At I.R.S., Unprepared Office Seemed Unclear About the Rules

The specialists, hunched over laptops on the office’s fourth floor, rarely discussed politics, one former supervisor said. Low-level employees in what many in the I.R.S. consider a backwater, they processed thousands of applications a year, mostly from charities like private schools or hospitals.

For months, the Tea Party cases sat on the desk of a lone specialist, who used “political sounding” criteria — words like “patriots,” “we the people” — as a way to search efficiently through the flood of applications for groups that might not quality for exemptions, according to the I.R.S. inspector general. “Triage,” the agency’s acting chief described it.

As a grim-faced President Obama denounced the “inexcusable” actions of the I.R.S. last week and lawmakers of both parties lined up in Washington on Friday to accuse it of an array of misconduct, everything seemed so clear: the nation’s tax agency had deliberately targeted conservative activists, violating the public trust — and perhaps the law.

While there are still many gaps in the story of how the I.R.S. scandal happened, interviews with current and former employees and with lawyers who dealt with them, along with a review of I.R.S. documents, paint a more muddled picture of an understaffed Cincinnati outpost that was alienated from the broader I.R.S. culture and given little direction.

Overseen by a revolving cast of midlevel managers, stalled by miscommunication with I.R.S. lawyers and executives in Washington and confused about the rules they were enforcing, the Cincinnati specialists flagged virtually every application with Tea Party in its name. But their review went beyond conservative groups: more than 400 organizations came under scrutiny, including at least two dozen liberal-leaning ones and some that were seemingly apolitical.

Over three years, as the office struggled with a growing caseload of advocacy groups seeking tax exemptions, responsibility for the cases moved from one group of specialists to another, and the Determinations Unit, which handles all nonprofit applications, was reorganized. One batch of cases sat ignored for months. Few if any of the employees were experts on tax law, contributing to waves of questionnaires about groups’ political activity and donors that top officials acknowledge were improper.

“The I.R.S. is pretty dysfunctional to begin with, and this case brought all those dysfunctions to their worst,” said Paul Streckfus, a former I.R.S. employee who runs a newsletter devoted to tax-exempt organizations. “People were coming and going, asking for advice and not getting it, and sometimes forgetting the cases existed.”

Who gets the blame and how far it goes are questions already consuming Washington. Two top I.R.S. officials have resigned, including the acting commissioner, Steven Miller. The Justice Department has begun an investigation into potential civil rights and criminal violations by the I.R.S. This week, a House committee will seek to depose five I.R.S. employees, including a midlevel executive in Washington and a Cincinnati specialist said to have handled the cases in the spring and summer of 2010.

“I think that what happened here was that foolish mistakes were made by people trying to be more efficient in their workload selection,” Mr. Miller testified before a House committee Friday. While “intolerable,” he said, it “was not an act of partisanship.”

As a storm of criticism washes over what is — even in the best of times — the federal government’s most reviled agency, some of those in Cincinnati agreed.

“I don’t believe there’s any such thing as rogue agents — there are some that aren’t as competent as others, just like in any workplace,” said Bonnie Esrig, 60, a senior manager in the I.R.S. office who retired in January, in part over disagreements with other officials there.

“I was not a happy camper leaving that organization,” she added, “and I can still say that I don’t think there was malice behind it at all.”

Administering the nearly four-million-word federal tax code involves so many arcane legalities, and is so fraught with potential to ignite Washington’s partisan skirmishes or infuriate taxpayers, that much of the I.R.S. is run by lawyers.

Bob Driehaus contributed reporting from Cincinnati, Stephanie Strom from New York, and Ashley Southall from Washington. Kitty Bennett contributed research.