June 19, 2015 7:28 p.m. ET

The story of IRS targeting of conservative groups that disagreed with ObamaAdministration policy isn’t over. On Friday the IRS lost another big battle, as the D.C. Circuit Court of Appeals ruled that a viewpoint discrimination lawsuit against the agency can proceed. Next stop, discovery.

The lawsuit began when the Pennsylvania-based pro-Israel group Z Street applied for tax-exempt status in 2009. When Z Street called to inquire about its application, it says an IRS agent said the agency had a policy that required Israel-related applications to get extra scrutiny in a special unit in Washington. Z Street sued in federal court but the IRS claimed the Anti-Injunction Act prevents suits meant to evade the collection of taxes and because the IRS was protected by the doctrine of sovereign immunity. The IRS lost in district court but appealed.

Last month we told you about the oral argument at the D.C. Circuit when appellate judgesMerrick Garland, David Tatel and David Sentelle were appalled by the IRS argument. Is the agency’s position really that “the IRS is free to discriminate on the basis of viewpoint, religion, race [for 270 days]?” Judge Garland asked, “You don’t actually think that?” The court’s decision on Friday echoed those sentiments.

The IRS now has seven days to appeal (Z Street v. Koskinen) to the full circuit court. The agency has been using every tool to delay the lawsuit to get through the last days of the Obama Administration. But if this long-shot fails, Z Street may soon be able to begin discovery, and Z Street says it will seek every document and communication within the IRS as well as between the IRS and other parts of the government germane to its lawsuit or to the special policy regarding pro-Israel groups.

We already know from the IRS’s Be On the Lookout lists that the agency was flagging groups having to do with “occupied territory advocacy.” Soon we may see what else no good the agency was up to.