In August of 2010, almost three years before Lois Lerner announced at a law conference that the IRS had indeed targeted certain groups, Z Street filed a lawsuit contending the IRS was targeting them because they disagreed with the President’s policy on Israel. The Wall Street Journal is reporting that the Clinton State Department may have worked with the IRS in discriminating against pro-Israel organizations.

Z Street filed their suit against after an IRS agent allegedly said his direction was to “give special scrutiny to organizations connected to Israel,” and that the files of some of those “organizations were sent to a special unit in Washington, D.C. to determine whether the activities of the organization contradicted the public policies of the administration.” The documents discovered by the House Ways and Means Committee indicate the IRS and State Department were conferring in 2009 about pro-Israel groups like Z Street and considering arguments to deny their tax-exempt applications.

In an April 16, 2009 email, Treasury attache to the U.S. consulate in Jerusalem Katherine Bauer sent IRS and Treasury colleagues a 1997 JTA News article sent to her by State Department foreign service officer Breeann McCusker. The subject was whether 501(c) groups buying land in Israel’s disputed territories were engaged in “possible violations of U.S. tax laws.” The article chronicles the controversy and whether “ideological activity” can “legally be financed with the help of U.S. [tax] dollars.” “Thought you might find the below article of interest—looks like we’ve been down this road before,” Ms. Bauer wrote. “Although I believe you’ve said you can’t speak to on-going investigations, I thought it was worth flagging the 1997 investigation mentioned below for you if it can be of any use internally when looking for precedence [sic] for the current cases.” A Treasury spokesman declined comment on Ms. Bauer’s behalf.

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The only “current case” was the Z Street application.

The “current cases” would have been applications like Z Street’s in which Israel-related activity was apparently being scrutinized for its ideological and policy content. The government says Z Street got special scrutiny because it was focused in a region with a higher risk of terrorism, which is hard to believe and in any case doesn’t explain all of the IRS’s behavior. It doesn’t cover, for instance, why one questionnaire we’ve seen from the IRS to another Jewish group applying for tax-exempt status asked, “Does your organization support the existence of the land of Israel?” and “Describe your organization’s religious belief system toward the land of Israel.” No matter the answers, they should not affect the processing of an application for 501(c) status. The State-IRS emails reveal a political motivation for IRS scrutiny that gives Z Street powerful evidence for its suit charging IRS bias. On Monday the IRS filed an appeal of the judge’s decision denying its motion to dismiss Z Street’s case. The government says the action stops all discovery while the appeal is pending, a process that could take months or even years. By filing the appeal on the last possible day, the Justice Department is running out the clock on discovery during the remainder of the Administration. This is a whole lot of effort to prevent discovery in a case that is not even seeking damages. Ways and Means uncovered the email exchange between State and the IRS only after Treasury was forced to turn over documents it had previously withheld. What else did it lose in the ether?

The Z Street case has the potential of blowing the IRS scandal wide open. First of all, it is the furthest along, and probably will be decided first. They can put on the stand the IRS employee who said they were being scrutinized because their policy is different than the Obama administration’s, and the lack of terrorism in any of the documents released by Rep. Levin indicates that the TAG manager who said Z Street was being examined because of terrorism in Israel may have been committing perjury.

Despite all the evidence in the Z Street case, the FBI who is supposedly investigating the case has not contacted them. Z Street President Lori Lowenthal Marcus wasn’t contacted by the Ways and Means Committee she was forced to contact them. According to Lowenthal Marcus, they listened and chose to focus on the politically conservative groups). Reps Cummings and Levin who are constantly complaining about the “progressive organizations targeted by the IRS never contact that supposedly progressive organization. And of course with the exception of the Wall Street Journal and Fox News most of the media, even the conservative media haven’t covered the Z Street case.

That’s the real sad part the case with the most potential to blow the IRS scandal wide open is being ignored by the people trying to blow the scandal wide open.