If this is true, then everybody involved at the IRS must be fired.

Immediately. No excuses.
In a lawsuit filed in federal court today, the pro-Israel group Z Street alleges that it has been discriminated against. Z Street says, in its complaint, that was "informed explicitly by an IRS Agent on July 19, 2010, that approval of Z STREET’s application for tax-exempt status has been at least delayed, and may be denied because of a special IRS policy in place regarding organizations in any way connected with Israel, and further that the applications of many such Israel-related organizations have been assigned to 'a special unit in the D.C. office to determine whether the organization's activities contradict the Administration's public policies.'"
Fired. And banned from every again working for any federal, state or local government agency. And that includes our tax-cheat Treasury Secretary if he had anything to do with this crap.

These statements by an IRS official that the IRS maintains special policies (hereinafter the “Israel Special Policy”) governing applications for tax-exempt status by organizations which deal with Israel, and which requires particularly intense scrutiny of such applications and an enhanced risk of denial if made by organizations which espouse or support positions inconsistent with the Obama administration’s Israel policies, constitute an explicit admission of the crudest form of viewpoint discrimination, and one which is both totally un-American and flatly unconstitutional under the First Amendment.
No shit. That the IRS would not just be given a directive for this crap, but carry it out, it inexcusable. Period.