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Federal judge rules Z Street case against IRS may proceed

WASHINGTON (JTA) — A federal judge ruled that a lawsuit challenging the Internal Revenue Service’s scrutiny of Israel-related groups may proceed.

Judge Ketanji Brown Jackson of the U.S. District Court in Washington D.C. on May 27 dismissed U.S. government claims that federal courts lack jurisdiction over the lawsuit filed in 2010 by an Israel advocacy group, Z Street.

The lawsuit claims that IRS scrutiny of Z Street’s application for tax-exempt status violated its freedom of speech.

Jackson accepted Z Street’s argument that the group was not suing to gain tax-exempt status but rather because it alleged that the government was subjecting it to unconstitutional viewpoint discrimination in assessing its application.

In its lawsuit, Z Street, which was founded in 2009 in part to counter the influence of J Street, cited a conversation that its legal counsel had with an IRS agent. According to Z Street’s complaint, the IRS agent had said that applications for tax-exempt status from Israel-related entities are sent to a special unit in Washington to determine whether such organizations’ activities contradict the U.S. administration’s public policies.

IRS officials in court papers have disputed this characterization of the conversation and said that it misstates the nature of their policy. The IRS has said that it gives special scrutiny to applicants that could provide resources to organizations in a country, such as Israel, that is at higher risk of terrorism.

CORRECTION: An earlier version of this article mistakenly stated that the IRS had denied Z Street’s request for tax-exempt status. In fact, the IRS has not made a determination regarding Z Street’s tax-exempt status.

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