Election season was well underway in March 2012 when tea party organizations started to complain angrily of IRS harassment over their requests for tax-exempt status. The media was looking into it. Congress had picked up the scent.

Miller dispatched an advisor to Cincinnati, where a field office handles applications from nonprofits, to figure out what was up. What he learned would blow up into a crisis that would damage the agency’s reputation and lead to his ouster last week.

With little oversight from Washington, agents in Ohio had been singling out some conservative groups for extra scrutiny, seeking to make sure they were not too heavily involved in politics to qualify as tax-exempt.

Worse yet, the agents had sent the organizations letters with numerous intrusive questions, including the groups’ positions on political issues and the names of their donors.

Miller failed to tell Congress what he knew for more than a year, despite repeated queries from House committees. On Friday, at times chagrined and combative as he spoke to House members, Miller called the IRS’ focus on conservative groups “obnoxious” and described what happened as “horrible customer service.”

No evidence yet suggests that the IRS agents in Cincinnati had a political agenda. But ample evidence has emerged in congressional testimony and in an inspector general’s report that they were overwhelmed by an influx of applications from new politically oriented nonprofits. At the same time, they were left to fend for themselves, unsupervised by Washington managers who never created rules on how to evaluate the new groups.

“Cincinnati basically became an island of its own out there,” said Paul Streckfus, a former IRS attorney. He suggested the missteps and clumsy response stemmed from a “hidebound” and insular culture at the IRS. “They don’t trust outsiders,” he said. “They know they’re always under attack, and they have a bunker mentality: ‘If we keep our heads down long enough, we will survive the latest onslaught.’”

The scandal, which appears to have started with one specialist in Cincinnati, was slow-building, born of a dysfunctional bureaucracy and a fateful reorganization years ago that placed more authority in the hands of accountants and lawyers 500 miles from headquarters in Washington.

“In my view, there was a failure of management in D.C. to get their hands around this early enough,” said Marvin Friedlander, who retired in 2009 after 41 years with the IRS. “Cincinnati should have reached out to Washington headquarters people, and Washington should have gotten ahead of the curve.”

The inquiry has put a spotlight on an obscure branch of the IRS, the Tax Exempt/Government Entities Division, which is largely housed in an office building in downtown Cincinnati.

Former employees describe staff in the Cincinnati office as well-intentioned but overworked, struggling to keep up with more than 60,000 applications a year from groups that want to be classified as tax-exempt, such as churches, chambers of commerce, PTAs and advocacy groups.

The applications are reviewed by about 200 people in a “determinations unit,” about 140 of those in Cincinnati. To keep ahead of the flood, former employees say, the staff frequently resorts to shortcuts.

“That office is given direction to move as quickly as possible, but also be accurate,” said Philip Hackney, an assistant law professor at Louisiana State University who worked in the IRS chief counsel’s office from 2006 to 2011. “It’s impossible. They miss a lot of stuff.”

The agency has had to work with a smaller staff — overall, the exempt division has about 860 people, Miller told Congress last year, down nearly 10% from its peak. Once, lawyers from national headquarters regularly compiled briefings on emerging issues and conducted weeklong training sessions in Cincinnati. But those were scrapped in 2004.

In years past, the office had spent little time worrying about so-called social welfare organizations formed under section 501(c)4 of the tax code, instead focusing more attention on charity groups.

But that changed in 2010, after the Supreme Court’s decision in Citizens United. Political operatives stepped up their use of social welfare groups as vehicles to spend hundreds of millions to shape the outcome of elections — all of it from hidden sources. Social welfare organizations are not required to reveal their donors, unlike political committees.

To qualify, however, such groups cannot have politics as their “primary purpose.” But the rules don’t say how much political activity is too much. That fraught issue was left in the hands of agents with mostly accounting backgrounds who were ill-suited to deal with questions of politics and the 1st Amendment.

In the past, former employees said, similarly tricky situations would have been kicked up to IRS lawyers in Washington. That changed after an IRS reorganization a decade ago.

“The concern was that the lawyers in D.C. had other work to do, and Cincinnati should be able to handle most or all of the cases,” said Friedlander, a former branch chief in the exempt organizations division.

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Documents: IRS letters harassing conservative groups came from Washington, DC headquarters and from California offices, despite Inspector General’s focus on Cincinnati employees

• Tax agency has admitted targeting tea party groups and other conservative organizations for special, politically motivated scrutiny
• IRS inspector general focused on wrongdoing in Cincinnati, Ohio office and ignored abusive letters coming from other cities
• MailOnline found letters from IRS’s Washington, D.C. headquarters, and from IRS offices in two southern California cities
• The American Center on Law and Justice is threatening to sue the IRS if 27 tea party groups aren’t granted tax-exempt statuses by Friday

By David Martosko In Washington

PUBLISHED: 18:27 EST, 15 May 2013 | UPDATED: 18:31 EST, 15 May 2013

Letters from the IRS to tea party-related organizations in Oklahoma City and Albuquerque, New Mexico show that IRS headquarters in Washington, D.C., and two satellite offices in California, were directly involved with sending harassing letters to conservative organizations that sought tax-exempt status.

The IRS has acknowledged only the involvement of its Exempt Organizations office in Cincinnati, Ohio, which typically makes most decisions about granting or denying tax-exempt status to non-profit organizations.

And Wednesday afternoon, CNN cited a congressional source in reporting that the acting IRS Commissioner – whom President Obama fired later in the day – had identified two ‘rogue’ employees, both in Cincinnati, whom he thought were responsible for targeting right-wing organizations with tactics that were not applied to left-wing or non-political groups.

This letterhead from the IRS headquarters in Washington, DC, accompanied a probing letter directed at a tea party group. The IRS Inspector General investigated only similar communications from the agency’s Cincinnati office

Jay Sekulow (L) says his American Center for Law and Justice will sue the IRS if it doesn’t grant tax-exempt status to 27 tea party groups by Friday. Lois Lerner (R) is a civil servant, not a political appointee, heads the IRS office the handles tax-exempt groups

Steven Miller then the acting IRS Commissioner, described the two employees as being ‘off the reservation,’ according to the CNN source.

Miller, added CNN, had emphasized that the problem was not confined to just two staffers.

Tuesday’s report from the IRS Office of Inspector General, however, focused exclusively on the Cincinnati office.

This IG’s review, according to the report ‘was performed at the EO [Exempt Organizations] function Headquarters office in Washington, D.C., and the Determinations Unit in Cincinnati, Ohio.’

The Washington staffers involved, the IG report continues, were in charge of reviewing materials prepared in Cincinnati. ‘As part of this effort, EO function Headquarters office employees reviewed the additional information request letters prepared by the team of [Cincinnati] specialists,’ the report reads.

IRS offices in the California towns of El Monte and Laguna Niguel sent politically motivated letters to tea party groups, suggesting that the problem reached beyond the Cincinnati office where the IG report focused

One letter, sent to a northern California organization, demanded to know about its links with the Redding (Calif.) Tea Party Patriots. ‘Tea party’ was one phrase that reportedly triggered a ‘Be On The Lookout’ notice among IRS employees looking for politically conservative applicants for tax-exempt statuses

Nothing in the report describes letters sent by IRS employees in California or the District of Columbia.

Yet an April 21, 2010 letter to the Albuquerque Tea Party organization, containing a preliminary list of 10 questions, came from the IRS’s Tax Exempt and Government Entities Division in Washington, D.C. The group responded on June 10.

Seventeen months passed before the IRS responded on November 16, 2011. That letter, similar in scope and tone to other intrusive IRS letters that have drawn national attention, also came from the Washington, D.C. IRS office. It included an additional 28 questions.

A separate letter came to Patriots Educating Concerned Americans Now (PECAN), a Redding, California conservative group, from an IRS office in the Orange County, California town of Laguna Niguel.

That letter, dated January 31, 2012, asked 55 questions, including a demand for ‘complete copies of the organization’s website that is accessible to members only.’

It also asked a series of pointed questions about PECAN’s relationship to the Redding Tea Party Patriots, an overtly political organization.

Under mounting pressure, President Barack Obama announced Wednesday in the East ROom of the White House that acting IRS Commissioner Steven Miller would be stepping down

Steven Miller, shown here in a CBS report, is the highest-profile official to resign under pressure from the Obama administration. Miller informed IRS employees in a face-saving email that he would be leaving weeks from now, ‘as my acting assignment ends in early June’

A third IRS letter to a group called Oklahoma City Patriots In Action, or the OKC PIA Association, came from an IRS office in El Monte, California, an eastern suburb of Los Angeles, on February 9, 2012.

It included 59 questions, including a demand for a list showing the time, date, place and ‘content schedule’ for every ‘public rally or exhibition’ the group had ever conducted.’for or against any public policies, legislations [sic], public officers, political candidates, or like kinds.’

‘Please state whether you provide any advocacy training to your members and to the general public,’ another question read. ‘If yes, describe in detail your advocacy training and provide copies of any publications concerning such training.’

The American Center for Law and Justice (ACLJ), which represents all three groups, provided MailOnline with a letter from the IRS in Washington, D.C. in which the agency said it still had not decided whether to award the Albuquerque Tea Party tax-exempt status.

That letter was dated April 16, 2013, more than three years since the group filed its initial application.

Jay Sekulow, the ACLJ’s chief counsel, scoffed at the idea of the IRS scapegoating a pair of its Cincinnati employees, given the letters he has seen from offices three time zones apart.

The Tea Party Patriots and other conservative groups provided a powerful rallying force during the 2010 midterm elections. It was around the same time that the Obama administration’s IRS began targeting such groups that applied for tax-exempt nonprofit status

Treasury Inspector General for Tax Administration J. George Russell (L) will testify alongside the now-former acting IRS Commissioner Steven Miller before the House Ways and Means Committee on May 17. Also shown is IRS Deputy Commissioner for Services and Enforcement Linda Stiff