Applications of pro-Israel groups for tax-exempt status are routinely routed to an antiterrorism unit within the Internal Revenue Service for additional screening, according to the testimony of a Cincinnati-based IRS agent.
Asked whether Jewish or pro-Israel applications are treated differently from other applications, Gary Muthert told House Oversight Committee investigators that they are considered “specialty cases” and that “probably” all are sent to an IRS unit that examines groups for potential terrorist ties.
“More review?” an investigator asked.
“Clearly, correct,” Muthert responded.
The IRS’s practices as described by Muthert touch on a political debate that has been raging in the United States and Israel since 2009. That’s when Washington Post columnist David Ignatius noted that opponents of Israeli settlements were fighting against tax exemption for groups that raise charitable contributions for organizations that support Israeli settlements. “Critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns,” Ignatius wrote.
On March 27, 2009, the day after Ignatius’s article appeared, the Arab-American Anti-Discrimination Committee (ADC) filed a spate of administrative complaints with the Treasury Department and the IRS, alleging that pro-Israel groups raising funds for settlements in the West Bank were supporting “illegal and terrorist activities abroad.” Later that year, in October, the ADC said that it was waging an ongoing legal campaign against the IRS for what the ADC regarded as violations of the tax code by some pro-Israel groups.
The following year, in 2010, a New York Times report observed that “donations to the settler movement stand out because of the centrality of the settlement issue in the current [American-Israeli] talks and the fact that Washington has consistently refused to allow Israel to spend American government aid in the settlements.” The article quoted State Department officials complaining about the American dollars flowing to Israeli settlers. “It’s a problem,” a senior State Department official told the Times. The implication was that it may be wrong to grant tax-exempt status to groups devoted to causes that undermine administration policy. Relying on information in the Times article, the left-leaning advocacy group J Street called on the Treasury Department to investigate whether pro-Israel organizations collecting tax-deductible gifts for schools, synagogues, and recreation centers in the West Bank had broken the law by supporting certain Israeli settlements.
Throughout this debate, whether pro-Israel groups have been receiving additional scrutiny from the IRS has remained unclear. But in 2010, after the pro-Israel organization Z Street applied for tax-exempt status, the IRS sent it requests for further information. Z Street sued the IRS in October 2010, claiming it was targeted merely for being connected to Israel. According to court documents, an IRS official told the group that its application was delayed because it was assigned to a “special unit” to determine “whether the organization’s activities contradict the Administration’s public policies.”
Certainly, charities based in the United States have funneled money to Israeli charities that are controlled by terrorist groups in Israel. But those charities have not been of a pro-Israel bent. The most-high profile case is that of the Holy Land Foundation, the Texas-based charity whose employees were indicted in 2004 for using the group as a front to provide material support to Hamas.
The policy that the applications of pro-Israel groups be examined by the IRS’s antiterrorism unit was instituted “probably years ago,” according to Muthert in his testimony. That testimony leaves unclear whether the news coverage in 2009 and 2010 prompted the scrutiny to which groups like Z Street say they have been subjected, or whether every nonprofit group whose application indicates it may engage in foreign activity, regardless of the country, is put under the microscope.
According to Muthert, it’s the latter, and he denies that pro-Israel applications are treated differently from those of other groups that claim they plan to engage with foreign countries. “It has to do with money laundering and things, because a lot of organizations will create charities to funnel the money to terrorist countries,” he explained. “So it is not so much Israel. It is just foreign countries.”
— Eliana Johnson is media editor of National Review Online.