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How Horrible is the IRS? 


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A few days ago, a Wall Street Journal report about oral arguments in Z Street v. Koskinen, a case challenging the Internal Revenue Service’s (IRS) unconstitutional discrimination against a pro-Israel group, had everyone astonished at the level of IRS mishandling.

The case was on appeal at the D.C. Circuit, before Chief Judge Merrick Garland, Judge David Tatel and Judge David Sentelle, from a decision by the district court denying an IRS motion to dismiss. What transpired inside that courtroom, indeed in that whole case, is far worse than reported.

The level of corruption, incompetence and abuse in today’s IRS is not common. It is illegal.

It reminds us that drastic changes are needed in the agency and that it should be a priority for the next president.

Z Street, a pro-Israel educational group, applied for non-profit status, under section 501(c)(3) of the Internal Revenue Code. Their application was delayed and after a number of attempts to move it along, the group spoke to an IRS agent who gave them two reasons: (1) they worried about “‘advocacy’ activities that are not permitted;” and (2) “that the IRS had special concerns about applications from organizations whose activities relate to Israel …”

Non-profit IRS applications connected with Israel were “being sent to a special unit in the D.C. office.”

The case is so blatant, it should have never reached this point, and it shows us how far the government is willing to go to protect its illegal schemes. The IRS admitted in court it had requested the group explain its religious beliefs.

Chief Judge Garland asked for an explanation about that, and DOJ attorney Teresa McLaughlin, said:  “They might be waiting to see if it’s an advocacy organization by checking to see whether its, ah, the response is evenhanded or taking one side of the question …”

The Chief Judge could not believe it: “That’s the test for advocacy organizations, that you can’t take positions vehemently?”

Ms. McLaughlin: “Well, not, not vehemently, but you, you can’t be biased, your honor …”

Judge Sentelle was incredulous. “Wow,” he said, “You can’t be biased and get an exemption?”

It is preposterous, of course. The government’s position is absurd and indefensible.

But it was not their worst argument of the day. That distinction must be reserved for their contention that Z Street could not bring their claim because it had not been denied yet.

See, the government was fully prepared to argue that case — a case where a group was challenging the fact that they didn’t get an exemption. The only problem was that Z Street was challenging the delay, not a denial. They alleged the IRS unconstitutionally discriminated against them by delaying their application because of their beliefs. Everyone in the courtroom understood that, except Ms. McLaughlin and the government.

The judges tried numerous ways to explain it. Judge Sentelle asked at the very beginning when McLaughlin tried to switch the facts: “Are they saying they can’t get one [an exemption] or are they saying the process is made more burdensome?”

The government’s contention was that Z Street needed to wait until they were denied or until a period of 270 days required by statute had passed.

“Well, it’s anterior to assessment; someone is seeking a tax exemption,” Ms. McLaughlin argued emphatically. To which Judge Tatel, clearly frustrated interrupted, “They are not seeking a tax exemption in this complaint. That’s not the complaint we have before us.” The government’s answer? “[T]hey are virtually doing so.” No, really. That was their argument.

Chief Justice Garland tried to get at the point another way:

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 this statute in which it is considered final. All other groups, we’re happy to consider exemptions for but because we don’t like African Americans and we don’t like Jews, we are not going to do that. Now, is your view that that cannot be challenged?

“Well,” Ms. McLaughlin struggled for a while, finally concluding “I’m not sure.” “I take that as a yes,” said the Chief Judge. He continued, “You understand why that might make us feel that maybe there is something wrong with the analysis?”

Undeterred, the government pressed on in rebuttal that the law implies that “there is a protected period [the 270 days] where the IRS is free to look at…” Ms. McLaughlin was again interrupted by the Chief Judge, “Wow, you don’t really mean that right, because the next couple of words would be, ‘the IRS is free to discriminate on the basis of viewpoint, religion, race, you don’t actually believe that?” “For 270 days,” interjected Judge Tatel.

Silence.

Chief Judge Garland pressed on then:

“Well, you don’t want that to be our takeaway here… I think 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.

I would be stunned if the current attorney general would agree with that position. Stunned. And the last attorney general, and the one before that, or the one before that, or anyone. That can’t be the position. Now, do you want to think again whether that’s really your position?”

Finally, Ms. McLaughlin said, “I will take that back.”

It was perhaps the most sensible thing the government said throughout the entire argument. They should take the whole thing back and apologize to this group!

Wondering about the status of Z Street’s application?

The government revealed in the arguments it had put a “litigation hold” on it, so that Z Street is still today, six years later, without a tax exemption, based solely on their support for Israel.

And that, my friends, is how horrible the IRS is.



 

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