In this case the Zionist Advocacy Center’s False Claims Act suit differed from its previous cases in two ways. First, it was filed in New York State court and based on the state’s statute rather than the federal one. Second, the alleged fraud relates to New Israel’s tax-exempt status, unlike previous cases, which were based on USAID grant certifications. The case was removed to federal court where it was dismissed as the result of a settlement.


Case Summary

A False Claims Act suit brought by the Zionist Advocacy Center (TZAC) against the New Israel Fund (NIF) was dismissed on March 11, 2021 as a result of a settlement in which the parties “agreed to disagree” on the issues and facts of the case, with no party admitting to wrongdoing and NIF paying no damages. The parties also agreed they “will not publicly disparage each other in connection with the lawsuit” or “claim a ‘win’ or ‘victory.’ The case involved the novel claim that NIF falsely claimed tax-exempt status in New York State because, TZAC alleged, its issue advocacy and democracy building work in Israel constituted partisan electioneering, in violation of federal tax rules for charities. The ACLU, co-counsel for NIF, told the Jewish Telegraphic Agency that TZAC’s faulty legal arguments could “undermine a lot of the work nonprofits do both in the United States and around the globe to promote the value of constitutional democracy.”

TZAC’s original False Claims Act case was filed Aug. 15, 2019 in New York State court and, under FCA rules, sealed while the state determined whether to take it up or not. The State of New York subsequently declined to intervene, and the case was unsealed in December 2019. It was removed to federal court in April 2020 pursuant to rules that allow removal when a federal question is involved (here, the Internal Revenue Service (IRS) rules on partisan electioneering).

TZAC’s original complaint made its political motivation clear, stating that it “advocates for the Jewish State.” (para. 5) and going on to allege that NIF “opposes Israeli security by supporting organizations which seek to undermine Israel.”


False Claims Act Basics

The False Claims Act is a U.S. law that imposes liability on those that knowingly defraud government programs. Private parties, called “relators,” can bring these suits on the government’s behalf. Complaints filed under the FCA are automatically sealed for 60 days while the government investigates the claims and decides whether or not they merit further action. During this time the defendant (and the public) has no notice that a case has been filed. The court can extend the sealing period for months or even years.

Once the government has investigated the claims, it may choose to:

  1. join the lawsuit,
  2. ask that the case be dismissed or
  3. allow the complaining party to proceed on their own.

For more information see our Issue Brief: False Claims Act Lawsuits; What Nonprofits Need to Know



It then goes on to cite examples of NIF grantees’ issue advocacy and human rights advocacy in Israel, claiming these constituted partisan electioneering for or against candidates.  In one case it alleged that calling a campaign message “racist” violates IRS rules. (para. 30) In fact, NIF is a U.S.-based grantmaking organization that has sponsored over $300 million to more than 900 Israeli civil society organizations since 1979. NIF’s projects in Israel include strengthening civil society, combating racism, and protecting democratic channels for minorities. Its programs range from protecting Holocaust survivors to improving the socio-economic inclusion of Israeli Arabs and rural communities.

TZAC’s complaint cited NIF’s annual reports to the IRS (Form 990) for the years 2008-2017, claiming that NIF falsely certified it had not intervened in elections because it gave “general grants” to organizations TZAC argued did engage in partisan activity. TZAC did not allege that NIF’s grants were used for this purpose, a central issue in the case.

NIF moved to dismiss the case in June 2020. Its supporting memorandum stated that, “Apparently dissatisfied with its ability to advance its cause in the marketplace of ideas and the regular channels of federal tax law enforcement, TZAC has filed this qui tam action to litigate its grievance instead.” (p. 2) NIF also argued that:

    • TZAC’s complaint failed to meet the FCA’s criteria for whistleblowers, as it was based on publicly available information, including IRS Form 990 and news media;
    • “Federal tax law does not prohibit the defense of basic rights and Israel’s system of laws, even if such advocacy might incidentally benefit or hinder certain candidates in their campaigns for office.” (p. 14), and
    • The Israeli organizations’ activities that are not funded by NIF cannot be imputed to NIF. The motion cited IRS Revenue Ruling 68-489, which made it clear that a §501(c)(3) does not jeopardize its tax exemption if it retains discretion and control over use of its funds for tax-exempt purposes only.

In July 2020 TZAC filed an amended complaint, which was substantially similar to the original but attempts to strengthen TZAC’s legal position. NIF quickly moved to dismiss, making similar arguments to its first motion and noting that the amended complaint did not allege NIF grantees used NIF funding for any of the alleged activities. It also said that:

The line between permissible issue advocacy and prohibited electioneering is notoriously hazy, and TZAC does not identify any judicial or administrative guidance that would have put NIF on notice that the conduct alleged would be deemed to fall on the wrong side of that line.” (p.4)

TZAC opposed the motion to dismiss, arguing its allegations were sufficient for the case to proceed to the pre-trial discovery phase, and that New York law does not consider posting on the Internet alone to constitute public disclosure.

The court denied NIF’s motion on Feb. 16, 2021, noting that under Rule 12(b)(6) of  the Federal Rules of Civil Procedure, “A court must accept all facts alleged in the complaint as true and draw all reasonable inferences in the plaintiff’s favor.” Addressing NIF’s specific arguments, the court said:

    • Although it recognized that TZAC’s partisan electioneering claim “relies on the premise that those activities can be attributed to NIF,” and that “Here, while TZAC has not alleged that NIF’s funds were specifically used by its grantees to engage in the electioneering activities, it has alleged that NIF gives ‘general grants’ to its grantees.” Under the legal standard that the court must view the issue in the light most favorable to the non-moving party (TZAC), the court found TZAC’s allegations were sufficient for the case to move forward.
    • TZAC’s reliance on IRS Form 990 disclosure did not preclude it bringing the action, as New York State’s public disclosure bar is narrower than federal law, allowing use of information provided pursuant to a disclosure request to a public agency. It also held that New York State law does not consider information to be publicly available as “news media” merely because it is posted online. (p. 21)

On March 2, 2021 NIF filed a formal answer to the complaint, denying all allegations and asserting 12 defenses. The same day it petitioned the court to permit an interlocutory appeal to the Second Circuit Court of Appeals under a rule that allows a federal district court judge to allow appeal of an order that would otherwise unappealable if the order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.”

NIF cited TZAC’s failure to allege NIF’s funds were used for partisan electioneering and that immediate appeal would “advance the ultimate termination of this litigation and promote the public interest.” Specifically, it noted this question has “ramifications far beyond this particular dispute” and allowing the case to proceed to pre-trial discovery imposes costs and burdens that “will invite more ideologically motivated groups and individuals to file qui tam actions as a way to harass and impose costs on those who hold views different from theirs.” (p, 10)

TZAC filed its opposition to interlocutory appeal on March 10, 2021, but the following day the case was dismissed “with prejudice” to TZAC, based on the settlement agreement. Key terms of the settlement were that:

    • Neither side pays damages or legal costs.
    • The settlement is not to be construed as an admission of liability or wrongdoing by either party or reflect on the merit of their positions.
    • The parties will “not publicly disparage each other” in connection with the suit, imply the other’s position was baseless, frivolous or unmeritorious or claim a “win” or “victory” in the case;
    • Limit any public statement about the case to state they disagree with the other side’s position or that they “believe” the other side’s position lacked merit.
    • NIF will take reasonable steps to comply with the law (which it states it already does).
    • TZAC will not file or help others file any other lawsuit or claim against NIF it may have had up until the date of the settlement.