Thursday, May 29, 2014
IRS Judgment Day
The untalkative agency comes under scrutiny from a federal judge.
The Internal Revenue Service continues to evade questions about its handling of applications for tax-exempt status from groups whose political views conflicted with the Obama Administration's. That may change. A federal judge's ruling will force the agency to defend itself in court and go through discovery on its handling of a slow-tracked application.
In 2009 a Pennsylvania group called Z Street applied to the IRS for tax-exempt status for its mission of educating people about Zionism and other policies related to Israel and the Middle East. In May 2010 the group received a request from the IRS for more information, which it sent. According to Z Street's complaint, two months later the agent in charge of reviewing the application told Z Street's counsel she was holding up the application because of her concerns that the group engaged in advocacy related to the Middle East.
According to the complaint, Agent Diane Gentry said that special attention was given to Israel-related groups and that "these cases are being sent to a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies." We've since learned that the agency's November 2010 "Be On the Lookout" list also flagged agents to look out for words related to Israel or "inflammatory" references to "disputed territories."
In August 2010, Z Street sued the IRS on grounds that the position amounts to viewpoint discrimination and violates the First Amendment. The IRS responded by claiming special protections, including the Anti-Injunction Act, a law written to protect the IRS from litigation that could interfere with its ability to collect revenue.
But Washington, D.C. federal district Judge Ketanji Brown Jackson ruled that the Anti-Injunction Act has not been interpreted by the courts as preventing constitutional claims. In its attempt to "thwart" the action, she wrote in denying the IRS motion to dismiss, the IRS tries to "transform a lawsuit that clearly challenges the constitutionality of the process . . . into a dispute over tax liability."
The IRS also tried to duck out under the sovereign immunity doctrine, which was designed to deter lawsuits against the feds. But that claim fails, Judge Jackson writes, 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, and the instant lawsuit fits precisely those criteria."
This ruling will force the IRS to open its books on the procedures it used and decisions it made reviewing Z Street's tax-exempt application, procedures it has tried to keep shrouded. As the case proceeds, Z Street's attorneys can seek depositions from many who have been part of the larger attempt to sit on similar applications by other conservative groups.
It will be fascinating to see which names— Lois Lerner, former head of IRS tax-exempt scrutiny?—show up in the internal email traffic. The Administration may have a harder time evading accountability now that a judge will be supervising the testimony.