Monday, March 5, 2012

Z Street's Unconstitutionality Claim Against IRS Continues

In late August 2010, Lloyd Mayer blogged about Z Street, a pro-Israel nonprofit corporation, that had filed a complaint alleging that the IRS was delaying consideration of its application for recognition of section 501(c)(3) tax-exempt status because the Service was determining whether the group's activities contradict the current Administration's policies.  The nonprofit asserted First Amendment free speech concerns.  The U.S. District Court for the Eastern District of Pennsylvania recently determined that it lacked jurisdiction under IRC §7428, pertaining to declaratory judgments in suits related to the classification of organizations under Section 501(c)(3), and transferred the case to the U.S. District Court for the District of Columbia.  In a footnote to its order, the Eastern Pennsylvania District Court agreed with the nonprofit's First Amendment assertions:

The Complaint states, inter alia, “Wherefore, Plaintiff seeks a Declaration that Defendant’s substance and application of the Israel Special Policy to any application for tax-exempt status constitutes discrimination among viewpoints and a violation of the Plaintiff’s right to freedom of speech as guaranteed by the First Amendment to the United States Constitution.”  The Court shares Plaintiff’s view that this is a case about constitutionally valid process, and finds that 26 U.S.C. § 7428 is the statute which establishes Plaintiff’s right to challenge the IRS’s 501(c) classification process.

Z Street filed an amended complaint in December 2010, which sets forth additional information on the IRS process involved with respect to the organization's exemption application.

(Hat tip:  TaxProf Blog)


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