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Cincinnati IRS office at center of political firestorm

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CINCINNATI - The work of more than 700 IRS employees at the downtown federal building used to go largely unnoticed - until last Friday.

Since then, news that Cincinnati workers targeted conservative groups for extra tax scrutiny set off a firestorm of protest from tea party groups and other conservatives and howls of scandal from Republican lawmakers, who want 550 Main St. to go down in history with The Watergate.

Now, some of those IRS workers could face criminal charges after attorney General Eric Holder announced a Justice Department investigation Tuesday. A separate investigation by the Inspector General determined that ineffective management at the Cincinnati IRS office allowed agents to target tea party groups for 18 months.

See that story at http://www.wcpo.com/dpp/news/political/ig-ineffective-management-at-cincinnati-irs-allowed-agents-to-target-tea-party-groups

In another twist Tuesday, ABC News said Cincinnati wasn't the only IRS office to blame. Agents in Washington, D.C., and two IRS offices in California also demanded extra information from groups, according to a story at http://abcnews.go.com/blogs/politics/2013/05/irs-scandal-reaches-farther-than-just-cincinnati/

"It's truly mystifying why the IRS beginning late last week pinned this on Cincinnati and Cincinnati alone," David French, an attorney with the American Center for Law and Justice, told ABC News. ACLJ represents 27 groups that say they were unfairly scrutinized by the IRS.

Lois Lerner, the IRS division chief who brought the issue public in comments last Friday, originally said low-level Cincinnati workers were acting on their own when they flagged "tea party" and "patriots" in applications for nonprofit status.  She said they were trying to expedite the process and no political bias was involved.

French said his evidence disputed that.

"The key here is this is not an isolated low-level decision from one office and the documents speak for themselves on that," French said, noting that the Cincinnati office itself is not a "backwater" location and instead is a "critical center for decision making."

Lerner also said last week that higher-ups didn't know what the Cincinnati workers for doing.

"It's the line people that did it without talking to managers," Lerner said.

But Lerner herself learned of the "flagging" and raised concerns about it at a briefing on June 29, 2011, according to a draft of the Inspector's General report obtained by Politico.

Cincinnati IRS workers haven't responded to phone calls from WCPO Digital. 

An IRS spokesperson told WCPO Digital that the Cincinnati IRS office has a division of Tax Exempt/Government Entities (TEGE), a Taxpayer Assistance Center (TAC) and 12 other operations. The IRS website advises non-profit groups to contact TEGE staffers in Cincinnati with questions about non-exempt status, and it's those staffers who review applications.

With the recent surge in politically active groups - including Republican Karl Rove's group, Crossroads GPS, and the liberal Moveon.org – there's been a surge in groups claiming tax-exempt status under section 501(c)(4). That was established for social welfare groups, but organizations are allowed to participate in political activities as long as their primary activity is social welfare.

That determination is up to the IRS - and that's where this controversy started.

See types of organizations exempt under 501(c)(4) at http://www.irs.gov/Charities-&-Non-Profits/Other-Non-Profits/Types-of-Organizations-Exempt-under-Section-501%28c%29%284%29

The IRS centralized its review of these applications in the Cincinnati office last year, according to Lerner, who heads the TEGE Division in Washington. Lerner said the reorganization was done to develop expertise among staffers and consistency in their reviews.

The biggest clues into how TEGE staffers make their determination come from the agency's official review and goals for the year.

From 2009 to 2011, the IRS conducted just over 500 reviews of nonprofit organizations each year. That number doubled in the year leading up to the 2012 presidential election, the IRS said.

The TEGE Division released a work plan in 2011 for the following year.  According to Politico.com, the main goal for improving compliance was a comprehensive review to makes sure organizations were qualified for the tax break.

"[The division] will review organizations to ensure that they have classified themselves correctly and that they are complying with applicable rules," according to a 2011 report. "In FY 2012, EO (Exempt Organizations Division) will send a comprehensive questionnaire to organizations based on Form 990 filings to assess compliance in this area."

They also listed several goals for examining political activity.

"As in the past, information from outside sources about political campaign intervention will be reviewed by a committee of career civil servants," the report reads. "The committee will focus on identifying the cases to refer for examination. EO will further refine

its risk models based on the results of examinations."

As part of the review, staffers look for signs that groups are participating in political activity. If so, IRS agents take a closer look to make sure that politics isn't the group's primary activity, Lerner said.

A retired IRS attorney told 9 On Your Side's Jay Warren while he believes the "tea party" and "patriot" search terms were bad choices, he didn't think that reflects a conspiracy.

Ronald Ran, who worked in the IRS Estate and Gift Division for 37 years, said the clumping of search terms is used to process similar organizations together and he believes the IRS was just making sure the groups looking for tax-exempt status were following the rules.

"If somebody had asked me the question - and remember,  I'm not involved with the exempts -  if they had said to them, ‘ If that got out to the general public, do you think it would have been a problem,' I think they would have said to themselves, ‘Yes,' and they probably would have tried a different method or different search terms to come up with the same results," Ran said.

Nevertheless, Cincinnati IRS staffers made groups fill out exhaustive questionnaires – sometimes asking for names and backgrounds of members and donors - and delayed processing for some groups for two years or longer.

Marcus S. Owens, who spent a decade leading the TEGE Division, said it made sense that the problem arose among workers in Cincinnati because the agency "really has delegated a lot of authority" to local offices to make decisions about handling their workload.

But Tea Party officials and Republicans didn't buy the explanation that low-level Cincinnati workers would do that on their own.

"How were ‘low-level workers in Cincinnati' able to initiate practices that completely undermine the IRS's promise to treat all groups with an even hand?" asked Sen. Rob Portman (R-Ohio).  "Even more, what were they hoping to do with the copious personal information they obtained from these groups?"

The howling got louder over the weekend when the IRS acknowledged that acting IRS Chief Steven Miller had been briefed on the matter on May 3, 2012, and had not informed Congress.

At least twice after the briefing, Miller wrote letters to members of Congress to explain the process of reviewing applications for tax-exempt status without disclosing that tea party groups had been targeted. On July 25, 2012, Miller testified before the House Ways and Means oversight subcommittee, but again did not mention the additional scrutiny - despite being asked about it.

President Barack Obama joined in the criticism Monday, saying that if that if the agency intentionally targeted conservative groups, "that's outrageous and there's no place for it."

Local lawmakers condemned the IRS actions.

"As it now appears that the IRS has been misleading Congress for at least 14 months, there are currently more questions than answers.  But as each new detail emerges, the actions of IRS officials grow more outrageous and more unacceptable," said Rep. Steve Chabot (R-Westwood). "I fully expect Congress will continue its investigative efforts to uncover what really happened and to identify who should be held accountable for this egregious breach of the public trust.

Speaking on the Senate floor, minority leader Mitch McConell of Kentucky called for a transparent investigation:

"I'm calling on the President to make available, completely and without restriction, everyone who can answer the questions we have as to what was going on at the IRS, who knew about it, and how high it went. No more stonewalling, no more incomplete answers, no more misleading responses, no holding back witnesses, no matter how senior their current or former positions — we need full transparency and cooperation. The American people deserve answers."

See video of McConnell's remarks at http://www.youtube.com/watch?v=eOUsZh2NVzg

Sen. Rand Paul, Republican from Kentucky, proposed a resolution condemning the targeting of tea party groups and calling for an investigation. 

"The IRS has been using taxing power as a political tool to bully these conservative groups and this type of intimidation is a major violation of our U.S. Constitution," Paul said. "This act of discrimination should not be tolerated and I demand a formal investigation seeking criminal charges against any individuals who authorized or were involved in targeting people of the United States based on their political views."

The Associated Press contributed to this report.

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