The group complained that its 2009 application for U.S. tax-exempt status was being unduly scrutinized because of its connection to Israel. It was granted in 2016.
In a statement, the Justice department did not detail the settlement, but said the settlement agreement “includes an apology from the IRS to Z Street for the delayed processing of the group’s application for tax-exempt status.”
The Justice Department statement also suggested that Z Street’s positions on Israel might also 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published Friday, Lori Lowenthal Marcus, a founder of Z Street, said the initial source of the lengthy review was an outdated IRS list of countries where there may be fund-raising for terrorism, requiring further review for tax-exemption for groups fund-raising in relation to those countries. Israel appeared on the old list. An updated list had removed 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.