US Justice Department settles tax-exempt status with pro-Israel group

WASHINGTON (JTA) – The US Justice Department settled with Z Street, a pro-Israel Zionist group that was for years denied tax-exempt status.

The group complained that its 2009 application for tax-exempt status was unduly scrutinized because of the group’s connection to Israel. Tax-exempt status was granted in 2016.

In a statement, the Justice Department did not detail the settlement, but said the agreement “includes an apology from the IRS to Z Street for the delayed processing of the group’s application for tax-exempt status.”

The department statement also suggested that Z Street’s positions on Israel might have been a factor in delaying its tax-exempt status. “Tax-exemption eligibility should be based on whether an organization’s activities fulfill requirements of the law, not a group’s policy positions or the name chosen to reflect those views,” it said.

In a Wall Street Journal op-ed published on Friday, Lori Lowenthal Marcus, a founder of Z Street, said the initial source of the lengthy review was an outdated IRS list of countries in which there might be fund-raising for terrorism. Organizations fund-raising in relation to the countries on that list required further review for tax-exemption. Israel appeared on the old list. An updated list does not include Israel.

The Trump administration has settled a number of cases brought by groups alleging that they were denied tax-exempt status for political reasons. Audits in recent years by the office of inspector-general for tax administration faulted the IRS for flagging groups based on little more than words in their names. It found that the practice spanned administrations and targeted both liberal and conservative groups.