Institute for Research:
Middle Eastern Policy

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What is IRS policy on billions of charitable U.S. donations flowing into Israeli settlements?

UPDATED: April 22, 2020

IRmep filed a federal lawsuit (PDF) to compel the IRS to  release records related to the ongoing, long term laundering of tax-exempt donations by American donors through charitable organizations to which the IRS has issued determination letters, into illegal Israeli settlements, thereby directly and indirectly engaging in ethnic cleansing, illegal land seizures, and other expeditions against a friendly nation in violation of 18 U.S. Code § 960 and other applicable statutes and treaties. The lawsuit was filed under the Freedom of Information Act.


The IRS has long tried to avoid formal comment on the massive and ongoing transfer of U.S. tax-exempt charitable funding into overseas activities that have no apparent legality, charitable purpose, or social welfare benefit. However, the persistence of the funding flows and very large amounts involved have generated mainstream news coverage, lawsuits, numerous requests for clarity to the IRS. Most have failed to produce any clarity or redress.


In the 1982 lawsuit Khalaf v. Regan a group of individuals challenged the tax-exempt status of organizations supporting Israeli settlement efforts in the West Bank, but their legal bid fizzled. In the year 2005 USA Today reported that $50 billion had been raised, much of it likely in the United States in tax-exempt charitable contributions, only to be transferred overseas to build illegal settlements in the Israeli-occupied West Bank.

On January 11, 2010 IRS Commissioner Douglas Shulman was asked on National Public Radio what the IRS policy on settlements was in reference to the $50 billion, but Shulman Clumsily dodged the question.

Eric Goldstein identified New York based charities as being heavily involved in funding illegal settlement activities and demanded that the practice should be discontinued in his 2015 report, “Can I Take a Tax-Deduction on My donation to Israeli Settlements in Palestine?”

In 2016 the progressive tax-exemption charitable Zionist organization J Street called on the U.S. Treasury for a review of tax-exempt status of non-governmental organizations that “channeled millions” to support settlers. Details listed by J Street mentioned the funding was being used for “the demolition of Palestinian houses – and in some cases entire communities.”
In the 2017 lawsuit Abulhawa V. United States Department of The Treasury a group of plaintiffs sued the Treasury for injuries suffered over their expulsion by Israeli settlers benefitting from tax exempt charitable support. The Court of Appeals acknowledged Plaintiffs had suffered harm, but no clarity on the question about the legality of charitable funding ever emerged from the failed case.

In the 2/1/2018 settlement of the lawsuit Z Street v. IRS, the Department of Justice hinted that policy positions inside the IRS, or at very least the Treasury Department, may exist:

“In email correspondence produced in discovery, a Treasury Department employee stationed in Israel asked the IRS in spring 2009, at the request of a State Department employee, whether organizations’ tax-exempt status could be revoked for funding Israelis settlements in the West Bank. The Treasury Department employee asked whether such activity could be deemed illegal or in violation of established public policy based on executive branch policy as stated in a 2005 Congressional Research Service report that no U.S. assistance to Israel can be used in the occupied territories because the United States does not want to foster the appearance of endorsing Israel’s annexation of the territories without negotiations. The Treasury Department employee further asked whether this would be enough to revoke the tax-exempt status of organizations that provide funds to ‘Israeli occupied territories.’

As reflected in email correspondence produced in discovery, a number of IRS employees evaluated the questions raised by the Treasury Department employee in an effort to respond to the inquiry. An IRS employee ultimately referred the Treasury Department employee to the IRS hotline for reporting violations of the Internal Revenue laws.”

In July 2019, just before suing the IRS, the Plaintiff publicly asked IRS National Taxpayer Advocate Nina Olson on C-SPAN’s Washington Journal to explain official IRS policy toward funds laundered through tax exempt charities into illegal settlements. Like former IRS commissioner Shulman, Olson dodged and did not substantively respond to the question.



08/20/2019 IRmep Complaint (PDF)
9/25/2019 IRS Response to complaint (PDF) Claim that the Plaintiff did not follow FOIA.
10/21/2019 Joint status report (PDF)

Joint Status Report II (PDF) "Nearly a year has elapsed since Plaintiff filed the first FOIA for this material. The last status update extended the preferred delay 90 days, an additional 30 days at Defendant's insistence. Plaintiff has already conceded a great deal of additional time. Although Plaintiff offered during conference to extend the deadline by 30 days if Defendants listed and described any releasable files gathered so far, Defendants have apparently not identified any, despite the numerous sources clearly spelled out in the complaint."

"With Tax Day 2020 approaching both for individuals and nonprofit charities, and March 1 as the Plaintiff's deadline for publishing a news article, it is important that the public finally know what IRS policy is on charitable funding flows to colonization projects that the international community views as blatantly illegal. Does the IRS approve of settlement funding? Has it always approved? Or does the IRS want "ambiguity" like the State Department desires on questions about Israel's nuclear policy? Is there a policy guideline for IRS ambiguity on illegal settlements? (There is a nuclear policy for the Department of State called WNP-136). Is the IRS aware that under law Americans are banned from furnishing "the money for, or takes part in, any military or naval expedition or enterprise to be carried on from thence against the territory or dominion of any foreign prince or state, or of any colony, district, or people with whom the United States is at peace…" (18 U.S. Code § 960.Expedition against friendly nation)?"

"It is clear to Plaintiff that Defendants are stalling, and likely still not searching for responsive documents. He requests that the parties propose a briefing schedule in which a Vaughn Index will be prepared, and a release schedule supervised by this court."

04/21/2020 Joint status report III (PDF) "The plaintiff does not consent to this proposed filing schedule finding it to be premature. Plaintiff believes, given the importance of the issue in question and the agency’s ongoing deliberations about it, the IRS may be withholding material under narrow or lawyerly interpretations of what constitutes “responsiveness.” He therefore requests the production of a Vaughn index by June 1, and consideration of the issue of summary judgement schedules 30 days later."

"Plaintiff contends that in similar situations, the exercise of being compelled to produce a Vaughan index and submit it to Plaintiffs during FOIA efforts overseen by a court, that untenable withholding positions contrived under tenuous legal theories, or circumscribed search patterns that seemed at first to be solid, crumbled and that responsive documents were eventually produced."
04/22/2020 MINUTE ORDER: Upon consideration of [9] the parties' Third Status Report, it is HEREBY ORDERED that Defendant shall submit a detailed declaration supporting the adequacy of its search for responsive documents by June 22, 2020. SO ORDERED. Signed by Judge Rudolph Contreras on 4/22/2020.


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