If you read the Complaint carefully, you’ll see that Z STREET is not a political group at all - it does no lobbying, it doesn’t support any candidates, and its purposes cannot be accomplished through legislation. A public charity is a whole separate issue, This group is an educational organization (a public charity is yet a different category. IRS regulations are strict, but they are not allowed to consider and make distinctions based on viewpoints, which the IRS agent said was what was holding up the application. And the First Amendment sure as hell doesn’t allow that!
I agree with you that the IRS cannot legally consider political points of view in approving an application and if they really are doing that the courts should come down on them.