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When ‘Sorry’ Comes Too Late

In 2015, a Justin Bieber hit asked “Is it too late now to say sorry?” In 2018, the Internal Revenue Service gave a delayed apology (not involving Bieber) that suggests the answer at a certain point becomes “yes.”

Back in December 2009, an organization called Z Street filed for tax-exempt status under Section 501(c)(3) of the tax code. By July 2010, the organization’s leadership hadn’t heard anything about their application’s status – an unusual wait at the time. When they inquired, an IRS employee reportedly told them that the organization’s application was subject to special scrutiny because their work was connected to Israel.

As Lori Lowenthal Marcus, Z Street’s founder, told The Wall Street Journal, the group was formed to educate Americans about the Middle East and, while it held a pro-Israel point of view, it had never spent any money outside the United States. Nevertheless, Z Street’s nonprofit application had entered bureaucratic limbo. The organization sued the IRS in August 2010, the first of a series of viewpoint discrimination lawsuits against the agency to arise during the Obama era.

Seven and a half years later, the Justice Department announced it was settling with Z Street, pending court approval.

The settlement consists of little more than a statement of facts and an apology. The consent order includes stipulation of 49 “agreed facts.” These include that an Internal Revenue agent had asked other applicants point-blank about their views regarding the state of Israel during the period in question; that the IRS used an out-of-date “Terrorism Checksheet” when processing Z Street’s application, resulting in its delay for further scrutiny, though the IRS says that the error was immaterial and failed to inform the organization it had occurred; and that the IRS had suspended the organization’s application after Z Street sued. (The Service resumed processing it in August 2016 and had approved the application by that October.)

While the IRS was not willing to concede Z Street’s allegation that it had engaged in unconstitutional viewpoint discrimination, it did allow that a six-year, ten-month processing time was substantially longer than usual. “For this delay, the government expresses its sincere apology,” the order read. The settlement got Z Street this apology and the formal acknowledgment that it was right to push back against the IRS, but little else. As Marcus told the Journal, “The settlement gives us the truth, but we can’t get back our seven years.”

The Z Street case is one of the final pieces of fallout from the IRS’ Obama-era scandal, in which “BOLO” (be on the lookout) notices were used to flag nonprofit applications of groups with possible ties to the Tea Party or other causes inclined to work against the Democratic administration’s aims. While the criterion that got Z Street flagged was not a name that incorporated the terms “patriot” or “Tea Party,” the political scrutiny of its aims was just as inappropriate. Many of these cases have previously been settled; a single regulatory challenge remains after Z Street’s settlement.

But to call this case “final” is misleading to the extent it suggests that today’s bureaucracy is substantially more functional or less politicized than it was in 2010.

The Obama administration weaponized the IRS, not just against Republican or conservative viewpoints, but against any actors whose arguments ran counter to the administration’s positions. Not that the Justice Department – then or now – has ever shown any interest in admitting that this happened or in pursuing legal action against those IRS officials responsible for depriving Americans of their First Amendment rights. So far, this has not changed under the Trump administration.

Presumably none of this has been helped by the fact that, since John Koskinen stepped down as IRS commissioner in November, David Kautter has served as active commissioner while also retaining his job as the assistant Treasury secretary for tax policy. Kautter may be able to go back to holding merely one full-time job relatively soon, however. In early February, the White House announced that Trump would nominate Charles Rettig to take over as commissioner, subject to Senate confirmation.

Rettig does not have an enviable job ahead of him if he’s confirmed. The IRS remains pitifully under-resourced and roundly scorned as it tries to carry out a near-impossible set of demands that lawmakers have placed upon it, from implementing the Affordable Care Act to deciphering last year’s massive tax overhaul. But the actions of its recent leadership have left it almost without sympathy from those whom the prior administration targeted for tax-enabled harassment. The Service’s political problems are mainly of its own making. As a certain Canadian singer might tell U.S. tax enforcers, saying you are sorry does not always get you very far.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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One Response to "When ‘Sorry’ Comes Too Late"

  • Lori Lowenthal Marcus
    February 23, 2018 - 9:51 am

    Thank you for writing this – yours is the most lucid, least tangled recitation of the facts that I’ve seen in print.