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At the IRS, bureaucratic finger-pointing emerges

The targeting of conservative groups seeking special tax status had direct Washington connections and the picture emerging from the agency is one of  a slow-moving, overwhelmed bureaucracy struggling with arcane filing systems, endless meetings and spreadsheets, and unclear chains of command, according to congressional investigative documents.

The dense and arcane system has turned into intra-agency finger-pointing between the IRS central office and its much-maligned Cincinnati satellite. And it's spilled over into Congress, where lawmakers are focusing on selected portions of interviews that committees are conducting with IRS staffers as they try to ferret out just what happened at the IRS.

For example: On April 30, 2010 – three years before the current controversy came to light – a revenue agent in the Cincinnati office of the IRS received a stack of applications for tax-exempt status from Tea Party and conservative groups. The agent, Elizabeth Hofacre, began to draft lists of questions for the groups to answer, designed to make them prove they were eligible social welfare groups.

Directly helping her, she told investigators, was an IRS lawyer in Washington, D.C.

In just the last weeks, former IRS commissioner Steven Miller would tell lawmakers that "rogue" IRS agents in the Cincinnati office were responsible for the tax agency's sweeping targeting of conservative groups. That was after Lois Lerner, the IRS official in charge of regulating tax-exempt groups, publicly apologized for it.

The apology – and its implicit blaming of Cincinnati employees as acting alone outside of Washington’s control – "was a nuclear strike," said Hofacre, the IRS agent. "I was furious."

Staffers from two House committees interviewed Hofacre and another IRS employee, Gary Muthert, as they are working to get to the bottom of what happened at the IRS. NBC News was allowed to view transcripts of the first two interviews.

Becky Gerritson of the Wetumpka Tea Party describes her experience with the IRS when applying to tax exempt status.

Muthert was charged with identifying the groups, while Hofacre reviewed the cases and drafted the questionnaires.

Neither is sure exactly who ordered them to begin their reviews.

"We're really just beginning," Ways and Means Committee Chairman Dave Camp, R-Mich., said last week about the investigations.

What the two do say: They were both just trying to do the jobs their Cincinnati managers told them to do, and somehow, the IRS headquarters in Washington was involved.

In Hofacre's case, it was very direct. She was assigned to draft questions for the identified groups to answer – a task she performed from April until October of 2010. All along, IRS Washington-based lawyer and tax specialist Carter Hull was helping. He sent her draft letters with suggested questions. She used them as a model, making her own edits and then sending them back to him. 

"I was essentially a front person, because I had no autonomy or no authority to act on them without Carter Hull's influence or input," Hofacre told congressional investigators.

The wide-ranging questions probed the groups' activities. At one point, according to Hofacre's account, one of Hull's superiors, Steve Grodnitzky, asked that a question about the groups' contracts be broadened, to ask about contracts they might sign in the future, not just the ones already in place.

Broadly, Hofacre's account contradicts multiple senior IRS officials who have insisted to Congress that employees in the Cincinnati office were responsible for the targeting. "I think that what happened here was that foolish mistakes were made by people who were trying to be efficient in their work," Miller, the former IRS commissioner, told Congress in May.

No proof of politics
The accounts from the two IRS agents don't allege any political motivation for the targeting. They don't suggest that the White House, Treasury Department or Obama campaign were involved in delaying the conservative groups' applications for tax-exempt status.

"I do not believe that the screening of these cases had anything to do other than consistency and identifying issues that needed to have further development," a third IRS manager told congressional investigators, according to a letter released by Rep. Elijah Cummings, D-Md., the ranking member on the Oversight Committee. This manager identified himself as a "conservative Republican," according to the letter.

Instead, the sources of the directives remain murky. Muthert's boss in Cincinnati told him to start searching for "tea party" groups starting in March of 2010. 

"He told me that Washington, D.C. wanted some cases," Muthert explained to investigators.

Muthert started searching for groups in the IRS's byzantine document system – "before TEDS, there was EDS," he told the committee, insisting that explaining the differences between the two databases would be far too confusing for the interview. At first, he used simply the term "Tea Party." That turned up about 10 results.

As the months passed, Muthert says he broadened out his search terms. He was trying to follow his boss's instructions, and had realized, by visiting Tea Party websites online, that many of the groups had words like "912" and "patriot" in their names. Just plain "tea" didn't work, he said, because it started to bring up all of the teachers' groups.

"There weren't 5 or 10 tea parties," he said. "I noticed that there were hundreds of these things."

Ultimately, Muthert says, he sent seven cases up the chain to Washington. They were the first seven that he had identified. 

A bureaucracy overwhelmed
In August of 2010, Hofacre attended meetings to discuss the "be on the look out" order -- BOLO -- for the IRS specialists who were trying to identify Tea Party groups' applications. 

Over time, the terminology broadened. Patriots, 9/12, "I think liberty," Hofacre said, were added to the order. Until October, she said, she served as a "dumping ground" for the conservative applications. Hull stopped responding to emails outlining the questions Hofacre was sending; that delayed the groups' applications even longer.

Some of the groups called her, upset. But she had nothing to tell them. "I just kept getting the same response from Carter, they are under review, and that is what I told the taxpayer," Hofacre said. At this point, Hull was having her fax him any responses the groups were sending to her questionnaires. 

Hofacre was so frustrated that summer that she applied for another job within the IRS. By the fall, she had sent questionnaires to between 40 and 60 groups.

A few applications from liberal or progressive groups crossed her desk during that time.

"I just sent those back to the specialists or the general inventory," Hofacre said. "I was tasked with tea parties and overwhelmed with those." 

In October, Hofacre got the new job and was reassigned. It became someone else's problem.

Republicans in Congress say the scandal is bigger than Hofacre, or Muthert, or the two lawyers in Washington who they identified as being involved.

"This is not just a couple of people in one office, this is a nationwide systematic approach to targeting people who have certain political beliefs, particularly conservative beliefs,” Camp said. 

“I think this is what we're really trying to understand how far this goes.” 

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