If there was a federal agency that Barack Obama did not corrupt, it must be because it was corrupt when he took over in 2009. The corruption of the IRS is a case in point. Its criminal misconduct perfectly represents what Obama wrought in the agencies that he charged with dictating the way we live. Consider the case of Lori Lowenthal Marcus and Z Street.
Z Street is Lori’s pro-Israel group. It had its application for tax-exempt status held up at the IRS for seven years. When Lori 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 wasn’t kosher. It’s illegal.
Z Street filed a lawsuit against the IRS in the rosy dawn of the Age of Obama. Alana Goodman (then with the Washington Free Beacon) wrote about the lawsuit here in 2013 when the District of Columbia District Court denied the IRS motion to dismiss the case. Lori wrote about it here. John Hinderaker wrote about it on Power Line in 2013 in the post “The other IRS scandal.”
The IRS sought to have the case dismissed for failure to state a claim and then asserted ludicrous defenses. With its friends in the Obama Department of Justice, the IRS did whatever it could to preclude, protract and obstruct discovery until President Obama and the malefactors serving at his pleasure moved on. The case is a sidebar to the political corruption of the IRS that remains one of the open sores of the Age of Obama.
The IRS appealed the denial of its motion to dismiss to the District of Columbia Circuit Court of Appeals. A panel of three 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 Wall Street Journal took a look at the hearing in the reported editorial “The IRS goes to court” (behind the Journal’s paywall).
Working with unusual swiftness, the DC Circuit handed down its opinion in 2015. The court unanimously rejected the arguments advanced by the IRS. The court’s opinion is accessible online here.
The court’s ruling left Z Street free to pursue its claim and conduct discovery. Z Street looked forward to learning the nature and origin of the “Israel Special Policy” which the IRS applied to Z Street’s application, who created it, who approved it, and to whom it was applied.
A series of IRS documents called “Be On the LookOut” lists released by Congress in June 2013, pursuant to the TIGTA investigation) had already established that, as Z STREET alleged, while Z STREET’s application for tax exempt status was pending, the IRS had indeed unlawfully created a special category of review for organizations seeking such status, if they were engaged in what the IRS called “occupied territory advocacy.”
This week the Department of Justice settled Lori’s lawsuit. The department has announced the settlement here. I have posted the consent order signed by the department below via Scribd. Lori tells the story herself in the Wall Street Journal column “The IRS campaign against Israel — and us” (behind the Journal’s paywall). Lori writes:
Now we know the truth, and it’s exactly as bad as we thought. IRS documents—those they didn’t “lose” or otherwise fail to produce—reveal the following:
• Our application was flagged because Z Street’s mission related to Israel, a country with terrorism. Therefore, an IRS manager in our case said in sworn testimony, the IRS needed to investigate whether Z Street was funding terror.
• Some applications for tax-exempt status were indeed being sent to IRS headquarters in Washington for more intense scrutiny. They were selected because of the applicants’ viewpoint.
• In August 2010, three other Jewish organizations applying for tax-exempt status were asked by the IRS to “explain their religious beliefs about the Land of Israel.”
Here are the concluding paragraphs of her column:
Within weeks of President Obama’s inauguration, IRS and State Department officials began considering whether they could deny or revoke tax-exempt status for organizations that provided material support to Jews living across the Green Line—the nonborder that delineates pre-1967 Israel from the territories Israel acquired in the Six Day War. The theory was that a Jewish presence in those areas is inconsistent with U.S. policy. The IRS drew up lists of such organizations based on information from anti-Israel websites such as Electronic Intifada and MondoWeiss.
The New York Times and the Washington Post ran articles that advanced the policy espoused by the Obama administration and its nonprofit ally, J Street. Unnamed “senior State Department officials” were quoted as saying that Jewish activity over the Green Line isn’t “helpful” to peace efforts.
While no formal policy was released barring U.S. tax-exempt entities from supporting Jewish activity over the Green Line, Obama IRS officials tried three times between 2009 and 2012 to create such a policy, and IRS employees made sure the effort wasn’t documented. One emailed her supervisor saying that she would answer his questions about IRS policy relating to Israeli settlements only orally. “Not doing email on this,” she explained.
Even if the IRS could legitimately institute such a policy, it should not have applied to Z Street. We believe Jews should be allowed to live beyond the Green Line, but we have never spent a penny outside the U.S.
To learn the truth, we fought in the courts for seven lonely years—defeating IRS arguments that it didn’t have to obey the First Amendment, that it was immune from the suit, and that it wasn’t obliged to produce in discovery any documents revealing why its employees did what they did. During the seven years Z Street’s application was frozen, it couldn’t raise funds. If my husband and I weren’t lawyers, able to pursue justice without getting paid, there’s no way we could have succeeded.
When Z Street’s creation was announced, thousands sought to join. Then the IRS attempted to kill us. No lawsuit can remedy that assault, as the IRS knew. The settlement gives us the truth, but we can’t get back our seven years.
I wrote Lori yesterday to ask if she wanted to add anything. Lori responded:
One of the almost entirely unnoticed points is that because we sued the IRS, it used a purely discretionary regulation to freeze our application for five years. This was the case even though that regulation applied to organizations which sued over their tax-exempt status and our case was officially determined by the trial court and the appellate court NOT to be about our status but about the unconstitutional process the IRS used to even consider our application.
The IRS BOLO list category of “Occupied Territory Advocacy” described organizations therein as having to do with “disputed territories.” The IRS then tried to claim that all the organizations in that category were anti-Israel organizations. Is there an anti-Israel organization in the world that refers to Judea and Samaria as “disputed territories”? No. They always, always use either West Bank, Occupied Palestine, or Occupied Territories. It’s clear they created the category based on our organization, and yet the memo dated August 6, 2010, that created the category was “lost.” That category appeared on 4 or 5 BOLO lists, presumably all IRS agents involved in processing applications had access to it and yet…POOF! It’s unobtainable.
Lori has written more to fill out the story on her Z Street site. The settlement of the case short of the administration of punishment to responsible officials leaves a deeply bitter aftertaste.