Corruption from the IRS to the DoJ

The pro-Israel group Z Street had its application for tax-exempt status held up at the IRS. When founder Lori Lowenthal Marcus asked why, she was told that IRS auditors had been instructed to give pro-Israel groups special attention and that Z Street’s application had been forwarded to a special IRS unit for additional review. Not to put too fine a point on the legal issues, this isn’t kosher. It’s illegal.

Z Street filed a lawsuit against the IRS in the rosy dawn of the Age of Obama; the lawsuit has yet to get beyond the IRS’s motion for dismissal. The Free Beacon’s Alana Goodman wrote about the lawsuit here last year when the DC District Court denied the IRS motion to dismiss the case. Z Street’s Lori Marcus wrote about it here. John wrote about it in 2013 in the post “The other IRS scandal.”

The legal positions asserted by the IRS are ludicrous. Indeed, they are a pretext to preclude discovery until the chief malefactors serving at the pleasure of President Obama have moved on. It is a sidebar to the political corruption of the IRS that remains one of the great untold stories of the Age of Obama. (Sharyl Attkisson doesn’t cover the IRS scandal, but to understand the Obama playbook for handling it, see “The Attkisson file.”)

The IRS appealed the denial of its motion to dismiss to the DC Circuit Court of Appeals. Last week a panel of three DC Circuit judges heard the IRS appeal. The hearing did not go well for the IRS. Indeed, it was an exercise in righteous humiliation of the Department of Justice. The DoJ has asserted ludicrous defenses to gum up the lawsuit and preclude discovery.

The Wall Street Journal takes a look at the hearing before the DC Circuit in the reported editorial “The IRS goes to court” (accessible here via Google). The Journal’s editors write:

It isn’t every day that judges on the D.C. Circuit Court of Appeals declare themselves “shocked.” But that happened on Monday when an animated three-judge panel eviscerated the IRS and Justice Department during oral argument in a case alleging the agency delayed the tax-exempt application of a pro-Israel group due to its policy views.

In December 2009, Pennsylvania-based Z Street applied for 501(c)(3) status to pursue its pro-Israel educational mission. In July 2010, when the group called to check on what was taking so long, an IRS agent said that auditors had been instructed to give special attention to groups connected with Israel, and that they had sent some of those applications to a special IRS unit for additional review.

Z Street sued the IRS for viewpoint discrimination (Z Street v. Koskinen), and in May 2014 a federal district judge rejected the IRS’s motion to dismiss. The IRS appealed, a maneuver that halted discovery that could prove to be highly embarrassing. Justice says Z Street’s case should be dismissed because the Anti-Injunction Act bars litigation about “the assessment or collection of tax.” Problem is, Z Street isn’t suing for its tax-exempt status. It’s suing on grounds that the IRS can’t discriminate based on point of view.

The three judges—Chief Judge Merrick Garland, David Tatel and David Sentelle—were incredulous. You say they want a tax exemption, but that’s not the complaint, Judge Sentelle admonished government lawyer Teresa McLaughlin: “They are not in court seeking to restrain the assessment or collection of a tax, they are in court seeking a constitutionally fair process.”

The suit should also be foreclosed, the government argued, because under Section 7428(b)(2) of the Internal Revenue Code groups may sue to obtain their tax-exempt status if no action has been taken for 270 days, and that should be an alternative to Z Street’s approach.

“You don’t really mean that, right? Because the next couple words would be the IRS is free to discriminate on the basis of viewpoint, religion, race [for 270 days]. You don’t actually think that?” Judge Garland said. “Imagine the IRS announces today a policy that says as follows: No application by a Jewish group or an African-American group will be considered until one day short of the period under the statute . . . Is it your view that that cannot be challenged?”

The Journal correctly treats the court’s mockery of the DoJ attorneys asserting these positions as something other than par for the course. It is unusual. Let it be noted, incidentally, that Judge Garland is a Clinton appointee to the DC Circuit, as is Judge Tatel. Judge Garland is a highly accomplished lawyer who now serves as the court’s chief judge.

The Journal editorial continues:

The judges also asked why the government had buried the key precedent in a footnote in its brief. In Direct Marketing Association v. Brohl, the Supreme Court decided that the language of the Anti-Injunction Act did not preclude cases like Z Street’s. In a previous case before the D.C. Circuit, Judge Garland noted, the court also “rejected” the exact arguments the government was making, “so in a way we have already decided every issue before us today, against you.”

Now this is one question I can answer. The government buried the key precedent in a footnote so that it could say it complied with the professional ethical requirement of citing controlling adverse authority to the court. The attorneys responsible for this at the Department of Justice, all the way up the chain, deserve more than a bad day in court for their shenanigans here.

The Journal editorial concludes:

Poor Ms. McLaughlin was sent to argue the indefensible so the IRS can delay discovery until the waning days of the Obama Administration. “If I were you, I would go back and ask your superiors whether they want us to represent that the government’s position in this case is that the government is free to unconstitutionally discriminate against its citizens for 270 days,” said Judge Garland.

Ms. McLaughlin replied, “Well, I will take that back.” The Beltway media may be bored, but the IRS scandal is a long way from over.

Judge Garland’s query seeks to send a message to higher powers at the Department of Justice. The IRS scandal is a long way from over, and, as one can see here, it extends well beyond the IRS. It would be nice if someone outside the walls of the Wall Street Journal took notice.