WASHINGTON — As the Internal Revenue Service reels from revelations that it targeted Tea Party groups’ tax-exempt applications for extra scrutiny, Jewish groups from the left and right are seeking to draw attention to a less noticed reality they say they face: Groups with ties to Israel seem to be drawing extra IRS scrutiny, too.Several Jewish not-for-profit organizations have faced extensive questioning on their ties to Israel when applying for tax-exempt status, the Forward has learned, leading to a lengthy approval process.
Two Jewish groups from two ends of the political spectrum have recently gone through the process. Each had a different experience, and each reached a different conclusion, but both share the feeling that getting a tax-exempt status for groups dealing with Israel is a long and, at times, painful process.
“Israel is in a bad neighborhood, and as soon as you file the request to the IRS, you hit a red flag and they push a button and out comes a bunch of questions,” said Marcia Eisenberg, an attorney who recently represented Ameinu, a self-described progressive Zionist organization seeking tax exemption. Lori Lowenthal Marcus, co-founder and president of Z Street, a right-wing group that also applied for exemption, called the process “non-sensible” and accused the IRS of wrongfully singling out organizations relating to Israel, and focusing on right-wing groups in particular.
The IRS rejected any notion that not-for-profits related to Israel are targeted specifically. Any group transferring funds overseas, IRS officials say, is carefully checked to make sure that money does not reach terror organizations.
The national controversy over IRS practices broke in May, when it was revealed that the agency’s Cincinnati office, which processes applications for tax-exempt status from not-for-profit organizations, employed intense scrutiny when dealing with applications from groups thought to be affiliated with the Tea Party movement. The groups had asked for recognition under section 501(c)(4) of the tax code, which would exempt them from paying taxes for their income but not allow individuals who donate to them to deduct the contributions from their taxes.
In the political firestorm that ensued, Republican lawmakers accused the IRS of a politically motivated decision to impose difficulties on organizations critical of the Obama administration — a charge that both the White House and the IRS officials involved deny.
The controversy did not touch directly on the Jewish groups in question. In most cases these groups filed applications for exemption under a different tax code section, 501(c)(3), which classifies them as public charities and allows donors to these groups them to claim tax deductions for their contributions. Due to this privilege, the IRS submits applications for status as public charities to its highest level of scrutiny in any event.
Hiam Simon, Ameinu’s national director, has on his desk a 4-inch thick file containing the group’s correspondence with the IRS. It represents five years of work on the group’s request for tax-exempt status, although only the last year has been subject to an intense back-and-forth with the IRS over questions relating to Israel.
Ameinu, a successor to the century-old Labor Zionist Movement, defines its mission as promoting “liberal values and progressive Israel.” As such, it supports civil society organizations in Israel that help low-income families, encourage democracy and equality in Israel, and promote Jewish pluralism. Historically, it was set up as a fraternal beneficiary society under 501(c)(8) of the tax code because it provided such services as loans, health care and burial to its members. This status did not fit the group’s current activity and did not allow it to receive donations from foundations, leading Ameinu to seek a 501(c)(3) tax-exempt status.
After clearing many obstacles stemming from the group’s previous status, Ameinu encountered a growing number of questions from the IRS about the funds it transfers to Israel and any lobbying activity it carries out there. In one such exchange, Ameinu was asked by the IRS about statements on its website supporting a two-state solution: “What percentage of time is spent on advocating for a two-state solution in Israel? What percentage of your resources is directed toward this activity?”
In another letter, the IRS asked Ameinu to explain how it will ensure that the money it provides to groups in Israel will not violate economic sanctions and will not reach terrorist-designated entities.
“It was almost like a police investigation where they ask the same question again and again,” Simon said of what he saw as an endless set of queries from the IRS.
But Eisenberg, the Jewish Community Relations Council of New York’s general counsel, who took on Ameinu’s IRS application pro bono, did not see the heavy scrutiny as an attempt to single out or deter the organization from obtaining the tax exemption.
“Clearly it wasn’t hand crafted” she said, referring to the many questions Ameinu faced. Rather, Eisenberg said, out of political correctness, authorities lump together all Middle Eastern countries for potential terror threats. “I don’t think there is any bias,” she said. The IRS exempt organizations office also suffers from a significant backlog, she noted, and any request from a group involved in overseas activity is “automatically transferred to the ‘long’ line.”
Ameinu’s request for the new tax status was finally approved in May.
The IRS would not respond to the Forward’s questions about the case, stating that “section 6103 of the Internal Revenue Code prohibits the IRS from discussing or commenting on any particular taxpayer situation or case.”
On the other end of the Jewish political map, an entirely different organization has yet to receive an IRS determination regarding its request for 501(c)(3) tax status.
Z Street, a group set up in 2009 in order to take action in the “immediate, decisive, in-your-face facts war,” as stated on the organization’s website, has been supportive of the right for a Jewish state in Israel and of Israeli Jewish settlements in the occupied West Bank.
In 2010 the group filed papers requesting tax-exempt status. But when months passed without approval, Z Street contacted the agent dealing with its case and, according to the group, was told that its request was being delayed because of a “special policy” regarding Israel-related organizations. Lowenthal Marcus said her group was told that it has been assigned to a special unit to determine whether the organization’s activity contradicts the administration’s public policies.
“I think it will not be an unreasonable working hypothesis that someone decided that if this administration does not support settlements then organizations that do are doing something contrary to the administration’s position,” Lowenthal Marcus said.
The group decided to sue the IRS, “not because of the tax status but because of the process,” according to Lowenthal Marcus. In its suit, Z Street argues that having an “Israel policy” violates the First Amendment and demands that the IRS disclose any policy it maintains on this issue. According to Lowenthal Marcus, the IRS raised the issue of terrorism only later, in its response to the lawsuit. The agency did not ask Z Street about terrorism beforehand, she said.
In its response to the court, the IRS fully and strongly denied the existence of any policy targeting Israel or singling out not-for-profit organizations working with Israel. “Contrary to Z Street’s allegations, there is no ‘Israel special policy,’ and Z Street’s application has not been subject to ‘heightened scrutiny’ because its views differ from those espoused by the Obama administration,” the IRS wrote in its brief.
In the court documents, the IRS acknowledges the existence of a special “Touch and Go” or TAG group, set up in 2005, that screens requests from organizations with ties to countries that have a “heightened risk of terrorism.” The group, according to the IRS, deals with some 1,500 requests a year, and Z Street’s referral to it for screening was not part of any special “Israel policy.”
The case will be heard in mid-July at the U.S. District Court for the District of Columbia.