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The IRS made an argument to the D.C. Circuit Court of Appeals on Monday that was so arrogant, so entitled that the judges declared themselves “shocked” before they went ahead and (per the WSJ) “eviscerated the IRS and Justice Department” during oral argument in a case alleging the agency delayed the tax-exempt application of Z Street, a pro-Israel organization.  Things got so bad one judge warned,  “If I were you, I would go back and ask your superiors whether they want us to represent that the government’s position in this case is that the government is free to unconstitutionally discriminate against its citizens for 270 days”

In August of 2010, almost three years before Lois Lerner announced at a law conference that the IRS had indeed targeted certain groups, Z Street filed a lawsuit contending they were being targeted by the IRS because they disagreed with the President’s policy on Israel. In fact Z Street filed their suit against the IRS after an agent allegedly told them his direction was to “give special scrutiny to organizations connected to Israel,” and that the files of some of those “organizations were sent to
a special unit in Washington, D.C. to determine whether the activities of the organization contradicted the public policies of the administration.”

Z Street sued the IRS for viewpoint discrimination (Z Street v. Koskinen), and in May 2014 a federal district judge rejected the IRS’s motion to dismiss. The IRS appealed, a maneuver that halted discovery that could prove to be highly embarrassing. Justice says Z Street’s case should be dismissed because the Anti-Injunction Act bars litigation about “the assessment or collection of tax.” Problem is, Z Street isn’t suing for its tax-exempt status. It’s suing on grounds that the IRS can’t discriminate based on point of view.

The three judges—Chief Judge Merrick Garland,David Tatel andDavid Sentelle—were incredulous. You say they want a tax exemption, but that’s not the complaint, Judge Sentelle admonished government lawyer Teresa McLaughlin: “They are not in court seeking to restrain the assessment or collection of a tax, they are in court seeking a constitutionally fair process.”

The suit should also be foreclosed, the government argued, because under Section 7428(b)(2) of the Internal Revenue Code groups may sue to obtain their tax-exempt status if no action has been taken for 270 days, and that should be an alternative to Z Street’s approach.

You don’t really mean that, right? Because the next couple words would be the IRS is free to discriminate on the basis of viewpoint, religion, race [for 270 days]. You don’t actually think that?” Judge Garland said. “Imagine the IRS announces today a policy that says as follows: No application by a Jewish group or an African-American group will be considered until one day short of the period under the statute . . . Is it your view that that cannot be challenged?

The judges also asked why the government had buried the key precedent in a footnote in its brief. In Direct Marketing Association v. Brohl, the Supreme Court decided that the language of the Anti-Injunction Act did not preclude cases like Z Street’s. In a previous case before the D.C. Circuit, Judge Garland noted, the court also “rejected” the exact arguments the government was making, “so in a way we have already decided every issue before us today, against you.”

Poor Ms. McLaughlin was sent to argue the indefensible so the IRS can delay discovery until the waning days of the Obama Administration. “If I were you, I would go back and ask your superiors whether they want us to represent that the government’s position in this case is that the government is free to unconstitutionally discriminate against its citizens for 270 days,” said Judge Garland.

The Z Street case has the potential of blowing the IRS scandal wide open. First of all, it is the furthest along, and probably will be decided first. They can put on the stand the IRS employee who told the organization they were being scrutinized because their policy is different than the Obama administration. But with the exception of the Wall Street Journal and Fox News most of the media, even the conservative media haven’t covered the Z Street case.

That’s the real sad part this case, the one with the most potential to blow the IRS scandal wide open is being ignored by the people who are trying to blow the scandal wide open.

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