Z Street, run by my friend Lori Lowenthal Marcus, made the decision to apply for 501c3 status as a tax exempt organization several months ago. This week, her organization filed suit against the IRS over what it considers to be a lengthy delay, if not blockage, of its application, and over the reasons that it contends were offered by the IRS which it feels are discriminatory. This situation has received no little attention in the Jewish world and for good reason. You may find an article about Z Street’s suit on their website.
What is going on? More than likely, a lower level IRS agent did not do a good job of explaining the administration’s position or perhaps does not understand it well enough to do so, but the length of the process and specific attention given this organization is of concern even if her actions are in keeping with proper procedures. It is possible that there is more to this case, but we will see as the suit progresses.
In my view, it is reasonable for the IRS to try to determine whether or not an organization applying for a 501c3, tax exempt status as a not-for-profit organization, actually qualifies. The IRS must investigate thoroughly and that may take no little time. However, it is not remotely legal for the administration to make approval of an organization’s legal status dependent upon its adherence to the policies of the administration, something that Z Street contends is happening, nor to drag on the process indefinitely because of disagreement with its policies. If this accusation against the IRS is true, and Lori assures me that it is, then what is going on is not merely problematic, but illegal.
In the meantime, there are concerns that should be addressed. Is it problematic that the application for 501c3 status for an Israel advocacy organization may involve specific inquiry into the policies advocated by the organization with the assumption that some policies may result in the rejection of an application? It seems to me that the answer is definitely, “Yes.” An obvious policy issue might be advocacy for the maintenance or growth of West Bank settlements. If an organization is going to provide funding for programs or projects in settlements does it risk 501c3 status? If it merely advocates for Israel keeping them as part of Israel and not withdrawing from the West Bank at some future date, does that jeopardize tax exempt status? What if it argues that the policies of the current administration are not good? Does that jeopardize its status?
There are some obvious policies that might jeopardize status for ANY organization seeking tax exempt status, such as support for terrorism or violence against the United States. But barring such an extreme, where are the lines to be drawn? And if the reasoning here is that there is an assumption of an attempt to influence policy on the part of Israel advocacy organizations and therefore all are assumed to be  lobbying organizations, this thought process fails miserably because as much could be said for any social service organization; namely that they are interested in influencing policy through education at some level. Where is the line between educational organization and lobbying organization to be drawn?
We will hear more about this case.
You can find the full legal brief from the Z Street case at this link. There is a brief article in the Forward explaining some of the potential reasoning on the IRS side which you may find here.