FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Z STREET,
Plaintiff,
v.
DOUGLAS H. SHULMAN,
IN HIS OFFICIAL CAPACITY AS
COMMISSIONER OF INTERNAL REVENUE,
Defendant.
COMES NOW the Plaintiff, Z STREET, a pro-Israel Pennsylvania nonprofit organization, by its undersigned counsel, and alleges as follows:
The plaintiff in this case, Z STREET, is a nonprofit organization devoted to educating the public about the facts relating to the Middle East, and that relate to the existence of Israel as a Jewish State, and Israel’s right to refuse to negotiate with, make concessions to, or appease terrorists. The case is brought because, through its corporate counsel, Z STREET was informed explicitly by an IRS Agent on July 19, 2010, that approval of Z STREET’s application for tax-exempt status has been at least delayed, and may be denied because of a special IRS policy in place regarding organizations in any way connected with Israel, and further that the applications of many such Israel-related organizations have been assigned to “a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies.” These statements by an IRS official that the IRS maintains special policies (hereinafter the “Israel Special Policy”) governing applications for tax-exempt status by organizations which deal with Israel, and which requires particularly intense scrutiny of such applications and an enhanced risk of denial if made by organizations which espouse or support positions inconsistent with the Obama administration’s Israel policies, constitute an explicit admission of the crudest form of viewpoint discrimination, and one which is both totally un-American and flatly unconstitutional under the First Amendment.
Z STREET brings this case seeking a Declaratory Judgment that the Israel Special Policy violates the First Amendment to the United States Constitution; and for injunctive relief barring application of the Israel Special Policy to Z STREET’s application for tax-exempt status or to similar applications by any other organization; and to compel full public disclosure regarding the origin, development, approval, substance and application of the Israel Special Policy.
1. This Court has jurisdiction over the subject matter of this Action by operation of 28 U.S.C. §1331 (federal question) and 28 U.S.C. §2201.
2. Venue lies in this District by operation of 28 U.S.C. 1391(e) inasmuch as a substantial part of the events or omissions giving rise to the claim occurred here, and inasmuch as the Plaintiff resides here.
3. Z STREET filed in the Commonwealth of Pennsylvania for incorporation as a non-profit on November 24, 2009.
4. On December 29, 2009, Z STREET applied to the United States Internal Revenue Service for status as an organization recognized under Section 501(c)(3) of the Internal Revenue Code (“the Code”), which status (also known as “tax-exempt” status) would allow those persons donating money to Z STREET to deduct such donations from their taxable income, thereby diminishing the net after-tax cost of such donations to their donors, and so increasing the amount and number of such donations. Defendant the Commissioner of Internal Revenue is charged by Section 501(c)(3) of the Code to grant tax-exempt status to those organizations that exclusively engage in charitable and educational activities.
5. Section 501(c)(3) of the Code provides for the exemption from Federal income tax of organizations organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual. Section 1.501(c)(3)-1(d)(2) of the Treasury Regulations (the “Regulations”) provides that the term “charitable” is used in Section 501(c)(3) of the Code in its generally accepted legal sense.
6. Z STREET was incorporated exclusively for charitable and educational purposes. In addition, its Articles of Incorporation specifically provide that, “No part of the net earnings of the corporation shall inure to the benefit of, or be distributable to, its directors, officers, or other private persons, except that the corporation shall be authorized and empowered to pay reasonable compensation for services rendered and to make payments and distributions in furtherance of its exempt purposes.”
7. Z STREET’s website, public awareness campaigns, and all other activities are educational. Z STREET’s website and other educational materials provide a full and fair exposition of the pertinent facts to permit an individual or the public to form an independent opinion or conclusion.
8. Z STREET’s positions are supported by research, original documents, facts, and opinions from recognized academic and other knowledgeable sources, which sources are provided in its materials and on its website, and therefore, Z STREET’s activities are educational and charitable in nature.
9. Z STREET is therefore explicitly organized for charitable and educational purposes within the meaning of Section 501(c)(3) of the Code.
10. Regulation Section 1.501(c)(3)-1(d)(2) provides that the term “charitable” includes “advancement of education,” and Section 1.501(c)(3)-1(d)(3)(i) of the Regulations defines “education” as: (a) the instruction or training of the individual for the purpose of improving or developing his capabilities; or (b) the instruction of the public on subjects useful to the individual and beneficial to the community. The second example of Section 1.501(c)(3)-1(d)(3)(i) of the Regulations refers to organizations whose activities consist of presenting public discussion groups, forums, panels, lectures, or other similar programs as being educational.
11. An organization engaged in the advocacy of controversial viewpoints or positions with the intent of molding public opinion or creating public sentiment does not preclude such organization from qualifying for tax–exemption under Section 501(c)(3) of the Code, so long as the organization presents a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion. Treas. Reg. 1.501(c)(3)-1(d)(2); Revenue Procedure 86-43, 1986-2 CB 729.
12. In Revenue Procedure 86-43, 1986-2 C.B. 729, the IRS established a methodology test to determine whether an organization’s advocacy activities are educational. Although the IRS will render no judgment as to the organization’s advocacy position, the IRS will look to the method used by the organization to develop and present its views. Id. The method is not educational if it fails to provide: (a) a factual foundation for the viewpoint being advocated; or (b) a developed presentation of the relevant facts that would materially aid a listener or reader in a learning process. In addition, the presence of any of the following factors in the presentations made by the organization is indicative that the method used by the organization to advocate its viewpoints is not educational:
1. The presentation of viewpoints unsupported by facts is a significant portion of the organization's communications;
2. The facts that purport to support the viewpoints are distorted;
3. The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of strong emotional feelings than of objective evaluations; or
4. The approach used in the organization's presentations is not aimed at developing an understanding by the intended audience or readership because it does not consider their background or training in the subject matter.
Moreover, IRS policy stipulates that there may be exceptional circumstances where an organization's advocacy may be educational even if one or more of the listed factors are present. PLR 199907021. In such case, the IRS will look to all the facts and circumstances to determine whether an organization may be considered educational despite the presence of one or more of such factors.
13. In Private Letter Ruling 199907021, the IRS ruled that an organization which published newsletters to its members, produced a series of daily radio commentaries, and engaged in other educational activities about national and foreign policy issues was a charitable organization. The IRS concluded that the organization’s activities were educational because the organization (1) included the opposition’s position; (2) supported its position with facts; and (3) cited independent sources that support the facts contained in the articles.
14. In a letter dated May 15, 2010, IRS Agent Diane Gentry, to whom the Z STREET file had been assigned, sent an IRS Letter 2382 requesting additional information to aid her in her review of Z STREET's IRS Form 1023 (the "Application"). Z STREET, by its corporate counsel, submitted a response on June 17, 2010, providing all of the requested information, most of which had already been provided in Z STREET’s initial application, including information about each of Z STREET’s board members. In fact, detailed personal information about each Z STREET board member had to be supplied to the IRS three times, a number in excess of the experiences of Z STREET board members for any other board on which they sit.
15. In an effort to learn the status of the application, and the reason for the delay in issuance of the requested 501(c)(3) certification, Z STREET’s corporate counsel made follow up calls to IRS Agent Gentry of the IRS on July 7, and 14, 2010, which went unanswered. Counsel left a message in each instance, which was not returned.
16. On July 19, 2010, Z STREET’s corporate counsel called again, and this time spoke with IRS Agent Gentry who advised Z STREET’s counsel that she had two concerns regarding the Application: (1) the advocacy activities in general, and (2) the IRS's special concern about applications from organizations whose activities are related to Israel, and that are organizations whose positions contradict the US Administration's Israeli policy.
17. Furthermore Agent Gentry advised Z Street’s counsel that she questioned whether Z STREET's activities were educational as described under Section 501(c)(3) of the Code, but instead might be lobbying, or that Z STREET might be an “action organization,” which is the case when the only way to accomplish the purpose of the organization is through legislation. In fact, none of Z STREET’s purposes can be accomplished through legislative action.
18. IRS Agent Gentry also informed Z STREET’s counsel that the IRS will look to the method used by the organization to develop and present its views. She stated further that the method is not educational if it fails to provide: (a) a factual foundation for the viewpoint being advocated; or (b) a developed presentation of the relevant facts that would materially aid a listener or reader in a learning process.
19. To the extent that this concern is actually animating the IRS’s response to Z STREET’s application for 501(c)(3) status, it is baseless. Z STREET’s application provides eminent, factual, proof that the organization’s website, public awareness campaigns, and other activities are educational ones conducted in conjunction with advocacy. The application makes clear and all the evidence supports that Z STREET does and will provide a full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion, and that Z STREET’s positions are and will be supported by research, original documents, facts, and opinions from recognized academic and other knowledgeable sources.
20. Further, in addition to its application for 501(c)(3) status, Z STREET also applied for 501(h) status, which allows a tax-exempt organization to engage in lobbying, to the extent any is engaged in, by measuring the amount of money the organization spends on lobbying, and for an organization the size of Z STREET, that amount is 20% of the exempt purpose expenditures. Z STREET has not engaged in any lobbying activities no matter how defined, but had it done so, less than 20% of its total expenditures were spent on lobbying.
21. Agent Gentry also informed Z STREET’s counsel that the IRS is carefully scrutinizing organizations that are in any way connected with Israel.
22. Agent Gentry further stated to counsel for Z STREET: “these cases are being sent to a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies.”
23. Z STREET, and its President, Lori Lowenthal Marcus, have publicly taken positions on issues relating to Israel that are inconsistent with positions taken by the Obama administration.
24. The IRS’s admissions by Agent Gentry make clear that the IRS maintains an Israel Special Policy governing the processing of applications for tax exemption by organizations which are believed to be operated by persons holding political views inconsistent with those espoused by the Obama administration, and that the Israel Special Policy mandates that such applications be scrutinized differently and at greater length, and therefore that they take longer to process than those made by organizations without that characteristic, or even that the tax-exempt application might be denied altogether on that basis.
25. Z STREET has been and continues to be injured in its business and property by the Israel Special Policy inasmuch as its application for tax-exempt status has been affected by the application of a clearly unconstitutional policy which has held up the granting of its 501(c)(3) status, as admitted by the IRS agent in charge of reviewing and determining Z STREET’s application. This delay has impaired and continues to impair Z STREET’s ability to raise funds and has thereby restricted the scope of its operation and its ability to speak and to educate the public regarding the issues that are the focus and purpose of Z STREET.
26. As of the date of the filing of this Complaint, Z STREET’s application for tax-exempt status has not been approved.
27. Organizations engaged in the same degree of political advocacy but which take positions more closely aligned with the Obama administration’s views and policies regarding Israel have been granted tax-exempt status and, on information and belief, such applications have been granted more quickly than Z STREET’s application and without the same delays or intensity of review.
Pursuant to the Declaratory Judgment Act,
28 U.S.C. §2201, and the First Amendment
To the United States Constitution
28. Plaintiff repeats and re-alleges paragraphs 1 through 27 as if fully set forth herein.
29. Limitation of the issuance of tax-exempt status to a nonprofit educational organization on the basis of the substantive views held by the persons who operate the organization constitutes a restriction on the freedom of speech of such persons.
30. The existence and application of the Israel Special Policy identified above constitutes blatant viewpoint discrimination in violation of the First Amendment to the United States Constitution.
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.
Plaintiff further seeks injunctive relief:
A. Barring application of the Special Policy to its pending application for tax-exempt status pursuant to §501(c)(3) of the Code;
B. Requiring that Defendant adjudicate Plaintiff’s application for tax-exempt status expeditiously and fairly and without any consideration of whether the positions espoused by the Plaintiff or its officers are or are not consistent or inconsistent with the policy positions taken by the Obama administration;
C. Mandating complete disclosure to the public regarding the origin, development, approval, substance and application of the Special Policy.
D. Awarding to Plaintiff of its attorney’s fees and costs pursuant to 28 U.S.C. §2412; and
E. Such other and further relief as the Court may deem proper.
Jerome M. Marcus
Attorney I.D. 50708
P. O. Box 182
Merion Station, PA 19066
Voice: 610 664 1184
Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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|71.185.82.xxx |2010-08-25 12:28:11 Ken M - Good Luck on the CaseI wish you success in the court case but unfortunately there are increasingly many leftist/anti-zionist judges out there. But win or lose, tax exempt or not - I will support Z street.
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|71.185.82.xxx |2010-08-26 04:20:28 Jerry - The US of WhatPeople can join the Communist Party that seeks the overthrow of the government of the United States, but they cannot form associations that support Israel!?
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|71.185.82.xxx |2010-08-26 06:36:41 AnonymousUh, Jerry, appples and oranges. No one is questioning whether one can form an association that supports Israel. The question is whether such an advocacy organization is sufficiently "educational" to warrant tax exempt status. I don't believe donating to the Communist party in the U.S. (if it still exists) is tax-exempt.
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|149.101.1.xxx |2010-08-27 21:09:13 Max Friedman - CPUSA has had tax-exempt frontsThe Communist Party USA has had, in the past, and might still have tax-exempt projects (i.e. funds, foundations, institutes). The Guardian newspaper had an "Institute" as did "Transactions/Crossroads", a maoist organization, and as did "Frontline", another maoist group/publication. They all claim to be "educational" organizations and thus eligible for tax-exempt status.
The old "Hanoi Lobby" and "Anti-Defense Lobby" both had tax-exempt statuses despite massive lobbying campaigns. They funneled money thru churches and othe foundations, a process known in the criminal world as "laundering".
This was exposed in a report by the Council for Inter-American Security in the hearings of the House Ways & Means Committee, subcommittee on Tax Reform, in 1977.
Of course the IRS did nothing to stop our enemies from using tax-exempt status/organizations to raise funds for them.
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Congrats to you on the determination to assure not only the rule of law but the protection of basic human rights. And, of course, the necessary display of good ol' chutzpah that Jews seem to have lost over these past few years.
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|71.185.82.xxx |2010-08-26 19:45:47 Salah Uddin Shoaib Choudhury - Proud of Z Street, Lori and the membersI am always proud of my dearest friend Lori and the great team of Z Street. Together, we shall work.
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|71.185.82.xxx |2010-08-26 19:46:41 Winged Hussar 1683 - Obama Administration's proven contempt for rule oThis revelation is political dynamite similar to the Justice Department's purported refusal to prosecute New Black Panthers who displayed weapons (clubs) outside a polling place. Furthermore, the fact that you are filing this in a court of law (presumably as sworn testimony) makes it more than an ordinary Internet rumor.
The bottom line appears to be that the Obama Administration has directed the IRS to violate its own regulations and possibly the law by denying 501(c)(3) tax exemption to any organization that does not agree with the Administration's position. That needs to be on Michael Savage, Glenn Beck, Rush Limbaugh, Laura Ingraham and so on to make the public aware that Obama is no better than a common thug or Chicago machine politician (the two being virtually identical).
In 2007 and 2008, Organizing for America conducted at least two lotteries ("Dinner with Barack") that might in fact constitute illegal Internet gambling--an activity of which the Justice Depart...
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|71.185.82.xxx |2010-08-26 19:46:56 Andrew B - Chazak, Chazak, v'NischazekBe strong, no fight is harder than the one for justice. Good luck to you all and G-d bless you.
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|81.218.175.xxx |2010-08-29 12:13:38 Charles - 15 minutes of fameSeriously....I guess the organization is trying to get its 15 minutes of fame. This is hear say...no written documentation. Do you have recordings of these conversations with the IRS agent...doesn't appear so ...so we should just assume based on your word that this is actually the reason your exemption application hasn't been approved. Anyone who thinks this maybe the case should do some research first...even the Forward newspaper has doubts of these claims.
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|71.185.82.xxx |2010-12-17 05:08:22 NateActually Charles, I don't know if you have noticed, but the past few years it has been harder and harder to find news articles that are against anything our administration is for. not even on foxnews.com can you find anything that Obama doesn't want you to see. Taken right out of old Stalin's playbook.
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|81.218.175.xxx |2010-08-29 12:18:02 Bill Narvey - A Big Issue and Larger QuestionThis Israel Special Policy presumably is an unwritten IRS policy. Its perniciousness is obvious.
Your suit provides the opportunity to ascertain whether IRS's Israel Special Policy is newly conceived with the Obama administration or whether it has been an unwritten IRS policy under past administrations.
I doubt this question will be answered as I expect the IRS will soon cave and grant Z ST the status it seeks, rather then be subjected to scrutiny on this issue.
Then again, if the media picks up on this law suit and runs with its significance, they will independently get to the issue and an answer to this question faster then this law suit can and quite independent of the law suit, whether that suit goes forward or not.
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Lori I wrote you a letter on zstreet- I lost your email. Anyway I wish you the best- this is a impeachable offense, and you should have the Republican Ways and Means committee look at it. He has some "audacity" that man- thinking he could thwart the links between Israel and its supporters here in the US. Your civil rights and mine are being obstructed when such governmental interference takes place. I give you my best wishes for a positive outcome. Contact me anytime you feel like talking- we are on exactly the same wavelength... Your blogger sister- Debby www.jewtudes.com
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|71.185.82.xxx |2010-12-17 08:19:16 Larry Jones - Z Street supports TERRORISMWhy would any AMERICAN citizen support a terrorist group such as the State of Israel ( of which I do not nor will I ever recognize). Israel and its Zionist followers kill INNOCENT human beings, such as Palestinians, Lebanese, Muslim and Christian alike. Anyone whom supports Z Street or the zionism deserves to get arrested. As an American citizen I stand totally behind the IRS, not only should they not give Z street tax-excemption but they should throw all its members, supporters, and legal counsel all in prison. No screw that, deport em all back to Poland, Russia and Germany. My hard working tax dollars isn't gonna feed you racist, ignorant, devil worshipping losers. Get the hell outta Palestinian. 60 + years of occupation and killings must END NOW!!!!!! F*ck Lori, F*CK Z STREET, F*CK THE JEWISH LAWYERS REPRESENTING THIS TERROR GROUP AND ESP F*CK DEBORAH Kike SCHLUSSEL
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|71.185.82.xxx |2010-12-17 05:09:20 Larry Jones - Z STREET SUPPORTS TERRORWhy would any AMERICAN citizen support a terrorist group such as the State of Israel ( of which I do not nor will I ever recognize). Israel and its Zionist followers kill INNOCENT human beings, such as Palestinians, Lebanese, Muslim and Christian alike. Anyone whom supports Z Street or the zionism deserves to get arrested. As an American citizen I stand totally behind the IRS, not only should they not give Z street tax-excemption but they should throw all its members, supporters, and legal counsel all in prison. No screw that, deport em all back to Poland, Russia and Germany. My hard working tax dollars isn't gonna feed you racist, ignorant, devil worshipping losers. Get the hell outta Palestinian. 60 + years of occupation and killings must END NOW!!!!!!
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|71.185.82.xxx |2010-12-17 05:09:07 Larry JonesWhy would any AMERICAN citizen support a terrorist group such as the State of Israel ( of which I do not nor will I ever recognize). Israel and its Zionist followers kill INNOCENT human beings, such as Palestinians, Lebanese, Muslim and Christian alike. Anyone whom supports Z Street or the zionism deserves to get arrested. As an American citizen I stand totally behind the IRS, not only should they not give Z street tax-excemption but they should throw all its members, supporters, and legal counsel all in prison. No screw that, deport em all back to Poland, Russia and Germany. My hard working tax dollars isn't gonna feed you racist, ignorant, devil worshipping losers. Get the hell outta Palestinian. 60 + years of occupation and killings must END NOW!!!!!! F*ck Lori, F*CK Z STREET, F*CK THE JEWISH LAWYERS REPRESENTING THIS TERROR GROUP AND ESP F*CK DEBORAH Kike SCHLUSSEL
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|71.185.82.xxx |2010-12-19 10:41:13 Ralph Adamo - Larry Jones?Seriously Larry Jones, do you really need to post your poison not once, but 4 times? We understand you hate Jews, you hate Israel, and your a big fan of Obama's. That also means that you are either an extreme left-wing, or even an extreme right-wing nut-job, and that necessarily also means that you hate civilization, you abhor human progress, and you detest free speech, except, of course, for your own brand of hate speech. So, in short, we really don't need to hear from you at all. Your views are already very well represented in some very official places.
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|71.185.67.xxx |2011-07-27 11:55:01 Ralph Adamo NewOrleans - Not me againA casual search finds that another 'Ralph Adamo' is all over the place, expressing opinions. In this odd case, while I concur in rejecting this Larry Jones' unfortunate comments, I am equally disturbed by my fellow 'Ralph Adamo's' apparently typical kneejerk hatred of President Obama, and his assumptions about people in general. Once again, I call on this person to identify himself in some way that distinguishes him from me, the Raklph Adamo who lives in New Orleans and who believes that Barrack Obama may yet prove t be a great president. (Surely that 'Ralph Adamo' does not want to me mistaken for me either.
