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November 26, 2015 / 14 Kislev, 5776
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Posts Tagged ‘IRS’

IRS Political Discrimination Suit by Pro-Israel Group OKed by Court

Tuesday, May 27th, 2014

After nearly four years of litigation, a U.S. federal district court judge instructed the Internal Revenue Service to cease “struggl[ing mightly]” to thwart a lawsuit filed by the pro-Israel organization Z STREET. That lawsuit alleges the IRS violated Z STREET’s First Amendment Constitutional rights. The judge ordered the IRS to file a substantive answer to Z STREET’s Complaint within 30 days.

Z STREET* sought tax-exempt status as a non-profit organization engaged in educating the public about Israel and the Middle East conflict. The organization filed its application in December of 2009.

On July 19, 2010, when counsel for Z STREET spoke with the IRS agent to whom the organization’s application had been assigned, that agent said that a determination on Z STREET’s application may be further delayed because the IRS gave “special scrutiny” to organizations connected to Israel and especially to those whose views “contradict those of the administration’s.”

That statement by the IRS agent, according to the Z STREET board, constituted a clear violation of the Constitution. The government may not treat an organization or person differently because of that person or organization’s political viewpoint. Such action by a government entity constitutes what is known as “viewpoint discrimination.”

Z STREET filed a lawsuit against the IRS alleging that its Constitutional rights had been violated. That lawsuit, Z STREET v. Schulman, IRS Commissioner (now Koskinen) has finally obtained its first substantive ruling.

Several years after Z STREET challenged the IRS in court, several tea party and other conservative groups also claimed the IRS had discriminated against them on the basis of their political viewpoint. On May 10 of last year, the floodgates of criticism burst open when then Director of the IRS Exempt Organizations Division Lois Lerner admitted that the IRS had engaged in certain activity that disadvantaged conservative groups. Lerner referred to that activity at the time as “absolutely inappropriate.”

The ruling in the Z STREET case by Judge Ketanje Brown Jackson on Tuesday, May 27, is the first substantive ruling by a judge in any action brought challenging the political impartiality of the IRS under the current administration.

Judge Jackson summarily rejected the three grounds raised by the government in its effort to thwart Z STREET’s day in court. The first two she rejected because she refused to accept the IRS position that Z STREET was simply complaining about the fact that its application had not been granted.

Defendant struggles mightily to transform a lawsuit that clearly challenges the constitutionality of the process that the IRS allegedly employs when it determines the tax exempt status of certain organizations into a dispute over tax liability as a means of attempting to thwart this action’s advancement.

The judge rejected the third defense – one of sovereign immunity – raised by the IRS by pointing out that the government may not claim it is immune from claims that it is acting unconstitutionally. Indeed, that is the basis for the Bill of Rights.

The IRS must file a substantive response to Z STREET’s Complaint by June 26, 2014.

Since the time the lawsuit was filed, IRS documents were released by a U.S. congressman which essentially confirm Z STREET’s claims and suggest that the IRS agents filed documents with the court that were not truthful.

*The author of this article is the president of Z STREET.

Israel, U.S. Reach Agreement on IRS Regs for Dual Citizens

Thursday, May 15th, 2014

Americans living in Israel, watch out for this year’s June 30 tax deadline.

The Israel Tax Authority has formally reached an agreement with the U.S. regarding the Model 1 FATCA agreement with the IRS, according to attorney Dave Wolf, of the firm Hacohen and Wolf.

The full details of the FATCA Agreement are yet to be published upon the signing of the FATCA Agreement, but according to the Israel Tax Authority’s spokesman, the agreement contains certain restrictions on the use of information passed to the IRS and relief of reporting for certain institutions.

According to U.S. law, all U.S. citizens — regardless where they live — have an obligation to pay taxes on their worldwide income. In addition, in cases where the aggregate value of all foreign accounts exceeds $10,000 at any time during the calendar year, they also have to report this information on a special form commonly known as the FBAR.

Since July 1, 2013, the FBAR needs to be e-filed before June 30 of the following tax year.

Under FATCA, foreign financial institutions (banks, hedge funds, pension funds, insurance companies etc.) are required to report information to the U.S. tax authorities (the IRS) information about foreign accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

This means the Israeli financial institutions will have to report to the U.S. government all their clients who are U.S. citizens and/or green card holders, disclosing all these accounts.

This has huge implications for any American living in Israel or abroad who has never reported his foreign accounts or paid taxes on its income to the IRS, and also to some states if applicable (such as NY and NJ).

Individuals have four options with which to comply, according to Wolf, who can be reached at this link for more information.

‘The IRS Wants YOU’ and Israel Is Going to Help Them

Monday, March 10th, 2014

A mini “economic social” cabinet, headed by Prime Minister Binyamin Netanyahu, soon will approve an agreement to share information on accounts of U.S. citizens with the Internal Revenue Service, sources told the Globes business newspaper.

The newspaper said the proposal will allow the IRS full access on Americans’ accounts in Israeli banks and other financial institutions.

The U.S. government is preparing to sign agreements with other countries as well, but Israel is high on its “hit list,” partly because Swiss banks have accounts in three Israeli banks. Switzerland is no longer a safe place for foreigners to hide their money from the tax man, and so Israel has become a favorite home for money launderers and tax evaders.

The Israel Tax Authority is expecting increased revenues if the measure is approved. “The agreement will include an option under which, subject to certain conditions, information will be sent from the U.S. tax authorities to the Israeli tax authorities about the income of Israeli residents in the U.S.,” the document states.

However, while all information on American accounts in Israel will be sent to the IRS, Israel will receive data only in special cases.

The proposed agreement contained clauses aimed at protecting individuals from the IRS misusing personal information, but it is not clear if the IRS has learned its lessons from recent scandals, such as hunting down those nasty pro-Israel groups, as reported here.

Big Brother in Israel also is waiting on deck.

Attorney Yael Grossman, an expert in money laundering, told Globes, “The decision paves the way for further harm to the separation between the management of money by a bank and disclosure to Income Tax. Although at the moment, the measure helps the banks and saves them the need to work directly with the IRS, but experience shows that it will later expose all of the public’s banking activities to the Israel Tax Authority.

“This will be the final burial of banking confidentiality on one hand and a signal for the strengthening and prosperity of alternative institutions, which will rush to offer alternative instruments to the public.”

Americans living in Israel have an alternative to leaving their tax records and financial activities accessible by your closest friendly IRS clerk. They can simply void their American citizenship, a growing trend that was reported here in December.

Approximately 3,000 did so in 2013, three times the number in 2012. That means the IRS cannot snoop on them, but it also means they lose their right to vote in American elections, assuming it would be worth voting.

Israeli Tax Authority Kills the Next Great Startup

Tuesday, December 24th, 2013

An innovative Israeli start-up company came up with a great idea in 2010, which it dubbed GetTaxi. The idea is simple and convenient: the GetTaxi mobile app allows you to order a taxi, pay for the ride, rate the driver, and even leave a tip. For the drivers, it offer the convenience of automation, handling the billing, and notifying drivers of potential nearby clients.

This start-up has been so successful, it has reached a million users, making 20,000 orders a day to 6000 drivers, in 20 cities, not to mention, raising $42 million in funding.

But the Israeli tax authority may have just killed this enterprising young start-up.

Last week, the tax authority concluded its investigation of 89 businesses in various sectors. A team of 102 investigators managed to collect about $2.2 million from these businesses, which had under-reported their income.

One sector the team investigated were taxi drivers, traditionally a cash business. But the tax folks had a great idea. They subpoenaed GetTaxi’s internal files, obtaining the records of some three thousand Israeli taxi drivers who used the GetTaxi service. The team then targeted 50 of them, according to a report in Globes.

They compared the orders listed in GetTaxi, and the income the taxi drivers reported, and found that most of the drivers had not recorded all their journeys.

Most of the drivers ended up with a simple fine, some of the more serious cases are undergoing further investigation.

Tax Authority chief Moshe Asher told Globes, “The Tax Authority is keeping its finger on the trigger and uses all technological means to make certain that all citizens and companies pay the true amount of tax and do not put the tax burden on law-abiding citizens.”

In the process, the same tax authority possibly just destroyed a law-abiding start-up company, which had a promising future.

Its unlikely Israeli taxi drivers will continue to completely trust GetTaxi with their business, and that could affect not only GetTaxi’s revenue, but even a future exit or IPO, potentially killing the goose that could have laid the golden income tax egg GetTaxi would have brought in.

But Israelis are a resourceful people. We’ll have to see how each side responds to this challenge.

Not to worry though, in New York and other major cities, the company continues to do well, and the Israeli tax authority is not likely to have a chilling effect on its operation. The IRS is simply less fiercely dedicated than its Israeli counterpart.

True story: A few years ago, a falafel booth owner was approached by a man from a yeshiva, who inquired if Shlomi were willing to donate to the yeshiva the edges from the pita he cuts off when he makes each falafel sandwich? It would feed poor students, the man explained, and help cut back on the yeshiva’s costs.

Shlomi agreed. It’s a good deed, and he had nothing to do with all those pita edges other than dump them in the trash. How many garlic bread crisps could he possibly make anyway?

A few months later, Shlomi and other falafel and shawarma (meat gyro) vendors found themselves inside the offices of Mas Hachnasa, the Israeli income tax authority.

They were surprised to see, sitting opposite them, the man from the yeshiva to which they had all been donating their pita edges, supposedly.

They were even more surprised with the man pulled out all the pita edges the vendors had donated to him, and said the number of edges that he, a tax investigator collected, exceeded the number of individual portions they had reported.

Needless to say, falafel and shawarma stores in Israel today slit the pita open, rather than cut off the top. There’s no evidence left behind that way.

IRS Tax Regulations Prompt Olim to Revoke American Citizenship

Thursday, December 19th, 2013

A get-tough IRS policy on Americans living abroad has encouraged some Americans living abroad, including “olim” in Israel, to revoke their American citizenship, the Globes business newspaper reported.

The United States taxes its citizens’ income even if they have been living abroad for years, and agrees with most banks in the world now expose all of their financial accounts to the IRS and make them liable for heavy dual taxation.

One way to get avoid it is to renounce citizenship, which would preclude the IRS from chasing after people to pay taxes on income that does not come from the United States.

Changes in the Israeli tax code also have given big tax breaks to new immigrants as well as Israelis returning to the country.

“Although it is not clear how widespread this phenomenon is, and what relative importance U.S. citizens who immigrate to Israel place on this aspect among the array of considerations that they take into account in deciding to immigrate to Israel, tax residency is certainly a factor,” according to Israeli lawyers Eli Doron and Eyal Peled.

Report: At Least 18 Jewish Groups Reported ‘Diverted’ Funds

Tuesday, October 29th, 2013

At least 18 Jewish non-profit groups and non-profit groups that support Israeli institutions have notified tax authorities of likely illegal “diversions” of funds in the past five years.

The Washington Post on Sunday published its review of more than 1,000 non-profit organizations that have reported such anomalies since 2008, when the Internal Revenue Service began requiring the reporting of “diversions” of over $250,000 or 5 percent of a group’s gross receipts and assets.

Most such reporting is related to fraud, although a small number have to do with “financial restructurings, mergers and other types of financial losses” that are not illegal.

A JTA review of a handful of states with large Jewish populations turned up 18 Jewish non-profits and non-profits that support Israeli institutions recording diversions. The most widely-known losses were the widely-known fraudulent claims in the Conference on Jewish Material Claims Against Germany and the $95 million Yeshiva University’s loss from scams associated with Ponzi schemer Bernard Madoff,

Other cases include the  American Friends of the Tel Aviv Museum of Art reported, which reported in 2009 that “certain works of art were stolen or destroyed by fire”; The Jewish Community Center of Dutchess County, N.Y., which reported in 2010 that its bookkeeper had embezzled funds; and the Advancing Women Professionals and The Jewish Community Inc., which reported that an independent contractor in 2010 and 2011 had diverted $62,000 in funds.

Republicans and Democrats Ignore IRS Abuse of Pro-Israel Group

Wednesday, August 7th, 2013

Two Republican chairs of congressional committees which have been investigating for the past several months what some have called IRS-Gate, penned an opinion piece which appeared in the Washington Post on Tuesday, August 6.

Darrell Issa (R-Calif.) and Dave Camp (R-Mich.) are the chairmen of, respectively, the House committees on Oversight and Ways and Means. In their opinion piece, “The IRS Scandals Inconsistencies,” the members of congress criticize the Internal Revenue Service for targeting politically conservative groups for discriminatory treatment.

The Republican congressmen also criticize their colleagues from the Democratic party and this Democratic administration for changing their story repeatedly about what happened, who was responsible, and who then tried to convince the American people that this was “not much of a scandal,” and then they attempted “to smear the inspector general” by “falsely equating routine scrutiny of progressive groups to tea party applications.”

But the Democrats aren’t the only ones who repeatedly refuse to ignore admissible evidence produced by the IRS itself, that the tax agency clearly, unequivocally and blatantly engaged in viewpoint discrimination.

The Republicans have also been ignoring or hiding a group that was wronged, perhaps because that group – unlike the Tea Party organizations – does not have a set of political defenders.   Unlike every other entity involved in this entire scandal and its investigation, this other group is truly apolitical.  The ardently pro-Israel organization Z STREET (of which this reporter is the president) was demonstrably discriminated against by the IRS, yet every member of congress has thus far ignored the group’s plight.

Z STREET brought a lawsuit against the IRS in August, 2010, claiming that the IRS had engaged in viewpoint discrimination, thereby violating the group’s First Amendment right to free speech.  The basis for the lawsuit were the statements made by the IRS agent in charge of Z STREET’s application to Z STREET’s tax lawyer that one, “the IRS had to give special scrutiny to organizations connected to Israel” and that two, some organizations’ applications had to be “sent to a special unit in Washington, D.C. to determine whether the activities of the organization contradicted the public policies of this Administration.”

While the Justice Department, which represents the IRS in litigation, concocted several defenses to Z STREET’s claims, they ultimately came up with a justification they deemed so bulletproof they offered a set of sworn statements by IRS officials why the IRS applied special scrutiny to Z STREET’s application.  The justification?  It is because Z STREET supports “Israel, which is a country with a higher risk of terrorism,” and therefore Z STREET might be funding terrorists.

The IRS stuck to its guns on this “Israel as a terrorist state” defense.  However, they could not have predicted that the ranking member of the Democrats for Cong. Camp’s own committee – Rep. Sander Levin (D-Mich) of the House Ways and Means Committee – was going to blow its cover.

That happened on June 24, when Cong. Levin released a series of documents produced by the IRS which he thought proved the IRS had targeted groups that were politically liberal (the term on the chart was “progressives”), and therefore the admitted targeting of politically conservative groups could not have been politically motivated.

But, as the Treasury Department’s Inspector General for Tax Administration J. Russell George explained, and as becomes clear by merely reviewing the charts, the “progressives” were listed as an historical issue of concern, and the motivation for the interest was whether or not those organizations should have filed a 501(c)(4) application which is for politically active groups, rather than for a 501(c)(3) application which is for groups engaged in educating the public.

However, those same charts created and produced by the tax agency itself reveal that the IRS created a category called “Occupied Territory Advocacy,” which dealt with groups which discuss the “disputed territories in the Middle East.” This category did show up on the IRS BOLO (Be on the Look Out) tab of the charts, unlike the “progressives” category.

Whatever the heck the IRS is supposed to be doing when it examines applicants for tax exempt status, it should not be looking at the ideological positions the organization takes with respect to the Middle East conflict.  Especially when the organization is engaged solely in educating about the issues, and doesn’t use donors’ funds to give grants to anything, anywhere, for anything.

And, despite the sworn statements by IRS officials, the word “terrorism” is nowhere to be found on any of the charts created by the IRS to show what kinds of organizations received additional scrutiny of their applications for tax exemption.

But somehow that slam dunk example of blatant viewpoint discrimination, delivered with a ribbon and a bow from Cong. Levin, escaped the notice of everyone who claims to be “servants of the people.”

Nope, unless an organization has political juice, it appears neither the Democrats or the Republicans care when the constitutional rights of a group of Americans have been violated by a U.S. government agency.

A pox on both their houses.

Printed from: http://www.jewishpress.com/news/republicans-and-democrats-ignore-irs-abuse-of-pro-israel-group/2013/08/07/

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