Author: Schwartzman, Bryan
Date published: December 2, 2010
Journal code: JWEX
By filing a federal lawsuit against the Internal Revenue Service, Z Street - a pro-Israel organization based in Lower Merton - is fighting a battle to gain tax-exempt status. But according to the right-leaning group, there's more at stake than simply finances.
Instead, it's about whether groups focusing on Israel activism face discrimination at the hands of the IRS, said Z Street founder Lori Lowenthal Marcus.
The group alleged in a suit filed in August in U.S. District Court in Philadelphia that the IRS has violated the group's constitutional rights of freedom of expression by subjecting it to closer scrutiny because of its approach to Mideast politics, which is sharply at odds with that of the Obama administration.
In additional court documents filed on Nov. 22, the group introduced what it claimed was clear evidence that another Jewish organization - which Z Street has so far declined to name publicly - has faced similar treatment from the IRS.
Z Street is also claiming that the IRS has set up a department to examine the finances of Israel-related groups.
"This is called viewpoint discrimination," said Marcus, who is a Harvard-trained lawyer, although she's not handling the case. "You are treating Z Street differently because of its views about something."
Mark Hanson, an IRS spokesman, said the agency does not comment on pending litigation.
According to Joseph Lundy, an expert on tax-exemptions and nonprofit groups, such lawsuits against the IRS rarely gain traction; the Z Street case, in all likelihood, is headed for dismissal.
Nicholas Mirkay, associate professor at Widener Law School in Delaware, who has blogged about the case, said that taxexemption is not considered a constitutional right. However, he added that legal scholars are following the case because it could break new ground on a nearly 30-year-old Supreme Court ruling on tax-exemption.
Z Street, which claims 8,000 members worldwide, was founded last summer as a response to the dovish J Street, and what it described as a "gathering storm of hostility towards Israel."
In December, the group filed for tax-exempt, 501(c)3 status, which is meant for an organization that is educational or religious in nature. That application is still outstanding. (Like many groups, Z Street has a separate arm that can engage in lobbying.)
Marcus said she had expected that the process would take nearly a year, but was surprised as to why it was being held up.
According to the lawsuit, filed in August in federal district court in Philadelphia, Donna Johnson Bullock, the lawyer handling Z Street's tax-exempt application, was told by IRS official Diane Gentry that the process was taking longer than usual because the group deals with Israel and has been critical of President Barack Obama's Mideast policy
"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," Gentry reportedly told Bullock, according to the suit.
Marcus, formerly president of the Zionist Organization of America's Greater Philadelphia District, said: "I was completely shocked, the first thing I felt like was fright."
Documents show that the suit is seeking a full disclosure of the IRS's Israel policy, a reversal of that policy and compensation for Z Street's legal costs.
In October, the IRS filed a motion to have the case dismissed on legal grounds, but did not provide an in-depth response to the allegations.
Hoping to bolster its case, Z Street filed a new set of documents last month. In those pages, the group's attorney, Jerome Marcus - Lowenthal Marcus' husband - stated that Z Street was approached by an attorney for another Jewish group that claimed it had encountered similar problems with the IRS.
The documents contained a letter, apparently sent by the IRS to the unnamed group, in which the government asked, "Does your organization support the existence of the land of Israel? Describe your organization's religious belief system toward the land of Israel."
For her part, Marcus remains confident: "Do I think we are going to win? Of course, I do. There has been a clear violation."
Who Will Buy Israeli Products?
Israeli flags in hand, supporters of the Jewish state filed into the Center City Trader Joe's store on Tuesday to buy Israeli products as part of a national counterattack to the global "Boycott, Divestment and Sanctions" movement. Locally, Philly BDS launched a campaign against two brands of hummus in October. (For story, see: www.jewishexponent.com].
Jewish Exponent Staff