IRS Not Above First Amendment

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The First Amendment trumps IRS’ interpretations of the limits of its authority.  In heartening news for nonprofits, a federal district court recently rejected the IRS’s efforts to defeat a First Amendment claim filed by an advocacy organization seeking Section 501(c)(3) recognition.   The case was filed by Z Street, Inc., a nonprofit corporation dedicated to educating the public about issues related to Israel and the Middle East.   See Z St., Inc. v. Koskinen, 12-CV-0401 (KBJ), 2014 WL 2195492 (D.D.C. May 27, 2014).  Z Street is claiming “viewpoint discrimination” by the IRS in violation of its First Amendment rights.

Z Street filed its IRS Form 1023 application, seeking tax-exempt recognition as a Section 501(c)(3) public charity.  Upon review, the IRS questioned the substance of Z Street’s advocacy efforts, particularly whether and to what extent it clashed with positions taken by the Obama Administration. As a result, the IRS allegedly sent Z Street’s exemption application to a special IRS unit in charge of the IRS’s “Special Israel Policy,” for additional review. 

Z Street sued the IRS, claming the agency engaged in viewpoint discrimination in violation of the First Amendment. The IRS moved to dismiss the case, asserting that it did not have to defend the constitutionality of its “Special Israel Policy.”  According to the IRS, Z Street’s claim was barred by federal laws that limit lawsuits against the federal government and its agencies.

The federal district court for the District of Columbia resoundingly disagreed.  In a lengthy opinion, the court rejected the IRS’s claims that the federal Anti-Injunction Act, the federal Declaratory Judgment Act, and sovereign immunity barred Z Street’s constitutional claim.  Instead, the court recognized that a fundamental constitutional question exists, namely, whether the IRS’s process for handling Z Street’s exemption application is unconstitutional. The court thus recognized and affirmed the IRS’s accountability for potential constitutional violations.

This case portends well for other tax-exempt applicants that face IRS viewpoint discrimination in violation of their constitutional freedoms. Through Z Street’s efforts, the IRS may be called to greater accountability in the way the agency evaluates criteria for 501(c)(3) qualification.  Tax-exempt status may be a privilege, but viewpoint discrimination should play no role whatsoever.  In particular, the IRS has no business requiring adherence to governmental policy as a condition for IRS approval.  Instead, organizations and their participants should be allowed to enjoy their First Amendment freedoms to the fullest, particularly through educational issue advocacy.