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“Concerned” Individuals Lack Standing To Force Treasury Department Investigation

“Concerned” Individuals Lack Standing To Force Treasury Department Investigation

Plaintiffs seek revocation of tax-exempt status of organizations allegedly assisting settlements in West Bank

The federal District Court in the District of Columbia has ruled that a group of “individuals sharing mutual concerns” about Israeli settlements in the West Bank and East Jerusalem have no standing to sue the Treasury Department to force it to investigate about 200 501(c)(3) organizations and revoke their exemptions where appropriate.  The District Court followed a long line of cases denying standing where the activity complained of has only a tenuous relationship to the injury complained about and where the remedy requested would not redress the injury.

A group of concerned individuals claimed that about 200 “pro-Israeli settlement” organizations fund or engage in criminal activities abroad and that the IRS has failed to “challenge or revoke” their 501(c)(3) status.  They sought an order requiring the Treasury Department to investigate all tax-exempt entities based in America that transmit $20,000 or more annually to any country in the world, to revoke exemption “where appropriate,” and to refer all tax fraud and money laundering findings to the IRS or Justice department for criminal prosecution.  The governmental defendants filed a motion to dismiss for lack of standing.

The Court cited the classic requirements for standing: the plaintiff must allege a “concrete and particularized” injury that is “fairly traceable” to the challenged action of the defendant and is “likely” to be “redressed by a favorable decision.”  The Court did not challenge the allegations of an injury suffered by at least one of the plaintiffs, but held that the plaintiffs did not meet either of the other two requirements.

One plaintiff argued that two plots of land in the West Bank had been sold to an “Israeli settler organization” by “violent Israeli settlers supported by funds provided by U.S. tax-exempt entities.”  She argued that the theft of her property would not have occurred but for the U.S. charities receiving “massive donations from wealthy donors” in the U.S., those entities transferring the funds to Israel-based charity bank accounts, the Israel-based charities transferring the money to “settler officials” who “set up armed militia units” that “annexed” land then belonging to her father.  This was all predicated, the Court said, on the idea that the Treasury Department did not revoke the exemption of the U.S. charities.

“Standing arguments of this type are not new,” the Court said.  But they have regularly been rejected.  “The chain of causation linking the Treasury Department’s alleged failure to monitor the 501(c)(3) status of U.S.-based charities and the injuries sustained by plaintiffs is attenuated at best” and relies “on a series of speculative inferences” about some third parties not before the Court, the Court wrote.  The third party actors could break the chain of events at any point along the line.

The Court also said that the relief requested would do nothing to redress the alleged injuries.  Even if the IRS were to revoke the charitable exemption of U.S. entities, those actions would not make the plaintiffs whole; neither the investigation, the revocation of exemption nor the prosecution of U.S. organizations would result in the return of any illegally obtained property or payment of damages for physical assaults.

For plaintiffs alleging future injury, “the redressability is a closer call, but only slightly closer,” the Court said, and would require the Court to “pile conjecture on conjecture.”  “Such unadorned speculation as to the existence of a relationship between the challenged government action and the third-party conduct will not suffice to invoke the federal judicial power.”  (Abulhawa v. U.S. Department of the Treasury, D. DC, CA. No. 15-2186, 3/4/17.)

YOU NEED TO KNOW

A whole string of cases has held that outsiders do not have standing to force the IRS to challenge tax-exempt status of exempt organizations.  Only the IRS, which may act on tips from the public or on its own, has authority to challenge such status.  Third parties can’t require the IRS to do so.

Keywords: 
Jurisdiction: 
federal District Court D.C.

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