’s public policies.

The IRS denies this allegation. It claims that its policy is to provide special scrutiny to applicants that could provide resources to organizations in a country, such as Israel, that faces a high risk of terrorism.

The notion that funds given to an obviously pro-Israel group might create a heightened risk of terrorism in Israel seems laughable. But maybe discovery in the case would support IRS’s claim.

Unfortunately, the IRS attempted to prevent discovery from going forward. It cited the Anti-Injunction Act which protects the IRS from litigation that could interfere with its ability to collect taxes.

Judge Brown Jackson rejected this argument. She ruled that the Anti-Injunction Act does not preclude constitutional claims against the IRS. And she criticized the IRS’s attempt to “thwart” Z Street’s case by trying to “transform a lawsuit that clearly challenges the constitutionality of the process . . . into a dispute over tax liability.”

The IRS also cited the sovereign immunity doctrine. The judge found this argument unpersuasive 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.” This case, she concluded “fits precisely those criteria.”

Accordingly, IRS will have to defend this lawsuit. This means that it will have to reveal the procedures it used to review Z-Street’s tax exempt application. It might also have to address its targeting procedures more generally.

What will discovery reveal? Who knows?

But as Scott Johnson likes to remind us, one of the articles of impeachment against Richard Nixon included his “endeavor” to misuse the IRS.