An IRS manager acknowledged that applications mentioning Israel got special attention. | REUTERS Jewish groups also point to scrutiny

The same Internal Revenue Service office that singled out Tea Party groups for extra scrutiny also challenged Israel-related organizations, at least one of which filed suit over the agency’s handling of its application for tax-exempt status.

The trouble for the Israel-focused groups seems to have had different origins than that experienced by conservative groups, but at times the effort seems to have been equally ham-handed.


A leader of one of the organizations involved, Lori Lowenthal Marcus of Z Street, said Monday that she was convinced the added attention her group got was no accident.

“I can’t believe it was just about Z Street, because it’s a tiny organization,” Lowenthal Marcus said of the group, which has been critical of President Barack Obama for being too cozy with left-leaning Jewish groups like J Street and with pro-Palestinian entities.

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Z Street filed a lawsuit against the IRS in 2010 alleging that one of its attorneys were told its application for tax exemption was delayed and sent to a “special unit…to determine whether the organization’s activities contradict the Administration’s public policies.”

The suit was filed in federal court in Pennsylvania and later transferred to DC. A judge in Washington has set a hearing on the case for July 2.

Z Street had applied for the 501 (c) (3) status applied to most charities, allowing for tax deductible donations.

Most of the tea party groups known to have come under scrutiny applied for 501 (c) (4) status, which allows advocacy groups to avoid federal taxes on their operations but doesn’t render donations to the groups tax deductible.

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Both kinds of applications are processed in the same Cincinnati office.

Legal filings show that the problems for Z Street — and apparently for other Israel-related groups — stemmed from an obscure unit in the Cincinnati IRS office: the “Touch and Go Group.” One of the so-called TAG Group’s duties was to weed out applications that might be coming from organizations which might be used to fund terrorism.

In response to Z Street’s lawsuit, an IRS manager acknowledged that applications mentioning Israel were getting special attention.

“Israel is one of many Middle Eastern countries that have a ‘higher risk of terrorism,’” wrote Jon Waddell, manager of the IRS’s Exempt Organizations Determinations Group. “A referral to TAG is appropriate whenever an application mentions providing resources to organizations in a country with a higher risk of terrorism.”

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However, Z Street and other groups reported getting unusual inquiries from the IRS. A Z Street lawyer was contacted by a Jewish religious group, which detailed inquiries from the IRS that the group’s leaders thought had treaded too far.

“Does your organization support the existence of the land of Israel? Describe your organization’s religious belief system towards the land of Israel,” the IRS asked in a letter sent to the religious group, which asked not to be named.

“If they’re asking that of that group, what else are they asking?” Lowenthal Marcus asked.

She said basing the review for terrorism on where an organization did business was strange and ineffective.

“If their policy was to look at any organization that had anything to do with a country where terrorism exists, I don’t see how that limits anything,” Lowenthal Marcus said. “There’s been terrorism in the United States, in the United Kingdom, in Canada, in Malaysia….and in Boston. Is that now going to be on the list?”

A spokesman for the Treasury Inspector General for Tax Administration declined to say Monday whether that office had reviewed the issue of scrutiny of Israel-related groups as part of the review of how the IRS handled political groups, or separately. “I don’t have any information for you one way or the other on that,” said the spokesman, David Barnes.

In court papers, the IRS denied that its personnel ever told Z Street that there was a special review for groups that might be at odds with Obama administration policy. The tax agency contended that the issue was whether the groups might violate “public policy” — a legal term of art for the notion that the government shouldn’t bestow a benefit on an individual or organization engaged in illegal activity like terrorism, or in an officially disfavored activity such as racial discrimination.

“The application was not transferred to TAG because of an ‘Israel special policy’ or because Z Street’s views on Israel contradict the Obama administration’s views on Israel,” the Justice Department wrote in a brief seeking dismissal of Z Street’s lawsuit.

The TAG group was created in 2005 during the George W. Bush administration, court papers indicate. Published IRS regulations describe the TAG and its duties, but don’t say which specific countries trigger scrutiny beyond those designated by the United States as state sponsors of terrorism.

The unit appears to have arisen out of the Bush administration’s efforts to crack down on Muslim charities it alleged were funneling funds to terrorism. Several of the largest U.S.-based charities for Muslim causes, including the Global Relief Foundation and Benevolence International Foundation, were raided and had their assets frozen.

Soon after taking office, President Barack Obama took a different tack. He declared publicly in 2009 that he thought government rules were unfairly impeding Muslims from carrying through on their religious obligation to donate to charity.

“In the United States, rules on charitable giving have made it harder for Muslims to fulfill their religious obligation. That’s why I’m committed to working with American Muslims to ensure that they can fulfill zakat,” Obama said in his speech to the Arab world in Cairo in 2009.

A Muslim leader active in zakat fundraising said Monday he was not aware of any reduction in scrutiny of Muslim charities after Obama’s statement. “I’m told it’s gotten worse,” said Imad ad-Dean Ahmad of the Islamic American Zakat Foundation.

Other Muslim leaders said the latest headlines struck a familiar chord with them. “When the story came out [about the tea party groups], a lot of us said this is the same thing that has been happening to us over the past decade,” said Abed Ayoub of the American-Arab Anti-Discrimination Committee.

Ayoub said he was unaware of any significant change since Obama’s remarks in 2009. “There hasn’t been a visible change to the guidelines and the processes within the Department of the Treasury and the IRS. It has been an ongoing battle it’s a constant struggle for us,” he said. “The Tea Party is kind of in the same boat with many Muslim organizations on this issue now.”